nep-cba New Economics Papers
on Central Banking
Issue of 2010‒11‒20
25 papers chosen by
Alexander Mihailov
University of Reading

  1. Interest rate risk and other determinants of post WWII U.S. government debt/GDP dynamics By George J. Hall; Thomas J. Sargent
  2. Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts By Olivier Coibion; Yuriy Gorodnichenko
  3. Testing the Invariance of Expectations Models of Inflation By Jennifer L. Castle; Jurgen A. Doornik; David F. Hendry; Ragnar Nymoen
  4. Reference-dependent Preferences and the Transmission of Monetary Policy By Gaffeo, E.; Petrella, I.; Pfajfar, D.; Santoro, E.
  5. The Great Recession: US dynamics and spillovers to the world economy By Fabio C. Bagliano; Claudio Morana
  6. Agent-based financial markets and New Keynesian macroeconomics: A synthesis By Lengnick, Matthias; Wohltmann, Hans-Werner
  7. Optimal Central Bank transparency. By Cruijsen, C.A.B. van der; Eijffinger, S.C.W.; Hoogduin, L.H.
  8. Does Inflation Targeting decrease Exchange Rate Pass-through in Emerging Countries? By Coulibaly, D.; Kempf, H.
  9. On the Existence and Prevention of Asset Price Bubbles By Hendrik Hakenes; Zeno Enders
  10. Estimating Central Bank preferences in a small open economy: Sweden 1995-2009 By D'Adamo, Gaetano
  11. Governments under influence: Country interactions in discretionary fiscal policy By Aurélie Cassette; Jerome Creel; Etienne Farvaque; Sonia Paty
  12. Fiscal stimulus and exit strategies in a small euro area economy By Vanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José Ramos Maria
  13. Monetary Policy, Commodity Prices and Infl ation – Empirical Evidence from the US By Florian Verheyen
  14. Forecasting Inflation (and the Business Cycle?) with Monetary Aggregates By João Valle e Azevedo; Ana Pereira
  15. Central banks and different policies implemented in response to the recent Financial Crisis By Ojo, Marianne
  16. Housing Markets and the Financial Crisis of 2007-2009: Lessons for the Future By John V. Duca; John Muellbauer; Anthony Murphy
  17. Central bank communication: fragmentation as an engine for limiting the publicity degree of information By Trabelsi, Emna
  18. Optimal Unemployment Insurance over the Business Cycle By Camille Landais; Pascal Michaillat; Emmanuel Saez
  19. Pro-cyclicality of capital regulation: is it a problem? How to fix it? By Paolo Angelini; Andrea Enria; Stefano Neri; Fabio Panetta; Mario Quagliariello
  20. Country-Specific Risk Premium, Taylor Rules, and Exchange Rates By Barbara Annicchiarico; Alessandro Piergallini
  21. Export shocks and the zero bound trap By Ippei Fujiwara
  22. The effects of capital market openness on exchange rate pass-through and welfare in an inflation-targeting small open economy By Sanchita Mukherjee
  23. "Bernanke’s Paradox: Can He Reconcile His Position on the Federal Budget with His Recent Charge to Prevent Deflation?" By Pavlina R. Tcherneva
  24. Islamic finance and conventional financial systems. Market trends, supervisory perspectives and implications for central banking activity By Giorgio Gomel; Angelo Cicogna; Domenico De Falco; Marco Valerio Della Penna; Lorenzo Di Bona De Sarzana; Angela Di Maria; Patrizia Di Natale; Alessandra Freni; Sergio Masciantonio; Giacomo Oddo; Emilio Vadalà
  25. Interest rate rule for the conduct of monetary policy: analysis for Egypt (1997:2007) By Rageh, Rania

  1. By: George J. Hall (Department of Economics, Brandeis University); Thomas J. Sargent (Department of Economics, New York University)
    Abstract: This paper uses a sequence of government budget constraints to motivate estimates of returns on the U.S. Federal government debt. Our estimates differ conceptually and quantitatively from the interest payments reported by the U.S. government. We use our estimates to account for contributions to the evolution of the debt-GDP ratio made by inflation, growth, and nominal returns paid on debts of different maturities.
    Keywords: Holding period returns, capital gains, inflation, growth, debt- GDP ratio, government budget constraint
    Date: 2010–11
  2. By: Olivier Coibion (Department of Economics, College of William and Mary); Yuriy Gorodnichenko (Department of Economics, University of California, Berkeley)
    Abstract: We propose a new approach to test of the null of full-information rational expectations which is informative about whether rejections of the null reflect departures from rationality or full-information. This approach can also quantify the economic significance of departures from the null by mapping them into the underlying degree of information rigidity faced by economic agents. Applying this approach to both U.S. and cross-country data of professional forecasters and other economic agents yields pervasive evidence of informational rigidities that can be explained by models of imperfect information. Furthermore, the proposed approach sheds new light on the implications of policies such as inflation-targeting and those leading to the Great Moderation on expectations. Finally, we document evidence of state-dependence in the expectations formation process. implications.
    Keywords: Expectations, Information Rigidity, Survey Forecasts
    JEL: E3 E4 E5
    Date: 2010–11–08
  3. By: Jennifer L. Castle; Jurgen A. Doornik; David F. Hendry; Ragnar Nymoen
    Abstract: The new-Keynesian Phillips curve (NKPC) includes expected future inflation as a major feedforward variable to explain current inflation. Models of this type are regularly estimated by replacing the expected value by the actual future outcome, then using Instrumental Variables or Generalized Method of Moments methods to estimate the parameters. However, the underlying theory does not allow for various forms of non-stationarity in the data - despite the fact that crises, breaks and regimes shifts are relatively common. We investigate the consequences for NKPC estimation of breaks in data processes using the new technique of impulse-indicator saturation, and apply the resulting methods to salient published studies to check their viablility.
    Keywords: New Keynesian Phillips curve, inflation expectations, structural breaks, impulse-indicator, saturation
    JEL: C51 C22
    Date: 2010
  4. By: Gaffeo, E.; Petrella, I.; Pfajfar, D.; Santoro, E. (Tilburg University, Center for Economic Research)
    Abstract: This paper proposes a novel explanation of the vast empirical evidence showing that output and prices react asymmetrically to monetary policy innovations over contractions and expansions in the business cycle. We use VAR techniques to show that monetary policy exerts stronger e¤ects on the U.S. GDP during contractionary phases, as compared to expansionary ones. As to prices, their response is not statistically different across different cyclical stages. We show that these facts are consistent with a New Neoclassical Synthesis model based on the assumption that households' utility partly depends on deviations of their consumption from a reference level below which aversion to loss is displayed. In line with the theory developed by Kahneman and Tversky (1979), losses in consumption utility loom larger than gains. This implies state-dependent degrees of real rigidity and elasticity of intertemporal substitution in consumption that generate competing effects on the responses of output and inflation following a monetary innovation. The key predictions of the model are in line with the data. We then explore the state-dependent trade-o¤ between inflation and output stabilization that naturally arises in this context. Greater elasticity of inflation to real activity during expansionary stages of the cycle promotes a stronger degree of policy activism in the response to the expected rate of inflation under discretion, compared to what is otherwise prescribed during contractions.
    Keywords: Reference-dependent Preferences;Asymmetry;Monetary policy.
    JEL: E32 E52 D11
    Date: 2010
  5. By: Fabio C. Bagliano (Department of Economics and Public Finance "G. Prato", University of Torino); Claudio Morana (Department of Economics and Quantitative Methods, University of Eastern Piedmont)
    Abstract: The paper aims at assessing the mechanics of the Great Recession, considering both its domestic propagation within the US, as well as its spillovers to advanced and emerging economies. A total of 50 countries has been investigated by means of a large-scale open economy macroeconometric model, providing an accurate assessment of the international macro/finance interface over the whole 1980-2009 period. It is found that a boom-bust credit cycle interpretation of the crisis is consistent with the empirical evidence. Moreover, concerning the real effects of the crisis within the US, stronger evidence of an asset prices channel, rather than a liquidity channel, has been detected. The results also support the effectiveness of the expansionary fiscal/monetary policy mix implemented by the Fed and the US government. Concerning the spillovers to the world economy, it is found that while the financial shock has spilled over to foreign countries through US housing and stock price dynamics, as well as excess liquidity creation, the trade channel likely is the key trasmission mechanism of the real shock.
    Keywords: Great Recession, financial crisis, economic crisis, boombust, credit cycle, international business cycle, factor vector autoregressive models
    JEL: C22 E32 F36
    Date: 2010–11
  6. By: Lengnick, Matthias; Wohltmann, Hans-Werner
    Abstract: We combine a simple agent-based model of financial markets with a standard New Keynesian macroeconomic model via two straightforward channels. The result is a macroeconomic model that allows for the endogenous development of stock price bubbles. Even with such a simplistic comprehensive model, we can show that the behavioral foundations of the stock market exert important influence on the macroeconomy, e.g. they change the impulse-response functions of macroeconomic variables significantly. We also analyze financial market transaction taxes as well as asset price bubble deflating monetary policy, and find that both can be used to reduce volatility and distortion of the macroeconomic aggregates. --
    Keywords: agent-based financial markets,New Keynesian macroeconomics,stock market,transaction tax,Taylor rule
    JEL: E0 E52 G12 G18
    Date: 2010
  7. By: Cruijsen, C.A.B. van der; Eijffinger, S.C.W. (Tilburg University); Hoogduin, L.H.
    Date: 2010
  8. By: Coulibaly, D.; Kempf, H.
    Abstract: In this paper, we empirically examine the effect of inflation targeting on the exchange rate pass-through to prices in emerging countries. We use a panel VAR that allows us to use a large dataset on twenty-seven emerging countries (fifteen inflation targeters and twelve inflation nontargeters). Our evidence suggests that inflation targeting in emerging countries contributed to a reduction in the pass-through to various price indexes (import prices, producer prices and consumer prices) from a higher level to a new level that is significantly different from zero. The variance decomposition shows that the contribution of exchange rate shocks to price fluctuations is more important in emerging targeters compared to nontargeters, and the contribution of exchange rate shocks to price fluctuations in emerging targeters declines after adopting inflation targeting.
    Keywords: Inflation Targeting, Exchange Rate Pass-Through, panel VAR.
    JEL: E31 E52 F41
    Date: 2010
  9. By: Hendrik Hakenes (University of Hannover, MPI Bonn); Zeno Enders (University of Bonn)
    Abstract: We develop a model of rational bubbles based on the assumptions of unknown market liquidity and limited liability of traders. In a bubble, the price of an asset rises dynamically above its steady-state value, justified by rational expectations about future price developments. The larger the expected future price increase, the more likely it is that the bubble will burst because market liquidity becomes exhausted. Depending on the interactions between uncertainty about market liquidity, fundamental riskiness of the asset, the compensation scheme of the fund manager, and the risk-free interest rate, we give a condition for whether rational bubbles are possible. Based on this analysis, we discuss several widely-discussed policy measures with respect to their effectiveness in preventing bubbles. A reduction of manager bonuses or a Tobin tax can create or eliminate the possibility of bubbles, depending on their implementation. Monetary policy and long-term compensation schemes can prevent bubbles.
    Keywords: Bubbles, Rational Expectations, Bonuses, Compensation Schemes, Financial Crises, Financial Policy
    JEL: G12 E44 E1
    Date: 2010–10
  10. By: D'Adamo, Gaetano
    Abstract: Interest Rate rules are often estimated as simple reaction functions linking the policy interest rate to variables such as (forecasted) inflation and the output gap; however, the coefficients estimated with this approach are convolutions of structural and preference parameters. I propose an approach to estimate Central Bank preferences starting from the Central Bank's optimization problem within a small open economy. When we consider open economies in a regime of Inflation Targeting, the issue of the role of the exchange rate in the Monetary Policy rule becomes relevant. The empirical analysis is conducted on Sweden, to verify whether the recent stabilization of the Krona/Euro exchange rate was due to “Fear of Floating”; the results show that the exchange rate might not have played a role in monetary policy, suggesting that the stabilization probably occurred as a result of increased economic integration and business cycle convergence.
    Keywords: Interest Rate Rules; Inflation Targeting; Central Bank Preferences; Fear of Floating.
    JEL: C32 E58 E52
    Date: 2010–11–09
  11. By: Aurélie Cassette (EQUIPPE-Universités de Lille, Faculté des sciences économiques et sociales); Jerome Creel (Observatoire Français des Conjonctures Économiques); Etienne Farvaque (EQUIPPE-Universités de Lille, Faculté des sciences économiques et sociales); Sonia Paty (CREM Université de Caen and CNRS (France) and EQUIPPE-Universités de Lille, Faculté des sciences économiques et sociales)
    Abstract: We investigate the interactions between countries of the discretionary component of national fiscal policies (i.e. the cyclically- and interest-adjusted part of fiscal policy), therefore observing and investigating the part of public spending and tax receipts on which governments keep full discretion. Our sample covers 18 OECD countries, during the 1974-2008 period. First, we build a measure of such discretionary fiscal policy, considered as the residual component of a VAR model, and compute the measure for the full sample. Drawing on this new dataset, the second step provides estimates of discretionary fiscal policy interactions between countries of the sample. Our results highlight the existence of interactions between neighboring countries' public decisions, where neighborhood is defined by economic leadership as well as geography. We also find evidence of an opportunistic behavior of OECD countries' governments for the discretionary public spending. Finally, the disciplining device of the European Union fiscal framework is shown to be ineffective.
    Keywords: Fiscal policy; discretion; interactions; VAR; spatial econometrics
    JEL: E62 H60 H87
    Date: 2010–10
  12. By: Vanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José Ramos Maria
    Abstract: This article is focused on fiscal stimulus and exit strategies in a small euro area economy. The analysis is based on a New-Keynesian general equilibrium model with non-Ricardian features introduced in Almeida, Castro and Félix (2010). We define a benchmark fiscal stimulus and, conditional on alternative exit strategies, clarify its macroeconomic effects. We investigate if a fiscal stimulus can be enhanced (or harmed) by particular exit strategies. The impact multipliers proved insufficient to discriminate between alternative strategies. However, since the policy impacts are not limited to the short run, there are relevant effects over the medium run that can be used to evaluate the different strategies. It will be claimed that (i) the announcement of a promptly and timely exit strategy, contemporaneous to the announcement of the fiscal stimulus, with a consolidation period that is not prolonged indefinitively, may improve the effectiveness of the stimulus and that (ii) exit strategies based on Government<br>consumption cuts tend to dominate over other alternatives, such as transfers cuts or tax rate increases.
    JEL: E62 F41 H62
    Date: 2010
  13. By: Florian Verheyen
    Abstract: The past years were characterized by unprecedented rises in prices of commodities such as oil or wheat and inflation rates moved up above the mark of two percent per annum. This led to a revival of the debate whether commodity prices indicate future CPI inflation and if they can be used as indicator variables for central banks or not. We apply various econometric methods like Granger causality tests and SVAR models to US data. The results corroborate the notion that there was a strong link between commodity prices and CPI inflation in the 1970s and the beginning of the 1980s. For a more recent sample, the relationship has weakened, respectively diminished.
    Keywords: Monetary policy; commodity prices; infl ation; United States; SVAR
    JEL: E44 E52 E58
    Date: 2010–10
  14. By: João Valle e Azevedo; Ana Pereira
    Abstract: We show how monetary aggregates can be usefully incorporated in forecasts of inflation. This requires fully disregarding the high-frequency fluctuations blurring the money/inflation relation, i.e., the projection of inflation onto monetary aggregates must be restricted to the low frequencies. Using the same tools, we show that money growth has (little) predictive power over output at business cycle frequencies.
    JEL: C51 E31 E32 E52 E58
    Date: 2010
  15. By: Ojo, Marianne
    Abstract: Rescue cases involving guarantees (contrasted with restructuring cases) during the recent Financial Crisis, have illustrated the prominent position which the goal of promoting financial stability has assumed over that of the prevention or limitation of possible distortions of competition which may arise when granting State aid. The recent Financial Crisis has also illustrated how the traditional role of central banks has been extended to incorporate more innovative roles. The reduction of interest rates by central banks to all time lows – along with other unprecedented actions which have been undertaken by central banks, as evidenced by the recent Financial Crisis, have been regarded as „extensions of traditional methods of operation which have resulted in a new territory in which tools have been implemented in very new ways.“ As well as providing an analysis of how the traditional role of central banks has evolved through the duration of the Financial Crisis, this paper attempts to highlight how far central banks and governments should intervene and how far distortions of competition should be permitted during periods of financial crises.
    Keywords: competition; central banks; recapitalisation; stability; regulation; financial crises; fundamentally sound financial institutions; macro prudential; Basel III; systemic risk; supervision; liquidity; state aid; monetary policy
    JEL: K2 E58
    Date: 2010–11
  16. By: John V. Duca; John Muellbauer; Anthony Murphy
    Abstract: An unsustainable weakening of credit standards induced a US mortgage and housing bubblewhose consumption impact was amplified by innovations altering the collateral role ofhousing. In countries with more stable credit standards, any overshooting of construction andhouse prices owed more to traditional housing supply and demand factors. Housing collateraleffects on consumption varied, depending on the liquidity of housing wealth. Lessons includerecognizing the importance of financial innovation, regulation, housing policies, and globalfinancial imbalances for fueling credit, construction, house price and consumption cycles thatvary across countries.
    Keywords: financial crisis, house prices, credit crunch, subprime mortgages
    JEL: R21 G18 E51 E21 C51 C52
    Date: 2010–04
  17. By: Trabelsi, Emna
    Abstract: In earlier theoretical framework, Morris and Shin (2002) highlight the potential dangers of transparency policy. In particular, public announcements may be detrimental to social welfare. Later, Morris and Shin (2005) uphold that more precise communication can degrade the signal value of prices. Researchers suggest reducing the precision of public information or withholding it. Cornand and Heinemann (2008) suggest rather limiting the publicity degree. We found that the same effect can be reached by establishing fragmented public information, but in presence of private signal.
    Keywords: transparency ; central bank communication ; semi public information ; private information ; coordination
    JEL: E58 D83 D82
    Date: 2010–11–05
  18. By: Camille Landais; Pascal Michaillat; Emmanuel Saez
    Abstract: This paper analyzes optimal unemployment insurance over the business cycle in a search model in which unemployment stems from matching frictions (in booms) and job rationing (in recessions). Job rationing during recessions introduces two novel effects ignored in previous studies of optimal unemployment insurance. First, job-search efforts have little effect on aggregate unemployment because the number of jobs available is limited, independently of matching frictions. Second, while job-search efforts increase the individual probability of finding a job, they create a negative externality by reducing other jobseekers’ probability of finding one of the few available jobs. Both effects are captured by the positive and countercyclical wedge between micro-elasticity and macro-elasticity of unemployment with respect to net rewards from work. We derive a simple optimal unemployment insurance formula expressed in terms of those two elasticities and risk aversion. The formula coincides with the classical Baily-Chetty formula only when unemployment is low, and macro- and micro-elasticity are (almost) equal. The formula implies that the generosity of unemployment insurance should be countercyclical. We illustrate this result by simulating the optimal unemployment insurance over the business cycle in a dynamic stochastic general equilibrium model calibrated with US data.
    JEL: E24 E32 H21 H23
    Date: 2010–11
  19. By: Paolo Angelini (Banca d'Italia); Andrea Enria (Banca d'Italia); Stefano Neri (Banca d'Italia); Fabio Panetta (Banca d'Italia); Mario Quagliariello (Banca d'Italia)
    Abstract: We use a macroeconomic euro area model with a bank sector to study the pro-cyclical effect of the capital regulation, focusing on the extra pro-cyclicality induced by Basel II over Basel I. Our results suggest that this incremental effect is modest. We also find that regulators could offset the extra pro-cyclicality by a countercyclical capital-requirements policy. Our results also suggest that banks may have incentives to accumulate countercyclical capital buffers, making this policy less relevant, but this finding is depends on the type of economic shock posited. We also survey different policy options for dealing with procyclicality and discuss the pros and cons of the measures available.
    Keywords: Basel accord, pro-cyclicality
    JEL: E32 E44 E58
    Date: 2010–10
  20. By: Barbara Annicchiarico (Faculty of Economics, University of Rome "Tor Vergata"); Alessandro Piergallini (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: The adoption of a Taylor-type monetary policy rule and an inflation target for emerging market economies that choose a flexible exchange rate regime is often advocated. This paper investigates the issue of exchange rate determination when interest-rate feedback rules are implemented in a continuous-time optimizing model of a small open economy facing an imperfect global capital market. It is demonstrated that when a risk premium on external debt affects the monetary policy transmission mechanism, the Taylor principle is not a necessary condition for determinacy of equilibrium. On the other hand, it is shown that exchange rate dynamics critically depends on whether monetary policy is active or passive. In terms of optimal monetary policy, it is demonstrated that the degree of responsiveness of the nominal interest rate to inflation should be related to the stock of foreign debt. Specifically, it is optimal to implement a more passive monetary policy stance in response to larger levels of the outstanding foreign-currency-denominated debt.
    Keywords: Risk Premium on Foreign Debt; Taylor Rules; Exchange Rate Dynamics.
    JEL: F31 F32 E52
    Date: 2010–11–08
  21. By: Ippei Fujiwara
    Abstract: When a small open economy experiences a sufficiently large negative export shock, it is vulnerable to falling into a zero bound trap. In addition, such a shock can have very large impact on the economy compared to the case when the zero bound is not a binding constraint. This could be one possible explanation as to why a country like Japan experienced much larger drop in output than the United States during the recent financial crisis.
    Keywords: Monetary policy ; Banks and banking, Central ; Global financial crisis ; Interest rates ; Japan
    Date: 2010
  22. By: Sanchita Mukherjee
    Abstract: This paper analyzes the impact of capital market openness on exchange rate pass-through and subsequently on the social loss function in an inflation-targeting small open economy under a pure commitment policy. Applying the intuition behind the macroeconomic trilemma, the author examines whether a more open capital market in an inflation-targeting country improves the credibility of the central bank and consequently reduces exchange rate pass-through. First, the effect of capital openness on exchange rate pass-through is empirically examined using a new Keynesian Phillips curve. The empirical investigation reveals that limited capital openness leads to greater pass-through from the exchange rate to domestic inflation, which raises the marginal cost of deviation from the inflation target. This subsequently worsens the inflation output-gap trade-off and increases the social loss of the inflation targeting central bank under pure commitment. However, the calibration results suggest that the inflation output-gap trade-off improves and the social loss decreases even in the presence of larger exchange rate pass-through if the capital controls are effective at insulating the exchange rate from interest rate and risk-premia shocks.
    Keywords: Monetary policy ; Inflation targeting ; Foreign exchange
    Date: 2010
  23. By: Pavlina R. Tcherneva
    Abstract: This paper examines Federal Reserve Chairman Ben Bernanke’s recipe for deflation fighting and the specific policy actions he took in the aftermath of the 2008 financial crisis. Both in his academic and in his policy work, Bernanke has made the case that monetary policy is able to stem deflationary forces largely because of its "fiscal components," and that governments like those in the United States or Japan face no constraints in financing these fiscal components. On the other hand, he has recently expressed strong concerns about the size of the federal budget deficit, calling for its reversal in the name of financial sustainability. The paper argues that these positions are fundamentally at odds with each other, and resolves the paradox by arguing on theoretical and technical grounds that there are no fundamental differences in financing conventional government spending programs and what Bernanke considers to be the fiscal components of monetary policy.
    Keywords: Bernanke; Deflation; Monetary Policy; Crowding Out; Financial Sustainability
    JEL: E31 E42 E58 E63 E65
    Date: 2010–11
  24. By: Giorgio Gomel (Banca d'Italia); Angelo Cicogna (Banca d'Italia); Domenico De Falco (Banca d'Italia); Marco Valerio Della Penna (Banca d'Italia); Lorenzo Di Bona De Sarzana (Banca d'Italia); Angela Di Maria (Banca d'Italia); Patrizia Di Natale (Banca d'Italia); Alessandra Freni (Banca d'Italia); Sergio Masciantonio (Banca d'Italia); Giacomo Oddo (Banca d'Italia); Emilio Vadalà (Banca d'Italia)
    Abstract: The paper analyses Islamic finance from the central bank and supervisory authorityÂ’s perspective, focusing on the European and Italian context. It depicts a rapidly expanding sector, with recent annual growth rates of between 10 and 15 percent and a geographical presence that now reaches several Western countries. Future prospects, however, could be hampered by problems concerning the standardization of products, governance structure, supervisory regulation, monetary policy instruments, and liquidity management. Islamic intermediaries are not necessarily riskier than traditional counterparts but their operational structure tends to be more complex. Key issues in supervision include the treatment of investment accounts and transparency. It has been seen that there are limits to the efficiency of the monetary policy instruments developed so far to remedy the prohibition of interest; moreover, the growth of interbank and money markets is hindered by a shortage of "Shari'ah-compliant" products. Problems arising from the participation of Islamic banks in payment systems are also discussed.
    Keywords: Islamic finance, Islamic financial institutions, supervision, monetary policy instrments, payment systems
    JEL: G20 F39 Z12
    Date: 2010–10
  25. By: Rageh, Rania
    Abstract: The main objective of the paper in hand is to examine the validity of using Taylor rule as a robust rule for conducting monetary policy in case of Egypt. In this context, the paper works through two main pillars. First: parts two and three; critically analyze the theoretical grounds for using an interest rate rule in conducting monetary policy. Second: part four; emphasize how the Taylor rule can be empirically estimated and evaluated. Consistently; this exercised while estimating and evaluating both simple backward and forward-looking Taylor rule for Egypt, guided by lessons from selected countries` experiences in estimating Taylor rule like U.S.A., U.K and Chile. JEL Classification Numbers: E52; E58
    Keywords: Keywords: central bank; monetary policy; Taylor rule.
    JEL: E58 E52
    Date: 2010–05–08

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