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on Central Banking |
| By: | Armas, Adrián (Banco Central de Reserva del Perú); Castillo, Paul (Banco Central de Reserva del Perú); Vega, Marco (Banco Central de Reserva del Perú) |
| Abstract: | This paper provides an overview of the Reserve Requirements measures undertaken by the Central Bank of Peru. We provide a rationale for the use of these instruments as well as empirical evidence on their effectiveness. In general, the results show that a reserve requirement tightening has the desired effects on interest rates and credit levels both at banks and smaller financial institutions (cajas municipales). |
| Keywords: | Non-conventional monetary policy, Inflation Targeting, Reserve requirements. |
| JEL: | E51 E52 E58 G21 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2014-001&r=cba |
| By: | Bhattacharya, Rudrani (National Institute of Public Finance and Policy); Patnaik,Ila (National Institute of Public Finance and Policy) |
| Abstract: | Monetary policy in India has moved towards an increasingly flexible exchange rate regime without any explicit framework for an alternative nominal anchor. The failure of monetary policy to anchor inflationary expectations of agents, coupled with negative supply shocks has kept inflation above the acceptable range of 5-5.5 percent for last five years in India. In this paper we present a model for policy analysis for India that provides insights in the setting of an inflation targeting framework to anchor inflationary expectations. The model offers an understanding of the extent to which various shocks, including the post-global crisis fiscal stimulus, accommodative monetary policy and ensuing decline in global demand, explain growth and inflation in India. |
| Keywords: | Inflation ; Monetary policy ; India ; Emerging economies |
| JEL: | E17 E52 E58 F47 O23 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:14/131&r=cba |
| By: | Ramayandi, Arief (Asian Development Bank); Rawat, Umang (Faculty of Economics, University of Cambridge); Tang, Hsiao Chink (Asian Development Bank) |
| Abstract: | Events surrounding the global financial crisis have brought to light the potential role of monetary policy in precipitating the crisis. Numerous studies on advanced economies have documented a significant negative relationship between interest rates and bank risk-taking. This paper also finds the presence of the risk-taking channel based on a panel of publicly listed bank data in Asia. Using both annual and quarterly data, "too low" interest rates are found to lead to an increase in bank risk-taking. |
| Keywords: | Bank risk-taking; interest rates; panel data; monetary policy; Asian banks |
| JEL: | E43 E52 G21 |
| Date: | 2014–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbrei:0123&r=cba |
| By: | Andreas Hoffmann; Axel Loeffer |
| Abstract: | The paper sheds light on the link between the interest rate policy in large advanced economies with international funding and reserve currencies (the United States and the Euro Area) and the use of reserve requirements in emerging markets. Using reserve requirement data for 28 emerging markets from 1998 to 2012 we provide evidence that emerging market central banks tend to raise reserve requirements when interest rates in international funding markets decline or financial infl ows accelerate to preserve fnancial stability. In contrast, when global liquidity risk rises and funding from the large advanced economies dries up emerging markets lower reserve requirements to stabilize the banking system that is in need of liquidity. |
| Keywords: | Reserve Requirements, Interest Rates, Emerging Markets |
| JEL: | E52 E58 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:icr:wpicer:01-2014&r=cba |
| By: | Andreas Hoffmann |
| Abstract: | Since 2009, central banks in the major advanced economies have held interest rates at very low levels to stabilize financial markets and support the recovery of their economies. Based on a Mises-Hayek-BIS view on credit booms and Mises’ law of unintended consequences, this paper suggests that the prolonged period of very low interest rates in the large advanced economies (unintentionally) spurs volatile capital flows and fuels asset market bubbles in fast-growing emerging markets. The resulting inflationary pressure and risks of capital flow reversals gives rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows. |
| Keywords: | Monetary Policy, Emerging Markets, Financial Repression |
| JEL: | B53 E32 E44 F41 F43 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:icr:wpicer:02-2014&r=cba |
| By: | Alpaslan, Baris; Demirel, Baki |
| Abstract: | Most emerging market economies in the 1990s witnessed a wide variety of crises. Following those crises, emerging market economies have given up monetary policies using exchange rates as a nominal anchor and inflation targeting has become a new policy of such countries. The overshooting effect of exchange rates in these markets and therefore arising problems are an important cause of this political change. The aim of this paper is to evaluate exchange rate pass-through effects on prices in Asian Pacific, Latin American and Turkish economies which implemented inflation targeting, but have different dollarization and inflation episodes. Panel VAR approach was used in the analysis. Our findings show that exchange rate pass-through effect in Asian Pacific countries is lower than that of Latin America and Turkey. |
| Keywords: | Pass-through Effect, Inflation Targeting, Emerging Market Economies. |
| JEL: | E42 E52 E58 |
| Date: | 2014–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53726&r=cba |
| By: | Jean-Louis Combes (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Alexandru Minea (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Mousse Ndoye SOW (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I) |
| Abstract: | We revisit the link between crises and exchange rate regimes (ERR). Using a panel of 90 developed and developing countries over the period 1980-2009, we find that corner ERR are not more prone to crises compared to intermediate ERR. This finding holds for different types of crises (banking, currency and debt), and is robust to a wide set of alternative specifications. Consequently, we clearly break down the traditional bipolar view: countries that aim at preventing crisis episodes should focus less on the choice of the ERR, and instead implement sound structural macroeconomic policies. |
| Keywords: | exchange rate regimes;economic crises;bipolar view |
| Date: | 2014–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00944372&r=cba |
| By: | Ortiz, Marco (Banco Central de Reserva del Perú; London School of Economics) |
| Abstract: | In this paper we extend the model of Kato and Nishiyama (2005) by introducing fat-tailed shocks in a simple new Keynesian framework where the central bank explicitly considers the zero lower-bound constraint on interest rates. We find that shocks with `excess kurtosis' make monetary policy relatively more aggressive far away from the zero lower bound region though, this difference reverts as the economy gets closer to the constrained region. From a quantitative point of view, our findings suggest that variance-preserving shifts in kurtosis, in the shape of Laplace distributed shocks, do not produce significant effects on the optimal reaction of the central bank. |
| JEL: | E52 E58 C63 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2014-002&r=cba |
| By: | Alexius, Annika (Dept. of Economics, Stockholm University); Birenstam, Helene (Department of Statistics, Stockholm University); Eklund, Johanna (Sveriges Riksbank) |
| Abstract: | When the interbank market risk premium soared during the finnancial crisis, it created a wedge between interest rates actually paid by private agents and the rapidly falling policy rates. Many central banks attempted to improve the situation by supplying liquidity to the domestic interbank market. This paper studies the Swedish interbank market risk premium using a unique data set on traded volume between banks and between banks and the Riksbank. We find that the main determinants of the Swedish interbank premium are international variables, such as US and EURO area risk premia. International exchange rate volatility and the EURO/USD deviations from CIP also matters, while standard mesures of domestic market liquidity and domestic credit risk have insignificant effects. Our measure of actual turnover in the interbank market is however associated with a significant reduction of the interbank market risk premium, as are credit provisions by the central bank. |
| Keywords: | Interbank market risk premium; liquidity risk; credit risk; credit provisions. |
| JEL: | F31 F41 |
| Date: | 2014–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2014_0002&r=cba |
| By: | Neely, Christopher J. (Federal Reserve Bank of St. Louis) |
| Abstract: | Event studies show that Fed unconventional announcements of forward guidance and large scale asset purchases had large and desired effects on asset prices but do not tell us how long such effects last. Wright (2012) used a structural vector autoregression (SVAR) to argue that unconventional policies have very transient effects on asset prices, with half-lives of 3 months. This would suggest that unconventional policies can have only marginal effects on macroeconomic variables. The present paper shows, however, that the SVAR is unstable, forecasts very poorly and therefore delivers spurious inference about the duration of the unconventional monetary shocks. In addition, implied in-sample return predictability from the SVAR greatly exceeds that which is consistent with rational asset pricing and reasonable risk aversion. Restricted models that respect plausible predictability in asset returns are more stable and imply that the unconventional monetary policy shocks were fairly persistent but that our uncertainty about their effects increases with forecast horizon. Estimates of the dynamic effects of shocks should respect the limited predictability in asset prices. |
| JEL: | C30 E43 E47 E52 |
| Date: | 2014–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2014-004&r=cba |