nep-cba New Economics Papers
on All new papers
Issue of 2014‒09‒08
thirteen papers chosen by
Maria Semenova
Higher School of Economics

  1. Central Bank Liquidity Management and “Unconventional” Monetary Policies By Javier García-Cicco; Enrique Kawamura
  2. Inflation Targeting in Colombia, 2002-2012 By Miguel Urrutia; Franz Hamann; Marc Hofstetter
  3. The Federal Reserve Engages the World (1970-2000): An Insider’s Narrative of the Transition to Managed Floating and Financial Turbulence By Edwin M. Truman
  4. Towards a “New” Inflation Targeting Framework: The Case of Uruguay By Martín González-Rozada; Martín Sola
  5. Inflation Targeting in Latin America By Adolfo Barajas; Roberto Steiner; Leonardo Villar; Cesar Pabon
  6. How to stabilize inflation without damaging employment: Strenghtening the power of unions By Amélie BARBIER-GAUCHARD; Francesco De PALMA; Giuseppe DIANA
  7. The inflation Targeting effect on the inflation series: A New Analysis Approach of evolutionary spectral analysis By Zied Ftiti; Essahbi Essaadi
  8. Evolution of Monetary Policy in the US: The Role of Asset Prices By Beatrice D. Simo-Kengne; Stephen M. Miller; Rangan Gupta
  9. Basel III, Clubs and Eurozone Asymmetries By Michele Fratianni; John Pattison
  10. Yes Virginia, There is a European Banking Union! But It May Not Make Your Wishes Come True By Martin F. Hellwig
  11. Monetary Policy and Real Exchange Rate Dynamics in Sticky-Price Models By Carlos Viana de Carvalho; Fernanda Feitosa Necchio
  12. Macroprudential Policy Tools in Norway: Strengthening Financial System Resilience By Yosuke Jin; Patrick Lenain; Paul O'Brien
  13. Financial Integration among ASEAN+3 Countries: Evidence from Exchange Rates By Lee, Chin; M., Azali

  1. By: Javier García-Cicco; Enrique Kawamura
    Abstract: This paper presents a small open economy model to analyze the role of central bank liquidity management in implementing “unconventional” monetary policies within an inflation targeting framework. In particular, the paper explicitly models the facilities that the central bank uses to manage liquidity in the economy, which creates a role for the central bank balance sheet in equilibrium. This permits the analysis of two “unconventional” policies: sterilized exchange-rate interventions and expanding the list of eligible collaterals accepted at the liquidity facilities operated by the central bank. These policies have been recently implemented by several central banks: the former as a way to counteract persistent appreciations in the domestic currency, and the latter as a response to the recent global financial crisis in 2008. As a case study, the paper provides a detailed account of the Chilean experience with these alternative tools, as well as a quantitative evaluation of the effects of some of these policies.
    JEL: E52 E58
    Date: 2014–02
  2. By: Miguel Urrutia; Franz Hamann; Marc Hofstetter
    Abstract: After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflation-targeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange rate, and the short-term interest rate as the main instrument. This paper examines the experience of the Colombian Central Bank over the last decade, a period of consolidation and innovation of its IT strategy. The paper studies the increasing number of instruments used by the CB, including systematic foreign exchange interventions, announcements, and, sporadically, macro-prudential policies, capital controls, and changes in reserve requirements, among others. The study also examines some political economy dimensions that help explain the behavior of the CB during this period. To guide the discussion, a small-scale open-economy policy model is estimated.
    JEL: E02 E32 E42 E43 E52 E58 E61 F31 F33 F42
    Date: 2014–02
  3. By: Edwin M. Truman (Peterson Institute for International Economics)
    Abstract: This paper traces the evolution of the Federal Reserve and its engagement with the global economy over the last three decades of the 20th century: 1970 to 2000. The paper examines the Federal Reserve’s role in international economic and financial policy and analysis covering four areas: the emergence and taming of the great inflation, developments in US external accounts, foreign exchange analysis and activities, and external financial crises. It concludes that during this period the US central bank emerged to become the closest the world has to a global central bank.
    Keywords: Federal Reserve, Federal Open Market Committee, inflation, macroeconomic policies, monetary policy, external balance, exchange rates, exchange market intervention, financial crises, third world debt crises, Mexican crisis, Asian financial crises
    JEL: F3 F31 F32 F33 F34 E4 E42 F5 F52 F53
    Date: 2014–08
  4. By: Martín González-Rozada; Martín Sola
    Abstract: Using a dynamic stochastic general equilibrium model with financial frictions, this paper evaluates the effects of a rule that incorporates not only the interest rate but also the legal reserve requirements as instruments of monetary policy. It is found that reserve requirements can be used to achieve the Central Bank’s inflation objectives. The use of this instrument, however, produces a real appreciation of the Uruguayan peso. When the Central Bank uses the monetary policy rate as an instrument, the effect of an increase in reserve requirements is to contribute to reducing the negative impact on consumption, investment and output. Nevertheless, the quantitative results in terms of inflation reduction are rather poor. The policy rate becomes more effective in reducing inflation when the reserve requirement instrument is solely directed at achieving financial stability. The paper’s main policy conclusion is that a well-targeted non- conventional policy instrument can help to effectively control inflation.
    JEL: C61 C68 E52 E58
    Date: 2014–02
  5. By: Adolfo Barajas; Roberto Steiner; Leonardo Villar; Cesar Pabon
    Abstract: Estimation of conventional Taylor rules for Brazil, Chile, Colombia and Peru shows that central banks increase their repo rate in response to increases in the output gap and, except in Peru, to deviations of inflation expectations from target. Using a Markov-Switching methodology, it is found that, in the presence of external shocks, Chile, Colombia and Peru temporarily abandoned their conventional reaction function. The Taylor Rule is expanded and variables are included related to exchange rate misalignments and to domestic credit developments; limited evidence is found that countries have used some form of integrated inflation targeting. There is strong evidence that intervention in F/X markets is determined by exchange rate misalignments rather than by exchange rate volatility and that most countries seem particularly concerned with a strong currency. Central banks appear to have pursued an inflation objective using a standard Taylor rule and an exchange rate objective through interventions in the F/X market.
    JEL: E31 E52 E61
    Date: 2014–01
  6. By: Amélie BARBIER-GAUCHARD; Francesco De PALMA; Giuseppe DIANA (LaRGE Research Center, Université de Strasbourg)
    Abstract: The aim of this paper is to assess the impact of union bargaining power on inflation and employment in a case of efficiency bargaining, in a context of a strategic game between Central Bank and social partners.
    Keywords: monetary policy, employment, inflation, union bargaining power, efficiency bargaining
    JEL: E24 E52 E58 J52
    Date: 2014
  7. By: Zied Ftiti; Essahbi Essaadi
    Abstract: In this work, we study the inflation targeting effect on the inflation dynamics in the case of four industrial countries. Our objective is to check whether the inflation targeting policy (ITP) has a significant impact on the change of the inflation path. We use a non-parametric approach that doesn’t require any previous modelling. This is the evolutionary spectral analysis, as defined by Priestley
    Keywords: Inflation Targeting, Spectral Analysis and Structural Change.
    JEL: C16 E52 E63
    Date: 2014–08–29
  8. By: Beatrice D. Simo-Kengne; Stephen M. Miller; Rangan Gupta
    Abstract: This paper investigates whether changes in monetary transmission mechanism respond to variations in asset prices. We distinguish between bull and bear markets and employ a TVP- VAR approach with stochastic volatility to assess the evolution of the monetary policy in relation to housing and stock prices. We measure the relative importance of housing and stock prices in the conduct of monetary policy and their possible feedback effects over both time and horizon and across regimes. Empirical results from annual data on the US spanning the period from 1890 to 2012 indicate that monetary policy responds more strongly to asset prices during bull regimes. While the bigger monetary effect of stock price shocks occurs prior to the 1970s, monetary policy appears to respond more strongly to housing price than stock price shocks after the 1970s. Similarly, contractionary monetary policy exerts a larger effect on both asset categories during bull markets. Particularly, larger negative responses of house prices to monetary policy shocks occur after the 1980s, corresponding to the bull regime in the housing market. Conversely, the stock-price effect of monetary policy shocks dominates before the 1980s, where stock-market booms achieved more importance.
    Keywords: Monetary policy, house prices, stock prices, TVP-VAR
    JEL: C32 E52 G10
    Date: 2014–08–29
  9. By: Michele Fratianni (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); John Pattison (Independent)
    Abstract: Financial regulation has shifted from a system managed as an oligopoly dominated by the G2/G5 to expanded club membership like the Basel Committee for Banking Supervision (BCBS). Expansive clubs have to agree to terms that are closer to the preferences of softregulation members. Yet, once a global agreement on minimum standards, such as Basel III, is reached, the implementation is left to national or regional regulators. Deviations from the Basel III standards are bound to occur; the complexity of the agreement will facilitate an asymmetric implementation of national regulation and supervision. On the high side, countries like the US, UK, Australia, some Scandinavian countries and Canada have chosen higher standards. On the low side, we expect deviations to take place in those member countries of the Eurozone that are heterogeneous, have different preferences and tradeoffs between regulatory stringency and economic activity. The requirements of both global clubs and the EU regional club for transparency, monitoring and a level playing field will cause a collision between the interests of the clubs and their members, threatening to undermine global standard setting at the BCBS.
    Keywords: Basel III, clubs, financial regulation, Eurozone, asymmetries
    JEL: F33 F36 F42
    Date: 2014–08
  10. By: Martin F. Hellwig (Max Planck Institute for Research on Collective Goods)
    Abstract: The paper discusses the prospects for European Banking Union as they appear in the summer of 2014. The first part gives an overview over the problems that gave rise to the Banking Union initiative, the second part discusses the legislative measures that have been taken towards this objective. The euro area is currently suffering from low growth, high indebtedness of private households and firms, banks, and governments, and the weakness of financial institutions. Weakness of financial institutions affects the economy not only in countries with outright banking crises and sovereign debt crises, but also in some of the core countries that so far have seemed more stable. ECB policies have so far stabilized the system without solving the underlying problems. At the national level, political will to solve the underlying problems is missing; most governments prefer procrastination over cleanups, some governments do not have the funds to recapitalize the banks of their countries, and some governments like their banks to borrow from the ECB and lend to them. The European Banking Union comes with a promise of reducing cross-border externalities in dealing with banks. However, the Single Supervisory Mechanism is hampered by the need to apply national laws that implement European directives; this makes for fragmentation even if the ECB is in charge. Moreover, procedures for the recovery and resolution of institutions in difficulties are problematic: If banks with systemically important operations in several countries enter into resolution, there is no way to prevent the breakdown of these operations and to limit the resulting systemic damage. Further, the legislation makes no provisions for the liquidity needed for maintaining systemically important operations at least temporarily. Finally, there is no fiscal backstop. Because of the deficiencies, the “too-big-to-fail” syndrome is still present. In view of the many legacy problems, this issue is critical. If the European Banking Union is to work, further reforms will be needed shortly.
    Keywords: European Central Bank, Banking Supervision, bank resolution, European Banking Union, too-big-to-fail, sovereign debt
    JEL: G21 G28 E58 H63 F55
    Date: 2014–08
  11. By: Carlos Viana de Carvalho (Department of Economics PUC-Rio); Fernanda Feitosa Necchio (Federal Reserve Bank of San Francisco)
    Date: 2014–07
  12. By: Yosuke Jin; Patrick Lenain; Paul O'Brien
    Abstract: In Norway house prices have risen to high levels, associated with very strong credit growth, in a context of low interest rates. Such a combination was in many countries a contributory factor to the 2008- 09 crisis. The Norwegian authorities have been well aware of the problem. Below-target inflation and low interest rates abroad have kept policy interest rates low. “Macro-prudential” tools have been developed as additional policy instruments with a view to strengthen the banking system’s resilience to possible shocks and dampen systemic risk. This chapter notes that although authorities seem to have succeeded in containing over-heating pressures in the housing market, high levels of household indebtedness persist, a phenomenon which was an important factor in the last major Norwegian recession. The chapter also provides some longer run considerations on resource allocation in the housing market. This Working Paper relates to the 2014 OECD Economic Survey of Norway ( Les instruments macroprudentiels en Norvège : Renforcer la résilience du système financier En Norvège, les prix des logements ont atteint des niveaux élevés ; parallèlement, le crédit a connu une très forte hausse, sur fond de taux d’intérêt faibles. Dans de nombreux pays, cette conjonction a contribué à la crise de 2008-09. Les autorités norvégiennes sont bien conscientes de ce problème. L’inflation étant inférieure à l’objectif et les taux d’intérêt étant modestes à l’étranger, les taux directeurs sont restés à un niveau très bas. Les pouvoirs publics ont élaboré, en plus de leur panoplie traditionnelle, des instruments « macroprudentiels » visant à renforcer la résilience du système bancaire face à des chocs éventuels et à atténuer le risque systémique. On verra dans le présent chapitre que si les autorités ont semble-t-il réussi à contenir les risques de surchauffe sur le marché de l’immobilier, l’endettement des ménages reste très élevé ; or, ce phénomène avait joué un rôle important lors de la dernière grande récession qu’a connue la Norvège. Le présent chapitre contient également des considérations à plus long terme concernant l’affectation des ressources sur le marché de l’immobilier. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de Norvège 2014 ( ique-norvege.htm).
    Keywords: Norway, financial stability, macroprudential policy, real estate market, marché de l'immobilier, politique macroprudentielle, Norvège, stabilité financière
    JEL: E51 G18 G21 G28 H2 R31 R38
    Date: 2014–06–11
  13. By: Lee, Chin; M., Azali
    Abstract: As the economies of Asian have moved towards closer economic ties in recent years, the establishment of regional exchange rate arrangement has become an important regional policy concern. A study by the Asian Development Bank forecast that Asian will be the world's largest economy by 2050. Hence, it is not reasonable for Asian to continuously depend on US dollar. Asian must have its own currency and must responsible for its own financial stability. Regional cooperation (including integration) is critical for Asia’s march toward prosperity and facing vulnerabilities to global shocks. Financial integration in ASEAN+3 is assessed in this paper by examining the time-series stochastic behaviour and cointegration in a set of eight ASEAN+3 currencies. The findings imply that not all of the ASEAN+3 countries are financial integrated during the recent float. This finding provided weak support upon formation of regional monetary and exchange rate arrangement in Asia.
    Keywords: Financial Integration, Exchange Rate, Convergence, Cointegration, Granger-causality, Asian
    JEL: F31 F33 F36
    Date: 2013

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