nep-mon New Economics Papers
on Monetary Economics
Issue of 2004‒12‒20
seven papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Flexible Exchange Rate Regime and Forex Interventions: The Chilean Case By José De Gregorio; Andrea Tokman R.
  2. Has Monetary Policy Become More Efficient? A Cross Country Analysis By Stephen G. Cecchetti; Alfonso Flores-Lagunes; Stefan Krause
  3. Macroeconomic co-ordination as an economic policy concept – opportunities and obstacles in the EMU By Eckhard Hein; Achim Truger
  4. Monetary Policy and the Transition to Rational Expectations By Giuseppe Ferrero
  5. Money, Debt and Prices in the UK 1705-1996 By Norbert Janssen; Charles Nolan; Ryland Thomas
  6. Economic Structure, Policy Objectives, and Optimal Interest Rate Policy at Low Inflation Rates By Diana N. Weymark
  7. Measuring the Economic Impact of Monetary Union: The Case of Okinawa By Shinji Takagi; Mototsugu Shintani; Tetsuro Okamoto

  1. By: José De Gregorio; Andrea Tokman R.
    Date: 2004–12
  2. By: Stephen G. Cecchetti; Alfonso Flores-Lagunes; Stefan Krause
    Abstract: Over the past twenty years, macroeconomic performance has improved in industrialized and developing countries alike. In a broad cross-section of countries inflation volatility has fallen markedly while output variability has either fallen or risen only slightly. This increased stability can be attributed to either: 1) more efficient policy-making by the monetary authority, 2) a reduction in the variability of the aggregate supply shocks, or 3) changes in the structure of the economy. In this paper we develop a method for measuring changes in performance, and allocate the source of performance changes to these two factors. Our technique involves estimating movements toward an inflation and output variability efficiency frontier, and shifts in the frontier itself. We study the change from the 1980s to the 1990s in the macroeconomic performance of 24 countries and find that, for most of the analyzed countries, more efficient policy has been the driving force behind improved macroeconomic performance.
    JEL: E52 E58
    Date: 2004–12
  3. By: Eckhard Hein (WSI in der Hans Boeckler Stiftung); Achim Truger (WSI in der Hans Boeckler Stiftung)
    Abstract: This paper traces the euro zone’s inadequate macroeconomic performance in recent years back to the predominance of a restrictive macroeconomic policy mix based on a ‘new monetarist’ approach to economic policy. An approach based on a (post-)Keynesian analysis is presented as a growth and employment-oriented alternative to this restrictive policy mix. Contrary to the strict assignment of macroeconomic goals to the macroeconomic policy actors and their instruments in the ‘new monetarist’ approach, the alternative requires the co-ordination of monetary, fiscal and wage policies in order to achieve growth, high employment and price stability. The paper examines the opportunities for and the obstacles to macroeconomic co-ordination given by the institutional framework of the European Monetary Union.
    Keywords: Macroeconomic policy co-ordination, European Monetary Union, monetary policy, fiscal policy, wages policy
    JEL: E61 E63 E64 E65
    Date: 2004–12–10
  4. By: Giuseppe Ferrero (Bank of Italy, Economic Research Department)
    Abstract: Under the assumption of bounded rationality, economic agents learn from their past mistaken predictions by combining new and old information to form new beliefs. The purpose of this paper is to examine how the policy-maker, by affecting private agents' learning process, determines the speed at which the economy converges to the rational expectation equilibrium. I find that by reacting strongly to private agents' expected inflation, a central bank would increase the speed of convergence. I assess the relevance of the transition period when looking at a criterion for evaluating monetary policy decisions and suggest that a fast convergence is not always suitable.
    Keywords: Interest Rate Setting, Adaptive Learning, Rational Expectations, Speed of Convergence
    JEL: E52 C62 D83
    Date: 2004–06
  5. By: Norbert Janssen (Bank of England); Charles Nolan; Ryland Thomas (Bank of England)
    Abstract: This paper constructs a consistent series for the market value of UK Government debt over almost 300 years. We analyse how monetary and fiscal policy affect the path of the price level in the UK. Specifically, the paper examines the interactions between debts, deficits, the monetary base and the price level. Overall, the price level has been closely related to the evolution of the base money supply. Across different sample periods, there is little econometric evidence that fiscal policy has affected the course of the price level (or of the exchange rate under the Gold Standard). Government debt has not significantly affected the base money stock either.
    Keywords: Fiscal policy, debt, monetary policy, price level determination.
    Date: 2004–12
  6. By: Diana N. Weymark (Department of Economics, Vanderbilt University)
    Abstract: In this article, the optimal interest rate rule generated by Svennson's (1997) dynamic model is used to determine the impact that a number of key structural characteristics have on the downward flexibility of interest rates at low rates of inflation. The potential impact of preferences for inflation stability, relative to output stability, on the monetary authority's ability to use expansionary interest rate policy is also considered. Estimates of the model for six countries provide evidence of the quantitative significance of the theoretical results. The empirical results are used to identify which monetary authorities are likely to be the most severely constrained in the event of an economic downturn. The size of the contraction that would be required for the interest rate constraint to bind is estimated for each country in the sample.
    Keywords: Interest rate rule, low inflation, monetary policy rule, Taylor rule
    JEL: E52
    Date: 2003–05
  7. By: Shinji Takagi (Independent Evaluation Office, International Monetary Fund, Washington, D.C.); Mototsugu Shintani (Department of Economics, Vanderbilt University); Tetsuro Okamoto (Faculty of Economics, Osaka Sangyo University)
    Abstract: Data from Okinawa's monetary union with the United States in 1958 and with Japan in 1972 are used to obtain a quantitative indication of how monetary union might affect the behavior of nominal and real shocks across two economies. With monetary union, the variance of the real exchange rate between two economies declines, and their business cycle linkage becomes stronger. A VAR analysis of output and price data for Okinawa and Japan further indicates that the contribution of asymmetric nominal shocks in business cycles becomes smaller. Monetary union thus seems to facilitate both nominal and real convergence.
    Keywords: Currency union, foreign exchange rates, Japanese economy, price convergence, San Francisco Peace Treaty, vector autoregressions
    JEL: E42 F15 F33 F36
    Date: 2003–07

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