nep-mon New Economics Papers
on Monetary Economics
Issue of 2005‒01‒16
twelve papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  2. The Consumption-Based Determinants of the Term Structure of Discount Rates By Christian Gollier
  3. Macroeconomic Stabilization Policies in the EMU: Spillovers, Asymmetries, and Institutions By Giovanni Di Bartolomeo; Jacob Engwerda; Joseph Plasmans; Bas van Aarle; Tomasz Michalak
  4. A comparison of currency crisis dating methods: East Asia 1970-2002 By Lestano; Jacobs, J.P.A.M.
  5. Monetary Policy Shocks and the Role of House Prices Across European Countries By Massimo Giuliodori
  6. Inflation Targets as Focal Points By Maria Demertzis; Nicola Viegi
  7. New Architectures in the Regulation and Supervision of Financial Markets and Institutions: The Netherlands By Olivier Pierrard; Henri Sneessens
  8. On the Effect of Monetary Stabilisation Policy on Long-run Growth By Galindev Ragchaasuren
  9. Forecasting Austrian Inflation By Gabriel Moser; Fabio Rumler; Johann Scharler
  10. Monetary Policy and Wage Bargaining in the EMU: Restrictive ECB Policies, High Unemployment, Nominal Wage Restraint and Rising Inflation By Eckhard Hein
  11. European Monetary Union: Nominal Convergence, Real Divergence and Slow Growth? An investigation into the effects of changing macroeconomic policy institutions associated with monetary union By Eckhard Hein; Achim Truger
  12. Money, Interest, and Capital Accumulation in Karl Marx’s By Eckhard Hein

  1. By: Guglielmo Maria Caporale; Luis A. Gil-Alana
    Abstract: This paper examines aggregate money demand relationships in five industrial countries by employing a two-step strategy for testing the null hypothesis of no cointegration against alternatives which are fractionally cointegrated. Fractional cointegration would imply that, although there exists a long-run relationship, the equilibrium errors exhibit slow reversion to zero, i.e. that the error correction term possesses long memory, and hence deviations from equilibrium are highly persistent. It is found that the null hypothesis of no cointegration cannot be rejected for Japan. By contrast, there is some evidence of fractional cointegration for the remaining countries, i.e., Germany, Canada, the US, and the UK (where, however, the negative income elasticity which is found is not theory-consistent). Consequently, it appears that money targeting might be the appropriate policy framework for monetary authorities in the first three countries, but not in Japan or in the UK.
    Date: 2005–01
  2. By: Christian Gollier
    Abstract: The efficient rate of return of a zero-coupon bond with maturity t is determined by our expectations about the mean (+), variance (-) and skewness (+) of the growth of aggregate consumption between 0 and t. The shape of the yield curve is thus determined by how these moments vary with t. We first examine growth processes in which a higher past economic growth yields a first-degree dominant shift in the distribution of the future economic growth, as assumed for example by Vasicek (1977). We show that when the growth process exhibits such a positive serial correlation, then the yield curve is decreasing if the representative agent is prudent (u'''> 0), because of the increased risk that it yields for the distant future. A similar definition is proposed for the concept of second-degree stochastic correlation, as observed for example in the Cox-Ingersoll-Ross model, with the opposite comparative static property holding under temperance (u''''< 0), because the change in downside risk (or skweness) that it generates. Finally, using these theoretical results, we propose two arguments in favor of using a smaller rate to discount cash-flows with very large maturities, such as those associated to global warming or nuclear waste management.
    Keywords: stochastic dominance, yield curve, far distant future, cost-benefit analysis, prudence, temperance, downside risk
    JEL: E43 G12 Q51
    Date: 2005
  3. By: Giovanni Di Bartolomeo; Jacob Engwerda; Joseph Plasmans; Bas van Aarle; Tomasz Michalak
    Abstract: This paper studies the institutional design of the coordination of macroeconomic stabilization policies within a monetary union in the framework of linear quadratic differential games. A central role in the analysis plays the partitioned game approach of the endogenous coalition formation literature. The specific policy recommendations in the EMU context depend on the particular characteristics of the shocks and the economic structure. In the case of a common shock, fiscal coordination or full policy coordination is desirable. When asymmetric shocks are considered, fiscal coordination improves the performance but full policy coordination doesn’t produce further gains in policymakers’ welfare.
    Keywords: macroeconomic stabilization, EMU, coalition formation, linear quadratic differential games
    JEL: C70 E17 E58 E61 E63
    Date: 2005
  4. By: Lestano; Jacobs, J.P.A.M. (Groningen University)
    Abstract: Generally, a currency crisis is defined to occur if an index of currency pressure exceeds a threshold. This paper compares several currency crisis dating methods adopting di erent definitions of currency pressure indexes and ad-hoc and extreme value based thresholds. We illustrate the methods with data of six East Asian countries for the January 1970 December 2002 period, and evaluate the methods on the basis of the IMF chronology of the Asia crisis in 1997-1998.
    Date: 2004
  5. By: Massimo Giuliodori
    Abstract: This paper provides a discussion of the `housing market' channels of the monetarytransmission mechanism (MTM) and offers some evidence on institutional differences in the European housing and mortgage markets. Using a number of VAR models, estimated individually for nine European countries over the pre-EMU period, we find that house prices are significantly affected by monetary policy shocks. The relative role of these policy-induced fluctuations in house prices for private consumption is then investigated. We show that house prices may enhance the effects of monetary shocks on consumer spending in those economies where housing and mortgage markets are relatively more developed and competitive.
    Keywords: Monetary transmission; house prices; impulse responses.
    JEL: C32 E21 E52 R21
    Date: 2004–11
  6. By: Maria Demertzis; Nicola Viegi
    Abstract: The benefits of inflation targeting by comparison to alternative regimesare understood to be in terms of providing clearer objectives that help pin down private sector expectations in the long run. We argue that the mechanism for achieving this rests on the fact that monetary policy can be perceived as a matching game in which private agents aim to coordinate their expectations and thus benefit from a clearly given signal that acts as a focal point. We therefore, argue that first, the credibility of the signal achieves coordination and second that the clarity of the signal achieves welfare improvements. To demonstrate that we use Bacharach's, Variable Universe Game framework, which allows for individuals' understanding and interpretation of the signal to differ. As private agents benefit from coordination, they rely a lot on the public signal given. Following this, the Central Bank can then help increase the welfare of agents by providing clear and precise signal that increase the chance of coordination and hence increased welfare.
    Keywords: inflation targeting; high order expectations; matching games
    JEL: C71 C78 E52
    Date: 2004–11
  7. By: Olivier Pierrard; Henri Sneessens
    Abstract: In recent years, several European Union member states have modified the institutional design offinancial supervision. These reforms pose the question which considerations have led to the different models chosen in these countries. We analyse the considerations in the Netherlands leading to the choice in 2002 of the twin -peaks model of financial supervision. The new model is based on the objectives of supervision. Thus, a separate authority is responsible for conduct-ofbusiness supervision, whereas a merged central bank and pensions and insurance board take care of prudential supervision. The authorities share responsibility for financial integrity issues. The main conclusion of this paper is that the size, composition and structure of the financial sector in the Netherlands constitute the main rationale behind the choice for a twin-peaks model of financial supervision.
    Date: 2004–12
  8. By: Galindev Ragchaasuren
    Abstract: This paper analyses the circumstances in which the conclusion reached by Blackburn and Pelloni (2005) can be reversed, implying that short-run monetary stabilization policy could have a negative effect on long-run growth when purposeful or internal learning (rather than serendipitous or external learning) is the engine of endogenous technological change.
    Date: 2005–01–13
  9. By: Gabriel Moser (Oesterreichische Nationalbank, Foreign Research Department, Otto-Wagner Platz 3, POB 61, A-1011 Vienna); Fabio Rumler (Oesterreichische Nationalbank, Economic Analysis Division); Johann Scharler (Oesterreichische Nationalbank, Economic Analysis Division)
    Abstract: In this paper we apply factor models proposed by Stock and Watson [18] and VAR and ARIMA models to generate 12-month out of sample forecasts of Austrian HICP inflation and its subindices processed food, unprocessed food, energy, industrial goods and services price inflation. A sequential forecast model selection procedure tailored to this specific task is applied. It turns out that factor models possess the highest predictive accuracy for several subindices and that predictive accuracy can be further improved by combining the information contained in factor and VAR models for some indices. With respect to forecasting HICP inflation, our analysis suggests to favor the aggregation of subindices forecasts. Furthermore, the subindices forecasts are used as a tool to give a more detailed picture of the determinants of HICP inflation from both an ex-ante and ex-post perspective.
    Keywords: Inflation Forecasting, Forecast Model selection, Aggregation
    JEL: C52 C53 E31
    Date: 2004–10–04
  10. By: Eckhard Hein (WSI in der Hans Böckler Stiftung)
    Abstract: Assessing the effects of monetary policy and wage bargaining on employment and inflation in the European Monetary Union (EMU), in the first step a Post-Keynesian competitive claims model of inflation with endogenous money is developed. In this model the NAIRU is considered to be a short-run limit to employment enforced by independent and conservative central banks. In the long run, however, the NAIRU will follow actual unemployment and is therefore also dependent on the forces determining aggregate demand, including monetary policies. But the NAIRU may also be reduced by effectively co-ordinated wage bargaining as has been shown by institutional political economists. Applying these considerations to the economic performance of the EMU, different scenarios determined by wage bargaining co-ordination and the European Central Bank’s (ECB) monetary policies are developed. It is shown that the first phase of EMU was dominated by uncoordinated wage bargaining across EMU and an “anti-growth-bias” of the ECB. Therefore, the Euro area was plagued with nominal wage restraint, high unemployment and rising inflation. Economic performance will improve if the ECB abandons its asymmetric monetary strategy. This may be facilitated by a higher degree of effective wage bargaining co-ordination across EMU.
    Keywords: European Monetary Union, monetary policy, wage bargaining, inflation and employment
    JEL: E
    Date: 2005–01–07
  11. By: Eckhard Hein (WSI in der Hans Böckler Stiftung); Achim Truger (WSI in der Hans Böckler Stiftung)
    Abstract: It is by now widely accepted that the structural characteristics of the countries to become the euro area did not adhere to the conditions of an optimum currency area (OCA) when the euro was introduced in 1999. However, the satisfaction of OCA criteria may not be required for a workable currency union, because the criteria have to rely on a very restrictive concept of money and their satisfaction may be largely endogenous to shifts in the economic policy regime. Growth and convergence of prosperity across a currency union rather depend on the appropriate macroeconomic policy institutions. Therefore, in this paper the effects of the new EMU institutional framework for monetary, fiscal and wage policies on overall growth and on convergence across the euro area are analysed. It is concluded that not only the period of nominal convergence towards EMU but also the initial period of the euro area has suffered from a rather restrictive macroeconomic policy mix which has neither been conducive to aggregate growth nor to real convergence across the euro area. In order to improve growth and convergence some major institutional reforms seem to be required.
    Keywords: European Monetary Union, nominal convergence, real convergence, macroeconomic policy mix
    JEL: E
    Date: 2005–01–07
  12. By: Eckhard Hein (WSI in der Hans Böckler Stiftung)
    Abstract: Starting from Schumpeter’s important distinction between „real analysis“ and „monetary analysis“, in this paper it is shown that major elements of Marx’s economic theory fall in the camp of monetary analysis and the implications for Marx’s theory of capital accumulation are derived. First, Marx’s theory of labour value has to be considered a „monetary theory of value“ because „abstract labour“ as the social substance of value cannot be measured without a social standard of value. Money as a social representative of value, therefore, is introduced at the very beginning of Marx’s microeconomics. Marx’s rejection of Ricardo’s interpretation of Say’s Law requires that money as a means of circulation and as a means of payment is non-reproducible and therefore cannot be a commodity. Second, in the schemes of reproduction it becomes clear, that the realisation of profits for the capitalist class as a whole requires money advances, which have to increase by means of rising credit in a growing economy. Third, the rate of interest in Marx’s economics is conceived of as a monetary category determined by relative powers of financial and industrial capitalists. Therefore, similar to post-Keynesian theories of distribution and growth, the rate of capital accumulation is determined by the expected rate of profit and the exogenous rate of interest. From this it follows, that any “real theory” of crisis and stagnation, as the falling rate of profit theory of crisis, cannot be sustained within Marx’s monetary analysis.
    Keywords: Money, interest, capital accumulation, Marx’s economics
    JEL: B
    Date: 2005–01–07

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