nep-mon New Economics Papers
on Monetary Economics
Issue of 2005‒09‒17
nine papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. Rules versus Discretion in Foreign Exchange Intervention: Evidence from Official Bank of Canada High-Frequency Data By Rasmus Fatum; Michael R. King
  3. Monetary Equilbrium By Siven, Claes-Henric
  4. The Effect of Capital Requirement Regulation on the Transmission of Monetary Policy: Evidence from Austria. By Philipp Engler; Terhi Jokipii; Christian Merkl; Pablo Rovira Kaltwasser; Lúcio Vinhas de Souza
  5. Heterogeneity in Price Setting and the Real Effects of Monetary Shocks By Carlos Carvalho
  6. CONSUMER PRICE SETTING IN ITALY By Silvia Fabiani; Angela Gattulli; Roberto Sabbatini; Giovanni Veronese
  7. SYNCHRONISATION OF FINANCIAL CRISES By Mardi Dungey; Jan P.A.M. Jacobs; Lestano
  8. Inflation dynamics and the New Keynesian Phillips Curve: an identification robust econometric analysis By DUFOUR, Jean-Marie Dufour; KHALAF, Lynda; KICHIAN, Maral
  9. The Transmission of Monetary Policy in a Multi-Sector Economy By BOUAKEZ, Hafed, CARDIA Emanuela, RUGE-MURCIA Francisco

  1. By: Rasmus Fatum (School of Business, University of Alberta); Michael R. King (Financial Markets Department, Bank of Canada, Ottawa)
    Abstract: This paper analyzes official, high-frequency Bank of Canada intervention and exchange rate data (the latter quoted at the end of every 5-minute interval over every 24-hour period) over the January 1995 to September 1998 time-period. The data is of particular interest as it spans over two distinctly different intervention regimes – one characterized by purely rules-based (“mechanistic”) intervention versus one characterized by both rules-based and discretionary intervention. This unique feature of the data allows for both a comparison of the effects of rules-based version discretionary intervention and a general investigation of intraday effects of intervention. Employing an event-study methodology and three different criteria for success, the study presents strong evidence showing that intervention systematically affects movements in the CAD/USD and in the desired direction along with some evidence that intervention is associated with a reduction of exchange rate volatility. Interestingly, there is no indication that discretionary intervention is more effective than rules-based intervention.
    Keywords: foreign exchange intervention; intraday data; event studies; currency co-movement
    JEL: E58 F31 G14 G15
    Date: 2005–05
    Abstract: We examine the transmission process of the policy rate to the lending and deposit rates in Greece for the period 1996-2004 within bivariate cointegration and error correction framework. A significant structural break takes place with the accession of Greece into EMU in 2001. The bank rates become much more responsive to the policy rate in terms of impact multipliers and speed of convergence to the equilibrium, a consequence of the common monetary policy. However, the process is still not complete even after the accession into the EMU.
    Keywords: interest rate pass-through, monetary policy, transmission dynamics, Greece.
    JEL: E52 E43
    Date: 2005–09–09
  3. By: Siven, Claes-Henric (Dept. of Economics, Stockholm University)
    Abstract: The first part of the paper surveys the discussion of monetary equilibrium by Wicksell, Lindahl, Myrdal, Ohlin and Palander. In the second part a number of analytical aspects of monetary equilibrium are discussed: The formulation of the first equilibrium condition in terms of prices instead of in terms of quantities; The interpretation of the second equilibrium condition as equality between saving and investments; What was the exact interpretation of the rate of interest as a monetary phenomenon; The economic interpretation of a gap between the natural and the loan rate of interest; and the use of equilibrium and disequilibrium analysis.
    Keywords: Monetary equilibrium; Monetary theory; Wicksell; Myrdal
    JEL: B22 B30 E40
    Date: 2005–09–07
  4. By: Philipp Engler (Free University Berlin); Terhi Jokipii (Institute for International Integration Studies, Trinity College Dublin); Christian Merkl (Kiel Institute for World Economics and Kiel University); Pablo Rovira Kaltwasser (Catholic University of Leuven); Lúcio Vinhas de Souza (Kiel Institute for World Economics.)
    Abstract: This paper analyzes the role of bank capitalization on the transmission of monetary policy, using a quarterly dataset for Austrian banks spanning from 1997 to 2003. A substantial understanding of the transmission mechanism in different countries of the euro zone is not only of academic interest, but also an important prerequisite for central bankers to effectively accomplish their monetary policy goals. While we do find evidence in favor of the bank lending channel, with an important role active for capitalization, we are unable to confirm whether the bank capital channel is in force in Austria. Our results indicate some counter-cyclicality in lending activity, a finding that is in line with the existing Austrian literature.
    Keywords: Transmission of monetary policy; Bank capital regulation; Austria
    JEL: E4 E5
    Date: 2005–05–23
  5. By: Carlos Carvalho (Princeton University)
    Abstract: This paper analyzes the implications of heterogeneity in price setting for the real effects of monetary shocks. Starting from otherwise standard sticky price and sticky information models, I introduce ex-ante heterogeneity in terms of price setting frictions, and compare the resulting dynamics with those of identical firms economies under alternative calibrations. Both the qualitative and the quantitative results show that heterogeneity leads monetary shocks to have substantially larger and more persistent real effects. In particular, reproducing the dynamics of a truly heterogeneous economy with a model based on identical firms requires unrealistically large degrees of price setting frictions.
    JEL: E
    Date: 2005–09–10
  6. By: Silvia Fabiani (BANK OF ITALY); Angela Gattulli (BANK OF ITALY); Roberto Sabbatini (BANK OF ITALY); Giovanni Veronese (BANK OF ITALY)
    Abstract: This paper investigates the microeconomic behaviour of consumer prices in Italy using the individual price records underlying the Italian CPI dataset collected by Istat. We discuss how to analyse price stickiness using such a detailed database and compute a quantitative measure of the unconditional degree of price rigidity in the Italian economy. The analysis focuses on the monthly frequency of price changes and on the duration of price spells, with a sectoral breakdown as well as with a classification by type of outlet. Prices are in general found to be rather sticky, remaining unchanged on average for around 10 months; price spells last longer for non-energy industrial goods and services, much less for energy products. Prices are revised more frequently upwards than downwards, while the size of price changes is quite symmetric. Price st ickiness is found to be less marked in large modern stores than in smaller traditional shops. Price changes display considerable synchronisation, in particular in the services sector. The average frequency of price changes and the probability of observing a price change over time and across items are positively related to headline inflation and increases in VAT rates and negatively related to the share of attractive prices. These findings are consistent with the ones reported in similar national studies for other countries of the euro area, which were conducted by the National Central Banks within the Eurosystem Inflation Persistence Network.
    Keywords: consumer prices, nominal rigidity, frequency of price change
    JEL: D21 D40 E31
    Date: 2005–06
  7. By: Mardi Dungey; Jan P.A.M. Jacobs; Lestano
    Abstract: This paper develops concordance indices for studying the simultaneous occurrence of financial crises. The indices are designed to cope with these typically low incidence events. This leads us to confine attention to non-tranquil periods to develop a bivariate index and its multivariate analog for potentially serially correlated categorical data. An application to the Bordo et al (2001) data set reveals the extent of concordance in banking and currency crises across countries. The internationalisation of financial crises in the 20th century is shown to have increased for currency crises and decreased for banking crises.
    JEL: F31 F47 N20
    Date: 2005–08
  8. By: DUFOUR, Jean-Marie Dufour; KHALAF, Lynda; KICHIAN, Maral
    Abstract: In this paper, we use identification-robust methods to assess the empirical adequacy of a New Keynesian Phillips Curve (NKPC) equation. We focus on the Gali and Gertler’s (1999) specification, on both U.S. and Canadian data. Two variants of the model are studied: one based on a rationalexpectations assumption, and a modification to the latter which consists in using survey data on inflation expectations. The results based on these two specifications exhibit sharp differences concerning: (i) identification difficulties, (ii) backward-looking behavior, and (ii) the frequency of price adjustments. Overall, we find that there is some support for the hybrid NKPC for the U.S., whereas the model is not suited to Canada. Our findings underscore the need for employing identificationrobust inference methods in the estimation of expectations-based dynamic macroeconomic relations.
    Keywords: macroeconomics ; inflation dynamics ; New Keynesian Philli Curve ; identification robust inference ; weak instruments ; oimal instruments
    JEL: C12 C13 C3 C52 E3 E31 E5
    Date: 2005
  9. By: BOUAKEZ, Hafed, CARDIA Emanuela, RUGE-MURCIA Francisco
    Abstract: This paper constructs and estimates a sticky-price, Dynamic Stochastic General Equilibrium model with heterogenous production sectors. Sectors differ in price stickiness, capital-adjustment costs and production technology, and use output from each other as material and investment inputs following an Input-Output Matrix and Capital Flow Table that represent the U.S. economy. By relaxing the standard assumption of symmetry, this model allows different sectoral dynamics in response to monetary policy shocks. The model is estimated by Simulated Method of Moments using sectoral and aggregate U.S. time series. Results indicate 1) substantial heterogeneity in price stickiness across sectors, with quantitatively larger differences between services and goods than previously found in micro studies that focus on final goods alone, 2) a strong sensitivity to monetary policy shocks on the part of construction and durable manufacturing, and 3) similar quantitative predictions at the aggregate level by the multi-sector model and a standard model that assumes symmetry across sectors.
    Keywords: Multi-sector models, sticky-ice DGSE models, monetary licy
    JEL: E3 E4 E5
    Date: 2005

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