nep-mon New Economics Papers
on Monetary Economics
Issue of 2006‒02‒26
eight papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. Monetary Policy in the Euro-Area: An Analysis Using a Stylized New-Keynesian Model By Garretsen H.; Moons C.; van Aarle B.
  2. Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members By Moons C.; Van Poeck A.
  3. Exchange Rate Targeting in a Small Open Economy By Mette Ersbak Bang Nielsen
  4. Expectations in Inflations Targeting Regimes By Oleg Korenok; Stanislav Radchenko
  5. Policy-Induced Mean Reversion in the Real Interest Rate? By Zisimos Koustas; Jean-Francois Lamarche
  6. Finance and the Cambridge Equation: A Commentary Note By MAN-SEOP PARK
  7. Exchange rate regimes and exchange market pressure in the new EU member countries By Van Poeck A.; Vanneste J.; Veiner M.
  8. Exchange Rates, Foreign Trade Prices and PPs in OECD Countries: An Analysis of the period 1960-2003 By Guisan, Carmen

  1. By: Garretsen H.; Moons C.; van Aarle B.
    Abstract: This paper analyses monetary policy in the Euro-Area using a stylized new-Keynesian model. A number of issues are focused upon: (i) optimal monetary policy under commitment and discretion, (ii) a comparison of optimal monetary policies and ad-hoc monetary policies, (iii) the effects of fiscal policies and foreign variables on monetary policy in the model. Using numerical simulations, it is analyzed how these aspects affect monetary policy of the ECB in particular and macro economic fluctuations in the Euro-Area in general.
    Date: 2005–12
  2. By: Moons C.; Van Poeck A.
    Abstract: This paper uses the Taylor rule to examine the appropriateness of ECB interest rate policy for the initial EMU members and the ten new EMU member states some of whom are expected to join the Eurozone in 2006-7. Specifically it addresses three questions. (1) Are there differences between the interest rate aggregated from the Taylor interest rates of individual member states in the euro area and the interest rate set by the ECB? (2) For which countries do the desired interest rates according to the original Taylor rule and the interest rate of the euro area differ most and in which respect? (3) The last question is whether the interest rate gaps change over time. We find that the ECB’s policy does not fit individual EMU members equally well and this result is unlikely to be changed with the addition of the ten new members, which will have only a marginal effect on the ECB interest rate stance.
    Date: 2005–10
  3. By: Mette Ersbak Bang Nielsen
    Abstract: The paper develops a New Keynesian Small Open Economy Model charac- terized by external habit formation and Calvo price setting with dynamic inflation updating. The model is used to analyze the e¤ect of nominal ex- change rate targeting on optimal policy and impulse responses. It is found that even moderate exchange rate concerns are capable of changing both sign and magnitude of the optimal instrument response to variables, and that whether the concern is with respect to the level or first di¤erence has much impact on monetary policy. Also, the cost of exchange rate stabilization in terms of output and inflation is evident in the model, and impulse responses under moderate exchange rate targeting are not simple combinations of those under a float and a regime that cares almost only for meeting the exchange rate target.
    Keywords: Flexible inflation targeting, exchange rates, fear of floating
    JEL: E52 F41
  4. By: Oleg Korenok (Department of Economics, VCU School of Business); Stanislav Radchenko (Department of Economics, University of North Carolina at Charlotte)
    Abstract: In this paper we test for the nonlinear short term expectations of inflation in Canada, Sweeden and the United Kingdom. Nonlinear inflation expectations are one of the predictions of Krugman (1991) credible target zone model. We test for nonlinearity in the extended model that retains possibility of the nonlinearity while allowing for violations of the target zone and lags in monetary transmission mechanism. We find that inflation targeting does not alter short term inflation expectations.
    Keywords: inflation targeting, expectations, target zone model
    Date: 2005–09
  5. By: Zisimos Koustas (Department of Economics, Brock University); Jean-Francois Lamarche (Department of Economics, Brock University)
    Abstract: This paper utilizes tests for a unit root that have power against nonlinear alternatives to provide empirical evidence on the time series properties of the ex-post real interest rate in the G7 countries. We find that the unit root hypothesis can be rejected in the presence of a nonlinear alternative motivated by theoretical literature on optimal monetary policy rules. This represents a reversal of the results obtained using standard linear unit root and cointegration tests. Tests for linearity reject this hypothesis for Canada, France, Italy and Japan for which we estimate nonlinear models capturing the dynamics of the interest rate.
    Keywords: Fisher Effect; Unit Roots; Self-Exciting Threshold Autoregression
    JEL: E40 E50 C32
    Date: 2005–07
    Abstract: Ciccarone (2004) attempts to show that the Pasinetti theorem allows for the profit-making financial sector. In this effort, however, he ends up with unwittingly associating the theorem with the Wicksellian monetary theory. The present note traces the origin of this uncomfortable association to his incomplete understanding of the income of financial capitalists, and tries on its part to demonstrate that the Pasinetti theorem is in the tradition of the 'monetary analysis' of the (Post) Keynesian monetary theory, in contrast to the 'real analysis' of the Wicksellian theory.
  7. By: Van Poeck A.; Vanneste J.; Veiner M.
    Date: 2005–06
  8. By: Guisan, Carmen
    Abstract: We analyse the evolution of Exchange Rates of Euro and previous national currencies of Euro Zone, as well as those corresponding to other currencies of OECD countries, with particular emphasis on the reaction of exchange rates to inflation differences, and the consequences of those changes on foreign trade and economic growth. We also compare the evolution of Exchange Rates and Purchasing Power Parities in those countries for the period 1960-2003. We present main comparative data and some econometric models which show the strong inverse relationships between the movements of relative domestic prices and exchange rates of domestic currencies to dollar, and test for homogeneity of this relationship among OECD countries.
    Date: 2005

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