nep-mon New Economics Papers
on Monetary Economics
Issue of 2006‒11‒12
eleven papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. A New Cost Channel of Monetary Policy By Cenesiz, Alper
  2. Supply of Money By Barnett, William A.
  3. Divisia Monetary Index By Barnett, William A.
  4. Is Macroeconomics a Science? By Barnett, William A.
  5. Inflation and the underground economy By Ahiabu, Stephen
  6. Exchange Rate Pass-Through:Evidence Based on Vector Autoregression with Sign Restrictions By An, Lian
  7. Capital Mobility, Labor Markets, and Macroeconomic Policies By Cenesiz, Alper; Pierdzioch, Christian
  8. Real interest rates equalization: The case of Malaysia and Singapore By Ling, Tai-Hu; Liew, Venus Khim-Sen; Syed Khalid Wafa, Syed Azizi Wafa
  9. Labor-Market Search, Financial Market Integration, and Macroeconomic Dynamics By Cenesiz, Alper; Pierdzioch, Christian
  10. Can We Predict GDP Through Examining the Past Values of Money? Empirical Evidence from an Asian Tiger By Feridun, Mete
  11. Milkshake Prices, International Reserves, and the Mexican Peso By Fullerton, Thomas; Torres, David

  1. By: Cenesiz, Alper
    Abstract: I develop a new cost channel of monetary policy transmission in a small scale, dynamic, general equilibrium model. The new cost channel of monetary policy transmission implies that the frequency of price adjustment increases in the nominal interest rate. I report that allowing for the new cost channel can account both for the muted and delayed inflation response and for the persistence of the output response to monetary policy shocks. Without any additional assumption, my model can also generate the delayed output response.
    Keywords: Price stickiness; Monetary policy; Price adjustment; Persistence.
    JEL: E52 E32 E31
    Date: 2006–07
  2. By: Barnett, William A.
    Abstract: This short paper is the encyclopedia entry on Supply of Money to appear in the second edition of the International Encyclopedia of the Social Sciences. The encyclopedia is edited by William A. Darity and forthcoming from Macmillan Reference USA (Thomson Gale).
    Keywords: monetary aggregation; index number theory; Divisia index; encyclopedia entry; aggregation theory; supply of money
    JEL: E5 E4 C43 G12
    Date: 2006–07–14
  3. By: Barnett, William A.
    Abstract: This short paper is the first draft of an encyclopedia entry on Divisia Monetary Indexes to appear in the second edition of the International Encyclopedia of the Social Sciences. The encyclopedia is edited by William A. Darity and forthcoming from Macmillan Reference USA (Thomson Gale).
    Keywords: monetary aggregation; index number theory; Divisia index' encyclopedia entry; aggregation theory
    JEL: E5 E4 C43 G12
    Date: 2006–04–18
  4. By: Barnett, William A.
    Abstract: This paper was written as the first draft of the invited Foreword for the book, Money and the Economy, by Apostolos Serletis. The paper provides a critical view of those areas in which methodology in economics deviates from that in the physical sciences, provides examples and illustrations of those deviations, and emphasizes those areas of and approaches to economic research that most closely correspond with the nature of research in the physical sciences.
    Keywords: science; social science; politics; Federal Reserve; monetary policy
    JEL: B41 A11 C00 B20 A10
    Date: 2006–01–30
  5. By: Ahiabu, Stephen
    Abstract: This paper studies the optimal rate of seigniorage in an economy characterized by decentralized trade and a tax-evading underground sector. The economy has buyers, some of whom visit the formal market, while others visit the underground market. I find that the optimal rate of inflation depends on which of the two sectors, formal or underground, is more crowded/congested with buyers. If the underground sector is more crowded, the optimal inflation rate is as high as 42% per annum for Peru. That is, I offer a possible motivation for the high rates of inflation observed in that country from the mid 1970s up to the mid 1990s. If the formal sector is more crowded, optimal inflation falls to about 1.4%, which is close to the rate in 2005. Friedman rule is not optimal.
    Keywords: Inflation; Market Congestion; Ramsey Equilibrium; Underground Economy
    JEL: E6 E26 H21
    Date: 2006–10
  6. By: An, Lian
    Abstract: Abstract: This paper provides cross-country and time-series evidence on the extent of exchange rate pass-through at different stages of distribution - import prices, producer prices and consumer prices - for eight major industrial countries: United States, Japan, Canada, Italy, UK, Finland, Sweden and Spain. The analysis is based on a vector autoregreesion (VAR) model that includes the distribution chain of pricing. Instead of the conventional choleski decomposition as used in the literature, I propose to identify the exchange rate shock by the more recent sign restriction approach. For the first time in the literature, estimates of pass-through based on the sign restriction procedure are provided. I find exchange rate pass-through incomplete in many horizons, though complete pass-through is observed occasionally. The degree of pass-through declines and time needed for complete pass-through lengthens along the distribution chain. Furthermore, I find that a greater pass-through coefficient is associated with an economy that is smaller in size with higher import shares, more persistent and less volatile exchange rates, more volatile monetary shocks, higher inflation rate, and less volatile GDP.
    Keywords: Keywords: pass-through; vector autoregression; sign restrictions; exchange rates
    JEL: F31 F41
    Date: 2006–10–24
  7. By: Cenesiz, Alper; Pierdzioch, Christian
    Abstract: We used a dynamic two-country optimizing model featuring a labor-market friction to analyze the implications of international capital mobility for the effectiveness of macroeconomic policies in an open economy. Conventional wisdom suggests that higher capital mobility significantly increases (decreases) the effectiveness of monetary (fiscal) policy. Simulations of the model suggest that accounting for a labor-market friction substantially reduces the quantitative impact of capital mobility on the effectiveness of monetary and fiscal policy.
    Keywords: Open economy macroeconomics; Financial markets; Labor-market friction
    JEL: F41
    Date: 2006–01
  8. By: Ling, Tai-Hu; Liew, Venus Khim-Sen; Syed Khalid Wafa, Syed Azizi Wafa
    Abstract: This study provides some evidences showing high degree of financial integration from both evidences of common shocks and real interest parity in the context of two small and open economies, that is, Malaysia and Singapore. Few key policy implications may be suggested from the findings in this study. First, foreign investors who invest in these two countries may need to look for sources of diversification to protect their wealth against the occurrence of contagion effect due to the strong trade and finance relationship between these two countries. Second, the banks and businesses that set rules for interest rates on deposits and loans should be kept consistently with commercial banking practices and key developments in the financial sectors for the betterment of both Malaysia and Singapore economies. Third and most importantly, as two financial markets are highly linked, the monetary and fiscal authorities of both countries should work hand-in-hand to avoid any potential macroeconomic instability in this region.
    Keywords: Real Interest Rate Parity; Malaysia; Singapore
    JEL: F36 R12
    Date: 2006–09–26
  9. By: Cenesiz, Alper; Pierdzioch, Christian
    Abstract: We used a dynamic two-country optimizing model to analyze the implications of financial market integration for macroeconomic dynamics. The model features a labor-market friction in the form of labor-market search. We used the model to analyze how labor-market search affects how financial market integration changes macroeconomic dynamics in the aftermath of a monetary policy shock, a government spending shock, and a productivity shock. We found that labor-market search has nontrivial, and quantitatively large implications for the way financial market integration affects macroeconomic dynamics.
    Keywords: Open economy macroeconomics; Financial market integration; Labor-market search; Macroeconomic dynamics
    JEL: E42 E44 F36 F41
    Date: 2006–03
  10. By: Feridun, Mete
    Abstract: The paper aims at establishing whether the fluctuations of money help predict future fluctuations of income, that are not already predictable on the basis of fluctuations of income itself or other readily observable variables. For this purpose vector autoregression (VAR) modelling is used to test whether changes in money supply (M2) has any deterministic or predictive content for movements in Income (GDP). The analysis is performed using quarterly macroeconomic data from Singapore spanning the period between 1980 and 2001. The results suggest that money (M2) and interest rates have information content for future movements in real GDP beyond that contained in past values of GDP itself. This relationship only establishes itself with a fairly long lag. The finding suggests the possibility of making use of the money-income relationship for forecasting purposes.
    Keywords: Vector autoregression (VAR); cointegration; causality
    JEL: E30
    Date: 2005–07
  11. By: Fullerton, Thomas; Torres, David
    Abstract: Menu prices from 13 international restaurant franchises that operate in both El Paso and Ciudad Juarez are utilized to examine the behavior over time of the peso/dollar exchange rate. Parametric and non-parametric tests indicate that the price ratio alone provides a biased estimator of the exchange rate. In addition to the multi-product price ratio, the empirical analysis also incorporates interst rate prity and balance of payment variables. The combination of unique microeconomic sample data with national macroeconomic variables illustrates one manner in which border economies provide information regarding the interplay of financial markets between Mexico and the United States.
    Keywords: Prices; exchange rates; border economics
    JEL: R15 F31
    Date: 2005

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