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on Monetary Economics |
| By: | Matias Vernengo |
| Abstract: | The paper provides a critical analysis of the literature on monetary policy institutions. It presents a critique of the dominant notion of central bank independence, based on the literature on time-inconsistency of monetary policy. An alternative view that emphasizes the role of distributive conflict in establishing monetary policy regimes is developed and used to analyze the Brazilian inflation targeting regime implemented in 1999. The analysis suggests that financial or rentier’s interests benefit from the current monetary regime, while manufacturing and worker’s interests bear the costs. |
| Keywords: | Inflation Targeting, Central Bank Behavior, Distributive Conflict |
| JEL: | E52 E58 F59 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:uta:papers:2006_05&r=mon |
| By: | Sophocles N. Brissimis (Bank of Greece, Economic Research Department and University of Piraeus); Nicholas S. Magginas (National Bank of Greece) |
| Abstract: | This paper evaluates the role of inflation-forecast heterogeneity in US monetary policy making. The deviation between private and central bank inflation forecasts is identified as a factor increasing inflation persistence and thus calling for a policy reaction. An optimal policy rule is derived by the minimization under discretion of a standard central bank loss function subject to a Phillips curve, modified to include the forecast deviation, and a forward-looking aggregate demand equation. This rule, which itself includes the forecast deviation as an additional argument, is estimated for the period 1974-1998, covering the Chairmanships of Arthur Burns, Paul Volcker and Alan Greenspan, by using real-time forecasts of inflation and the output gap obtained from the FOMC’s Greenbook and the Survey of Professional Forecasters. The estimated rule remains remarkably stable over the whole sample period, challenging the conventional view of a structural break following Volcker’s appointment as Chairman of the Fed. Finally, the substantial decline in the significance of the interest-rate smoothing term in the rule indicates that monetary policy inertia may, to a large extent, be an artifact of serially correlated inflation-forecast errors that feed into policy decisions in real time. |
| Keywords: | Forward-looking model; Monetary policy reaction function; Expectations formation; Inflation expectations |
| JEL: | D84 E31 E43 E52 E58 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:35&r=mon |
| By: | John Duffy; Wei Xiao |
| Abstract: | We examine the expectational stability (E--stability) of rational expectations equilibrium in the ``New Keynesian`` model where monetary policy is optimally derived and interest rate stabilization is added to the central bank`s traditional objectives of inflation and output stabilization. We consider both the case where the central bank lacks a commitment technology and the case of full commitment. We show that for both cases, optimal policy rules yield rational expectations equilibria that are E-stable for a wide range of empirically plausible parameter values. These findings stand in contrast to Evans and Honkapohja`s (2003ab, 2006) findings for optimal monetary policy rules in environments where interest rate stabilization is not a central bank objective. |
| JEL: | D83 E43 E52 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:pit:wpaper:284&r=mon |
| By: | Arghyrou, Michael G (Cardiff Business School) |
| Abstract: | We model Greek monetary policy in the 1990s and use our findings to address two interrelated questions. First, how was monetary policy conducted in the 1990s so that the hitherto highest-inflation EU country managed to join the euro by 2001? Second, how compatible is the current ECB monetary policy with Greek economic conditions? We find that Greek monetary policy in the 1990s was: (i) primarily determined by foreign (German/ECB) interest rates though still influenced, to some degree, by domestic fundamentals; (ii) involving non- linear output gap effects; (iii) subject to a deficit of credibility culminating in the 1998 devaluation. On the question of compatibility our findings depend on the value assumed for the equilibrium post-euro real interest rate and overall indicate both a reduction in the pre-euro risk premium and some degree of monetary policy incompatibility. Our analysis has policy implications for the new EU members and motivates further research on fast-growing EMU economies. |
| Keywords: | monetary policy; reaction function; non- linear; compatibility; Greece; EMU |
| JEL: | C51 C52 E43 E58 F37 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2006/26&r=mon |
| By: | Stefano Gnocchi (Department of Economics, Universitat Pompeu Fabra, Ramon Trias Fargas, 25, 08005 Barcelona, Spain.) |
| Abstract: | The purpose of the paper is to design optimal monetary policy rules in a New-Keynesian model featuring the presence of non-atomistic unions. It is shown that concentrated labor markets call for more aggressive inflation stabilization. This is because the central bank is able to induce wage restraint and to push output towards Pareto efficiency by implementing tougher stabilization policies. Moreover, the welfare cost of deviation from the optimal policy is increasing in wage setting centralization. The analysis is performed in the context of a linearquadratic approach where the welfare measure is derived resorting to a second order approximation to households’ lifetime utility. JEL Classification: E24, E52. |
| Keywords: | Monetary Policy, Unions, Inflation. |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060690&r=mon |
| By: | Athanasios Papadopoulos (Department of Economics, University of Crete, Greece); Moïse Sidiropoulos (Université Louis Pasteur, FRANCE) |
| Abstract: | The purpose of this paper is to provide theoretical arguments and explore for empirical evidence for the rationale that low inflation persistence may be achieved either by setting up an independent Central Bank or by an exchange-rate based policy. Our theoretical analysis states that the degree of Central Bank independence and exchange rate policy changes affect the inflation persistence. In addition, our empirical analysis, which concerns with selected EMU countries (France, Germany, Greece, Italy and Spain for the period 1980-1998) validates the argument. In this exercise the most likely date for the change in regime is detected by a procedure based upon the recent work of Perron (1997), where the null hypothesis of a unit root is set against the alternative of stationarity about a single broken trend line. |
| Keywords: | Exchange rate policy, Central Bank independence, inflation persistence, EMU |
| JEL: | E31 E42 E58 C22 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:0107&r=mon |
| By: | Julia Lendvai (University of Namur, Department of Economics; Rempart de la Vierge, 8, B-5000, Namur, Belgium.) |
| Abstract: | This paper extends the New Keynesian model to allow for stochastic shifts in the monetary policy regime. Agents cannot observe the regime and use a Bayesian learning rule to make optimal inferences. Price setting is adapted to this environment - lagged expectations about monetary policy influence the current inflation rate through an indexation rule. No structural inflation persistence is assumed. We show that this model can capture stylized facts about short-run inflation dynamics both in periods of transition and in stable environments. The role of expectations increases after regime shifts. This creates a link between the degree of inflation persistence and the stability and transparency of monetary policy. Thereby, our model can explain observed changes in inflation persistence. JEL Classification: E30, E31, E32. |
| Keywords: | Inflation dynamics, regime shifts, Bayesian learning, inflation persistence. |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060684&r=mon |
| By: | Guglielmo Maria Caporale; Alexandros Kontonikas |
| Abstract: | This paper investigates the relationship between inflation and inflation uncertainty in twelve EMU countries. A time-varying GARCH model is estimated to distinguish between short-run and steady-state inflation uncertainty. The effects of the introduction of the Euro in 1999 are then examined introducing a dummy variable. Overall, it appears that post-1999 steady-state inflation has generally remained stable, steady-state inflation uncertainty and inflation persistence have both increased, and the relationship between inflation and inflation uncertainty has broken down in many countries. When the break dates are determined endogenously, the adjustment is found to have taken place before the introduction of the Euro. |
| Keywords: | inflation, inflation uncertainty, inflation persistence, time-varying parameters, GARCH models, ECB, EMU |
| JEL: | C22 E31 E52 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1842&r=mon |
| By: | Paul Söderlind |
| Abstract: | The effect of monetary policy on financial risk premia is analysed in a simple general equilibrium model with sticky wages and an optimising central bank. Analytical results show that equity risk premia and term premia are higher under inflation targeting than under output targeting, and that inflation risk premia are higher for policies that strike a balance between output and inflation stability (and achieve a social optimum) than for policies that target only one of them. |
| Keywords: | Inflation risk premium, equity risk premium, term premium |
| JEL: | E52 E44 G12 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2006:2006-26&r=mon |
| By: | Faidon Kalfaoglou (Bank of Greece); Alexandros Sarris (Food and Agricultural Organization of the United Nations and University of Athens) |
| Abstract: | This paper evaluates the role of inflation-forecast heterogeneity in US monetary policy making. The deviation between private and central bank inflation forecasts is identified as a factor increasing inflation persistence and thus calling for a policy reaction. An optimal policy rule is derived by the minimization under discretion of a standard central bank loss function subject to a Phillips curve, modified to include the forecast deviation, and a forward-looking aggregate demand equation. This rule, which itself includes the forecast deviation as an additional argument, is estimated for the period 1974-1998, covering the Chairmanships of Arthur Burns, Paul Volcker and Alan Greenspan, by using real-time forecasts of inflation and the output gap obtained from the FOMC’s Greenbook and the Survey of Professional Forecasters. The estimated rule remains remarkably stable over the whole sample period, challenging the conventional view of a structural break following Volcker’s appointment as Chairman of the Fed. Finally, the substantial decline in the significance of the interest-rate smoothing term in the rule indicates that monetary policy inertia may, to a large extent, be an artifact of serially correlated inflation-forecast errors that feed into policy decisions in real time. |
| Keywords: | Market discipline, transparency, bank risk |
| JEL: | G18 G21 G28 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:36&r=mon |
| By: | Marius Jurgilas (University of Connecticut) |
| Abstract: | This paper analyzes interbank markets under currency boards. Under such an environment, problematic endogeneity issues common to other monetary regimes do not arise. Using daily data from the interbank markets in Bulgaria and Lithuania we show, that contrary to the existing literature, overnight interest rates tend to decrease towards the end of the reserve holding period. Empirical results are supported by a finite horizon heterogeneous agents model showing that interest rates tend to decrease in the case of excess aggregate reserves in the banking system. Results contrast with Quir'os and Mendiz'abal (2006) who find that interest rates should be increasing regardless of the outstanding aggregate liquidity in the market. We also show that responsiveness of banks to interest rate changes diminishes as the end of reserve holding period approaches. Under certain circumstances this could lead to multiple equilibria with increasing or decreasing interest rates. |
| Keywords: | Interbank market, Currency board |
| JEL: | E52 E58 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2006-19&r=mon |
| By: | Hans Genberg (Hong Kong Monetary Authority) |
| Abstract: | Financial integration in Ease Asia is actively being pursued and will in due course lead to substantial mobility of capital between economies in the region. Plans for monetary cooperation as a prelude to monetary integration and ultimately monetary unification are also proposed. These plans often suggest that central banks should adopt some form of common exchange rate policy in the transition period towards full monetary union. This paper argues that this is a dangerous path in the context of highly integrated financial markets. An alternative approach is proposed where independent central banks coordinate their monetary policies through the adoption of common objectives and by building an appropriate institutional framework. When this coordination process has progressed to the point where interest rate developments are similar across the region, and if in the meantime the required institutional infrastructure has been build, the next step towards monetary unification can be taken among those central banks that so desire. The claim is that this transition path is likely to be robust and will limit the risk of currency crises. |
| Keywords: | Regional and International Currency Arrangements |
| JEL: | F41 F15 F33 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:41&r=mon |
| By: | Bluedorn, John; Bowdler, Christopher |
| Abstract: | We analyze the international transmission of interest rates under pegged and non-pegged exchange rate regimes, demonstrating that transmission depends upon the informational properties of a base countryÂ’s interest rate change. We differentiate between interest rate movements which are predictable/unpredictable and dependent/independent (i.e., a function of non-monetary factors such as cost-push inflation). Under capital mobility, we show that predictable or dependent interest rate changes should elicit interest rate pass-through for an imperfectly credible peg that is less than unity, whilst interest rate changes that are unpredictable and independent should elicit pass-through greater than unity. Using a real-time identification of unpredictable and independent U.S. federal funds rate changes, we provide evidence consistent with these propositions. When the federal funds rate change is unpredictable and independent, the joint hypothesis of unit within-month pass-through to pegs and zero within-month pass-through to non-pegs cannot be rejected. The same hypothesis is strongly rejected following actual, aggregate federal funds rate changes which include predictable and dependent components. In a dynamic context, we find that maximum interest rate pass-through to pegs is delayed. Moreover, even though there is a full transmission of unpredictable and independent federal funds rate changes, they explain only a small portion of pegged regime interest rate changes. Keywords; interest rate pass-through, monetary policy identification, open economy trilemma, exchange rate regime. JEL Classification: F33, F41, F42 |
| URL: | http://d.repec.org/n?u=RePEc:stn:sotoec:0615&r=mon |
| By: | Sebastian Edwards (University of California, Los Angeles and National Bureau of Economic Research) |
| Abstract: | During the last few years there has been a renewed analysis in currency unions as a form of monetary arrangement. This new interest has been largely triggered by the Euro experience. Scholars and policy makers have asked about the optimal number of currencies in the world economy. They have analyzed whether different countries satisfy the traditional “optimal currency area” criteria. These include: (a) the synchronization of the business cycle; (b) the degree of factor mobility; and (c) the extent of trade and financial integration. In this paper I analyze the desirability of a monetary union from a Latin American perspective. First, I review the existing literature on the subject. Second, I use a large data set to analyze the evidence on economic performance in currency union countries. I investigate these countries’ performance on four dimensions: (a) whether countries without a national currency have a lower occurrence of “sudden stop” episodes; (b) whether they have a lower occurrence of “current account reversal” episodes; (c) what is their ability to absorb international terms of trade shocks; and (d) what is their ability to absorb “sudden stops” and “current account reversals” shocks. I find that belonging to a currency union does not lower the probability of facing a sudden stop or a current account reversal. I also find that external shocks are amplified in currency union countries. The degree of amplification is particularly large when compared to flexible exchange rate countries. |
| Keywords: | Regional and International Currency Arrangements |
| JEL: | F41 F15 F33 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:43&r=mon |
| By: | Hugh Rockoff |
| Abstract: | This paper explores some of the scholarship that influenced Milton Friedman and Anna J. Schwartz's "A Monetary History". It shows that the ideas of several Chicago economists -- Henry Schultz, Henry Simons, Lloyd Mints, and Jacob Viner -- left clear marks. It argues, however, that the most important influence may have been Wesley Clair Mitchell and his classic book "Business Cycles" (1913). Mitchell, and the NBER, provided the methodology for "A Monetary History", in particular the emphasis on compiling long time series of monthly data and analyzing the effects of specific variables on the business cycle. A common methodology and the stability of monetary relationships produced similar conclusions about money. Friedman and Schwartz deemphasized Mitchell's "bank-centric" view of the monetary transmission process, but they reinforced Mitchell's conclusion that money had an independent, predictable, and important influence on the business cycle. |
| JEL: | B22 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12666&r=mon |
| By: | Josef Christl (Oesterreichische Nationalbank) |
| Abstract: | This paper focuses on the requirements and features of a successful monetary union on the basis of the optimum currency area theory, the “logical roadmap” for integration as proposed by Balassa as well as the economic and institutional framework of the European Economic and Monetary Union (EMU). The analysis suggests that monetary union is contingent upon high economic integration and strong political commitment. However, political union is not an ex-ante requirement. Outside factors such as systemic shocks and globalization seem to speed up the pooling of sovereignty in the economic domain. A firm commitment to stability-oriented monetary and fiscal policies is a precondition for gaining credibility and trust within and outside a monetary union. Last, but not least, convergence criteria, fiscal rules and strong institutions are necessary to help ensure and monitor the participants’ compliance. However, the European experience is not a blueprint for regional integration that can be directly and entirely applied to other regions. |
| Keywords: | Economic and Monetary Integration; International Monetary Arrangements and Institutions; Monetary Policy and Central Banking; Macroeconomic Policy Formation |
| JEL: | E50 E61 F02 F33 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:42&r=mon |
| By: | Matthias Doepke |
| URL: | http://d.repec.org/n?u=RePEc:cla:uclaol:412&r=mon |
| By: | Otmar Issing ((European Central Bank)) |
| Keywords: | Regional and International Currency Arrangements |
| JEL: | F41 F15 F33 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:39&r=mon |
| By: | Sophocles N. Brissimis (Bank of Greece, Economic Research Department and University of Piraeus); Nicholas S. Magginas (National Bank of Greece) |
| Abstract: | The ability of the New Keynesian Phillips curve to explain US inflation dynamics when official central bank forecasts (Greenbook forecasts) are used as a proxy for inflation expectations is examined. The New Keynesian Phillips curve is estimated on quarterly data spanning the period 1970Q1-1998Q2 against the alternative of the Hybrid Phillips curve, which allows for a backward-looking component in the price-setting behavior in the economy. The results are compared to those obtained using actual data on future inflation as conventionally employed in empirical work under the assumption of rational expectations. The empirical evidence provides, in contrast to most of the relevant literature, considerable support for the standard forward-looking New Keynesian Phillips curve when inflation expectations are measured using official inflation forecasts. In this case, lagged inflation terms become insignificant in the hybrid specification. The usefulness of real unit labor cost as the preferred proxy for real marginal cost in recent empirical work on the Phillips curve is confirmed by our results. |
| Keywords: | Money demand; Inflation; Phillips curve; Real marginal cost; Real-time data; GMM estimation |
| JEL: | C13 C52 E31 E37 E50 E52 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:38&r=mon |
| By: | Juan de Dios Tena; Edoardo Otranto |
| Abstract: | This paper is an empirical analysis of the manner in which official interest rates are determined by the Bank of England. We use a nonlinear framework that allow for the separate study of factors affecting the magnitude of positive and negative interest rate changes as well as their probabilities. Using this approach, new kinds of monetary shocks are defined and used to evaluate their impact on the UK economy. Among them, unanticipated negative interest rate changes are especially important. The model generalizes previous approaches in the literature and provides a rich methodology to understand central banks’ decisions and their consequences. |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wsrepe:ws062007&r=mon |
| By: | John Williamson (Institute for International Economics) |
| Keywords: | Regional and International Currency Arrangements |
| JEL: | F41 F15 F33 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:45&r=mon |
| By: | Amartya Lahiri; Rajesh Singh; Carlos A. Vegh |
| Abstract: | A famous dictum in open economy macroeconomics -- which obtains in the Mundell-Fleming world of sticky prices and perfect capital mobility -- holds that the choice of the optimal exchange rate regime should depend on the type of shock hitting the economy. If shocks are predominantly real, a flexible exchange rate is optimal, whereas if shocks are mainly monetary, a fixed exchange rate is optimal. There is no obvious reason, however, why this paradigm should be the most appropriate one to think about this important issue. Arguably, asset market frictions may be as pervasive as goods market frictions (particularly in developing countries). In this light, we show that in a model with flexible prices and asset market frictions, the Mundell-Fleming dictum is turned on its head: flexible rates are optimal in the presence of monetary shocks, whereas fixed rates are optimal in response to real shocks. We thus conclude that the choice of an optimal exchange rate regime should depend not only on the type of shock (real versus monetary) but also on the type of friction (goods versus asset market). |
| JEL: | F41 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12684&r=mon |
| By: | John Duffy; Michele Berardi |
| Abstract: | We examine the role of central bank transparency when the private sector is modeled as adaptive learners. In our model, transparent policies enable the private sector to adopt correctly specified models of inflation and output while intransparent policies do not. In the former case, the private sector learns the rational expectations equilibrium while in the latter case it learns a restricted perceptions equilibrium. These possibilities arise regardless of whether the central bank operates under commitment or discretion. We provide conditions under which the policy loss from transparency is lower (higher) than under intransparency, allowing us to assess the value of transparency when agents are learning. |
| JEL: | D83 E52 E58 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:pit:wpaper:283&r=mon |
| By: | Richard N. Cooper (Harvard University); Michael Bordo (Economics Department, Rutgers University and Harvard University); Harold James (History Department and Woodrow Wilson School, Princeton University) |
| Keywords: | Regional and International Currency Arrangements |
| JEL: | F41 F15 F33 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:44&r=mon |
| By: | Michael D. Bordo; Owen Humpage; Anna J. Schwartz |
| Abstract: | The present set of arrangements for U.S. exchange market intervention policy was largely developed after 1961 during the Bretton Woods era. However, that set had important historical precedents. In this paper we examine precedents to current arrangements, focusing on three historical eras: pre-1934 operations; the Exchange Stabilization Fund operations beginning in 1934; and the Bretton Woods era. We describe operations by the Second Bank of the United States in the pre-Civil War period and then operations by the U.S. Treasury in the post-Civil War period. After establishment of the Federal Reserve in 1914, the New York Fed engaged in isolated exchange market policies in the 1920s and 1930s, first under the direction of the Governor Benjamin Strong until his death in 1928, thereafter, under the direction of his successor, George Harrison. We then examine operations of the Exchange Stabilization Fund that the Gold Reserve Act of 1934 created as a Treasury Department agency. We exploit unique unpublished sources to analyze its dealings with the Banque de France and the Bank of England before and after the Tripartite Agreement. Finally, based on a unique data set of all U.S. Treasury and Federal Reserve foreign-exchange transactions, we discuss U.S. efforts from 1961 through 1972 to defend the dollar's parity under the Bretton Woods system. |
| JEL: | E42 N10 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12662&r=mon |
| By: | Peter Backé; Cezary Wójcik |
| Abstract: | Credit to the private sector has risen rapidly in many Central and Eastern European EU Member States (MS) and acceding countries (AC) in recent years. The lending boom has recently been particularly strong in the segment of loans to households, primarily mortgage-based housing loans, and in those countries that operate currency boards or other forms of hard pegs. The main aim of this paper is to propose a conceptual framework to analyze the observed developments with a view to exploring some policy implications at a stage in which these countries are preparing for their prospective integration with the euro area. To achieve this, we first use a stylized New Neoclassical Synthesis (NNS) framework, which has recently been advanced by Goodfriend (2002) and Goodfriend and King (2000). We then discuss the implications of the NNS model for credit dynamics and ensuing monetary policy challenges. Specifically, we emphasize consumption smoothing as an important channel of the observed credit expansion and we show how it is related to and how it affects the monetary policy making in MS and AC. In doing so, we place our discussion in the context of the monetary integration process in general and the nominal convergence process in particular. |
| Keywords: | credit booms, new neoclassical synthesis, currency boards, euro area, convergence process |
| JEL: | E50 F30 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1836&r=mon |
| By: | Minoas Koukouritakis (Department of Economics, University of Crete, Greece); Leo Michelis (Department of Economics, Ryerson University, Toronto, Canada) |
| Abstract: | This paper uses cointegration and common trends techniques to investigate empirically the expectations hypothesis of the term structure of interest rates in the 10 new EU countries, and the 2 core EMU countries, France and Germany. By decomposing each term structure into its transitory and permanent components, we also analyze the possible short run and long run linkages among the term structures of these countries. The empirical results support the expectations theory of the term structure for all countries except Malta. Further, they point to both weak short run linkages and several strong long run linkages among the monetary policies of the 10 new EU and the core of the EMU. The group of the Central European countries and Latvia are prominent in the latter case. |
| Keywords: | Term Structure, EU Enlargement, Cointegration, Common Trends, Granger |
| JEL: | E43 F15 F42 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:0515&r=mon |
| By: | Eickmeier, Sandra; Hofmann, Boris; Worms, Andreas |
| Abstract: | This paper analyzes how bank lending to the private nonbank sector responds dynamically to aggregate supply, demand and monetary policy shocks in Germany and the euro area. The results suggest that the dynamic responses in the two areas are broadly similar, although there are some differences in the relative contribution of the three shocks to the development of output, prices, interest rates and bank loans over time. In order to assess the role of bank lending in the transmission of macroeconomic shocks, we perform counterfactual simulations and analyze the dynamic responses of German loan sub-aggregates in order to test the distributional implications of potential credit market frictions. The results suggest that there is no evidence that loans amplify the transmission of macroeconomic fluctuations or that a “financial accelerator” via bank lending exists. |
| Keywords: | Business cycle fluctuations, bank lending, SVAR model, sign restrictions |
| JEL: | E32 E44 G21 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:5098&r=mon |
| By: | Özlem Önder (Department of Economics, Ege University) |
| Abstract: | This paper presents empirical evidence supporting instability of the Phillips curve in Turkey. We employ the multiple structural break models and the Markov switching models and then evaluate the performance of the two models. The data pertains to the monthly inflation rate in Turkey for the period of 1987-2004. The results show that the Turkish Phillips curve is not linear. There exists no evidence on the asymmetry in the inflation response to output gap. The persistence of inflation is found to be much lower than in linear models. After 2001 slight decline in persistence of inflation is observed. |
| Keywords: | Phillips curve, multiple structural change models, Markov switching models |
| JEL: | C52 E31 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:ege:wpaper:0602&r=mon |
| By: | Sven W. Arndt (The Lowe Institute of Political Economy, Claremont McKenna College) |
| Keywords: | Regional and International Currency Arrangements |
| JEL: | F41 F15 F33 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:40&r=mon |
| By: | George Argitis (Department of Economics, University of Crete, Greece) |
| Abstract: | In this paper we attempt to develop some basic lines of a political economy perspective of the impact of finance and monetary policy on investment. We argue that the structure of capital, particularly the type of the relation between the industrial and the financial sector determines, to an extent, the way that finance affects investment. The domain in which this effect takes place is the distribution of income. Hence, this perspective integrates financial and real variables and argues that their interaction, which is institutionally and historically defined, acts as a main source of influence on investment and industrial accumulation in capitalism. Yet, we econometrically estimate some of our fundamental hypotheses, using data from the USA. |
| Keywords: | Finance, Monetary Policy, Credit, Income Distribution, Investment |
| JEL: | B22 E11 E12 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:0309&r=mon |
| By: | Kunimune, Kozo |
| Abstract: | This paper addresses the rationale for financial cooperation in East Asia. It begins by giving a brief review of developments after the Asian currency crisis, and argues that enhancing regional financial cooperation both quantitatively and qualitatively will require: (1) upgrading surveillance capabilities in the region, and (2) creating a clear division of labor between regional institutions and the IMF. It also mentions the issue of membership and the background forces that have led to the duplication of similar forums in East Asia. Although the concern over crisis management is the central issue in East Asian financial cooperation, other issues such as exchange rate policy coordination and fostering regional capital markets are discussed as well. |
| Keywords: | International Financial Cooperation, IMF, International finance, International cooperation, East Asia, Southeast Asia |
| JEL: | F36 O19 O53 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper68&r=mon |
| By: | Alexis Anagnostopoulos; Italo Bove; Karl Schlag; Omar Licandro |
| Abstract: | We provide a simple theory of in.ation inertia in a staggered price setting framework a la Calvo (1983). Contrary to Calvo.s formulation, the frequency of price changes is allowed to vary according to an evolutionary criterion. Inertia is the direct result of gradual adjustment in this frequency following a permanent change in the rate of money growth. |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2006-25&r=mon |
| By: | George S. Tavlas (Bank of Greece, Economic Research Department); P.A.V.B. Swamy (US Bureau of Labour Statistics) |
| Abstract: | A theoretical analysis of the new Keynesian Phillips curve (NKPC) is provided, formulating the conditions under which the NKPC coincides with a real-world relation that is not spurious or misspecified. A time-varying-coefficient (TVC) model, involving only observed variables, is shown to exactly represent the underlying “true” NKPC under certain conditions. In contrast, “hybrid” NKPC models, which add lagged-inflation and supply-shock variables, are shown to be spurious and misspecified. We also show how to empirically implement the NKPC under the assumption that expectations are formed rationally. |
| Keywords: | Time-varying-coefficient model; Inflation-unemployment trade-off; “Objective” probability; Spurious correlation; Rational expectation; Coefficient driver |
| JEL: | C51 E31 E42 E50 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:34&r=mon |
| By: | Giannis Karagiannis (Department of Economics, University of Macedonia, Greece); Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece) |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:0410&r=mon |
| By: | Minoas Koukouritakis (Department of Economics, University of Crete, Greece); Leo Michelis (Department of Economics, Ryerson University, Toronto, Canada) |
| Abstract: | This paper uses cointegration and common trends techniques to investigate empirically the expectations hypothesis of the term structure of interest rates for the 10 new EU countries, along with Bulgaria and Romania. The empirical results support the expectations theory of the term structure for all countries except Malta. By decomposing each term structure into its transitory and permanent components, we also analyze short run and long run interdependence among the term structures of interest rates in these countries. Our results indicate weak linkages among the term structures of the 10 new EU countries, and strong linkages between Bulgaria and Romania that hope to join the EU in 2007. |
| Keywords: | Term Structure, EU Enlargement, Cointegration, Common Trends, Granger Causality |
| JEL: | E43 F15 F42 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:0505&r=mon |