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on Monetary Economics |
| By: | Thierry Warin |
| Abstract: | This paper surveys the roots of the modern literature on monetary policy, and illustrates the convergence that occurs between open-economy approaches and the micro foundations of monetary policy. From the Banking School versus Currency School debate to the “credibility versus flexibility” refinement, monetary policy has a long history of scholarly works. Although it may be hard to imagine that there is still room for innovations, the current developments of the literature on open-economy monetary policy seem to spawn a new and essential branch. |
| Keywords: | : monetary policy, rules versus discretion, credibility versus flexibility, Banking School, Currency School |
| JEL: | E4 E5 E6 F0 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:mdl:mdlpap:0617&r=mon |
| By: | Carlos Thomas |
| Abstract: | I analyze optimal monetary policy in an economy with search and matching frictions in thelabor market and staggered nominal wage and price contracts. In this framework, as opposedto the standard New Keynesian model, preset nominal wages need not have any effect onexisting employment relationships. However, staggered bargaining of nominal wages distortsaggregate job creation and creates inefficient dispersion in hiring rates across firms.Targeting zero inflation (the optimal policy in the standard New Keynesian model) onlymagnifies these distortions. The optimal policy allows for non-zero inflation in response toreal shocks, so as to reduce the rigidity of real wages. Quantitatively, the case against pricestability as the sole goal of monetary policy turns out to be important. |
| Keywords: | search and matching, New Keynesian, staggered nominal wage bargaining |
| JEL: | E52 E32 J40 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0743&r=mon |
| By: | Sharon Kozicki; P.A. Tinsley |
| Abstract: | Surveys provide direct information on expectations, but only short histories are available at quarterly frequencies or for long-horizon expectations. Longer histories typically contain only semi-annual observations of short-horizon forecasts. The authors fill in the gaps by constructing a 50-year monthly history of expected inflation at all horizons from one month to 10 years that is consistent with inflation data and infrequent survey data. In the process, some models that fit inflation well are found to generate forecasts that bear little resemblance to survey data. Also, survey data on near-term expectations are found to contain considerable information about long-horizon views. The estimated long-horizon forecast series, a measure of the private sector’s perception of the inflation target of monetary policy, has shifted considerably over time and is the source of some of the persistence of inflation. When compared with estimates of the effective inflation goal of policy, these perceptions suggest that monetary policy has been less than fully credible historically. |
| Keywords: | Inflation and prices; Inflation targets; Uncertainty and monetary policy |
| JEL: | E3 E5 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-46&r=mon |
| By: | Mete Feridun (Department of Economics, Loughborough University) |
| Abstract: | Economies are susceptible to speculative attacks regardless of whether they use fixed or floating exchange rates. Turkish experience in the last two decades constitutes one of the most prominent examples proving this verdict. It is widely accepted that narrow money (M1) is the most conventional measure of liquidity, excessive growth of which may fuel speculative attacks on the currency. The literature on currency crises clearly lacks a country-specific study that addresses the long-run relationship between this indicator and the speculative pressure in the exchange market. This article aims at filling this gap in the literature using monthly Turkish time series data spanning the period 1984:04- 2006:11. Results of the ADF unit root tests suggest that the series are stationary. Hence, no-cointegration analysis was carried out before the Granger-causality tests. Granger causality tests reveal strong evidence supporting univariate causality running from narrow money (M1) to exchange market pressure. This outcome lends empirical support to the Turkish policy makers’ current efforts to maintain a tight control of the money supply. |
| Keywords: | Speculative attacks; currency crises; domestic credit. |
| JEL: | F3 E44 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2006_24&r=mon |
| By: | Domenico Giannone; Troy Matheson (Reserve Bank of New Zealand) |
| Abstract: | This paper introduces a new indicator of core inflation for New Zealand, estimated using a dynamic factor model and disaggregate price data. Using disaggregate price data we can directly compare the predictive performance of our core indicator with a wide range of other ‘core inflation’ measures estimated from disaggregate prices, such as the weighted median and the trimmed mean. Predictive performance is assessed relative to a centred 2 year moving average of past and future annual inflation outcomes. The 2 year centred moving average is used as an analytical approximation of the inflation target from the PTA, which requires the Reserve Bank to keep annual inflation between 1 and 3 per cent on average over the medium term. We find that our indicator produces relatively good estimates of this characterisation of core inflation when compared with estimates derived from a range of other models. |
| JEL: | C32 E31 E32 E52 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbdps:2006/12&r=mon |
| By: | Mete Feridun (Department of Economics, Loughborough University) |
| Abstract: | Economies are susceptible to speculative attacks regardless of whether they use fixed or floating exchange rates. Turkish experience in the last two decades constitutes one of the most prominent examples proving this verdict. It is widely accepted that there is a link between domestic credit and speculative attacks on the currency. Nevertheless, the literature on currency crises clearly lacks a country-specific study that addresses the long-run relationship between this indicator and the speculative pressure in the exchange market. This article aims at filling this gap in the literature using monthly Turkish time series data spanning the period 1984:04- 2006:11. Results of the ADF unit root tests suggest that the series are stationary. Hence, no cointegration analysis was carried out before the Granger-causality tests. Granger causality tests fail to establish a causal relationship between domestic credit and exchange market pressure. |
| Keywords: | Speculative attacks; currency crises; domestic credit. |
| JEL: | F3 E44 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2006_23&r=mon |