nep-mon New Economics Papers
on Monetary Economics
Issue of 2007‒02‒03
seven papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. Monetary and Exchange Rate Policy in Malaysia before the Asian Crisis By Umezaki, So
  2. The UK great stability: a view from the term structure of interest rates By Bianchi, Francesco; Mumtaz, Haroon; Surico, Paolo
  3. Savings and Investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein-Horioka Puzzle? By Caroline Schmidt
  4. When Is a Central Bank Governor Fired? Evidence Based on a New Data Set By Axel Dreher; Jakob de Haan; Jan-Egbert Sturm
  5. Trade, Exchange Rates, and Macroeconomic Dynamics in East Asia: Why the Electronics Cycle Matters By Kumakura, Masanaga
  7. Understanding the Old and New Bretton Woods By Paul Wachtel

  1. By: Umezaki, So
    Abstract: This paper provides a case study to characterize the monetary policy regime in Malaysia, from a medium- and long-term perspective. Specifically, we ask how the central bank of Malaysia, Bank Negara Malaysia (BNM), has structured its monetary policy regime, and how it has conducted monetary and exchange rate policy under the regime. By conducting three empirical analyses, we characterize the monetary and exchange rate policy regime in Malaysia by three intermediate solutions on three vectors: the degree of autonomy in monetary policy, the degree of variability of the exchange rate, and the degree of capital mobility.
    Keywords: Monetary policy, Exchange rate, Capital control, Malaysia, Foreign exchange, Capital market
    JEL: E42 E58 F41
    Date: 2006–12
  2. By: Bianchi, Francesco; Mumtaz, Haroon; Surico, Paolo
    Abstract: This paper models the evolution of monetary policy, the term structure of interest rates and the UK economy across policy regimes. We model the interaction between the macroeconomy and the term structure via a time-varying VAR model which is augmented with factors from the yield curve. Our results suggest that the characteristics of the yield curve (e.g. level, slope and curvature) display substantial time variation with the level factor moving closely with measures of inflation expectations. Our estimates indicate a large decline in volatility associated with the yield curve and macroeconomic variables, with the period of stability coinciding with the inflation targeting regime. The link between the macroeconomy and the yield curve has also changed over time with fluctuations in the level factor less important for inflation after 1997. In addition, policy rates appear to have responded more systematically to inflation and unemployment in the current regime and the contribution of the policy shock has been low. Finally, in contrast to a fixed coefficients specification, theoretical yields predicted by our time-varying model are very close to actual data and deviations from the expectations hypothesis have been rare.
    Keywords: FAVAR; Great Stability; Term Structure; Expectation Theory
    JEL: G14 C32 E58 E43
    Date: 2007–01–25
  3. By: Caroline Schmidt (KOF, Swiss Institute of Business Cycle Research, ETH Zurich)
    Abstract: In this paper, it is argued that the observed high positive correlation between national savings and investment which is found in the data can in part be explained by shocks to monetary policy. This hypothesis, which is established by reviewing some empirical .ndings, is tested in a two-country DSGE-model framework in the tradition of the New Open Economy Macroeconomics. The simulation results obtained support the idea that shocks to monetary policy might contribute to the explanation of the Feldstein-Horioka puzzle.
    Keywords: Savings Investment Correlations,Monetary Policy Shocks, Feldstein- Horioka Puzzle, Local-currency pricing; Investment Correlations,Monetary Policy Shocks, Feldstein- Horioka Puzzle, Local-currency pricing
    JEL: E2 E52 F32
    Date: 2006–08
  4. By: Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Jakob de Haan (University of Groningen, The Netherlands and CESifo, Munich, Germany); Jan-Egbert Sturm (Department of Management, Technology, and Economics, ETH Zurich)
    Abstract: This paper uses a new data set on the term in office of central bank governors in 137 countries covering the period 1970-2004 to estimate a model for the chance that a central bank governor is replaced. We formulate a number of hypotheses based on the literature on the determinants of central bank independence that are tested using conditional logit models and the Extreme Bounds Analysis. We conclude that, apart from the share of the current term in office elapsed, high levels of political and regime instability, the occurrence of elections, and high inflation increase the probability of a turnover.
    Keywords: central bank governors, central bank independence
    JEL: E5
    Date: 2006–07
  5. By: Kumakura, Masanaga
    Abstract: Against the background of increasing regional trade and investment, there is growing interest in monetary and macroeconomic policy coordination in East Asia. Although there is a sizable literature on macroeconomic linkages among East Asian countries and the potential merit of policy coordination in the region, the existing studies tend to examine these issues exclusively in terms of macroeconomic variables and do not consider how these aggregate variables are influenced by one prominent feature of a number of East Asian economies: their heavy dependence on the electronics industry. Although active engagement in the global electronics industry has been a powerful growth engine for the Asian countries, it has also left their economies vulnerable to cyclical fluctuations in the world electronics market. As the cycle of the global electronics industry exerts profound impacts on the medium-term dynamics of the Asian economies, it is imperative to take an explicit account of its influence when studying the way in which the regional economies are linked to one another and how this relationship can be altered by a specific policy initiative. We illustrate the importance of this point by examining recent studies on: (1) trade competition between China andother Asian countries and the role of the Chinese renminbi therein; and (2) the effect offluctuations in the yen/dollar exchange rate on the regional economies.
    Keywords: Electronics cycle, Export competition, Renminbi, Yen/dollar exchange rate, Electronics, International trade, Foreign exchange, East Asia, Southeast Asia
    JEL: F14 F15 F33
    Date: 2006–10
  6. By: Gordon Menzies; Daniel Zizzo
    Abstract: We present a macroeconomic market experiment on the financial determination of exchange rates, and consider whether the assumption that belief formation be treated as a classical hypothesis test, which we label inferential expectations, can explain the effect of uncertainty on exchange rates. In a non-stochastic environment, exchange rates closely follow standard predictions. In our stochastic environment, inferential expectations with a low test size alpha (conservative inferential expectations) predict exchange rates better than rational expectations in ten sessions out of twelve. Belief conservatism appears magnified rather than diminished at the market level, and the degree of belief conservatism seems connected to the failure of uncovered interest rate parity regressions.
    JEL: C91 D84 E50 F31
    Date: 2006–12
  7. By: Paul Wachtel
    Date: 2006

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