nep-mon New Economics Papers
on Monetary Economics
Issue of 2008‒12‒14
twenty-six papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. Interactions between monetary policy and exchange rate in inflation targeting emerging countries: the case of three East Asian countries By Sek, Siok Kun
  2. Inflation targeting in Latin America: Empirical analysis using GARCH models By Carmen Broto
  3. Responses to monetary policy shocks in the east and the west of Europe - a comparison. By Marek Jarociński
  4. The Suspension of the Gold Standard as Sustainable Monetary Policy By Newby, E.
  5. Reconnecting Money to Inflation: The Role of the External Finance Premium By Chadha, J.S.; Corrado, L.; Holly, S.
  6. The transition period before the inflation targeting policy By Essahbi Essaadi; Zied Ftiti
  7. An empirical assessment of the relationships among inflation and short- and long-term expectations By Todd E. Clark; Troy Davig
  8. Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time By Joshua Aizenman; Menzie D. Chinn; Hiro Ito
  9. Regional Debt in Monetary Unions: Is it Inflationary ? By Russell Cooper; Hubert Kempf; Dan Peled
  10. Inflation Targeting and Real Exchange Rates in Emerging Markets By Joshua Aizenman; Michael Hutchison; Ilan Noy
  11. A Measure for Credibility: Tracking US Monetary Developments By Maria Demertzis; Massimiliano Marcellino; Nicola Viegi
  12. Re-Evaluating Swedish Membership in EMU: Evidence from an Estimated Model By Ulf Söderström
  13. Inflation Determination with Taylor Rules: Is New Keynesian Analysis Critically Flawed? By Bennett T. McCallum
  14. Estimating real and nominal term structures using treasury yields, inflation, inflation forecasts, and inflation swap rates By Joseph G. Haubrich; George Pennacchi; Peter Ritchken
  15. US Volatility Cycles of Output and Inflation, 1919-2004: A Money and Banking Approach to a Puzzle By Benk, Szilárd; Gillman, Max; Kejak, Michal
  16. Delegation, Time Inconsistency and Sustainable Equilibrium By Basso, Henrique S
  17. Bretton Woods and the Great Inflation By Michael D. Bordo; Barry Eichengreen
  18. Defending against Speculative Attacks By Tijmen R. Daniels; Henk Jager; Franc Klaassen
  19. Monetary policy rules and indterminacy By Sosunov, Kirill; Khramov, Vadim
  20. Central bank institutional structure and effective central banking: cross-country empirical evidence By Hasan , Iftekhar; Mester, Loretta
  21. A Nonparametric Approach to Evaluating Inflation-Targeting Regimes By Weshah Razzak; Rabie Nasser
  22. The Estimated Effects of the Euro on Trade: Why Are They Below Historical Effects of Monetary Unions Among Smaller Countries? By Jeffrey A. Frankel
  23. Implications of Oil Price Shocks for Monetary Policy in Ghana: A Vector Error Correction Model By Tweneboah , George; Adam, Anokye M.
  24. EXAMINING THE CRB INDEX AS AN INDICATOR FOR U.S. INFLATION By Acharya, Ram N.; Gentle, Paul F.; Mishra, Ashok K.; Paudel, Krishna P.
  25. Permanence and innovation in central banking policy for financial stability By Michel Aglietta; Laurence Scialom
  26. The Cross-Section of Output and Inflation in a Dynamic Stochastic General Equilibrium Model with Sticky Prices By Döpke, J.; Funke, M.; Holly, S.; Weber, S.

  1. By: Sek, Siok Kun
    Abstract: This paper investigates empirically how the reaction of monetary policy to exchange rate has changed after the adoption of inflation targeting regime in three East Asian countries. Using a structural VAR and single equation methods, this study shows that the reactions of monetary policy to exchange rate shocks as well as CPI (demand shocks) and output (supply shocks) have declined under the inflation targeting environment. The policy function reacts weakly to the exchange rate movements before and after the financial crisis of 1997 in two out of the three countries.
    Keywords: exchange rate; inflation targeting; policy reaction function
    JEL: E58 E52 F41
    Date: 2008
  2. By: Carmen Broto (Banco de España)
    Abstract: During the last years, a number of countries have adopted formal inflation targeting (IT) monetary policy frameworks in a context of global inflation moderation. This paper studies inflation dynamics in eight Latin American countries, some of which have adopted formal targets. We analyze possible benefits associated with IT in terms of lower inflation, inflation volatility and volatility persistence. To describe inflation dynamics and evaluate its impact, we use an unobserved components model, where each component can follow a GARCH type process. In general, the main findings of the empirical exercise show that the adoption of IT has been useful to reduce the inflation level and volatility in these countries.
    Keywords: Inflation targets, inflation uncertainty, GARCH, structural time series models
    JEL: C22 C51 E52
    Date: 2008–12
  3. By: Marek Jarociński (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper compares impulse responses to monetary policy shocks in the euro area countries before the EMU and in the New Member States (NMS) from central-eastern Europe. We mitigate the small sample problem, which is especially acute for the NMS, by using a Bayesian estimation that combines information across countries. The impulse responses in the NMS are broadly similar to those in the euro area countries. There is some evidence that in the NMS, which have had higher and more volatile inflation, the Phillips curve is steeper than in the euro area countries. This finding is consistent with economic theory. JEL Classification: C11, C32, C33, E40, E52.
    Keywords: monetary policy transmission, Structural VAR, Bayesian estimation, exchangeable prior.
    Date: 2008–11
  4. By: Newby, E.
    Abstract: This paper models the gold standard as a state contingent commitment rule that is only feasible during peace. It shows that monetary policy during war, when the gold convertibility rule is suspended, can still be credible, if the policy maker's plan is to resume the gold standard at the old par value in the future. The DGE model developed in this paper suggests that the resumption of the gold standard was a sustainable plan, which replaced the gold standard as a commitment rule and made monetrary policy time consistent. The equilibrium is supported by trigger strategies, where private agents retaliate if a policy maker defaults its policy plan to resume the gold standard rule.
    Keywords: Gold standard, Time consistency, Monetary policy, Monetary regimes.
    JEL: C61 E31 E4 E5 N13
    Date: 2008–11
  5. By: Chadha, J.S.; Corrado, L.; Holly, S.
    Abstract: We re-connect money to in.ation using Goodfriend and McCallum's (2007) model where banks supply loans to cash-in-advance constrained consumers on the basis of the value of collateral provided and the monitoring skills of banks. We show that when shocks to monitoring and collateral dominate those to goods productivity and the velocity of money demand, money and the external finance premium become closely linked. This is because increases in asset prices allow banks to raise the supply of loans leading to an expansion in aggregate demand, via a compression of financial interest rates spreads, which in turn tends to be inflationary. Thus money and financial spreads are negatively correlated when banking sector shocks dominate. We suggest a simple augmented stabilising monetary policy rule that exploits the joint information from money and the external finance premium.
    Keywords: money, DSGE, policy rules, external finance premium.
    JEL: E31 E40 E51
    Date: 2008–11
  6. By: Essahbi Essaadi (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France); Zied Ftiti (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France)
    Abstract: In this paper, we study the inflation dynamics in an industrial inflation-targeting country (New Zealand). Our objective is to check if the inflation targeting policy has a transition period or not. Loosely speaking, we try to give some response to the famous debate: if the inflation targeting is a framework or a simple monetary rule. For this purpose, we use a frequency approach: Evolutionary Spectral Analysis, as defined by Priestley (1965-1996). Then, we detect endogenously a structural break point in inflation series, by applying a non-parametric test. This is the first time that this method is used in the case of inflation-targeting countries. Our main finding is that the adoption of the inflation-targeting policy in New Zealand was characterized by a transition period before the adoption of this framework. This period was characterized by many radical reforms, which caused a structural break in the New Zealand inflation series. These reforms were made to lead back the inflation close to the initial target. In addition, these reforms increased the transparency and the credibility of the monetary policy. We conclude from our frequency analysis that the inflation series becomes stable in long-term after the adoption of the inflation targeting. This can be a justification of the effectiveness of this policy to ensure the price stability.
    Keywords: New Zealand, Inflation Targeting, Spectral Analysis and Structural Change
    JEL: C16 E52 E63
    Date: 2008
  7. By: Todd E. Clark; Troy Davig
    Abstract: This paper uses a detailed literature review and an empirical analysis of three models to assess the links among inflation and survey measures of long- and short-term expectations. In the first approach, we jointly estimate a model of inflation, survey expectations and monetary policy, where each is a function of a common time-varying inflation trend. In the estimates, long-term expectations track closely the unobserved trend that is an important factor in inflation dynamics, implying that changes in long-run expectations can lead to persistent movements in inflation. In the second approach, we estimate a time-varying parameter VAR with stochastic volatility. This model relaxes the cross-equation and constant parameter restrictions from the first model. Impulse response analysis shows a relatively stable relationship between inflation and survey measures of inflation, although with some modest changes consistent with improved anchoring of long-term expectations. Finally, we rely on a conventional VAR framework incorporating several macroeconomic variables, including both short- and long-term measures of expected inflation. In these estimates, shocks to either measure of expectations lead to a rise in the other measure and some limited pass-through to inflation. Shocks to inflation cause both short- and long-term expectations to rise. Other factors such as monetary policy, economic activity, and food price inflation also affect expectations and inflation.
    Date: 2008
  8. By: Joshua Aizenman; Menzie D. Chinn; Hiro Ito
    Abstract: We develop a methodology that allows us to characterize in an intuitive manner the choices countries have made with respect to the trilemma during the post Bretton-Woods period. The first part of the paper deals with positive aspects of the trilemma, outlining new metrics for measuring the degree of exchange rate flexibility, monetary independence, and capital account openness. The evolution of our "trilemma indexes" illustrates that after the early 1990s, industrialized countries accelerated financial openness, but reduced the extent of monetary independence while sharply increasing exchange rate stability. This process culminated at the end of the 1990s with the introduction of the euro. In contrast, the group of developing countries pursued exchange rate stability as their key priority up to 1990, although many countries moved toward greater exchange rate flexibility from the early 1970s onward. Since 2000, measures of the three trilemma variables have converged towards intermediate levels characterizing managed flexibility, using sizable international reserves as a buffer, thus retaining some degree of monetary autonomy. Using these indexes, we also test the linearity of the three aspects of the trilemma: monetary independence, exchange rate stability, and financial openness. We confirm that the weighted sum of the three trilemma policy variables adds up to a constant, validating the notion that a rise in one trilemma variable should be traded-off with a drop of the weighted sum of the other two. The second part of the paper deals with normative aspects of the trilemma, relating the policy choices to macroeconomic outcomes such as the volatility of output growth and inflation, and medium term inflation rates. Some key findings for developing countries include: (i) greater exchange rate stability implies greater output volatility, which can only be slightly mitigated by reserve accumulation; (ii) somewhat counter to previous findings, greater exchange rate stability is also associated with greater inflation volatility, and (iii) greater monetary autonomy is associated with a higher level of inflation. We believe these results differ from those identified in previous studies due to the comprehensive nature of our analysis, which encompasses more than 100 countries and 37 years, as well as the inclusion of a number of additional structural and policy variables in the regressions.
    JEL: F15 F21 F31 F36 F41 O24
    Date: 2008–12
  9. By: Russell Cooper (University of Texas - Department of Economics); Hubert Kempf (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Banque de France - Direction de la Recherche); Dan Peled (University of Haifa - Department of Economics)
    Abstract: This paper studies the inflationary implications of interest bearing regional debt in a monetary union. Is this debt simply backed by future taxation with non inflationary consequences ? Or will the circulation of region debt induce monetization by a central bank ? We argue here that both outcomes can arise in equilibrium. In the model economy, there are multiple equilibria which reflect the perceptions of agents regarding the manner in which the debt obligations will be met. In one equilibrium, termed Ricardian, the future obligations are met with taxation by a regional government while in the other, termed Monetization, the central bank is induced to print money to finance the region's obligations. The multiplicity of equilibria reflects a commitment problem of the central bank. A key indicator of the selected equilibrium is the distribution of the holdings of the regional debt. We show that regional governments, anticipating central bank financing of their debt obligations, have an incentive to create excessively large deficits. We use the model to assess the impact of policy measures within a monetary union.
    Keywords: Monetary union ; inflation tax ; seigniorage ; public debt
    Date: 2008–11
  10. By: Joshua Aizenman; Michael Hutchison; Ilan Noy
    Abstract: We examine the inflation targeting (IT) experiences of emerging market economies, focusing especially on the roles of the real exchange rate and the distinction between commodity and non-commodity exporting nations. In the context of a simple empirical model, estimated with panel data for 17 emerging markets using both IT and non-IT observations, we find a significant and stable response running from inflation to policy interest rates in emerging markets that are following publically announced IT policies. By contrast, central banks respond much less to inflation in non-IT regimes. IT emerging markets follow a “mixed IT strategy†whereby both inflation and real exchange rates are important determinants of policy interest rates. The response to real exchange rates is much stronger in non-IT countries, however, suggesting that policymakers are more constrained in the IT regime—they are attempting to simultaneously target both inflation and real exchange rates and these objectives are not always consistent. We also find that the response to real exchange rates is strongest in those countries following IT policies that are relatively intensive in exporting basic commodities. We present a simple model that explains this empirical result.
    JEL: E52 E58 F15 F3
    Date: 2008–12
  11. By: Maria Demertzis; Massimiliano Marcellino; Nicola Viegi
    Abstract: Our objective is to identify a way of checking empirically the extent to which expectations are de-coupled from inflation, how well they might be anchored in the long run, and at what level. This methodology allows us then to identify a measure for the degree of anchorness, and as anchored expectations are associated with credibility, this will serve as a proxy for credibility. We apply this methodology to the US history of inflation since 1963 and examine how well our measure tracks the periods for which credibility is known to be either low or high. Of particular interest to the validity of the measure is the start of the Great Moderation. Following the narrative of a number of well documented incidents in this period, we check how well our measure captures both the evolution of credibility in US monetary policy, as well as reactions to inflation scares.
    Keywords: Great Inflation, Great Moderation, Anchors for Expectations
    JEL: E52 E58
    Date: 2008
  12. By: Ulf Söderström
    Abstract: I revisit the potential costs and benefits for Sweden of joining the Economic and Monetary Union (EMU) of the European Union. I first show that the Swedish business cycle since the mid-1990s has been closely correlated with the Euro area economies, suggesting that common shocks have been an important driving force of business cycles in Europe. However, evidence from an estimated model of the Swedish economy instead suggests that country-specific shocks have been important for fluctuations in the Swedish economy since 1993, implying that EMU membership could be costly. The model also indicates that the exchange rate has to a large extent acted to destabilize, rather than stabilize, the Swedish economy, pointing to the costs of independent monetary policy with a flexible exchange rate. Finally, counterfactual simulations of the model suggest that Swedish inflation and GDP growth might have been slightly higher if Sweden had been a member of EMU since the launch in 1999, but also that GDP growth might have been more volatile. The evidence is therefore not conclusive about whether or not participation in the monetary union would be advantageous for Sweden.
    JEL: E42 E58 F41
    Date: 2008–12
  13. By: Bennett T. McCallum
    Abstract: Cochrane (2007) has strongly questioned the basic economic logic of current mainstream monetary policy analysis, arguing that the standard notion --that "determinacy" of a rational expectations (RE) equilibrium suffices to imply that stable inflation behavior will be generated -- is incorrect. This is because New Keynesian (NK) models are typically consistent with the existence of RE paths with explosive inflation rates (in addition to one or more stable paths) that normally do not imply explosions in real variables relevant for transversality conditions. Consequently, the usual logic does not imply the absence of explosive inflation. That result does not, however, justify negative conclusions about NK analysis. For there is a different criterion that is logically satisfactory for the purpose at hand. This is the requirement that, to be plausible, a RE solution must satisfy the property of least-squares learnability. Adoption of this criterion, which should be attractive to analysts concerned with actual monetary policy, serves to justify in principle the bulk of current mainstream analysis.
    JEL: E4 E5 E52
    Date: 2008–12
  14. By: Joseph G. Haubrich; George Pennacchi; Peter Ritchken
    Abstract: This paper develops and estimates an equilibrium model of the term structures of nominal and real interest rates. The term structures are driven by state variables that include the short term real interest rate, expected inflation, a factor that models the changing level to which inflation is expected to revert, as well as four volatility factors that follow GARCH processes. We derive analytical solutions for the prices of nominal bonds, inflation-indexed bonds that have an indexation lag, the term structure of expected inflation, and inflation swap rates. The model parameters are estimated using data on nominal Treasury yields, survey forecasts of inflation, and inflation swap rates. We find that allowing for GARCH effects is particularly important for real interest rate and expected inflation processes, but that long–horizon real and inflation risk premia are relatively stable. Comparing our model prices of inflation-indexed bonds to those of Treasury Inflation Proected Securities (TIPS) suggests that TIPS were underpriced prior to 2004 but subsequently were valued fairly. We find that unexpected increases in both short run and longer run inflation implied by our model have a negative impact on stock market returns.
    Keywords: Interest rates ; Inflation (Finance) ; Asset pricing
    Date: 2008
  15. By: Benk, Szilárd; Gillman, Max (Cardiff Business School); Kejak, Michal
    Abstract: The post-1983 moderation coincided with an ahistorical divergence in the money aggregate growth and velocity volatilities away from the downward trending GDP and inflation volatilities. Using an endogenous growth monetary DSGE model, with micro-based banking production, enables a contrasting characterization of the two great volatility cycles over the historical period of 1919-2004, and enables this puzzle to be addressed more easily. The volatility divergence is explained by the upswing in the credit volatility that kept money supply variability from translating into inflation and GDP volatility.
    Keywords: Volatility; money and credit shocks; growth; inflation
    JEL: E13 E32 E44
    Date: 2008–11
  16. By: Basso, Henrique S (Department of Economics)
    Abstract: This paper analyzes the effectiveness of delegation in solving the time inconsistency problem of monetary policy using a microfounded general equilibrium model where delegation and reappointment are explicitly included into the government's strategy. The method of Chari and Kehoe (1990) is applied to characterize the entire set of sustainable outcomes. Countering McCallum's (1995) second fallacy, delegation is able to eliminate the time inconsistency problem, with the commitment policy being sustained under discretion for any intertemporal discount rate.
    Keywords: Central Bank; Monetary Policy; Institutional Design
    JEL: E52 E58 E61
    Date: 2008–10–31
  17. By: Michael D. Bordo; Barry Eichengreen
    Abstract: In this paper we show that the acceleration of inflation in the United States after 1965 reflected a shift in perceived responsibility for managing the country's international financial position. Prior to 1965 this responsibility was lodged primarily with the Fed, whose policies resembled those of a central bank playing by the gold standard rules of the game. Over time, however, this responsibility was increasingly assumed by the Treasury, while the Federal Reserve acquired increasing room for maneuver as a result of the adoption of the Interest Equalization Tax and other policies with effects analogous to capital controls. Once the external constraint shaped policy less powerfully, the Fed pursued other goals more aggressively, resulting in more inflationary pressure. We document these points with a quantitative and qualitative analysis of the minutes of the Federal Open Market Committee.
    JEL: N1 N2
    Date: 2008–12
  18. By: Tijmen R. Daniels (Technische Universität Berlin); Henk Jager (University of Amsterdam); Franc Klaassen (University of Amsterdam)
    Abstract: While virtually all modern models of exchange rate crises recognise that the decision to abandon an exchange rate peg depends on how harshly policy makers are willing to defend the regime, they virtually never model how the exchange rate is defended. In this paper we incorporate both the mechanics of speculation and a defence policy against speculation in the well-known currency crisis model of Morris and Shin (American Economic Review 88 (1998) 587-97). After adding these natural elements, our model outperforms standard currency crisis models at explaining stylised features of speculative attacks. Moreover, our model connects the theoretical currency crisis literature to an empirical literature on exchange market pressure, by bringing together its building blocks: exchange rate changes plus counter-acting defence policies. We use this connection to confirm our model's predictions empirically.
    Keywords: Exchange Market Pressure; Currency Crisis; Global Game
    JEL: E58 F31 F33 G15
    Date: 2008–09–22
  19. By: Sosunov, Kirill; Khramov, Vadim
    Abstract: In recent papers it is shown that in the presence of price stickiness, investment and capital accumulation activity, active monetary policy (MP) rules can lead to indeterminacy under various assumptions about the structure of the model. We analyze the conditions for real indeterminacy to occur in the model with capital accumulation. The key assumption is that we add response to output to the monetary policy rule. In our paper we show that adding Current or Expected Output to MP rule substantially changes the conditions for real indeterminacy to occur. In contrast to some existing research we show that under current-looking with respect to output MP rules indeterminacy is almost impossible; under forward-looking with respect to output MP rules indeterminacy is almost impossible under active MP rules and very likely to occur under passive MP rules. We also show that stability conditions are almost not sensitive to changes in capital share in output and aggregate markup. We provide the nominal determinacy analysis and show that active and forward-looking MP rules with respect to output give
    Keywords: Macroeconomics; Monetary Econimics; Indeterminacy
    JEL: E0 E32 E31 E30 E5 E4
    Date: 2008–06
  20. By: Hasan , Iftekhar (Rensselaer Polytechnic Institute and Bank of Finland); Mester, Loretta (Federal Reserve Bank of Philadelphia and University of Pennsylvania)
    Abstract: Over the last decade, the legal and institutional frameworks governing central banks and financial market regulatory authorities throughout the world have undergone significant changes. This has created new interest in better understanding the roles played by organizational structures, accountability and transparency in increasing the efficiency and effectiveness of central banks in achieving their objectives and ultimately yielding better economic outcomes. Although much has been written pointing out the potential role institutional form can play in central bank performance, little empirical work has been done to investigate the hypothesis that institutional form is related to performance. This paper attempts to help fill this void.
    Keywords: central banking; institutional structure; accountability; transparency; performance
    JEL: E52 E58
    Date: 2008–12–05
  21. By: Weshah Razzak; Rabie Nasser
    Abstract: We use a variety of nonparametric test statistics to evaluate the inflation- targeting regimes of Australia, Canada, New Zealand, Sweden and the UK. We argue that a sensible approach of evaluation must rely on a variety of methods, among them parametric and nonparametric econometric methods, for robustness and completeness. Our evaluation strategy is based on examining two possible policy implications of inflation targeting: First, a welfare implication and second, a real variability implication. The welfare implication involves evaluating a utility function, and tested by testing whether (1) the distributions of the levels and the growth rates of private consumption and leisure per capita remained unchanged under inflation targeting, i.e., first-order stochastic dominance; and (2) testing a linear combination of consumption and leisure per capita, where the parameter describing the utility of leisure or the relative preference of leisure is calibrated. Then we introduce nonparametric univariate and multivariate statistical methods to test whether the first and second moments of a variety of real variables, such as the real exchange rate depreciation rate, real GDP per capita growth rate in addition to private consumption per capita and leisure per capita growth rates, remained unchanged under inflation targeting, decreased or increased significantly. There seems to be some evidence of increased welfare under inflation-targeting regimes, but no concrete evidence is found that inflation targeting policy, in general, reduces real variability. Some cross country differences are also found.
    Keywords: Nonparametric, First-order stochastic dominance, sudden shift in the distribution, inflation targeting.
    JEL: C02 C12 C14 E31
    Date: 2008–11–18
  22. By: Jeffrey A. Frankel
    Abstract: Andy Rose (2000), followed by many others, has used the gravity model of bilateral trade on a large data set to estimate the trade effects of monetary unions among small countries. The finding has been large estimates: Trade among members seems to double or triple, that is, to increase by 100-200%. After the advent of EMU in 1999, Micco, Ordoñez and Stein and others used the gravity model on a much smaller data set to estimate the effects of the euro on trade among its members. The estimates tend to be statistically significant, but far smaller in magnitude: on the order of 10-20% during the first four years. What explains the discrepancy? This paper seeks to address two questions. First, do the effects on intra-euroland trade that were estimated in the euro's first four years hold up in the second four years? The answer is yes. Second, and more complicated, what is the reason for the big discrepancy vis-à-vis other currency unions? We investigate three prominent possible explanations for the gap between 15% and 200%. First, lags. The euro is still very young. Second, size. The European countries are much bigger on average than most of those who had formed currency unions in the past. Third, endogeneity of the decision to adopt an institutional currency link. Perhaps the high correlations estimated in earlier studies were spurious, an artifact of reverse causality. Contrary to expectations, we find no evidence that any of these factors explains a substantial share of the gap, let alone all of it.
    JEL: F01 F33 F4
    Date: 2008–12
  23. By: Tweneboah , George; Adam, Anokye M.
    Abstract: We estimate a Vector Error Correction Model to explore the long run and short run linkages between the world crude oil price and economic activity in Ghana for the period 1970:1 to 2006:4. The results point out that there is a long run relationship between the variables under consideration. We find that an unexpected oil price increase is followed by an increase in price level and a decline in output in Ghana. We argue that monetary policy has in the past been with the intention of lessening negative growth consequences of oil price shocks, at the cost of higher inflation.
    Keywords: Oil price shock; cointegration; vector error correction; impulse response
    JEL: E31 E52 Q43
    Date: 2008
  24. By: Acharya, Ram N.; Gentle, Paul F.; Mishra, Ashok K.; Paudel, Krishna P.
    Abstract: This paper analyzes historical movements in the commodity futures market and the relationship to inflation. Specifically, the relationship between the Commodity Research Bureau (CRB) Index and United States inflation is investigated. It is said that the relationship between the CRB index and the U.S. inflation rate was greater in the some periods than in another period. Then in recent times the CRB Index has proven to be a reliable early indicator of inflation. As the composition of the United States economy changes, the Commodity Research Bureau must make adjustments in order to provide a viable service.
    Keywords: CRB index, Commodities Research Bureau, inflation, Vector Autoregression, Marketing, Public Economics, E00, E30,
    Date: 2008
  25. By: Michel Aglietta; Laurence Scialom
    Abstract: In the first part of this paperer, we emphasize the adaptability and continuity of the lender-of-last-resort doctrine beyond the diversity of financial structures from the 19th century to the present day. The second part deals with the global credit crisis and the analysis of the central banks’ innovative practices during the 2007-2008 financial crisis. We highlight that the lender of last resort’s role is not confined to providing emergency liquidity. It aims to provide orderly deleveraging in the financial system in order to preserve the financial intermediation process. Our conclusion underlines that the crisis management has become global and strategic. It opens the way to a major regulatory and supervisory reform.
    Keywords: lender of last resort, central banking, liquidity crisis
    JEL: E58 G12 G18 G21
    Date: 2008
  26. By: Döpke, J.; Funke, M.; Holly, S.; Weber, S.
    Abstract: In a standard dynamic stochastic general equilibrium framework, with sticky prices, the cross sectional distribution of output and inflation across a population of firms is studied. The only form of heterogeneity is confined to the probability that the ith firm changes its prices in response to a shock. In this Calvo setup the moments of the cross sectional distribution of output and inflation depend crucially on the proportion of firms that are allowed to change their prices. We test this model empirically using German balance sheet data on a very large population of firms. We find a significant counter-cyclical correlation between the skewness of output responses and the aggregate economy. Further analysis of sectoral data for the US suggests that there is a positive relationship between the skewness of inflation and aggregates, but the relation with output skewness is less sure. Our results can be interpreted as indirect evidence of the importance of price stickiness in macroeconomic adjustment.
    JEL: D12 E52 E43
    Date: 2008–09

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