nep-mon New Economics Papers
on Monetary Economics
Issue of 2010‒01‒30
27 papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. Demand for Reserves and the Central Bank's Management of Interest Rates By Schlegel, Martin; Kraenzlin, Sébastien
  2. The reception of public signals in financial markets – what if central bank communication becomes stale? By Michael Ehrmann
  3. Commentary on Policy at the Zero Lower Bound By Christopher A. Sims
  4. Inflation in Tajikistan:Dynamic and Forecasting Analysis and Monetary Policy Challenges By Fahad Alturki; Svetlana Vtyurina
  5. Assessing McCallum and Taylor rules in a cross-section of emerging market economies By Mehrotra, Aaron; Sánchez-Fung, José R.
  6. Measures of Inflation in India: Issues and Perspectives By Deepak Mohanty
  7. Monetary Regimes in Post-Communist Countries. Some Long-Term Reflections By Nikolay Nenovsky
  8. Lending Relationships and Monetary Policy By Henrique S. Basso and Javier Coto-Martinez, Yunus Aksoy,
  9. Determinants of inflation and price level differentials across the euro area countries. By Malin Andersson; Klaus Masuch; Marc Schiffbauer
  10. How Central Should the Central Bank Be? By Alan S. Blinder
  11. China and the Global Roles of Currencies By John Ryan
  12. An SVAR Analysis of Monetary Policy Dynamics and Housing Market Responses in Australia By IKM Mokhtarul Wadud; Omar HMN Bashar; Huson Joher Ali Ahmed
  13. Monetary cycles, financial cycles, and the business cycle By Tobias Adrian; Arturo Estrella; Hyun Song Shin
  14. A soft edge target zone model: Theory and application to Hong Kong By Chen, Yu-Fu; Funke, Michael; Glanemann, Nicole
  15. Dollarization as a Signaling Device By Krzysztof Makarski
  16. On Keynes’s criticism of the Loanable Funds Theory By Giancarlo Bertocco
  17. United Kingdom Eurozone Entry Scenarios Evaluated By John Ryan
  18. The Federal Reserve's Commercial Paper Funding Facility By Tobias Adrian; Karin Kimbrough; Dina Marchioni
  19. Don’t Frighten the Horses – the Political Economy of Singapore’s Foreign Exchange Rate Regime since 1981 By Peter Wilson; Gavin Peebles
  20. Liquidity crunch in the interbank market: is it credit or liquidity risk, or both? By Angelo Baglioni
  21. Bidding Behavior in the SNB's Repo Auctions By Kraenzlin, Sébastien; Schlegel, Martin
  22. Central Bank Independence and Budget Deficits in Developing Countries: New Evidence from Panel Data Analysis By Yannick Lucotte
  23. Jointly Optimal Monetary and Fiscal Policy Rules under Borrowing Constraints By Michael Kumhof; Huixin Bi
  24. The Demand for Money in Cote d’Ivoire: Evidence from the Cointegration Test. By Drama, Bedi Guy Herve; Yao , Shen
  25. Money and finance: the heterodox views of R. Clower, A. Leijonhufvud and H. Minsky By Elisabetta De Antoni
  26. Repo market effects of the Term Securities Lending Facility By Michael J. Fleming; Warren B. Hrung; Frank M. Keane
  27. Exchange Rate Choices of Microstates By Patrick A. Imam

  1. By: Schlegel, Martin (Swiss National Bank); Kraenzlin, Sébastien (Swiss National Bank)
    Abstract: The implementation of monetary policy is prevalently done by interest rate targeting with a short term market rate serving as operational target. The instruments for achieving the operational target are the provision of reserves and the interest rate charged in these transactions. This paper presents a model for the estimation of the demand curve for reserves, derived from the central bank’s fixed rate tender auction and the interbank money market. Using data from Switzerland, the slope of the demand curve is estimated. Furthermore, properties of the demand curve such as the slope patterns in the course of a maintenance period and the slope in different monetary regimes are assessed. We find a steeper demand curve towards the end of the maintenance period and an increasing slope when the general interest rate level is high. Further, we investigate the role of the Swiss National Bank’s (SNB) interest rate in the fixed rate tender auctions. There is evidence that the SNB uses its auction rate to guide the interbank market rate.
    Keywords: mplementation of Monetary Policy; Money Demand; Fixed Rate Tender Auction; Repo; Switzerland
    JEL: D40 E41 E43 E52
    Date: 2009–07–01
  2. By: Michael Ehrmann (European Central Bank)
    Abstract: How do financial markets price new information? This paper analyzes price setting at the intersection of private and public information, by testing whether and how the reaction of financial markets to public signals depends on the relative importance of private information in agents’ information sets at a given point in time. It studies the reaction of UK short-term interest rates to the Bank of England’s inflation report and to acroeconomic announcements. Due to the quarterly frequency at which the Bank of England releases one of its main publications, it can become stale over time. In the course of this process, financial market participants need to rely more on private information. The paper develops a stylized model which predicts that, the more time has elapsed since the latest release of an inflation report, market volatility should increase, the price response to macroeconomic announcements should be more pronounced, and macroeconomic announcements should play a more important role in aligning agents’ information set, thus leading to a stronger volatility reduction. The empirical evidence is fully supportive of these hypotheses.
    Keywords: public signals, inflation reports, monetary policy, interest rates, announcement effects, co-ordination of beliefs, Bank of England
    JEL: E58 E43 G12 G14
    Date: 2009
  3. By: Christopher A. Sims (Princeton University)
    Abstract: Several aspects of the difficulties of policy at the zero lower bound are discussed: The difficulty of credible commitment to higher future inflation, as most New Keynesian models imply is necessary; the need for fiscal and monetary policy coordination; the pitfalls in the taking of quasi-fiscal actions by the central bank.
    Keywords: central banks, monetary policy, keynesian economics, inflation
    JEL: E42 E50 E60 G21
    Date: 2010–01
  4. By: Fahad Alturki; Svetlana Vtyurina
    Abstract: This paper attempts to explain short- and long-term dynamics of-and forecast-inflation in Tajikistan using the Vector Error Correction Model (VECM) and Autoregressive Moving Average Model (ARMA). By analyzing different transmission channels through the VECM, we were able to evaluate their relative dominance, magnitude, and speed of transition to the equilibrium price level, with the view of identifying those policy tools that will enhance the effectiveness of monetary policy. We found that excess supply of broad money is inflationary in both the short and long term. The dynamic analysis also demonstrates that the exchange rate and international inflation have a strong impact on local prices. Available monetary instruments, such as the refinancing rate, have proven to be ineffective. Therefore, the Tajik monetary authority could greatly benefit from enhancing its monetary instruments toolkit, including by developing the interest rate channel, to improve its monetary policy execution and to achieve stable inflationary conditions.
    Date: 2010–01–19
  5. By: Mehrotra, Aaron (BOFIT); Sánchez-Fung, José R. (BOFIT)
    Abstract: The paper estimates McCallum and Taylor monetary policy reaction functions, and hybrids mixing instruments and targets from the two frameworks, for 20 emerging market economies. McCallum-Taylor specifications with an interest rate instrument and a nominal income gap target perform better than benchmark Taylor rules in describing monetary policy in inflation targeting economies. Estimating reaction functions for economies operating monetary and exchange rate targeting regimes produces mixed results, often revealing a lean with the wind behaviour. Instrument smoothing is a feature in the monetary base and in the interest rate reaction functions, but the exchange rate is not consistently significant. The results from the econometric analysis are robust to using alternative estimators.
    Keywords: McCallum and Taylor rules; nominal feedback rule; monetary policy; inflation targeting; emerging markets
    JEL: E52 E58 F41
    Date: 2010–01–21
  6. By: Deepak Mohanty
    Abstract: A review of the various primary measures of inflation with a particular reference to the divergence between WPI and CPI. Focus is also given on different secondary (derived) measures of inflation, particularly core inflation, and end the discussion with some thoughts on the way forward. [Speech at the Conference of Indian Association for Research in National Income and Wealth (IARNIW)].
    Keywords: national income, wealth, whole sale price index, consumption, expenditure, data, income, prices, crude prices, consumer prices indices, inflation, WPI, CPI, Indian, central banks, monetary policy, prices, primary measures, Keynes,
    Date: 2010
  7. By: Nikolay Nenovsky
    Abstract: This article offers an attempt at typologisation of the evolution of monetary regimes in post-communist countries (1990-2008), which is exceptionally varied by character. Two large groups have emerged: type 1 – countries, which started their reforms with a regime of fixed exchange rate and dominating external sources of money supply, and type 2 – countries starting their reforms with a floating exchange rate and predominating internal sources of money supply. The first type is much more successful and appropriate for managing the problems of transition. Some other elements of typologisation have also been suggested based on specific definitions of monetary system and monetary regime. The article also presents various approaches, which can explain the evolution of monetary regimes observed in the former socialist countries.
    Keywords: monetary regimes; post-communist countries; comparative economics
    JEL: E5 P2
    Date: 2009
  8. By: Henrique S. Basso and Javier Coto-Martinez, Yunus Aksoy, (,
    Abstract: Financial intermediation and bank spreads are important elements in the analysis of business cycle transmission and monetary policy. We present a simple framework that introduces lending relationships, a relevant feature of financial intermediation that has been so far neglected in the monetary economics literature, into a dynamic stochastic general equilibrium model with staggered prices and cost channels. Our main findings are: (i) banking spreads move countercyclically generating amplified output responses, (ii) spread movements are important for monetary policy making even when a standard Taylor rule is employed (iii) modifying the policy rule to include a banking spread adjustment improves stabilization of shocks and increases welfare when compared to rules that only respond to output gap and inflation, and finally (iv) the presence of strong lending relationships in the banking sector can lead to indeterminacy of equilibrium forcing the central bank to react to spread movements.
    Keywords: Endogenous Banking Spread; Credit Markets; Cost Chanell of Monetary Transmission; Firm-bank Relationships
    JEL: E44 E52 G21
    Date: 2010–01–21
  9. By: Malin Andersson (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Klaus Masuch (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marc Schiffbauer (University of Bonn, Regina-Pacis-Weg 3, D-53113 Bonn, Germany.)
    Abstract: This paper analyses the determinants of inflation differentials and price levels across the euro area countries. Dynamic panel estimations for the period 1999-2006 show that inflation differentials are primarily determined by cyclical positions and inflation persistence. The persistence in inflation differentials appears to be partly explained by administered prices and to some extent by product market regulations. In a cointegrating framework we find that the price level of each euro area country is governed by the levels of GDP per capita. JEL Classification: E32, E52, E43, F2.
    Keywords: inflation differentials, inflation persistence, price level, convergence.
    Date: 2009–12
  10. By: Alan S. Blinder (Princeton University)
    Abstract: About six years ago, I published a small book entitled The Quiet Revolution (Blinder 2004). Though its subtitle was Central Banking Goes Modern, I never imagined the half of it. Since March 2008, the Federal Reserve has gone post-modern with a bewildering variety of unprecedented actions that have either changed the nature and scope of the central bank’s role or stretched it beyond the breaking point, depending on your point of view. And that leads straight to the central question of this essay: What should--and shouldn’t--the Federal Reserve do?
    Keywords: Federal reserve bank, monetary policy, central bank
    JEL: E42 E50 E60 G21
    Date: 2010–01
  11. By: John Ryan (University of Venice)
    Abstract: China’s concern about its U.S. Dollar reserves is being amplified by the low returns of some of China’ investments in the U.S. which leads to a broader concern about how the current reserve system basically entails China lending to the U.S. at very low interest rates. A two-currency reserve system would potentially be even more unstable than the existing one, because of speculation moves in and out of the U.S. Dollar and the Euro depending on their return, increasing volatility. U.S. Policymakers have started to realize that large external deficits, the dominance of the dollar, and the large capital inflows that necessarily accompany deficits and currency dominance are no longer in the U.S. national interest. The U.S. has to consider initiatives put forward over the past year by China and others to begin a serious discussion of reforming the international monetary system. This paper will examine four scenarios regarding the global currency regime of the future and the Chinese influence in this most important policy arena. It will focus on the U.S. Dollar decline as the Reserve Currency, on the Euro gaining strength slowly in a turbulent world, on the potential of the Renminbi to become a Reserve Currency, and on the future of the Super-Sovereign Reserve Currency, the IMF’s Special Drawing Rights (SDRs). Before that it will examine the role of the Renminbi in the Asian Financial Crisis in 1997 and its role in the global financial markets at that time and lessons learnt from the crisis. The crisis had significant macro-level effects, including sharp reductions in values of currencies, stock markets, and other asset prices of several Asian countries.
    Keywords: Dollar, Euro, Special Drawing Rights, Renminbi, China, Eurozone, U.S.
    JEL: A10 E4 E5 E40 E41 E42 E44 E58 E58 F02 F31
    Date: 2009
  12. By: IKM Mokhtarul Wadud; Omar HMN Bashar; Huson Joher Ali Ahmed
    Abstract: This paper examines the impact of monetary policy and a range of sector-specific and macroeconomic shocks on the Australian housing market using quarterly data for a period of 1974-2008. The paper develops a structural vector autoregressive (SVAR) model based on contemporaneous restrictions to analyse the dynamics of these shocks. The results indicate that supply of new houses in Australia rises with higher real house prices; and that house prices rise and fall with higher inflation rate and interest rate, respectively. Dynamics of the impulse responses reveal significant effect of monetary policy on new house constructions, real house prices, material costs and inflation. Results also suggest that housing output, real house prices and interest rates respond significantly to shocks to housing supply, housing demand and to a number of other variables. These results are expected to shed some lights on the current policy environment pertaining to the Australian housing sector.
    Keywords: Monetary transmission, Housing market, Structural VAR
    JEL: R31 E52 E62 C51
    Date: 2009–12–22
  13. By: Tobias Adrian; Arturo Estrella; Hyun Song Shin
    Abstract: One of the most robust stylized facts in macroeconomics is the forecasting power of the term spread for future real activity. The economic rationale for this forecasting power usually appeals to expectations of future interest rates, which affect the slope of the term structure. In this paper, we propose a possible causal mechanism for the forecasting power of the term spread, deriving from the balance sheet management of financial intermediaries. When monetary tightening is associated with a flattening of the term spread, it reduces net interest margin, which in turn makes lending less profitable, leading to a contraction in the supply of credit. We provide empirical support for this hypothesis, thereby linking monetary cycles, financial cycles, and the business cycle.
    Keywords: Monetary policy ; Intermediation (Finance) ; Interest rates ; Forecasting ; Business cycles
    Date: 2010
  14. By: Chen, Yu-Fu (BOFIT); Funke, Michael (BOFIT); Glanemann, Nicole (BOFIT)
    Abstract: Hong Kong’s currency is pegged to the US dollar in a currency board arrangement. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities revamped the one-sided currency board mechanism into a symmetric two-sided system with a narrow exchange rate band. This paper reviews the characteristics of the new currency board arrangement and embeds a theoretical soft edge target zone model typifying many intermediate regimes, to explain the notable achievement of speculative peace and credibility since May 2005.
    Keywords: currency board arrangement; target zone model; credibility; Hong Kong
    JEL: C61 E42 F31 F32
    Date: 2010–01–21
  15. By: Krzysztof Makarski (National Bank of Poland, Economic Institute; Warsaw School of Economics)
    Abstract: The objective of this paper is to point out that dollarization, apart from being a commitment device, may also be used as a signaling device if there is uncertainty about the government’s intentions. To this end, we modify the standard approach to modeling monetary policy by introducing two types of government: good and bad. It is assumed that the good government conducts optimal policy while the bad government prefers to finance higher (than optimal) government expenditure by printing money. People do not observe the type of government, however they know the probability distribution over the two government types. Due to this uncertainty, the good government cannot achieve the first best even if it conducts optimal monetary policy. Hence, the good government has an incentive to dollarize, while the bad governments avoids this step. As a result, we obtain a separating equilibrium where dollarization is a perfect signal of the government type.
    Keywords: dollarization, monetary policy
    JEL: E42 F40
    Date: 2009
  16. By: Giancarlo Bertocco (Department of Economics, University of Insubria, Italy)
    Abstract: Contemporary monetary theory, by accepting the theses of the Loanable funds theory, distances itself from Keynes, who considered the rate of interest as an exclusively monetary phenomenon, and overlooks the arguments Keynes used, following publication of the General Theory, to respond to the criticism of supporters of the Loanable funds theory such as Ohlin and Robertson. This paper aims to assert that the explicit consideration of the role of banks in financing firms‘ investments connected with the specification of the finance motive does not imply acceptance of the LFT, which holds that the interest rate is a real phenomenon determined by saving decisions, but makes it possible to elaborate a theory of credit alternative to the LFT and a sounder theory of the non neutrality of money than the one based on the liquidity preference theory.
    Date: 2009–12
  17. By: John Ryan (University of Venice)
    Abstract: After 10 years of abstinence from the European Monetary Union, should the UK be seriously thinking about joining the Eurozone? Especially in view of the European Central Bank's improved reputation as a crisis manager in the wake of the financial crisis, could EMU represent a safe haven for the UK economy? Would it be wise for Britain to attach itself to the reserve currency Euro to avoid the perils of drifting alone on a storm-tossed open sea? These are big questions. They have been debated in the UK for a generation and have become relevant again during the current financial and economic crises. I will in this short paper assess three scenarios regarding the UK and the Euro - UK entry, EMU collapses before a UK entry, No UK entry and I will discuss the Eurozone view on potential UK membership.
    Keywords: UK Economy, Eurozone, Euro, Sterling, European Central Bank
    JEL: E12 E41 E52 E60 F02
    Date: 2009
  18. By: Tobias Adrian; Karin Kimbrough; Dina Marchioni
    Abstract: The Federal Reserve created the Commercial Paper Funding Facility (CPFF) in the midst of severe disruptions in money markets following the bankruptcy of Lehman Brothers on September 15, 2008. The CPFF finances the purchase of highly rated unsecured and asset-backed commercial paper from eligible issuers via primary dealers. The facility is a liquidity backstop to U.S. issuers of commercial paper, and its creation was part of a range of policy actions undertaken by the Federal Reserve to provide liquidity to the financial system. This paper documents aspects of the financial crisis relevant to the creation of the CPFF, reviews the operation of the CPFF, discusses use of the facility, and draws conclusions for lender-of-last-resort facilities in a market-based financial system.
    Keywords: Federal Reserve System ; Commercial paper ; Financial crises ; Liquidity (Economics) ; Federal Reserve Bank of New York
    Date: 2010
  19. By: Peter Wilson; Gavin Peebles (Singapore Centre for Applied and Policy Economics)
    Abstract: In this paper we explore the links between Singapore’s foreign exchange rate regime since 1981 and the broader aspects of its political economy. Singapore has been remarkably successful in achieving fast growth, low and stable price inflation and a strong external position. An important part of this strategy has been its managed floating exchange rate regime, which is generally regarded as being successful, but this needs to be viewed within the broader context of the government’s ‘pragmatic socialism’ to keep inflation low and stable as the bedrock for attracting inflows of mobile foreign capital to sustain long-run export competitiveness, and an economic strategy based on high levels of centralized saving and investment, a high degree of government involvement in the economy and the relentless accumulation of foreign exchange reserves. Indeed, part of the reason why managed floating has been successful in Singapore has been because the credibility of monetary policy has been enhanced through the government’s command over resources and its ability to respond quickly and flexibly to changes in economic circumstances using, where necessary, unorthodox policies of demand management to cut business costs. Exchange rate policy, therefore, becomes an integral part of the policy to redistribute income to capital to sustain employment and prevent mobile firms from leaving Singapore. By the early 1990s the imperative became to diversify the structure of the economy away from exclusive reliance on a predominantly foreign manufacturing base and to reduce the extent of government involvement in the economy and it became harder to justify high levels of centralized saving and investment. The dilemma is that the government is finding it difficult to extricate itself from the economy without compromising policy effectiveness, and there is little evidence that dependence of the economy on foreign capital and labour has diminished.
    Keywords: Exchange Rate, People’s Action Party, Political Economy, Singapore
    JEL: F4 O10 P16
    Date: 2010–01
  20. By: Angelo Baglioni (DISCE, Università Cattolica)
    Abstract: The interplay between liquidity and credit risks in the interbank market is analyzed. Banks are hit by idiosyncratic random liquidity shocks. The market may also be hit by a bad news at a future date, implying the insolvency of some participants and creating a lemon problem; this may end up with a gridlock of the interbank market at that date. Anticipating such possible contingency, banks currently long of liquidity ask a liquidity premium for lending beyond a short maturity, as a compensation for the risk of being short of liquidity later and being forced to liquidate some illiquid assets. Then banks currently short of liquidity may prefer to borrow short term. The model is able to explain some stylized facts of the 2007- 2009 liquidity crunch affecting the money market at the international level: (i) high spreads between interest rates at different maturities; (ii) "flight to overnight" in traded volumes; (iii) ineffectiveness of open market operations, leading the central banks to introduce some relevant innovations into their operational framework.
    Keywords: Global financial crisis, Money market, Liquidity, Central banking.
    JEL: G21 E43 E50
    Date: 2009–11
  21. By: Kraenzlin, Sébastien (Swiss National Bank); Schlegel, Martin (Swiss National Bank)
    Abstract: The Swiss National Bank (SNB) provides reserves to market participants via fixed rate tender auctions. We analyze the banks’ bidding behavior and identify the determinants for the decision to participate as well as on the amount to tender. Therefore, we estimate bidding functions for banks which participate regularly in the SNB’s auctions. We find that a bank’s bids from the previous day and the amount of maturing repo operations with the SNB have for most banks a significant effect. The autonomous factors (government balances at the SNB and currency in circulation) are of only minor importance. A further determinant of the bidding behavior is the attractiveness of the SNB’s auction rate compared to the prevailing interbank market repo rate. The spread of unsecured and repo rates as well as the attractiveness of funding Euros indirectly via a Swiss franc repo transaction with the SNB are only for few banks significant. Further, the question is addressed whether the bidding behavior changed in the financial market crisis of 2007/2008. There is little evidence of a systematic change in bidding behavior in the crisis. This results from the fact that the SNB has addressed the volatile demand for reserves in the crisis with overnight fine-tuning operations.
    Keywords: Open Market Operations; Bidding Behavior; Fixed
    JEL: D44 E52 E58
    Date: 2009–10–09
  22. By: Yannick Lucotte (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)
    Abstract: Over the past two decades, many countries have passed legislation giving more independence to their central banks. This institutional evolution has concerned several developed countries but also developing countries and, is consistent with the Barro and Gordon's theory of time-inconsistent monetary policy, which emphasizes the importance of independence in terms of acquiring anti-inflationary credibility. But, central bank independence (CBI) could also affect the design of fiscal policy. Indeed, theoretical literature shows that a greater degree of independence influences government to fiscal discipline; conversely, a weak degree of independence may influence the government to pursue lax fiscal policy. However, the few empirical studies that attempted to assess the relation between CBI and budget deficits principally focused on industrial countries and provided disappointing econometric results. This paper seeks to address this gap in the literature by providing empirical analysis of the influence of CBI on budget deficits in a large set of developing countries over the 1995-2004 period. Using a panel data analysis and two indicators of CBI, the results show a negative relationship between CBI and budget deficits.
    Keywords: Central bank independence; Budget balances; Developing countries; Panel data analysis
    Date: 2009
  23. By: Michael Kumhof; Huixin Bi
    Abstract: We study the welfare properties of an economy where both monetary and fiscal policy follow simple rules, and where a subset of agents is borrowing constrained. The optimized fiscal rule is far more aggressive than automatic stabilizers, and stabilizes the income of borrowingconstrained agents, rather than output. The optimized monetary rule features super-inertia and a very low coefficient on inflation, which minimizes real wage volatility. The welfare gains of optimizing the fiscal rule are far larger than the welfare gains of optimizing the monetary rule. The preferred fiscal instruments are government spending and transfers targeted to borrowing-constrained agents.
    Keywords: Borrowing , Economic models , External shocks , Fiscal policy , Monetary policy , Welfare ,
    Date: 2009–12–28
  24. By: Drama, Bedi Guy Herve; Yao , Shen
    Abstract: This paper demonstrates that there is a long run equilibrium relationship between money supply 〖(M〗_1) and its main determinants, real income (GDP) and interest rate in Cote d’Ivoire. In order to investigate long-term relationship among these variables, we use Juselius and Johansen cointegration test with time series data covering the period of 1980-2007. The results show that there is long-term relationship among these variables as well as the linkage between them. Base from this result we found that only real money balances 〖(M〗_1) has significant long -run economic impact of variations in monetary policy in Cote d’Ivoire. However, the study also revealed that the effect of aggregate 〖(M〗_2) is not so stable linking with it determinants.
    Keywords: Cointegration test; Money demand
    JEL: E52
    Date: 2010–01–19
  25. By: Elisabetta De Antoni
    Abstract: The heterodoxy of Robert Clower, Axel Leijonhufvud and Hyman Minsky consisted in dispensing with the dominant assumption according to which the system spontaneously tends to a situation of full coordination. In analysing the effective disequilibrium behaviour of the system, all three came to the conclusion that monetary and financial forces have a crucial importance for coordination and that their role can be highly destabilising. Contrary to the dominant theory, all three offer useful insights to understand what is happening today.
    Date: 2009
  26. By: Michael J. Fleming; Warren B. Hrung; Frank M. Keane
    Abstract: The Term Securities Lending Facility (TSLF) was introduced by the Federal Reserve to promote liquidity in the financing markets for Treasury and other collateral. We evaluate one aspect of the program--the extent to which it has narrowed repo spreads between Treasury collateral and less liquid collateral. We find that TSLF operations have precipitated a significant narrowing of repo spreads. More refined tests indicate the market conditions and types of operations associated with the program's effectiveness. Various additional tests, including a split-sample test, suggest that our findings are robust.
    Keywords: Liquidity (Economics) ; Treasury bonds ; Repurchase agreements ; Federal Reserve Bank of New York
    Date: 2010
  27. By: Patrick A. Imam
    Abstract: In this paper we first explain why most microstates (countries with less than 2 million inhabitants) have gained independence only in the last 30 years. Despite the higher costs and risks microstates face, their ability to better accommodate local preferences combined with a more integrated world economy probably explains why the benefits of independence have risen. We explain why microstates at independence have chosen either dollarization, currency board arrangements, or fixed exchange rates rather than more flexible forms of exchange rate systems. We then, using the Geweke-Hajvassiliou-Keane multivariate normal simulator, model empirically the determinants of each of the different fixed exchange rate regimes in microstates and analyze the policy implications.
    Date: 2010–01–13

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