nep-mon New Economics Papers
on Monetary Economics
Issue of 2010‒05‒02
25 papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. Evaluating Exchange Rate Management An Application to Korea By David Parsley; Helen Popper
  2. Inflation Expectations and Monetary Policy in India: An Empirical Exploration By Michael Debabrata Patra; Partha Ray
  3. Interpreting the Unconventional U.S. Monetary Policy of 2007-09 By Ricardo Reis
  4. Anchors for Inflation Expectations By Maria Demertzis; Massimiliano Marcellino; Nicola Viegi
  5. Financial Crisis, Global Liquidity and Monetary Exit Strategies By Ansgar Belke
  6. Strategic Forecasting on the FOMC By Peter Tillmann
  7. Bank Liquidity, Interbank markets, and Monetary Policy By Freixas, X.; Martin, A.; Skeie, D.
  8. Too Much to Lose, or More to Gain? Should Sweden Join the Euro? By J James Reade; Ulrich Volz
  9. Monetary Policy Committees, Learning, and Communication By Anke Weber
  10. Simple rules versus optimal policy: what fits? By Ida Wolden Bache; Leif Brubakk; Junior Maih
  11. Using a projection method to analyze inflation bias in a micro-founded model By Gary S. Anderson; Jinill Kim; Tack Yun
  12. Interest on excess reserves as a monetary policy instrument: the experience of foreign central banks By David Bowman; Etienne Gagnon; Mike Leahy
  13. Reading the Recent Monetary History of the U.S., 1959-2007 By Jesús Fernández-Villaverde; Pablo Guerrón-Quintana; Juan F. Rubio-Ramírez
  14. Inventories and Optimal Monetary Policy By Thomas A. Lubik; Wing Leong Teo
  15. A Thermodynamic Approach to Monetary Economics. A Revision. An application to the UK Economy 1969-2006 and the USA Economy 1966-2006 By John Bryant
  16. Fiscal and Monetary Policy Interaction: a simulation based analysis of a two-country New Keynesian DSGE model with heterogeneous households By Marcos Valli; Fabia A. de Carvalho
  17. Monetary Policy and Trade Globalization By Dudley Cooke
  18. Monetary Policy and Excessive Bank Risk Taking By Agur, I.; Demertzis, M.
  19. Credit supply: Identifying balance-sheet channels with loan applications and granted loans By Gabriel Jiménez; Steven Ongena; José-Luis Peydró; Jesús Saurina
  20. A Concise History of Exchange Rate Regimes in Latin America By Roberto Frankel; Martín Rapetti
  21. Fiscal deficits, debt, and monetary policy in a liquidity trap By Michael B. Devereux
  22. Currency Internationalisation: Analytical and Policy Issues By Hans Genberg
  23. Multi-period fixed-rate loans, housing and monetary policy in small open economies By Jaromír Beneš; Kirdan Lees
  24. Capital Controls and Monetary Policy in Developing Countries By Juan Antonio Montecino; Jose Antonio Cordero
  25. Inventories, Inflation Dynamics and the New Keynesian Phillips Curve By Thomas A. Lubik; Wing Leong Teo

  1. By: David Parsley (Vanderbilt University, Hong Kong Institute for Monetary Research); Helen Popper (Santa Clara University, Hong Kong Institute for Monetary Research)
    Abstract: This paper uses data-rich estimation techniques to study monetary policy in an open economy. We apply the techniques to a small, forward-looking model and explore the importance of the exchange rate in the monetary policy rule. This approach allows us to discern whether a monetary authority targets the exchange rate per se, or instead simply responds to the exchange rate in order to achieve its other objectives. The approach also removes a downward bias on the estimate of the extent of inflation targeting. We find that this bias is important in the case of Korea, a de jure inflation targeter. In contrast to previous studies, our findings suggest that the Bank of Korea actively targets inflation, not the exchange rate. Apparently, the exchange rate has been only indirectly important in Korea's monetary policy.
    Keywords: Exchange Rates, Exchange Rate Management, Monetary Policy Rule, Inflation Targeting, Exchange Rate Regimes, Exchange Rate Classification, Factor Instrumental Variables
    JEL: F3 F4
    Date: 2009–09
  2. By: Michael Debabrata Patra; Partha Ray
    Abstract: This paper pursues a computationally intensive approach to generate future inflation, followed by an exploration of the determinants of inflation expectations by estimating a new Keynesian type Phillips curve that takes into account country-specific characteristics, the stance of monetary and fiscal policies, marginal costs and exogenous supply shocks. The empirical results indicate that high and climbing inflation could easily seep into people’s anticipation of future inflation and linger. There is a reputational bonus for monetary policy to act against inflation now rather than going for cold turkey when societal compulsions reach a critical mass.
    Keywords: Central bank policy , Economic models , Fiscal policy , India , Inflation , Inflation targeting , Monetary policy , Price increases , Supply-side policy ,
    Date: 2010–04–01
  3. By: Ricardo Reis (Columbia University - Department of Economics)
    Abstract: This paper reviews the unconventional U.S. monetary policy responses to the financial and real crises of 2007-09, divided into three groups: interest rate policy, quantitative policy, and credit policy. To interpret interest rate policy, it compares the Federal Reserve's actions with the literature on optimal policy in a liquidity trap. This comparison suggests that policy has been in the direction indicated by theory, but it has not gone far enough. To interpret quantitative policy, the paper reviews the determination of inflation under different policy regimes. The main danger for inflation from current actions is that the Federal Reserve may lose its policy independence; a beneficial side effect of the crisis is that the Friedman rule can be implemented by paying interest on reserves. To interpret credit policy, the paper presents a new model of capital market imperfections with different financial institutions and a role for securitization , leveraging, and mark-to-market accounting. The model suggests that providing credit to traders in securities markets is a more effective response than extending credit to the originators of loans.
    Date: 2010
  4. By: Maria Demertzis; Massimiliano Marcellino; Nicola Viegi
    Abstract: We identify credible monetary policy with first, a disconnect between inflation and inflation expectations and second, the anchoring of the latter at the inflation target announced by the monetary authorities. We test empirically whether this is the case for a number of countries that have an explicit inflation target and therefore include the Euro Area. We find that for the last 10 year period, the two series are less dependent on each other and that announcing inflation targets help anchor expectations at the right level. Keywords: Inflation Targets, Measures of Credibility.
    Keywords: Inflation Targets; measures of Credibility.
    JEL: E52 E58
    Date: 2009–11
  5. By: Ansgar Belke
    Abstract: We develop a roadmap of how the ECB should further reduce the volume of money (money supply) and roll back credit easing in order to prevent inflation. The exits should be step-by-step rather than one-off. Communicating about the exit strategy must be an integral part of the exit strategy. Price stability should take precedence in all decisions. Due to vagabonding global liquidity, there is a strong case for globally coordinating monetary exit strategies. Given unsurmountable practical problems of coordinating exit with asymmetric country interests, however, the ECB should go ahead - perhaps joint with some Far Eastern economies. Coordination of monetary and fiscal exit would undermine ECB independence and is also technically out of reach within the euro area.
    Keywords: Exit strategies, international policy coordination and transmission, open market operations, unorthodox monetary policy
    JEL: E52 E58 F42 E63
    Date: 2010
  6. By: Peter Tillmann (Justus Liebig University Gießen)
    Abstract: The Federal Open Market Committee (FOMC) of the Federal Reserve consists of voting- and non-voting members. Apart from deciding about interest rate policy, members individually formulate regular inflation forecasts. This paper uncovers systematic differences in individual inflation forecasts submitted by voting and non-voting members. Based on a data set with individual forecasts recently made available it is shown that non-voters systematically overpredict inflation relative to the consensus forecast if they favor tighter policy and underpredict inflation if the favor looser policy. These findings are consistent with non-voting member following strategic motives in forecasting, i.e. non-voting members use their forecast to influence policy deliberation.
    Keywords: inflation forecast, forecast errors, monetary policy, monetary committee, Federal Reserve
    JEL: E43 E52
    Date: 2010
  7. By: Freixas, X.; Martin, A.; Skeie, D. (Tilburg University, Center for Economic Research)
    Abstract: A major lesson of the recent financial crisis is that the interbank lending market is crucial for banks facing large uncertainty regarding their liquidity needs. This paper studies the efficiency of the interbank lending market in allocating funds. We consider two different types of liquidity shocks leading to di¤erent implications for optimal policy by the central bank. We show that, when confronted with a distribu- tional liquidity-shock crisis that causes a large disparity in the liquidity held among banks, the central bank should lower the interbank rate. This view implies that the traditional tenet prescribing the separation between prudential regulation and mon- etary policy should be abandoned. In addition, we show that, during an aggregate liquidity crisis, central banks should manage the aggregate volume of liquidity. Two di¤erent instruments, interest rates and liquidity injection, are therefore required to cope with the two di¤erent types of liquidity shocks. Finally, we show that failure to cut interest rates during a crisis erodes financial stability by increasing the risk of bank runs.
    Keywords: bank liquidity;interbank markets;central bank policy;financial fragility;bank runs
    JEL: G21 E43 E44 E52 E58
    Date: 2010
  8. By: J James Reade; Ulrich Volz
    Abstract: This paper considers the costs and benefits of Sweden joining the European Economic and Monetary Union (EMU). We pay particular attention to the costs of abandoning the krona in terms of a loss of monetary policy independence. For this purpose, we apply a cointegrated VAR framework to examine the degree of monetary independence that the Sveriges Riksbank enjoys. Our results suggest that Sweden has in fact relatively little to lose from joining EMU, at least in terms of monetary independence. We complement our analysis by looking into other criteria affecting the cost-benefit calculus of monetary integration, which, by and large, support our positive assessment of Swedish EMU membership.
    Keywords: Swedish EMU membership, Monetary Policy independence, European monetary integration
    JEL: E52 E58 F41 F42 C32
    Date: 2010–04
  9. By: Anke Weber
    Abstract: This paper considers optimal communication by monetary policy committees in a model of imperfect knowledge and learning. The main policy implications are that there may be costs to central bank communication if the public is perpetually learning about the committee's decision-making process and policy preferences. When committee members have heterogeneous policy preferences, welfare is greater under majority voting than under consensus decision-making. Furthermore, central bank communication under majority voting is more likely to be beneficial in this case. It is also shown that a chairman with stable policy preferences who carries significant weight in the monetary policy decision-making process is welfare enhancing.
    Keywords: Announcements , Central banks , Economic models , Monetary policy , Private sector , Public information ,
    Date: 2010–04–02
  10. By: Ida Wolden Bache (Norges Bank (Central Bank of Norway)); Leif Brubakk (Norges Bank (Central Bank of Norway)); Junior Maih (Norges Bank (Central Bank of Norway))
    Abstract: We estimate a small open-economy DSGE model for Norway with two specifications of monetary policy: a simple instrument rule and optimal policy based on an intertemporal loss function. The empirical fit of the model with optimal policy is as good as the model with a simple rule. This result is robust to allowing for misspecification following the DSGE-VAR approach proposed by Del Negro and Schorfheide (2004). The interest rate forecasts from the DSGE-VARs are close to Norges Bank's official forecasts since 2005. One interpretation is that the DSGE-VAR approximates the judgment imposed by the policymakers in the forecasting process.
    Keywords: DSGE models, forecasting, optimal monetary policy
    JEL: C53 E52
    Date: 2010–04–07
  11. By: Gary S. Anderson; Jinill Kim; Tack Yun
    Abstract: Since Kydland and Prescott (1977) and Barro and Gordon (1983), most studies of the problem of the inflation bias associated with discretionary monetary policy have assumed a quadratic loss function. We depart from the conventional linear-quadratic approach to the problem in favor of a projection method approach. We investigate the size of the inflation bias that arises in a microfounded nonlinear environment with Calvo price setting. The inflation bias is found to lie between 1% and 6% for a reasonable range of parameter values, when the bias is defined as the steady-state deviation of the discretionary inflation rate from the optimal inflation rate under commitment.
    Date: 2010
  12. By: David Bowman; Etienne Gagnon; Mike Leahy
    Abstract: This paper reviews the experience of eight major foreign central banks with policy interest rates comparable to the interest rate on excess reserves paid by the Federal Reserve. We pursue two main lines of inquiry: 1) To what extent have these policy interest rates been lower bounds for short-term market rates, and 2) to what extent has tightening that included increasing these policy rates been achieved without reliance on reductions in reserves or other deposits held at the central bank? The foreign experience suggests that policy rate floors can be effective lower bounds for market rates, although incomplete access to central bank accounts and interest on them weakens this result. In addition, the foreign experience suggests that tightening by increasing the interest rate paid on central bank balances can help reduce or eliminate the need to drain balances. These results are consistent with theoretical results that show that tightening without draining is possible, irrespective of whether excess reserves are large or small.
    Date: 2010
  13. By: Jesús Fernández-Villaverde (Department of Economics, University of Pennsylvania); Pablo Guerrón-Quintana (Federal Reserve Bank of Philadelphia); Juan F. Rubio-Ramírez (Department of Economics, Duke University)
    Abstract: In this paper we report the results of the estimation of a rich dynamic stochastic general equilibrium (DSGE) model of the U.S. economy with both stochastic volatility and parameter drifting in the Taylor rule. We use the results of this estimation to examine the recent monetary history of the U.S. and to interpret, through this lens, the sources of the rise and fall of the great American inflation from the late 1960s to the early 1980s and of the great moderation of business cycle fluctuations between 1984 and 2007. Our main findings are that while there is strong evidence of changes in monetary policy during Volcker’s tenure at the Fed, those changes contributed little to the great moderation. Instead, changes in the volatility of structural shocks account for most of it. Also, while we find that monetary policy was different under Volcker, we do not find much evidence of a big difference in monetary policy among Burns, Miller, and Greenspan. The difference in aggregate outcomes across these periods is attributed to the time- varying volatility of shocks. The history for inflation is more nuanced, as a more vigorous stand against it would have reduced inflation in the 1970s, but not completely eliminated it. In addition, we find that volatile shocks (especially those related to aggregate demand) were important contributors to the great American inflation.
    Keywords: DSGE models, Stochastic volatility, Parameter drifting, Bayesian methods.
    JEL: E10 E30 C11
    Date: 2010–04–15
  14. By: Thomas A. Lubik; Wing Leong Teo
    Abstract: We introduce inventories into a standard New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to study the effect on the design of optimal monetary policy. The possibility of inventory investment changes the transmission mechanism in the model by decoupling production from final consumption. This allows for a higher degree of consumption smoothing since firms can add excess production to their inventory holdings. We consider both Ramsey optimal monetary policy and a monetary policy that maximizes consumer welfare over a set of simple interest rate feedback rules. We find that in contrast to a model without inventories, Ramsey-optimal monetary policy in a model with inventories deviates from complete inflation stabilization. In the standard model, nominal price rigidity is a deadweight loss on the economy, which an optimizing policymaker attempts to remove. With inventories, a planner can reduce consumption volatility and raise welfare by accumulating inventories and letting prices change as an equilibrating mechanism. We find also find that the application of simple rules comes very close to replicating Ramsey optimal outcomes.
    JEL: E24 E32 J64
    Date: 2010–02
  15. By: John Bryant (Vocat International)
    Abstract: This paper develops further monetary aspects of a model, first set out as part of a paper by the author published in 2007, concerning the application of thermodynamic principles to economics. The model is backed up by statistical analysis of quarterly data of the UK and USA economies. The model sets out relationships between price, output volume, velocity of circulation and money supply, and develops an equation to measure entropy gain in an economic system, linked to interest rates. This paper was first released in August 2008, but has now been revised to reflect current thinking
    Keywords: Monetary, thermodynamics, economics, entropy, interest rates
    Date: 2010–02
  16. By: Marcos Valli; Fabia A. de Carvalho
    Abstract: This paper models a fiscal policy that pursues primary balance targets to stabilize the debt-to-GDP ratio in an open and heterogeneous economy where firms combine public and private capital to produce their goods. The model extends the European NAWM presented in Coenen et. al. (2008) and Christoffel et. al. (2008) by broadening the scope for fiscal policy implementation and allowing for heterogeneity in labor skills. The domestic economy is also assumed to follow a forward looking Taylor-rule consistent with an inflation targeting regime. We correct the NAWM specification of the final-goods price indices, the recursive representation of the wage setting rule, and the wage distortion index. We calibrate the model for Brazil to analyze some implications of monetary and fiscal policy interaction and explore some of the implications of fiscal policy in this class of DSGE models.
    Date: 2010–04
  17. By: Dudley Cooke (Trinity College Dublin ,Hong Kong Institute for Monetary Research)
    Abstract: I develop a two country general equilibrium model with heterogeneous price-setting firms to understand how shocks to monetary policy and aggregate labor productivity impact trade integration, which I capture through the (inverse) average productivity of exporting firms. A contractionary domestic monetary policy shock raises the average productivity of domestic exporting firms but lowers the average productivity of foreign exporting firms. The magnitude of these changes is greater when governments target domestic price inflation as opposed to consumer price inflation. A positive shock to domestic labor productivity generates positive - although quantitatively small - changes in the average productivity of all exporting firms when consumer price inflation is targeted. When domestic price inflation is targeted, the same shock causes a fall in the average productivity of domestic exporting firms, and a far larger rise in the productivity of foreign exporting firms.
    Keywords: Monetary Policy, Heterogeneous Firms, Trade Globalization
    JEL: E31 E52 F41
    Date: 2010–02
  18. By: Agur, I.; Demertzis, M. (Tilburg University, Center for Economic Research)
    Abstract: If monetary policy is to aim at financial stability, how would it change? To analyze this question, this paper develops a general-form model with endogenous bank risk profiles. Policy rates affect both bank incentives to search for yield and the cost of wholesale funding. Financial stability objectives are then shown to make a monetary authority more conservative and more aggressive. Conservative as it sets higher rates on average. And aggressive because, in reaction to negative shocks, cuts are deeper but shorter-lived than otherwise. Keeping cuts short is crucial as bank risk responds primarily to stable low rates. Within the short span, cuts then must be deep to achieve standard objectives.
    Keywords: Monetary policy;Financial stability
    JEL: E52 G21
    Date: 2010
  19. By: Gabriel Jiménez (Banco de España, PO Box 28014, Alcalá 48, Madrid, Spain.); Steven Ongena (CentER - Tilburg University and CEPR, PO Box 90153, NL 5000 LE Tilburg, The Netherlands.); José-Luis Peydró (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jesús Saurina (Banco de España, PO Box 28014, Alcalá 48, Madrid, Spain.)
    Abstract: To identify credit availability we analyze the extensive and intensive margins of lending with loan applications and all loans granted in Spain. We find that during the period analyzed both worse economic and tighter monetary conditions reduce loan granting, especially to firms or from banks with lower capital or liquidity ratios. Moreover, responding to applications for the same loan, weak banks are less likely to grant the loan. Our results suggest that firms cannot offset the resultant credit restriction by turning to other banks. Importantly the bank-lending channel is notably stronger when we account for unobserved time-varying firm heterogeneity in loan demand and quality. JEL Classification: E32, E44, E5, G21, G28.
    Keywords: non-financial and financial borrower balance-sheet channels, financial accelerator, firm borrowing capacity, credit supply, business cycle, monetary policy, credit channel, net worth, capital, liquidity, 2007-09 crisis.
    Date: 2010–04
  20. By: Roberto Frankel; Martín Rapetti
    Abstract: This paper analyzes the experience of the major Latin American countries including Argentina, Brazil, Mexico, Colombia, Chile, Peru and others in the post-World-War period, up to the crisis caused by the collapse of the U.S. housing bubble. The authors provide a detailed historical analysis that takes into account the most important economic events that helped determine exchange rate policy, and evaluates the strengths and weaknesses of the various exchange rate regimes, and their impact on outcomes including economic growth and inflation.
    Keywords: capital controls, capital flows
    JEL: O5 O55 F F3 F31 F33
    Date: 2010–04
  21. By: Michael B. Devereux
    Abstract: The macroeconomic response to the economic crisis has revived old debates about the usefulness of monetary and fiscal policy in fighting recessions. Without the ability to further lower interest rates, policy authorities in many countries have turned to expansionary fiscal policies. Recent literature argues that government spending may be very effective in such environments. But a critical element of the stimulus packages in all countries was the use of deficit financing and tax reductions. This paper explores the role of government debt and deficits in an economy constrained by the zero bound on nominal interest rates. Given that the liquidity trap is generated by a large increase in the desire to save on the part of the private sector, the wealth effects of government deficits can provide a critical macroeconomic response to this. Government spending financed by deficits may be far more expansionary than that financed by tax increases in such an environment. In a liquidity trap, tax cuts may be much more effective than during normal times. Finally, monetary policies aimed at directly increasing monetary aggregates may be effective, even if interest rates are unchanged.
    Keywords: Fiscal policy ; Recessions ; Deficit financing ; Debts, Public ; Government spending policy ; Monetary policy ; Taxation ; Liquidity (Economics)
    Date: 2010
  22. By: Hans Genberg (Bank for International Settlements)
    Abstract: Interest in currency internationalisation among policy makers as well as the general public has intensified in recent years. One reason is a view that the global impact of the recent financial crisis has been intensified because of the dominant role of the US dollar in the international financial system. According to this view the system would be less prone to instability if international trade in goods and assets were denominated in a greater variety of currencies and if international reserve holdings were more diversified. Another reason is the perception that having an international currency is associated with significant benefits for the issuing national authorities. This raises the question whether there is a case for policy intervention by national authorities to promote the international use of their currency. This paper addresses this issue. It argues that authorities should not focus their primary attention on climbing the currency internationalization charts. Instead they should consider the pros and cons of policies and institutional changes that may pave the way for the private adoption of the currency in international transactions. The reason is that full internationalization of a currency will not come about unless a certain number of pre-requisites are met. Arguably the most important is that there be no restrictions on cross-border transfers of funds and no restrictions on third party use of the currency in contracts and settlements of trade in goods or assets, and no restriction on including assets denominated in the currency in private or official portfolios. In short, full internationalization of a currency requires full capital account liberalisation. Although there are gains from currency internationalisation, it is an open question whether public policy should attempt to promote it beyond establishing preconditions such as full capital account liberalisation, a deep and dynamic domestic financial market, a well-respected legal framework for contract enforcement, and stable and predictable macro and micro economic policies.
    Date: 2009–10
  23. By: Jaromír Beneš; Kirdan Lees (Reserve Bank of New Zealand)
    Abstract: We investigate the implications of the existence of multi-period fixed-rate loans for the behaviour of a small open economy exposed to finance shocks and housing boom-and-bust cycles. To this end, we propose a simple and analytically tractable method of incorporating multi-period debt into an otherwise standard consumer problem. Our simulations show that multi-period fixed-rate contracts can help insulate the economy from the adverse effects of particular shocks. This insulating mechanism is particularly effective for countries with high debt positions exposed to foreign exchange fluctuations, or countries operating a fixed exchange rate regime.
    JEL: E5 E44 E52
    Date: 2010–03
  24. By: Juan Antonio Montecino; Jose Antonio Cordero
    Abstract: This paper looks at both the theoretical and empirical literature on capital controls and finds that capital controls can play an important role in developing countries by helping to insulate them from some of the harmful effects of volatile and short-term capital flows. The authors look at controls on capital inflows in Malaysia (1989-1995); Colombia (1993-1998); Chile (1989-1998); and Brazil (1992-1998), and also consider the case of Malaysia’s controls on outflows in 1998-2001. They conclude that there is sufficient backing in both economic theory and empirical evidence to consider more widespread adoption of capital controls in order to address some of the macroeconomic problems associated with short-term capital flows, to enable certain development strategies, and to allow policy makers more flexibility with regard to crucial monetary and exchange rate policies.
    Keywords: capital controls, capital flows
    JEL: O O1 O16 O2 O23 O24 O5 O55 F F2 F20 F21 F3 F32
    Date: 2010–04
  25. By: Thomas A. Lubik; Wing Leong Teo
    Abstract: We introduce inventories into an otherwise standard New Keynesian model and study the implications for ination dynamics. Inventory holdings are motivated as a means to generate sales for demand-constrained …rms. We derive various representa- tions of the New Keynesian Phillips curve with inventories and show that one of these speci…cations is observationally equivalent to the standard model with respect to the behavior of ination when the models cross-equation restrictions are imposed. How- ever, the driving variable in the New Keynesian Phillips curve - real marginal cost - is unobservable and has to be proxied by, for instance, unit labor costs. An alternative approach is to impute marginal cost by using the models optimality conditions. We show that the stock-sales ratio is linked to marginal cost. We also estimate these various speci…cations of the New Keynesian Phillips curve using GMM. We …nd that predictive power of the inventory-speci…cation at best approaches that of the standard model, but does not improve upon it. We conclude that inventories do not play a role in explaining ination dynamics within our New Keynesian Phillips curve framework.
    JEL: E24 E32 J64
    Date: 2010–04

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