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on Monetary Economics |
| By: | Peter Spahn |
| Abstract: | Low inflation on goods markets provides no reliable precondition for asset-market stability; it might even promote the emergence of bubbles because interest rates and risk premia appear to be low. A further factor driving asset demand is easy availability of credit, which in turn roots in the banking system operating in a regime of endogenous central-bank money. A comparison of Bundesbank and ECB policies suggests that credit growth can be controlled more efficiently if rising interest rates are accompanied by some liquidity squeeze that supports the spillover of a monetary restriction to capital markets. The announcement effect of a central bank Charter including the goal of financial-market stability helps to deter private agents from excessive asset trading. |
| Keywords: | open-market policy; asset-price bubble; euro money market; ECB strategy |
| JEL: | E5 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:hoh:hohdip:323&r=mon |
| By: | Beja Jr, Edsel |
| Abstract: | Analysis of World Values Survey 2000 data for the Philippines finds that lower income Filipinos are more likely than the upper income ones to support inflation targeting. The same can be said of older, healthier, and employed Filipinos but not of the educated and financially satisfied ones. Given the profile of people who preferred inflation targeting, the shift from monetary targeting to inflation targeting is deemed a pro-poor policy shift. Further analyses find that, in 2000, at least 53.1% of Filipino households preferred inflation targeting; in other words, the preference of Filipino society in 2000 was in line with the preference of the Bangko Sentral ng Pilipinas for inflation targeting. |
| Keywords: | Inflation targeting; central bank policy; Philippines; Filipino preference |
| JEL: | E31 D12 B00 C80 |
| Date: | 2010–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:24382&r=mon |
| By: | Kadish, Peter |
| Abstract: | In order to analyze current state of events in the world economy, parallel analysis with the country that has gone through boom cycle in real estate and financial asset prices (as US did during the last decade) and sudden consequential bust in mid 70s and late 80s (USA 2007), namely Japan, is performed. The definition and role of money in the economy in its various forms from narrow to the most broad credit aggregates and interrelations between central bank policy and growth of credit is discussed. |
| Keywords: | Credit; Monetary Policy; Monetary Aggregates; Money Supply; Deflation |
| JEL: | E51 E52 E50 E40 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:24360&r=mon |
| By: | Hossain, Monzur; Ahmed, Mansur |
| Abstract: | This paper examines the exchange rate policy in Bangladesh for the period 2000-08. Regime classification of the paper suggests that Bangladesh maintained a de facto managed floating regime by intervening in the foreign exchange market on a regular basis. This is at odds with the Bangladesh Bank's claim of maintaining de jure floating regimesince end-May 2003. A high exchange rate pass-through is observed along with high market pressure during the period of expansionary monetary policy. Given the thin foreign exchange market and high pass-through effects, it appears difficult for Bangladesh to mainatin a freely floating regime. Although Bangladesh maintained average competitiveness, the currency remained somewhat overvalued. Based on the findings, some pragmatic policies in managing the exchange rate in Bnagladesh have been suggested. |
| Keywords: | Exchange Rate; Floating Regime; Bangladesh |
| JEL: | F31 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20487&r=mon |
| By: | Ester Faia; Eleni Iliopulos |
| Abstract: | How should monetary policy be optimally designed in an environment with high degrees of financial globalization? To answer this question we lay down an open economy model where net lending toward the rest of the world is constrained by a collateral constraint motivated by limited enforcement. Borrowing is secured by collateral in the form of durable goods whose accumulation is subject to adjustment costs. We demonstrate that, although this economy can generate persistent current account deficits, it can also deliver a stationary equilibrium. The comparison between different monetary policy regimes (floating versus pegged) shows that the impossible trinity is reversed: a higher degree of financial globalization, by inducing more persistent and volatile current account deficits, calls for exchange rate stabilization. Finally, we study the design of optimal (Ramsey) monetary policy. In this environment the policy maker faces the additional goal of stabilizing exchange rate movements, which exacerbate fluctuations in the wedges induced by the collateral constraint. In this context optimality requires deviations from price stability and calls for exchange rate stabilization |
| Keywords: | global imbalances, collateral constraints, monetary regimes |
| JEL: | E52 F1 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1639&r=mon |
| By: | Christopher Reicher; Johannes Utlaut |
| Abstract: | We estimate a seven-variable-VAR for the U.S. economy on postwar data using long-run restrictions, taking changes in long-run interest rates and inflation expectations into account. We find a strong connection between oil prices and long-run nominal interest rates which has lasted throughout the entire postwar period. We find that a simple off-the-shelf theoretical model of oil prices and monetary policy, where oil prices are flexible and other prices are sticky, in fact predicts a strong relationship if inflation and oil prices were driven by monetary policy. The observed magnitude of this relationship is still a bit of a puzzle, but this finding does call into question the identification techniques commonly used to identify oil shocks |
| Keywords: | Oil shocks, interest rates, inflation |
| JEL: | E31 E58 N50 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1637&r=mon |
| By: | Luigi Paciello (EIEF) |
| Abstract: | The speed of inflation adjustment to aggregate technology shocks is substantially larger than to monetary policy shocks. Prices adjust very quickly to technology shocks, while they only respond sluggishly to monetary policy shocks. This evidence is hard to reconcile with existing models of stickiness in prices. I show that the difference in the speed of price adjustment to the two types of shocks arises naturally in a model where price setting firms optimally decide what to pay attention to, subject to a constraint on information flows. In my model, firms pay more attention to technology shocks than to monetary policy shocks when the former affects profits more than the latter. Furthermore, strategic complementarities in price setting generate complementarities in the optimal allocation of attention. Therefore, each firm has an incentive to acquire more information on the variables that the other firms are, on average, more informed about. These complementarities induce a powerful amplification mechanism of the difference in the speed with which prices respond to technology shocks and to monetary policy shocks. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:0816&r=mon |
| By: | Paul Bergin; Ching-Yi Lin |
| Abstract: | A currency union's ability to increase international trade is one of the most debated questions in international macroeconomics. This paper studies the dynamics of these trade effects. First, an empirical study of the European Monetary Union finds that the extensive margin of trade (entry of new firms or goods) responds several years ahead of overall trade volume. This implies that the intensive margin (previously traded goods) falls in the run-up to EMU. The paper's theoretical contribution is to study the announcement of a future monetary union as a news shock to trade costs in the context of a dynamic stochastic general equilibrium trade model. Early entry of new firms in anticipation is explainable as a rational forward-looking response under certain conditions, where essential elements include sunk costs of exporting and heterogeneity among firms of a type known before entry. The findings help identify which types of trading frictions are reduced by a currency union. The important role of expectations also indicates that continued gains from EMU depend upon long-term credibility of the union. |
| JEL: | F41 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16259&r=mon |
| By: | Paul Levine |
| Abstract: | The past forty years or so has seen a remarkable transformation in macro-models used by central banks, policymakers and forecasting bodies.This papers describes this trans formation from reduced-form behavioural equations estimated separately, through to contemporary micro-founded dynamic stochastic general equilibrium (DSGE) models estimated by systems methods. |
| Keywords: | structureduncertainty,DSGEmodels,robustness,Bayesian estimation,interest-raterules |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2761&r=mon |
| By: | Ligthart, J.E.; Werner, S.E.V. (Tilburg University, Center for Economic Research) |
| Abstract: | We present a new approach to study empirically the effect of the introduction of the euro on currency invoicing. Our approach uses a compositional multinomial logit model, in which currency choice depends on the characteristics of both the currency and the country. We use unique quarterly panel data of Norwegian imports from OECD countries for the 1996{2006 period. One of the key findings is that the eurozone countries in trade with Norway have substantially increased their share of home currency invoicing after the introduction of the euro. In addition, the euro as a vehicle currency has overtaken the role of the US dollar in Norwegian imports. The econometric analysis shows a significant effect of euro introduction above and beyond the determinants of currency invoicing (i.e., ination rate, ination volatility, foreign exchange market size, and product composition). However, the rise in producer currency invoicing by eurozone countries is primarily caused by a drop in ination volatility. |
| Keywords: | euro;invoicing currency;exchange rate risk;ination;ination risk;vehicle currencies;compositional multinomial logit |
| JEL: | F14 F15 F31 F33 F36 E31 C25 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:201048&r=mon |
| By: | Stephanie Seguino; James Heintz |
| Abstract: | <p>This paper explores the distributional effects of contractionary monetary policy by race and gender in the U.S. from 1979-2008 using state-level panel data. We hypothesize that women and Blacks, as groups with less power and lower status in the social hierarchy, fare worse in the competition over jobs, resulting in a disproportionate rise in female and Black unemployment rates relative to White males. We also investigate the possibility that Blacks bear a greater burden of joblessness than females as Black population density rises. Results indicate the costs of fighting inflation are unevenly distributed amongst workers, weighing more heavily on Black females and Black males, followed by White females, and lastly, White males.<br /><br /></p> |
| Keywords: | Monetary policy, stratification, race, gender, unemployment |
| JEL: | E24 E52 J7 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp230&r=mon |
| By: | Stefan Gerhold |
| Abstract: | In the LIBOR market model, forward interest rates are log-normal under their respective forward measures. This note shows that their distributions under the other forward measures of the tenor structure have approximately log-normal tails. |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1008.2104&r=mon |