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on Monetary Economics |
| By: | Christoph Thoenissen; Gunes Kamber |
| Abstract: | The ability of financial frictions to amplify the output response of monetary policy, as in the financial accelerator model of Bernanke et al. (1999), is analyzed for a wider class of policy rules where the policy interest rate responds to both in inflation and the output gap. When policy makers respond to the output gap as well as in inflation, the standard financial accelerator model reacts less to an interest rate shock than does a comparable model without an operational financial accelerator mechanism. In recessions, when firm-specific volatility rises, financial acceleration due to financial frictions is further reduced, even under pure inflation targeting. |
| Keywords: | Financial acceleration; financial frictions; monetary policy. |
| JEL: | E32 E52 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1115&r=mon |
| By: | Domenico Giannone; Michèle Lenza; Huw Pill; Lucrezia Reichlin |
| Abstract: | This paper analyses the impact on the macroeconomy of the ECB’s non-standard monetary policy implemented in the aftermath of the collapse of Lehman Brothers in the Fall of 2008. We study in particular the effect of the expansion of the intermediation of transactions across central bank balance sheets as dysfunctional financial markets seize up, which we regard as a key channel of transmission for non-standard monetary policy measures. Our approach is similar to Lenza et al. 2009 but we introduce the important innovation of distinguishing between private intermediation of interbank transactions in the money market and central bank intermediation of bank-to-bank transactions across the Eurosystem balance sheet. We do this by exploiting data drawn from the aggregate Monetary and Financial Institutions (MFI) balance sheet which allows us to construct a new measure of the ‘policy shock’ represented by the ECB’s increasing role as a financial intermediary. We find that bank loans to households and, in particular, to non-financial corporations are higher than would have been the case without the ECB’s intervention. In turn, the ECB’s support has a significant impact on economic activity: two and a half years after the failure of Lehman Brothers, the level of industrial production is estimated to be 2% higher, and the unemployment rate 0.6 percentage points lower, than would have been the case in the absence of the ECB’s non-standard monetary policy measures. |
| Keywords: | non-standard monetary policy measures; interbank market |
| JEL: | E50 E58 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/108100&r=mon |
| By: | Dagfinn Rime (Norges Bank (Central Bank of Norway)); Hans Jørgen Tranvåg (Norwegian University of Science and Technology) |
| Abstract: | Using the longest data set on FX order flow to date, along with the broadest coverage of currencies to date, we examine the effect of FX order flow on exchange rates across small and large currencies, currencies with floating or fixed regimes, and across both tranquil and turbulent periods. Over our 15 years of data for eleven Asian and Australasian currencies, we find that order flow has a potentially strong impact on all exchange rates in the sample. The effect is strongest on floating exchange rates, both economically and statistically, but is sizeable also on the other exchange rates, especially during periods of turbulence. By creating a measure of regional order flow, we show that all exchange rates depreciate as flows are moved out of Asia/Australasia and into US dollars. This is true both across regimes and if their own flow is not included in the structure of the regional flow. |
| Keywords: | Order flow, microstructure, Asian and Australasian exchange rates, financial crises |
| JEL: | F31 G01 G15 |
| Date: | 2012–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2012_01&r=mon |
| By: | MARADIAGA, DAVID I.; ZAPATA, HECTOR O.; PUJULA, AUDE L. |
| Abstract: | This paper measures the impact of bilateral exchange rates, the world agricultural GDP and third-country exchange rate volatilities (Yen/USD and Euro/USD) on the BRICS agricultural exports using a vector autoregressive (VAR) model. Two measures of volatility are used: the standard deviation and the coefficient of variation of the rates of change of the real exchange rates. We found that most variables are integrated of order two except the third-country exchange rate volatilities which are stationary and thus considered as exogenous in the VAR models. The causality between I(2) variables was tested using the modified Wald test introduced by Toda and Yamamoto (1995). We found that both volatilities (Yen/USD and Euro/USD) Granger cause Brazilian agricultural exports and that the Yen/USD causes Chinese agricultural exports. |
| Keywords: | BRICS, Currency Exchange Rate, Volatility, Trade, Agricultural Exports, U.S. Dollar, Risk, International Relations/Trade, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saea12:119726&r=mon |
| By: | Stéphane Goutte (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Paris VI - Pierre et Marie Curie - Université Paris VII - Paris Diderot); Benteng Zou (CREA - Center for Research in Economic Analysis - Université du Luxembourg) |
| Abstract: | Modified Cox-Ingersoll-Ross model is employed, combining with Hamilton (1989) type Markov regime switching framework, to study foreign exchange rates, where all parameter values depend on the value of a continuous time Markov chain. Basing on real data of some foreign exchange rates, the Expectation-Maximization algorithm is extended to this more general model and it is applied to calibrate all parameters. We compare the obtained results regarding to results obtained with non regime switching models and notice that our results match much better the reality than the others without Markov switching. Furthermore, we illustrate our model on various foreign exchange rate data and clarify some significant eco- nomic time periods in which financial or economic crisis appeared, thus, regime switching obtained. |
| Keywords: | Foreign exchange rate; Regime switching model; calibration; financial crisis |
| Date: | 2012–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00643900&r=mon |
| By: | Wolters, Maik Hendrik |
| Abstract: | This paper investigates the accuracy of point and density forecasts of four DSGE models for inflation, output growth and the federal funds rate. Model parameters are estimated and forecasts are derived successively from historical U.S. data vintages synchronized with the Fed’s Greenbook projections. Point forecasts of some models are of similar accuracy as the forecasts of nonstructural large dataset methods. Despite their common underlying New Keynesian modeling philosophy, forecasts of different DSGE models turn out to be quite distinct. Weighted forecasts are more precise than forecasts from individual models. The accuracy of a simple average of DSGE model forecasts is comparable to Greenbook projections for medium term horizons. Comparing density forecasts of DSGE models with the actual distribution of observations shows that the models overestimate uncertainty around point forecasts. |
| Keywords: | DSGE models; forecasting; model uncertainty; forecast combination; density forecasts; real-time data; Greenbook |
| JEL: | E0 E32 C53 E31 E37 |
| Date: | 2012–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36147&r=mon |
| By: | Nicolas Véron |
| Abstract: | This paper takes stock of global efforts towards financial reform since the start of the financial crisis in 2007-08, and provides a synthetic (if simplified) picture of their status as of January 2012. Underlying dynamics are described and analysed both at the global level (particularly G-20, International Monetary Fund and the Financial Stability Board) and in individual jurisdictions, together with the impact the crisis has had on them. The possible next steps of financial reform are then reviewed along several dimensions including ongoing crisis management in Europe, the new emphasis on macroprudential approaches, the challenges posed by globally integrated financial firms, the implementation of harmonised global standards and the links between financial systems and growth. This text is forthcoming in: Barry Eichengreen and Bokyeong Park (eds) (2012), The global economy after the financial crisis, World Scientific Publishing. Financial support from the Korea Institute for International Economic Policy (KIEP) is gratefully acknowledged. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:680&r=mon |