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on Monetary Economics |
| By: | Christoffer Kleivset (Norges Bank (Central Bank of Norway)) |
| Abstract: | This paper documents Norges Bank’s role in the long transition period from a fixed exchange rate regime to inflation targeting in Norway. It is shown that the Bank’s leadership and influential department leaders wanted more exchange rate flexibility from early on. However, due to the division of responsibility of economic policy in Norway – where a stable exchange rate was important with regards to incomes policy – this was met with resistance. |
| Keywords: | Monetary policy, Inflation targeting, Regime change |
| JEL: | E58 F33 N14 |
| Date: | 2012–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2012_13&r=mon |
| By: | Andrade, P.; Ghysels, E.; Idier, J. |
| Abstract: | We introduce a new measure called Inflation-at-Risk (I@R) associated with (left and right) tail inflation risk. We estimate I@R using survey-based density forecasts. We show that it contains information not covered by usual inflation risk indicators which focus on inflation uncertainty and do not distinguish between the risks of low or high future inflation outcomes. Not only the extent but also the asymmetry of inflation risks evolve over time. Moreover, changes in this asymmetry have an impact on future inflation realizations as well as on the current interest rate central banks target. |
| Keywords: | inflation expectations, risk, uncertainty, survey data, inflation dynamics, monetary policy. |
| JEL: | E31 E37 E43 E52 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:407&r=mon |
| By: | Manoel Bittencourt (Department of Economics, University of Pretoria); Chance Mwabutwa (Department of Economics, University of Pretoria); Nicola Viegi (Department of Economics, University of Pretoria) |
| Abstract: | This paper estimates the Bayesian dynamic stochastic general equilibrium (DSGE) model and uses the model to account for the short-run monetary policy response to increased aid inflows in Malawi. The estimates reveal that the monetary authorities reacted to increased foreign aid inflows the same way as was experienced in other African countries. The model also suggests that there was non-existence of the threats of the ‘Dutch Disease’ in contrast to what was found in Mozambique. The country can continue to receive aid by targeting the supply side of the economy with an aim of improving the competiveness of the export sector. Evidently, the conduct of monetary policy performs better under the assumption of full accessibility of financial assets. In addition, the impact of aid inflows on depreciation and inflation are much smaller when monetary authorities indulge in money targeting other than following the Taylor rule and incomplete sterilisation. On the small note, the study suggests that actual spending of aid should be aligned with the actual absorption of increased aid. Nevertheless, the outcome of the aid effects has been clouded out by the limitation of the exchange rate management in Malawi. |
| Keywords: | Taylor Rule, DSGE Model, Rule-of-Thumb, Spending, Absorption, Foreign Exchange Rate, Bayesian Methods |
| JEL: | C11 C13 E52 E62 F31 F35 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201232&r=mon |
| By: | Simplice A , Asongu |
| Abstract: | Purpose – The purpose of this paper is to examine the effects of policy options in financial dynamics (of money, credit, efficiency and size) on consumer prices. Soaring food prices have marked the geopolitical landscape of African countries in the past decade. Design/methodology/approach – We limit our sample to a panel of African countries for which inflation is non-stationary. VAR models from both error correction and Granger causality perspectives are applied. Analyses of dynamic shocks and responses are also covered. Six batteries of robustness checks are applied to ensure consistency in the results. Findings – (1) There are significant long-run equilibriums between inflation and each financial dynamic. (2) When there is a disequilibrium, while only financial depth and financial size could be significantly used to exert deflationary pressures, inflation is significant in adjusting all financial dynamics. In other words, financial depth and financial size are more significant instruments in fighting inflation than financial efficiency and activity. (3) The financial intermediary dynamic of size appears to be more instrumental in exerting a deflationary tendency than financial intermediary depth. (4) The deflationary tendency from money supply is double that based on liquid liabilities. Practical implications – Monetary policy aimed at fighting inflation only based on bank deposits may not be very effective until other informal and semi-formal financial sectors are taken into account. It could be inferred that, tight monetary policy targeting the ability of banks to grant credit (in relation to central bank credits) is more effective in tackling consumer price inflation than that, targeting the ability of banks to receive deposits. In the same vein, adjusting the lending rate could be more effective than adjusting the deposit rate. The insignificance of financial allocation efficiency and financial activity as policy tools in the battle against inflation could be explained by the (well documented) surplus liquidity issues experienced by the African banking sector. Social implications – This paper helps in providing monetary policy options in the fight against soaring consumer prices. By keeping inflationary pressures on food prices in check, sustained campaigns involving strikes, demonstrations, marches, rallies and political crises that seriously disrupt economic performance could be mitigated. Originality/value – As far as we have perused, there is yet no study that assesses monetary policy options that could be relevant in addressing the dramatic surge in the price of consumer commodities. |
| Keywords: | Banks; Inflation; Development; Panel; Africa |
| JEL: | O55 E31 O10 G20 P50 |
| Date: | 2012–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41553&r=mon |
| By: | LI, Wu |
| Abstract: | By integrating the fiat money into the structural growth model in [1], this paper presents a dynamic model for the simulation study of interest rate. And the model is illustrated with a numerical example. The equilibria of the numerical example are also computed by the method in [2]. The monetary policies of controlling the interest rate and controlling the money supply are simulated. |
| Keywords: | interest rate; money supply; general equilibrium; price |
| JEL: | C68 C63 D58 C67 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42840&r=mon |
| By: | Malikane, Christopher |
| Abstract: | We investigate inflation dynamics and the presence of the cost channel in ten emerging markets since the 1990's from the new Keynesian and triangle Phillips curve perspectives. A negative sign on the output gap is a common finding in new Keynesian specifications. This problem may be addressed by taking into account the endogeneity of the nominal interest rate in the instrument set of GMM estimations. We confirm substantial and significant backward-looking behavior in the inflation process of emerging markets, but its size is not robust to specification in some economies. In almost all the triangle model estimations, except for Hungary, the output gap exhibits the correct sign. Except for Mexico, there is no evidence of the cost channel in emerging market economies. The cost channel is not robust to the endogeneity of the nominal interest rate and to the specification of the Phillips curve. |
| Keywords: | Cost channel; inflation dynamics; Phillips curve |
| JEL: | E31 E50 |
| Date: | 2012–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42688&r=mon |
| By: | Kakarot-Handtke, Egmont |
| Abstract: | There is no such thing as a real economy. The task, therefore, is to consistently reconstruct the fluctuations of employment and output from the interactions of real and nominal variables. The present paper does exactly this. No nonempirical concepts like utility, equilibrium, rationality, decreasing returns or perfect competition are applied. The analysis runs rigorously in objective structural axiomatic terms. Therefrom follows that it is the factor cost ratio, i.e. the relation of the nominal variables wage rate and price and the real variable productivity that, for any given level of effective demand, drives the fluctuations of employment and output. |
| Keywords: | new framework of concepts; structure-centric; axiom set; profit; distributed profit; Say’s regime; supersymmetric price; Slutzky-cycle; transaction money; general multiplier |
| JEL: | E32 E24 E10 |
| Date: | 2012–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42793&r=mon |
| By: | Lengnick, Matthias; Krug, Sebastian; Wohltmann, Hans-Werner |
| Abstract: | We pick up the standard textbook approach of money creation and develop a simple agent-based alternative. We show that our model is well suited to explain the endogenous creation of money. Although more general, our model still contains the standard results as a limiting case. We also uncover a potential instability that is hidden in the standard approach but easily recognized within a strict individual-based and stock-flow consistent version. We show in detail how individual interactions build up systemic risk and how banking crises are triggered by the maturity mismatch of different cash-flows and spread by the depreciation of non-performing loans (e.g. interbank- or government debt). -- |
| Keywords: | financial instability,endogenous money,agent-based macroeconomics,stock-flow consistency,disequilibrium analysis |
| JEL: | C63 E42 E51 G01 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201215&r=mon |