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on Monetary Economics |
| By: | Michael Parkin (University of Western Ontario) |
| Abstract: | not available |
| Keywords: | none available |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:epuwoc:20131&r=mon |
| By: | John B. Taylor |
| Abstract: | Research in the early 1980s found that the gains from international coordination of monetary policy were quantitatively small compared to simply getting domestic policy right. That prediction turned out to be a pretty good description of monetary policy in the 1980s, 1990s, and until recently. Because this balanced international picture has largely disappeared, the 1980s view about monetary policy coordination needs to be reexamined. The source of the problem is not that the models or the theory are wrong. Rather there was a deviation from the rule-like monetary policies that worked well in the 1980s and 1990s, and this deviation helped break down the international monetary balance. There were similar deviations at many central banks, an apparent spillover culminating in a global great deviation. The purpose of this paper is to examine the possible causes and consequences of these spillovers, and to show that uncoordinated responses of central banks to the deviations can create an amplification mechanism which might be overcome by some form of policy coordination. |
| JEL: | E5 E58 F3 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18716&r=mon |
| By: | Tiziana Assenza (Catholic University of Milan); Peter Heemeijer (University of Amsterdam, and ABN AMRO); Cars Hommes (University of Amsterdam); Domenico Massaro (University of Amsterdam) |
| Abstract: | The way in which individual expectations shape aggregate macroeconomic variables is crucial for the transmission and effectiveness of monetary policy. We study the individual expectations formation process and the interaction with monetary policy, within a standard New Keynesian model, by means of laboratory experiments with human subjects. Three aggregate outcomes are observed: convergence to some equilibrium level, persistent oscillatory behavior and oscillatory convergence. We fit a heterogeneous expectations model with a performance-based evolutionary selection among heterogeneous forecasting heuristics to the experimental data. A simple heterogeneous expectations switching model fits individual learning as well as aggregate macro behavior and outperforms homogeneous expectations benchmarks. Moreover, in accordance to theoretical results in the literature on monetary policy, we find that an interest rate rule that reacts more than point for point to inflation has some stabilizing effects on inflation in our experimental economies, although convergence can be slow in presence of evolutionary learning. |
| Keywords: | Experiments; New Keynesian Macro Model; Monetary Policy; Expectations; Heterogeneity |
| JEL: | C91 C92 D84 E52 |
| Date: | 2013–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130016&r=mon |
| By: | Mikael Apel; Carl Andreas Claussen; Petra Gerlach-Kristen; Petra Lennartsdotter; Øistein Røisland (Norges Bank (Central Bank of Norway)) |
| Abstract: | How do monetary policy committee (MPC) members form their views about the appropriate interest rate? To what extent do they change their minds during the deliberations in the interest rate meeting? How important is the Chairman? The theoretical literature makes assumptions about these issues. We have asked actual MPC members in Sweden and Norway. This paper reports the results from this unique survey and discusses how well existing theories on monetary policy by committee capture the reality. |
| Keywords: | Monetary Policy Committee, Sveriges Riksbank, Norges Bank, Decision Making, Questionnaire Study. |
| JEL: | D71 E52 E58 |
| Date: | 2013–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2013_03&r=mon |
| By: | Canofari Paolo; Di Bartolomeo Giovanni; Piersanti Giovanni |
| Abstract: | This paper analyzes strategic interactions and contagion effects in countries joined to a monetary union. Using game theory and a cost-benefit analysis, the paper determines the set of equilibrium solutions under which country-specific shocks are transmitted to other member countries giving rise to contagion. Numerical simulations, obtained by a simple calibration of the model on some key Mediterranean countries of the Euro Zone, show the probabilities of contagion from Greece to Spain and Italy. |
| Keywords: | Shadow exchange rate, currency crisis, monetary unions, contagion, Nash equilibria |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:ter:wpaper:0098&r=mon |
| By: | Wäckerle, Manuel |
| Abstract: | The complexity of credit money is seen as the central issue in the banking-macro nexus, which the author considers as a structural as well as a process component of the evolving economy. This nexus is significant for the stability/fragility of the economic system because it links the monetary domain with the real domain of economic production and consumption. The evolution of credit rules shapes economic networks between households, firms, banks, governments and central banks in space and time. The author discusses the properties and characteristics of this process in three sections. First, he discusses the origins of the theory of money and its role in contemporary monetary economics. Second, he briefly discusses current theoretical foundations of top-down and bottom-up approaches to the banking-macro nexus, such as DSGE or ABM. Third, he suggests an evolutionary framework, building on the generic-rule based approach, to arrive at standards for bottom-up foundations in agent-based models of the banking-macro nexus. -- |
| Keywords: | 20th century origins of the theory of money,Schumpeterian credit-driven innovation,Post-Keynesian endogenous money,top-down versus bottom-up,evolutionary institutional approach to bank lending,generic credit rules as bottom-up foundations |
| JEL: | E41 G21 B52 B25 C63 E51 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20135&r=mon |
| By: | Canuto, Otaviano; Cavallari, Matheus |
| Abstract: | Confidence in combining inflation-targeting-cum-flexible-exchange-rate regimes with isolated microprudential regulation as a means to guarantee both macroeconomic and financial stability has been shattered by the scale and synchronization of asset price booms and busts that preceded the current global financial crisis. This paper has a two-fold purpose. On the one hand, it explores the implications and challenges of acknowledging the need for coordination between monetary policies and macroprudential regulation. On the other, it points out specific challenges currently faced by central bankers in emerging economies, as they cope with policy and regulatory coordination in a context of debt overhang and unconventional monetary policies in advanced economies. |
| Keywords: | Currencies and Exchange Rates,Debt Markets,Emerging Markets,Economic Theory&Research,Banks&Banking Reform |
| Date: | 2013–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6310&r=mon |
| By: | António Portugal Duarte (Faculty of Economics University of Coimbra and GEMF, Portugal); João Sousa Andrade (Faculty of Economics University of Coimbra and GEMF, Portugal); Adelaide Duarte (Faculty of Economics University of Coimbra and GEMF, Portugal) |
| Abstract: | The aim of this paper is to examine to what extent the adoption by Portugal of an exchange rate target zone regime in the context of its participation in the ERM of the EMS can be characterised by the existence of a nonlinear S-shaped relationship between the exchange rate and its fundamental. If there is such a relationship, a target zone would have a stabilising effect on the exchange rate, the so-called ‘honeymoon effect’, as predicted by the basic target zone model developed by Krugman (1991). We tested three models: OLS, Auto-correlation by Maximum Likelihood and GARCH (p, q). However, the evidence of a negative trend in the interest rate differential prevented the empirical confirmation of a nonlinear relationship. The use of LSTAR and ESTAR models also failed to reconcile the theory with the data. This does not mean that a stabilising effect on the exchange rate had not happened. Portugal’s current participation in the EMU is demonstrative of this reality. Maintaining a downward trend in interest rate differential turns out to reflect the increased credibility in the conduct of monetary policy, allowing the objective of exchange rate stability to be pursued, framed by the main objective of price stability. Without this policy it would not be possible to participate in the Euro Zone. The adoption of a target zone has functioned as an important foreign exchange regime of transition to a single currency ‘strategy’. This study also supports the idea that a target zone regime should be considered a feasible solution for ‘tomorrow’ to countries that ‘today’ can be forced to abandon the Euro Zone, since this kind of option combines monetary policy autonomy with macroeconomic stability. |
| Keywords: | ERM, honeymoon effect, STAR model, nonlinearities and target zones. |
| JEL: | F31 F41 G15 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2013-03.&r=mon |
| By: | Hachicha, Ahmed; Wen, Ming-Chang |
| Abstract: | This study investigates the relationship between inflation, inflation uncertainty and output in Tunisia using real and nominal data. GARCH-in-mean model with lagged variance equation is employed for the analysis. The result shows that inflation uncertainty has a positive and significant effect on the level of inflation only in the real term. Moreover, inflation uncertainty Granger-causes inflation and economic growth respectively. These results have important implications for the monetary policy in Tunisia. -- |
| Keywords: | GARCH-M model,inflation,inflation uncertainty,output |
| JEL: | C22 E31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20131&r=mon |
| By: | Seth B. Carpenter; Jane E. Ihrig; Elizabeth C. Klee; Daniel W. Quinn; Alexander H. Boote |
| Abstract: | Over the past few years, the Federal Reserve's use of unconventional monetary policy tools has led it to hold a large portfolio of securities. The asset purchases are intended to put downward pressure on longer-term interest rates, but also affect the Federal Reserve's balance sheet and income. We present a framework for projecting Federal Reserve assets and liabilities and income through time. The projections are based on public economic forecasts and announced Federal Open Market Committee policy principles. The projections imply that for the next several years, the Federal Reserve's balance sheet remains large by historical standards, and earnings remain high. Using the FOMC's stated exit strategy principles and the Blue Chip financial forecasts of the federal funds rate, the projections have the Federal Reserve's portfolio beginning to contract in 2015, returning to a more normal size in 2018 or 2019, and returning to a more normal composition a year thereafter. The projections imply that Federal Reserve remittances to the Treasury may decline for a time, and in some cases fall to zero. Once the portfolio is normalized, earnings are projected to return to their long-run trend. On net over the entire period of unconventional monetary policy actions, cumulative earnings are higher than what they might have been without the Federal Reserve asset purchase programs. To illustrate the interest rate sensitivity of the portfolio, we consider scenarios where interest rates are 100 basis points higher or lower than in the baseline. With higher interest rates, earnings tend to fall a bit more and remittances to the Treasury stop for a longer period than in our baseline projections, while with lower interest rates earnings are a bit larger and remittances continue throughout the projection period. . |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2013-01&r=mon |
| By: | Apostolos Serletis (University of Calgary); Periklis Gogas |
| Abstract: | King, Plosser, Stock, and Watson (1991) evaluate the empirical relevance of a class of real business cycle models with permanent productivity shocks by analyzing the stochastic trend properties of postwar U.S. macroeconomic data. They fiÂ…nd a common stochastic trend in a three variable system that includes output, consumption, and investment, but the explanatory power of the common trend drops signiÂ…ficantly when they add money balances and the nominal interest rate. In this paper we revisit the cointegration tests in the spirit of King et al. (1991), using improved monetary aggregates whose construction has been stimulated by the Barnett critique. We show that previous rejections of the balanced-growth hypothesis and classical money demand functions can be attributed to mis-measurement of the monetary aggregate. |
| Date: | 2013–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2013-02&r=mon |
| By: | Akhter, Tahsina |
| Abstract: | The purpose of this study is to forecast the short-term inflation rate of Bangladesh using the monthly Consumer Price Index (CPI) from January 2000 to December 2012. To do so, the study employed the Seasonal Auto-regressive Integrated Moving Average (SARIMA) models proposed by Box, Jenkins, and Reinsel (1994). CUSUM, Quandt likelihood ratio (QLR) and Chow test have been utilized to identify the structural breaks over the sample periods and all three tests suggested that the structural breaks in CPI series of Bangladesh are in the month of February 2007 and September 2009. Hence, the study truncated the series and using CPI data from September 2009 to December 2012, the ARIMA(1,1,1)(1,0,1)12 models were estimated and forecasted. The forecasted result suggests an increasing pattern and high rates of inflation over the forecasted period 2013. Therefore, the study recommends that Bangladesh Bank should come forward with more appropriate economic and monetary policies in order to combat such increase inflation in 2013. |
| Keywords: | Inflation; Forecasting; SARIMA; Bangladesh |
| JEL: | E31 E17 C22 |
| Date: | 2013–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43729&r=mon |
| By: | Luca Arciero; Ronald Heijmans; Richard Heuver; Marco Massarenti; Cristina Picillo; Francesco Vacirca |
| Abstract: | This paper develops a methodology, based on Furfine (1999), to identify unsecured interbank money market loans from transaction data of the most important euro processing payment system, TARGET2, for maturity ranging from one day (overnight) up to three months. The implementation has been verified with (i) interbank money market transactions executed on the Italian trading platform e-MID and (ii) aggregated reporting by the EONIA panel banks. The Type 2 (false negative) error for the best performing algorithm setup is equal to 0.92%. The results focus on three levels: Eurosystem, core versus (geographical) periphery and countries (Italy and the Netherlands). The different stages of the global financial crisis and of the sovereign debt crises are clearly visible in the interbank money market, characterised by significant drops in the turnover. We find aggregated interest rates very close to the EONIA but we observe high heterogeneity across countries and market participants. |
| Keywords: | euro interbank money market; Furfine; TARGET2; financial stability; EONIA |
| JEL: | E42 E44 E58 G01 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:369&r=mon |
| By: | Ouchen, Mariam |
| Abstract: | This paper set out to review the main theories and empirical methods employed in selecting an appropriate exchange rate regime.In order to achieve this, the paper is organized as follows : Section 2 introduces the distinct classifications of exchange regimes(de jure exchange rate regimes versus the facto exchange rate regimes), and the different theoretical approaches which illustrate how an optimal exchange rate regime is determined . Despite their initial popularity, the theoretical considerations have not escaped criticism.Section 3 reviews the criticism of these theories.A conclusion is provided in Section 4. |
| Keywords: | Keywords : Exchange rate regime; the structural approach; credibility; flexibility; the bipolar view |
| JEL: | A30 |
| Date: | 2013–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43907&r=mon |
| By: | Adriana Cornea (University of Exeter); Cars Hommes (University of Amsterdam); Domenico Massaro (University of Amsterdam) |
| Abstract: | In this paper we develop and estimate a behavioral model of inflation dynamics with monopolistic competition, staggered price setting and heterogeneous firms. In our stylized framework there are two groups of price setters, fundamentalists and naive. Fundamentalists are forward-looking in the sense that they believe in a present-value relationship between inflation and real marginal costs, while naive are backward-looking, using the simplest rule of thumb, naive expectations, to forecast future inflation. Agents are allowed to switch between these different forecasting strategies conditional on their recent relative forecasting performance. The estimation results support behavioral heterogeneity and the evolutionary switching mechanism. We show that there is substantial time variation in the weights of forward-looking and backward-looking behavior. Although on average the majority of firms use the simple backward-looking rule, the market has phases in which it is dominated by either the fundamentalists or the naive agents. |
| Keywords: | Inflation; Phillips Curve; Heterogeneous Expectations; Evolutionary Selection |
| JEL: | E31 E52 C22 |
| Date: | 2013–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130015&r=mon |