|
on Monetary Economics |
| By: | Paul de Grauwe |
| Abstract: | I analyse the nature of the design failures of the Eurozone. I argue first that the endogenous dynamics of booms and busts that are endemic in capitalism continued to work at the national level in the Eurozone and that the monetary union in no way disciplined these into a union-wide dynamics. On the contrary the monetary union probably exacerbated these national booms and busts. Second, the existing stabilizers that existed at the national level prior to the start of the union were stripped away from the member-states without being transposed at the monetary union level. This left the member states naked and fragile, unable to deal with the coming national disturbances. I study the way these failures can be overcome. This leads me to stress the role of the ECB as a lender of last resort and the need to make macroeconomic policies more symmetric so as to avoid a deflationary bias in the Eurozone. I conclude with some thoughts on political unification. |
| Date: | 2013–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:erp:leqsxx:p0057&r=mon |
| By: | Frantisek Brazdik |
| Abstract: | This work presents an extension of a small open economy DSGE model allowing the transition toward a monetary policy regime aimed at exchange rate stability to be described. The model is estimated using the Bayesian technique to fit the properties of the Czech economy. In the scenarios assessed, the monetary authority announces and changes its policy so that it is focused solely on stabilizing the nominal exchange rate after a specific transition period is over. Four representative forms of monetary policy are followed to evaluate their properties over the announced transition period. Welfare loss functions assessing macroeconomic stability are defined, allowing the implications of the transition period regime choice for macroeconomic stability to be assessed. As these experiments show, exchange rate stabilization over the transition period does not deliver the lowest welfare loss. Under the assumptions taken, the strict inflation-targeting regime is identified as the best-performing regime for short transition periods. However, it can be concluded that for longer transition periods the monetary policy regime should respond to changes in the exchange rate. |
| Keywords: | monetary policy change, new Keynesian models, small open economy. |
| JEL: | E17 E31 E52 E58 E61 F02 F41 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2013/02&r=mon |
| By: | Oganesyan, Gayane |
| Abstract: | This paper analyzes whether the Lender of Last Resort function has changed in consequence of the recent Global Financial Crisis. The unprecedented emergency actions of the Federal Reserve, European Central Bank and the Bank of England are analyzed in terms of Walter Bagehot's traditional Lender of Last Resort doctrine. The central banks' actions are compared to identify the extensions and paint a general picture of the modern and much more comprehensive Lender of Last Resort function, which includes provision of liquidity and collateral, lowering interest rates and expansionary monetary policy, loosening collateral standards, supporting critical institutions, opening special liquidity facilities that target specific markets or groups of agents, and becoming market maker of last resort and buyer of last resort. The Lender of Last Resort function has been found to have changed. -- |
| Keywords: | Lender of Last Resort,Walter Bagehot's Lombard Street,penalty rate,secure collateral,solvency and illiquidity,monetary policy,Federal Reserve Bank,European Central Bank,Bank of England,Market Maker of Last Resort,quantitative easing,Buyer of Last Resort |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:192013&r=mon |
| By: | AfDB |
| Date: | 2013–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:448&r=mon |
| By: | Roman Horváth; Dan Vaško |
| Abstract: | We develop a comprehensive index of the transparency of central banks regarding their policy framework to promote financial stability for 110 countries from 2000 to 2011 and examine the determinants and effects of this transparency. We find that the degree of transparency increased in the 2000s, though it still varied greatly across the countries in our study. Our regression results suggest that more developed countries exhibit greater transparency, that episodes of high financial stress have a negative effect on transparency and that the legal origin matters, too. Importantly, we find that transparency regarding the level of financial stability is strongly affected by monetary policy transparency. The central banks that have a transparent monetary policy are more likely to show increased transparency in their framework for financial stability. Our results also suggest a non-linear effect of central bank financial stability transparency on financial stress. Unless the financial sector experiences severe distress, greater transparency is beneficial for financial stability. |
| Keywords: | financial stability, transparency, central banks |
| JEL: | E52 E58 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2013:i:113&r=mon |
| By: | Ronald Heijmans; Lola Hernández; Richard Heuver |
| Abstract: | This paper investigates how changes in the monetary policy framework have affected the overnight money market lending rate for the Dutch segment of the euro area during tranquil and crisis times. We present an EGARCH model on the volatility of the overnight lending rate. The results show that modifications of the monetary policy framework in 2004 decreased the volatility of the rate. Since the turmoil of the crisis started the volatility increased again. Our method makes it possible for central banks to monitor the volatility of the rate and the impact of changes in the policy for the whole euro area. |
| Keywords: | financial stability; unsecured interbank money market; EONIA; monetary policy |
| JEL: | E42 E43 E44 E52 G20 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:374&r=mon |
| By: | d'Albis, Hippolyte; Augeraud-Véron, Emmanuelle; Hupkes, Hermen Jan |
| Abstract: | This paper analyses the dynamic consequences of interest rate feedback rules in a flexible-price model where money enters the utility function. Two alternative rules are considered based on past or predicted inflation rates. The main feature is to consider inflation rates that are selected over a bounded time horizon. We prove that if the Central Bank’s forecast horizon is not too long, an active and forward-looking monetary policy is not destabilizing: the equilibrium trajectory is unique and monotonic. This is an advantage with respect to active and backward-looking policies that are shown to lead to a unique but fluctuating dynamic. |
| Keywords: | Interest Rate Rules, Indeterminacy, Functionnal Equations |
| JEL: | E31 E43 E52 |
| Date: | 2013–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45424&r=mon |
| By: | Ali Coskun Tunçer (London School of Economics, Department of Economic History) |
| Abstract: | This study analyses the functioning of the “gold standard” in the Ottoman Empire during the pre-1914 gold standard era, with specific emphasis on the institutions regulating commodity money and fiat money. It explores the extent to which the Ottoman monetary system was an outlier with reference to the experiences of other peripheral countries. One of the findings reveals considerably limited circulation of notes in the Ottoman Empire even after adherence to the gold standard in 1880. By highlighting the anomalies of the Ottoman case, this paper concludes that the transition from commodity money to fiat money did not take place at the same rate across peripheries during the pre-1914 gold standard era. These differences may be explained by the relative autonomy of the central banks of issue from governments, and in turn may have implied changing degrees of monetary sovereignty and fiscal capacity across the members of the golden periphery. |
| Keywords: | gold standard, monetary sovereignty, Ottoman Empire, fiat money |
| JEL: | N13 N23 N43 |
| Date: | 2013–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:cmh:wpaper:08&r=mon |
| By: | Rustam Jamilov; Balázs Égert |
| Abstract: | This paper analyses the interest rate pass-through for five economies of the Caucasus – Armenia, Azerbaijan, Georgia, Kazakhstan, and Russia. Employing an autoregressive distributed lag (ARDL) specification to monthly data, we find that the interest rate pass-through is systematically incomplete and sluggish, probably due to macroeconomic instability and low banking sector competition. It is not clear whether pass-through has improved over time and asymmetric adjustment is found to characterize the pass-through only occasionally. Overall, our results show a considerable degree of cross-country heterogeneity in the size and speed of the pass-through. |
| Keywords: | Interest Rate Pass-Through; Asymmetric Adjustment; Caucasus |
| JEL: | E43 E52 N25 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2013-9&r=mon |
| By: | Tsvetomira Tsenova |
| Abstract: | This paper compares the effectiveness, efficiency and robustness of standard and non-standard monetary policy tools, such as the banks’ refinancing interest rate, penalty interest rate on deposit facility holdings and minimum reserve requirements on attracted deposits. The assessment is performed on the basis of a numerically evaluated open economy general equilibrium model for macro-prudential analysis where optimal decisions by internationally linked banks are key determinants of international financial flows and wider economic outcomes. Banks differ in terms of balance sheet endowments and risk preferences, and take decisions rationally and competitively. Default risk, borrowing and lending are endogenous results of individual decisions of private agents (banks and households), as well as systemic outcomes of market interaction. |
| Keywords: | Banking, Monetary Policy, Non-standard Instruments, Macro-Prudential Policies, Financial Stability, Contingency Planning |
| JEL: | C68 D58 E44 E51 E52 E58 G21 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2013:i:110&r=mon |
| By: | Khan, Muhammad; Kebewar, mazen; Nenovsky, Nikolay |
| Abstract: | In the late 90's, after severe financial and economic crisis, accompanied by inflation and exchange rate instability, Eastern Europe emerged into two groups of countries with radically contrasting monetary regimes (Currency Boards and Inflation targeting). The task of our study is to compare econometrically the performance of these two regimes in terms of the relationship between inflation, output growth, nominal and real uncertainties from 2000 till now. In other words, we test the hypothesis of non-neutrality of monetary and exchange rate regimes with respect to these connections. In a whole, the empirical results do not allow us to judge which monetary regime is more appropriate and reasonable to assume. EU enlargement is one of the possible explanations for the numbing of the differences and the lack of coherence between the two regimes in terms of inflation, growth and their uncertainties |
| Keywords: | Inflation, inflation uncertainty, real uncertainty, monetary regimes, Eastern Europe |
| JEL: | C22 C51 C52 E0 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45523&r=mon |
| By: | Andreas Kettemann; Signe Krogstrup |
| Abstract: | This paper carries out an empirical investigation of the impact on bond spreads of the announcement, purchases and exit from the SNB’s bond purchase program in 2009-2010. We find evidence in favor of a narrowing yield spread of covered bonds as a result of the program. The effect materialized in the days following the announcement of the SNB’s intention to buy bonds issued by private sector borrowers, as markets learned that the SNB was buying covered bonds. The specification of the bond spreads used allows us to identify this effect as a discounted portfolio balance effect of the expected purchases, as distinct from policy signalling. In contrast, we find no evidence of a further effect of the actual purchases and subsequent sales on bond spreads. |
| Keywords: | Portfolio balance, credit spread, corporate spread, unconventional monetary policy, central bank asset purchases, credit easing, zero lower bound |
| JEL: | E5 G1 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:116&r=mon |
| By: | Omerčević, Edo |
| Abstract: | The main objective of this study is to review the literature on monetary issues and discuss how money and monetary systems contribute to the achievement of sustainable growth and inclusive economic development. The paper is based on an extensive review of literature that deals with monetary issues with the objective of building a case that the achievement of sustainable growth and inclusive economic development requires the right monetary system to be put in place which supports those objectives. The review of literature and theoretical reasoning assert that in order to achieve the stated economic objectives there is a need to develop and implement a different concept of money than the existing one. This study shows that the current monetary system does not provide a platform to achieve the desired economic objectives, irrespective of whether conventional or Islamic banking is the major banking and financial services provider. Theoretical models are outlined which can provide the foundation for healthy economic environment for sustainable growth and development. This including the discussion on a return to metallic moneys in form of the Islamic Gold Dinar system, a fiat monetary system based on the concept of Free-Money and a monetary model which is built on a commodity-based information system that can be easily implemented using today’s existing information and communication technology. |
| Keywords: | Economic growth, economic development, monetary systems |
| JEL: | E40 E42 |
| Date: | 2013–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44559&r=mon |
| By: | Markku Lanne; Jani Luoto |
| Abstract: | We propose a noncausal autoregressive model with time-varying parameters, and apply it to U.S. postwar inflation. The model .fits the data well, and the results suggest that inflation persistence follows from future expectations. Persistence has declined in the early 1980.s and slightly increased again in the late 1990.s. Estimates of the new Keynesian Phillips curve indicate that current inflation also depends on past inflation although future expectations dominate. The implied trend inflation estimate evolves smoothly and is well aligned with survey expectations. There is evidence in favor of the variation of trend inflation following from the underlying marginal cost that drives inflation. |
| JEL: | C22 C51 C53 E31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1285&r=mon |
| By: | Markku Lanne |
| Abstract: | We use noncausal autoregressions to examine the persistence properties of quarterly U.S. consumer price inflation from 1970:1.2012:2. These nonlinear models capture the autocorrelation structure of the inflation series as accurately as their conventional causal counterparts, but they allow for persistence to depend on the size and sign of shocks to inflation as well as the inflation rate. Inflation persistence has decreased since the early 1980.s, after which persistence is also greater following small and negative shocks than large and positive ones. At high levels of inflation, shocks are absorbed more slowly before the early 1980.s and faster thereafter compared to low levels of inflation. |
| JEL: | C22 C51 E31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1286&r=mon |
| By: | Alain Béraud (THEMA, Universite de Cergy-Pontoise) |
| Abstract: | This contribution analyzes how Keynes and the keynesians asked the question of the choice of the unit of measure of the macroeconomic aggregates. Underlining the narrow relationships which exist between the lectures which Keynes professed between 1933 and 1935 and the diverse versions of the model IS-LM, it shows that the problems arise from the way Keynes had approached this problem. To argue about the monetary value of the aggregates leads to dichotomiser the model and does not allow to analyze correctly the interdependence between the labor market on one hand and the goods markets and the money market on the other hand. The model so formulated does not allow to treat in a rigorous way the effects of a variation of the monetary wage. It lets think, wrongly, that there is inevitably a full employment equilibrium. |
| Keywords: | Keynes, IS-LM, units of measure. |
| JEL: | B22 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2013-11&r=mon |
| By: | Skouras, Thanos |
| Abstract: | In the aftermath of the Lehman Brothers collapse, Germany's insistence that each country was to defend its banking system on its own rather than by the European Union acting jointly, is what triggered the euro crisis. This is because it made it inevitable that the weakest countries with the least healthy public finances would sooner or later come under attack. It is argued that the root of the crisis is not excessive sovereign debt but the deficient construction of the euro and, more specifically, the absence of a common treasury. The main lessons of the crisis are then briefly presented and a less evident lesson, at least for economists, is discussed at length. This is that national pride and prejudice can influence the unfolding of events in uncertain and dangerous ways that do not make rational sense. In the concluding sections, the present state of the crisis and the future prospects for Europe are examined and, finally, Greece’s future is assessed in the light of this analysis. |
| Keywords: | crisis, European Union, debt, policy making, prejudice |
| JEL: | E65 F36 G01 |
| Date: | 2013–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45221&r=mon |
| By: | A. Craig Burnside; Jeremy J. Graveline |
| Abstract: | Recent research in international finance has equated changes in real exchange rates with differences between the marginal utility growths of representative agents in different economies. The asset market view of exchange rates, encapsulated in this equation, has been used to gain insights into exchange rate determination, foreign exchange risk premia, and international risk sharing. We argue that, in fact, this equation is of limited usefulness. By itself, the asset market view does not identify the economic mechanism that determines the exchange rate. It only holds under complete markets, and even then, it does not generally allow us to identify the marginal utility growths of distinct agents. Moreover, if we allow for incomplete asset markets, measures of agents' marginal utility growths, and international risk sharing, cannot be based on asset market and exchange rate data alone. Instead, we argue that in order to explain how exchange rates are determined, it is necessary to make specific assumptions about preferences, goods market frictions, the assets agents can trade, and the nature of endowments or production. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:duk:dukeec:13-1&r=mon |