|
on Monetary Economics |
| By: | Nathan Porter; TengTeng Xu |
| Abstract: | Interest rates in China are composed of a mix of both market-determined interest rates (interbank rates and bond yields), and regulated interest rates (retail lending and deposit rates), reflecting China’s gradual process of interest rate liberalization. This paper investigates the main drivers of China’s interbank rates by developing a stylized theoretical model of China’s interbank market and estimating an EGARCH model for 7-day interbank repo rates. Our empirical findings suggest that movements in administered interest rates (part of the People’s Bank of China’s monetary policy toolkit) are important determinants of market-determined interbank rates, in both levels and volatility. The announcement effects of reserve requirement changes also influence interbank rates, as well as liquidity injections from open market operations in recent years. Our results indicate that the regulation of key retail interest rates influences the behaviour of marketdetermined interbank rates, which may have limited their independence as price signals. Further deposit rate liberalization should allow short-term interbank rates to play a more effective role as the primary indirect monetary policy tool. |
| Keywords: | Development economics; Econometric and statistical methods; Financial markets; Monetary policy framework; Transmission of monetary policy |
| JEL: | E43 E52 E58 C22 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:13-20&r=mon |
| By: | Leonardo Melosi (Federal Reserve Bank of Chicago) |
| Abstract: | We develop a DSGE model in which the policy rate signals to price setters the central bank’s view about macroeconomic developments. The model is estimated with likelihood methods on a U.S. data set that includes the Survey of Professional Forecasters as a measure of price setters’ inflation expectations. We find that the model fits the data better than a prototypical New Keynesian DSGE model because the signaling effects of monetary policy help the model account for the run-up in inflation expectations in the 1970s. The estimated model with signaling effects delivers large and persistent real effects of monetary disturbances even though the average duration of price contracts is fairly short. While the signaling effects do not substantially alter the transmission of technology shocks, they bring about deflationary pressures in the aftermath of positive demand shocks. The signaling effects of monetary policy have contributed (i ) to heightening inflation expectations in the 1970s, (ii ) to raising inflation and to exacerbating the recession during the first years of Volcker’s monetary tightening, and (iii ) to subduing inflation and to stimulating economic activity from 1991 through 2007. |
| Keywords: | Bayesian econometrics; price puzzle; persistent real effects of nominal shocks; imperfect common knowledge; public signal; heterogeneous beliefs |
| JEL: | E52 C11 C52 D83 |
| Date: | 2013–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-029&r=mon |
| By: | Agnès Bénassy-Quéré; Yeganeh Forouheshfar |
| Abstract: | We study the implication of a multipolarization of the international monetary system on cross-currency volatility. More specifically, we analyze whether the internationalization of the yuan could modify the impact of asset supply and trade shocks on the euro-dollar exchange rate, within a three-country, three-currency portfolio model. Our static model shows that the internationalization of the yuan (defined as a rise in the yuan in international portfolios) would be either neutral or stabilizing for the euro-dollar rate, whatever the exchange-rate regime of China. Moving to a dynamic, stock-flow framework, we show that the internationalization of the yuan would make exchange-rate variations more efficient to stabilize net foreign asset positions after a trade shock. |
| Keywords: | China;yuan;exchange-rate regime;euro;dollar |
| JEL: | F31 F33 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2013-14&r=mon |
| By: | Chance Mwabutwa (Department of Economics, University of Pretoria); Manoel Bittencourt (Department of Economics, University of Pretoria); Nicola Viegi (Department of Economics, University of Pretoria) |
| Abstract: | This paper investigates the evolution of monetary transmission mechanism in Malawi between 1981 and 2010 using a time varying parameter vector autoregressive (TVP-VAR) model with stochastic volatility. We evaluate how the responses of real output and general price level to bank rate, exchange rate and credit shocks changed over time since Malawi adopted financial reforms in 1980s. The paper finds that inflation, real output and exchange rate responses to monetary policy shocks changed over the period under review. Importantly, beginning mid-2000, the monetary policy transmission performed consistently with predictions of economic theory and there is no evidence of price puzzle as found in the previous literature on Malawi. However, the statistical significance of the private credit supply remains weak and this calls for more financial reforms targeting the credit market which can contribute to monetary transmission and promote further economic growth in Malawi. |
| Keywords: | Monetary Policy Transmission Mechanism, Price Puzzle, Financial Reforms, Bayesian TVP-VAR |
| JEL: | C49 D12 D91 E21 E44 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201327&r=mon |
| 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:20133&r=mon |
| By: | Ruediger Bachmann; Benjamin Born; Steffen Elstner; Christian Grimme |
| Abstract: | Does time-varying business volatility affect the price setting of firms and thus the transmission of monetary policy into the real economy? To address this question, we estimate from the firm-level micro data of the German IFO Business Climate Survey the impact of idiosyncratic volatility on the price setting behavior of firms. In a second step, we use a calibrated New Keynesian business cycle model to gauge the effects of time-varying volatility on the transmission of monetary policy to output. Our results are twofold. Heightened business volatility increases the probability of a price change, though the effect is small: the tripling of volatility during the recession of 08/09 caused the average quarterly likelihood of a price change to increase from 31.6% to 32.3%. Second, the effects of this increase in volatility on monetary policy are also small; the initial effect of a 25 basis point monetary policy shock to output declines from 0.347% to 0.341%. |
| JEL: | E30 E31 E32 E5 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19180&r=mon |
| By: | Cristiano Cantore (University of Surrey); Paul Levine (University of Surrey); Giovanni Melina (International Monetary Fund); Joseph Pearlman (City University, London) |
| JEL: | E62 E30 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0513&r=mon |
| By: | Nicolas Véron |
| Abstract: | New obstacles to the European banking union have emerged over the last year, but a successful transition remains both necessary and possible. The key next step will be in the second half of 2014, when the European Central Bank (ECB) will gain supervisory authority over most of Europeâ??s banking system. This needs to be preceded by a rigorous balance sheet assessment that is likely to trigger significant bank restructuring, for which preparation has barely started. It will be much more significant than current discussions about a bank resolution directive and bank recapitalisation by the European Stability Mechanism (ESM). The 2014 handover, and a subsequent change in the European treaties that will establish the robust legal basis needed for a sustainable banking union, together define the policy sequence as a bridge that can allow Europe to cross the choppy waters that separate it from a steady-state banking policy framework. |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:783&r=mon |
| By: | dogru, bulent |
| Abstract: | The goal of this study is to test the implication of Mankiv’s (1987) optimal seigniorage theory suggesting that in the long run higher tax rates are associated with higher inflation rates and higher nominal interest rates for Turkish Economy using time series dataset for the time period 1980-2011.We examine the long run relationship between nominal interest rates, inflation and tax revenue. For this purpose, we estimate the Mankiw’soptimal seigniorage model for Turkish Economy with the cointegration and vector error correction methods (VECM) techniques. According to econometric result, in long run there is a causality relationship from inflation and tax revenue to nominal interest rates. However, in short run we could not find any evidence that support the causality from inflation and tax revenue to nominal interest rates |
| Keywords: | seigniorage and inflation tax, optimal seigniorage theory, Turkish economy, error correction model, cointegration analysis |
| JEL: | E6 E62 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:47885&r=mon |
| By: | Dimitrios Tsomocos (University of Oxford); Juan Francisco Martinez Sepulveda (University of Oxford) |
| Abstract: | This paper analyzes the different channels of shock transmission in an economy affected by financial frictions. We distinguish between the liquidity and default effects on asset prices. Furthermore, we develop a framework in which we can assess financial stability policy under financial frictions. We introduce a simplified model of trade and financial intermediation that captures the effects of shocks on financial and real variables of the economy. Our results suggest that financial stability and economic resilience to adverse shocks should take into account default in the credit market as well as the liquidity of goods traded in the commodity market. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:916&r=mon |