nep-mon New Economics Papers
on Monetary Economics
Issue of 2014‒02‒21
25 papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. How Persistent are Monetary Policy Effects at the Zero Lower Bound? By Neely, Christopher J.
  2. Optimal Monetry Responses to Oil Discoveries By Samuel Wills
  3. Inflation targeting and Quantitative Tightening: Effects of Reserve Requirements in Peru By Armas, Adrián; Castillo, Paul; Vega, Marco
  4. Monetary policy analysis in an inflation targeting framework in emerging economies: The case of India. By Bhattacharya, Rudrani; Patnaik,Ila
  5. Exchange Rate Pass-Through Effect on Prices and Inflation Targeting: A Comparison of Emerging Market Economies By Alpaslan, Baris; Demirel, Baki
  6. Effects of Monetary Policy on the REIT Returns - Evidence from the United Kingdom By I.Fatnassi; S.Chawechi; Zied Ftiti; A.Ben Maatoug
  7. Fat-Tailed Shocks and the Central Bank Reaction By Ortiz, Marco
  8. Learning the Fiscal Monetary Interaction under Trend Infl?ation By Anna Florio; Alessandro Gobbi
  9. Low Interest Rate Policy and the Use of Reserve Requirements in Emerging Markets By Andreas Hoffmann; Axel Loeffer
  10. The interbank market risk premium, central bank interventions, and measures of market liquidity By Alexius, Annika; Birenstam, Helene; Eklund, Johanna
  11. Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets By Andreas Hoffmann
  12. Can Low Interest Rates be Harmful: An Assessment of the Bank Risk-Taking Channel in Asia By Ramayandi, Arief; Rawat, Umang; Tang, Hsiao Chink
  13. Monetary aggregates to improve early output gap estimates in the euro area - an empirical assessment By Jens Boysen-Hogrefe
  14. Exchange Rate Predictability in a Changing World By Byrne, Joseph P; Korobilis, Dimitris; Ribeiro, Pinho J
  15. Assessing the link between Price and Financial Stability By Christophe Blot; Jérôme Creel; Paul Hubert; Fabien Labondance; Francesco Saraceno
  16. A New Approach to Explaining the Value of Colonial Paper Money: Evidence from New Jersey, 1709-1775 By Farley Grubb
  17. How Far Can Renminbi Internationalization Go? By Yongding, Yu
  18. A multi-country DSGE model with incomplete Exchange Rate Passthrough:application for the Euro area. By Tovonony Razafindrabe
  19. Lessons for Asia from Europe’s History with Banking Integration By Elliott, Douglas J.
  20. Banks competition, managerial efficiency and the interest rate pass-through in India By Jugnu Ansari; Ashima Goyal
  21. Interlinkage between Real Exchange rate and Current Account Behaviors: Evidence from India By Mohamed Arouri; Arif Billah Dar; Niyati Bhanja; Aviral Kumar Tiwari; FrédéricTeulon
  22. Discussion of "Target2 and Central Bank Balance Sheets" By Frank Westermann
  23. Crises and Exchange Rate Regimes: Time to break down the bipolar view? By Jean-Louis Combes; Alexandru Minea; Mousse Ndoye SOW
  24. It will cost you nothing to "kill" a Proof-of-Stake crypto-currency By Nicolas Houy
  25. Measuring inflation under rationing: A virtual price approach By Christophe Starzec; François Gardes

  1. By: Neely, Christopher J. (Federal Reserve Bank of St. Louis)
    Abstract: Event studies show that Fed unconventional announcements of forward guidance and large scale asset purchases had large and desired effects on asset prices but do not tell us how long such effects last. Wright (2012) used a structural vector autoregression (SVAR) to argue that unconventional policies have very transient effects on asset prices, with half-lives of 3 months. This would suggest that unconventional policies can have only marginal effects on macroeconomic variables. The present paper shows, however, that the SVAR is unstable, forecasts very poorly and therefore delivers spurious inference about the duration of the unconventional monetary shocks. In addition, implied in-sample return predictability from the SVAR greatly exceeds that which is consistent with rational asset pricing and reasonable risk aversion. Restricted models that respect plausible predictability in asset returns are more stable and imply that the unconventional monetary policy shocks were fairly persistent but that our uncertainty about their effects increases with forecast horizon. Estimates of the dynamic effects of shocks should respect the limited predictability in asset prices.
    JEL: C30 E43 E47 E52
    Date: 2014–02–09
  2. By: Samuel Wills
    Abstract: Monetary policy can play an important role in managing oil discoveries. Ideally governments will use fiscal policy to smooth consumption of oil income. In practice this often does not happen, as governments delay spending until oil revenues are received. This induces changes in the economy, both at discovery and when spending begins. In this paper we consider how monetary policy should respond.The paper makes three contributions. The first is to show that an oil discovery causes the real exchange rate to appreciate twice: when forward-looking households and then the government increase their consumption. This can cause a recession under standard monetary regimes, as firms anticipate the second appreciation. The second contribution is to micro-found the objective of monetary policy. The central bank should stabilise inflation, the output gap and the fiscal gap. It will also try to appreciate the non-oil terms of trade, to exploit the asymmetry from owning oilwealth. The third is to derive a closed form for optimal monetary policy, which willrespond in advance to expected changes in government demand. This will delay the second real appreciation until the government can take up the slack left by private demand. Optimal policy significantly improves welfare relative to standard monetary regimes, and is well approximated by a simple Taylor rule that responds to expected changes in the natural level of output.
    Keywords: Natural resources, oil, optimal monetary policy, small open economy, anticipated windfall
    JEL: E52 E62 F41 O13 Q30 Q33
    Date: 2014
  3. By: Armas, Adrián (Banco Central de Reserva del Perú); Castillo, Paul (Banco Central de Reserva del Perú); Vega, Marco (Banco Central de Reserva del Perú)
    Abstract: This paper provides an overview of the Reserve Requirements measures undertaken by the Central Bank of Peru. We provide a rationale for the use of these instruments as well as empirical evidence on their effectiveness. In general, the results show that a reserve requirement tightening has the desired effects on interest rates and credit levels both at banks and smaller financial institutions (cajas municipales).
    Keywords: Non-conventional monetary policy, Inflation Targeting, Reserve requirements.
    JEL: E51 E52 E58 G21
    Date: 2014–02
  4. By: Bhattacharya, Rudrani (National Institute of Public Finance and Policy); Patnaik,Ila (National Institute of Public Finance and Policy)
    Abstract: Monetary policy in India has moved towards an increasingly flexible exchange rate regime without any explicit framework for an alternative nominal anchor. The failure of monetary policy to anchor inflationary expectations of agents, coupled with negative supply shocks has kept inflation above the acceptable range of 5-5.5 percent for last five years in India. In this paper we present a model for policy analysis for India that provides insights in the setting of an inflation targeting framework to anchor inflationary expectations. The model offers an understanding of the extent to which various shocks, including the post-global crisis fiscal stimulus, accommodative monetary policy and ensuing decline in global demand, explain growth and inflation in India.
    Keywords: Inflation ; Monetary policy ; India ; Emerging economies
    JEL: E17 E52 E58 F47 O23
    Date: 2014–02
  5. By: Alpaslan, Baris; Demirel, Baki
    Abstract: Most emerging market economies in the 1990s witnessed a wide variety of crises. Following those crises, emerging market economies have given up monetary policies using exchange rates as a nominal anchor and inflation targeting has become a new policy of such countries. The overshooting effect of exchange rates in these markets and therefore arising problems are an important cause of this political change. The aim of this paper is to evaluate exchange rate pass-through effects on prices in Asian Pacific, Latin American and Turkish economies which implemented inflation targeting, but have different dollarization and inflation episodes. Panel VAR approach was used in the analysis. Our findings show that exchange rate pass-through effect in Asian Pacific countries is lower than that of Latin America and Turkey.
    Keywords: Pass-through Effect, Inflation Targeting, Emerging Market Economies.
    JEL: E42 E52 E58
    Date: 2014–02–16
  6. By: I.Fatnassi; S.Chawechi; Zied Ftiti; A.Ben Maatoug
    Abstract: In this paper, we analyse whether a monetary policy based on three main variables (inflation, money supply, and output gap) has a nonlinear impact on real estate investment trust (REIT) markets. In addition, we extend our analysis to examine whether these monetary policy components impact the possibility of boom and bust regimes occurring in the market. Empirically, we propose different Markov-switching model variants to determine the nonlinear time-varying impact of monetary policy on the REIT market. Our results show the monetary policy environment is supposed to affect, on one hand, the REIT returns and, on another hand, the possibility of boom and bust markets. We prove that expansionary monetary policy has an impact only in the case of boom market. However, an increase in the inflation rate decreases the probability in remaining in the bust regime. As consequence, we have already outlined several monetary transmission mechanisms that show house prices to have important effects on aggregate demand. Our results confirm that REIT markets are not efficient.
    Keywords: Monetary policy, REIT, Boom and Bust, Nonlinear,Markov-switching
    Date: 2014–01–06
  7. By: Ortiz, Marco (Banco Central de Reserva del Perú; London School of Economics)
    Abstract: In this paper we extend the model of Kato and Nishiyama (2005) by introducing fat-tailed shocks in a simple new Keynesian framework where the central bank explicitly considers the zero lower-bound constraint on interest rates. We find that shocks with `excess kurtosis' make monetary policy relatively more aggressive far away from the zero lower bound region though, this difference reverts as the economy gets closer to the constrained region. From a quantitative point of view, our findings suggest that variance-preserving shifts in kurtosis, in the shape of Laplace distributed shocks, do not produce significant effects on the optimal reaction of the central bank.
    JEL: E52 E58 C63
    Date: 2014–02
  8. By: Anna Florio (Dipartimento di Ingeneria Gestionale, Politecnico di Milano); Alessandro Gobbi (Department of Economics and Finance, Universita Cattolica del Sacro Cuore)
    Abstract: What are the effects of a higher inflation target on the determinacy properties under alternative monetary/fiscal policy mixes in New Keynesian models? Would it be more difficult for the central bank to stabilize inflation expectations if the inflation target is raised? What role for central bank transparency? We find that trend inflation does not affect determinacy as long as monetary policy is passive. Conversely, an active central bank should fight inflation more strongly with higher trend inflation, in order to guarantee the determinacy of the AM/PF equilibrium. Furthermore, this equilibrium, if determinate, is always E-stable under transparency. In the AF/PM case the equilibrium is always determinate and E-stable under both transparency and opacity. We find the degree of price stickiness to be a crucial structural parameter. In particular, in a low price rigidity country, say the United States, adhering to the Taylor principle is a sufficient condition for equilibrium determinacy under the AM/PF regime, irrespective of the level of trend inflation. Still, the central bank must be transparent to stabilize expectations. On the contrary, in a high price rigidity economy, say Europe, to have determinacy under AM/PF mix, the inflation target cannot be larger than 2% but the central bank needs not to be transparent to stabilize expectations. Furthermore, high rigidity makes non-Ricardian policies less E-stable.
    Keywords: Trend Inflation, Learning, Fiscal Policy, Monetary Policy, Transparency
    JEL: E5
    Date: 2014–02
  9. By: Andreas Hoffmann; Axel Loeffer
    Abstract: The paper sheds light on the link between the interest rate policy in large advanced economies with international funding and reserve currencies (the United States and the Euro Area) and the use of reserve requirements in emerging markets. Using reserve requirement data for 28 emerging markets from 1998 to 2012 we provide evidence that emerging market central banks tend to raise reserve requirements when interest rates in international funding markets decline or financial infl ows accelerate to preserve fnancial stability. In contrast, when global liquidity risk rises and funding from the large advanced economies dries up emerging markets lower reserve requirements to stabilize the banking system that is in need of liquidity.
    Keywords: Reserve Requirements, Interest Rates, Emerging Markets
    JEL: E52 E58
    Date: 2014–02
  10. By: Alexius, Annika (Dept. of Economics, Stockholm University); Birenstam, Helene (Department of Statistics, Stockholm University); Eklund, Johanna (Sveriges Riksbank)
    Abstract: When the interbank market risk premium soared during the finnancial crisis, it created a wedge between interest rates actually paid by private agents and the rapidly falling policy rates. Many central banks attempted to improve the situation by supplying liquidity to the domestic interbank market. This paper studies the Swedish interbank market risk premium using a unique data set on traded volume between banks and between banks and the Riksbank. We find that the main determinants of the Swedish interbank premium are international variables, such as US and EURO area risk premia. International exchange rate volatility and the EURO/USD deviations from CIP also matters, while standard mesures of domestic market liquidity and domestic credit risk have insignificant effects. Our measure of actual turnover in the interbank market is however associated with a significant reduction of the interbank market risk premium, as are credit provisions by the central bank.
    Keywords: Interbank market risk premium; liquidity risk; credit risk; credit provisions.
    JEL: F31 F41
    Date: 2014–02–06
  11. By: Andreas Hoffmann
    Abstract: Since 2009, central banks in the major advanced economies have held interest rates at very low levels to stabilize financial markets and support the recovery of their economies. Based on a Mises-Hayek-BIS view on credit booms and Mises’ law of unintended consequences, this paper suggests that the prolonged period of very low interest rates in the large advanced economies (unintentionally) spurs volatile capital flows and fuels asset market bubbles in fast-growing emerging markets. The resulting inflationary pressure and risks of capital flow reversals gives rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows.
    Keywords: Monetary Policy, Emerging Markets, Financial Repression
    JEL: B53 E32 E44 F41 F43
    Date: 2014–02
  12. By: Ramayandi, Arief (Asian Development Bank); Rawat, Umang (Faculty of Economics, University of Cambridge); Tang, Hsiao Chink (Asian Development Bank)
    Abstract: Events surrounding the global financial crisis have brought to light the potential role of monetary policy in precipitating the crisis. Numerous studies on advanced economies have documented a significant negative relationship between interest rates and bank risk-taking. This paper also finds the presence of the risk-taking channel based on a panel of publicly listed bank data in Asia. Using both annual and quarterly data, "too low" interest rates are found to lead to an increase in bank risk-taking.
    Keywords: Bank risk-taking; interest rates; panel data; monetary policy; Asian banks
    JEL: E43 E52 G21
    Date: 2014–01–01
  13. By: Jens Boysen-Hogrefe
    Abstract: Output gap estimates at the current edge are subject to severe revisions. This study analyzes whether monetary aggregates can be used to improve the reliability of early output gap estimates as proposed by several theoretical models. A real-time experiment shows that real M1 can improve output gap estimates for euro area data. For many periods the cyclical component of real M1 shows good results, while a forecasting strategy based on projecting GDP series seems to be more robust and provides superior results during the Great Recession. Broader monetary aggregates provide no superior information for output gap estimates
    Keywords: Output gap; real-time data; M1; M3; euro area; money cycle
    JEL: E32 E37 E41 E58
    Date: 2014–02
  14. By: Byrne, Joseph P; Korobilis, Dimitris; Ribeiro, Pinho J
    Abstract: An expanding literature articulates the view that Taylor rules are helpful in predicting exchange rates. In a changing world however, Taylor rule parameters may be subject to structural instabilities, for example during the Global Financial Crisis. This paper forecasts exchange rates using such Taylor rules with Time Varying Parameters (TVP) estimated by Bayesian methods. In core out-of-sample results, we improve upon a random walk benchmark for at least half, and for as many as eight out of ten, of the currencies considered. This contrasts with a constant parameter Taylor rule model that yields a more limited improvement upon the benchmark. In further results, Purchasing Power Parity and Uncovered Interest Rate Parity TVP models beat a random walk benchmark, implying our methods have some generality in exchange rate prediction.
    Keywords: Exchange Rate Forecasting; Taylor Rules; Time-Varying Parameters; Bayesian Methods.
    JEL: C53 E52 F31 F37 G17
    Date: 2014–02–14
  15. By: Christophe Blot (OFCE); Jérôme Creel (OFCE); Paul Hubert; Fabien Labondance (Atelier de recherche sur la politique économique et la gestion des entreprises (ARPEGE)); Francesco Saraceno (OFCE)
    Abstract: This paper aims at investigating first the (possibly time-varying) empirical relationship between the level and conditional variances of price and financial stability, and second, the effects of macro and policy variables on this relationship in the United States and the Eurozone. Three empirical methods are used to examine the relevance of A.J. Schwartz’s “conventional wisdom” that price stability would yield financial stability. Using simple correlations, VAR and Dynamic Conditional Correlations, we reject the hypothesis that price stability is positively correlated to financial stability. We then discuss the empirical appropriateness of the “leaning against the wind” monetary policy approach.
    Keywords: Price stability; Financial stability; DCC-GARCH; VAR
    JEL: C32 E31 E44 E52
    Date: 2014–02
  16. By: Farley Grubb
    Abstract: A new approach to explaining the value of colonial paper money that relies on their distinctive character as bills of credit is presented. The market value of these bills is decomposed into their real asset present value and their liquidity premium value. This approach is applied to the newly reconstructed monetary data for colonial New Jersey. New Jersey’s bills were structured as zero-interest bearer bonds. They had defined future redemption payoff dates in specie equivalents. The New Jersey government redeemed their bills on time as legislatively promised under a fiscally credible redemption tax structure. The real asset present value of New Jersey bills accounted for at least 80 percent, whereas the value of these bills as “money” accounted for at most 10 to 20 percent, of their market value. Colonial paper money was not primarily a fiat currency. New Jersey’s paper money did not depreciate. It traded below face value due to time-discounting; not depreciation. A positive liquidity premium implies that New Jersey’s paper money actually traded at an appreciated value over its real asset present value. That liquidity premium was positively associated with the quantity of paper money per capita in circulation and the method of monetary injection.
    JEL: E31 E42 E51 N11 N21 N41
    Date: 2014–02
  17. By: Yongding, Yu (Asian Development Bank Institute)
    Abstract: Since the formal launch of the renminbi trade settlement scheme in 2009, renminbi internationalization has made impressive inroads. The progress in renminbi trade settlement is especially impressive. However, Hong Kong, China’s offshore renminbi deposits failed to make significant progress as expected. The question of how far renminbi internationalization can go has become a common concern in the international financial community. This paper argues that the sheer size of the People’s Republic of China’s (PRC) trade and the convenience of using the renminbi for transaction settlements is one contributing factor, but that exchange rate arbitrage and interest rate arbitrage matter also. As well, a fundamental constraint for renminbi internationalization is the PRC’s capital controls. Before fully opening up its capital account and making the renminbi freely convertible, however, the PRC needs first to put its own house in order, most importantly making the renminbi exchange rate flexible. While the renminbi can and will become a major international currency eventually, the road to internationalization is bound to be long and bumpy.
    Keywords: renminbi; trade settlement; capital account liberalization; capital controls; store of value
    JEL: F31 F33
    Date: 2014–02–14
  18. By: Tovonony Razafindrabe
    Abstract: This paper develops an estimated multi-country open economy dynamic stochastic gen- eral equilibrium (DSGE) model with incomplete Exchange Rate Pass-Through (ERPT) for the Euro-area. It is designed to model global international linkages and to assess inter- national transmission of shocks under an endogenous framework and incomplete ERPT assumption. On the one hand, we relax the small open economy framework (SOEF) but derive a canonical representation of the equilibrium conditions to maintain analytical tractability of the complex international transmission mechanism underlying the model. Namely, the model considers economies of di¤erent size that are open and endogenously related. On the other hand, in order to take into account international linkages, possible cointegration relationships within domestic variables and between domestic and foreign variables, and the role of common unobserved and observed global factors such as the oil price, we use the Global VAR model to estimate the steady state of observed endoge- nous variables of the multi-country DSGE model. Namely, steady states are computed as long-horizon forecasts from a reduced-form cointegrating GVAR model. ERPT analysis conducted from the estimated multi-country DSGE model for the Euro-area in relation with its …ve main trade partners which are the United Kingdom, the United States, China, Japan and Switzerland yields the following results. First, exchange rate volatility contributes to a large part of import price in‡ation variation of the Euro-area in contrast to foreign mark-up shocks. Second, deviation from in‡ation objective of the foreign trade partners contributes to another source of the Euro-area import price variability. Third, nominal rigidity induces a persistent but a lower impact of the exchange rate changes on import in‡ation.
    Date: 2014–02–07
  19. By: Elliott, Douglas J. (Asian Development Bank Institute)
    Abstract: As Asia considers greater harmonization and integration of its financial systems, it would be well-advised to consider the experience of Europe, particularly the eurozone. There are many lessons to be drawn from Europe about how to implement such integration, mostly negative. It is particularly evident that moving to a currency union had major unanticipated consequences for the ability to manage integration of financial systems within the eurozone. Monetary union sharply reduced the ability of the member states of the eurozone to manage their macroeconomic and macroprudential policies to preserve financial stability. Even setting aside these additional problems created by monetary union, Europe suffered substantial harm from integrating its financial systems so closely in many ways, while simultaneously establishing only very weak coordinating mechanisms among their national financial supervisors. It was also a mistake to forbid the European Central Bank from operating formally as a lender of last resort in a financial crisis. Europe’s experiences should not dissuade Asia from seeking appropriate further harmonization and integration. However, they do argue strongly for Asia to take the kind of careful, step-by-step, long-term approach for which many of the countries within Asia are well known. In particular, Asia should only move forward to the extent that it is willing to take the necessary steps toward common supervisory approaches, information sharing, and cooperation in crises. Trying to have the benefits of integration without the responsibilities would be a recipe for future disaster.
    Keywords: harmonization; integration; eurozone; asia; european union
    JEL: E44 F15 F36
    Date: 2014–02–16
  20. By: Jugnu Ansari (Indira Gandhi Institute of Development Research); Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: If banks solve an inter-temporal problem under adverse selection and moral hazard, then bank specific factors, regulatory and supervisory features, market structure, and macroeconomic factors affect banks loan interest rates and their spread over deposit interest rates. To examine post financial-reform interest rate pass through for Indian banks after controlling for all these factors, we estimate the determinants of commercial banks loan pricing decisions, using dynamic panel methods. The several factors commercial banks consider, apart from the policy rate, limit policy pass through. More competition reduces policy pass-through but it can improve monetary transmission provided it improves managerial efficiency.
    Keywords: Banks, panel data, interest rates, net interest income, operating cost
    JEL: G20 G21 C23 E43 L10
    Date: 2014–01
  21. By: Mohamed Arouri; Arif Billah Dar; Niyati Bhanja; Aviral Kumar Tiwari; FrédéricTeulon
    Abstract: The study analyzes the dynamic interlinkage between India’s real effective exchange rate and real current account deficit using standard VAR and structural VAR (SVAR). The empirical analysis suggests that a real currency appreciation leads to an improvement in the current account deficit, thereby highlighting the occurrence of permanent shocks such as technical innovations, productivity shocks, and changes in tastes and preferences. A positive shock to the current account deficit leads to an appreciation in the real exchange rate. Moreover, both current account and real exchange rates are found to be affected by the changes in these variables themselves rather than changes in the other variables in the system.
    Keywords: Real Exchange Rate, Current Account, India, VAR, SVAR
    Date: 2014–02–12
  22. By: Frank Westermann
    Date: 2014–02–15
  23. By: Jean-Louis Combes (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Alexandru Minea (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Mousse Ndoye SOW (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: We revisit the link between crises and exchange rate regimes (ERR). Using a panel of 90 developed and developing countries over the period 1980-2009, we find that corner ERR are not more prone to crises compared to intermediate ERR. This finding holds for different types of crises (banking, currency and debt), and is robust to a wide set of alternative specifications. Consequently, we clearly break down the traditional bipolar view: countries that aim at preventing crisis episodes should focus less on the choice of the ERR, and instead implement sound structural macroeconomic policies.
    Keywords: exchange rate regimes;economic crises;bipolar view
    Date: 2014–02–10
  24. By: Nicolas Houy (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I)
    Abstract: It is a widely spread belief that crypto-currencies implementing a proof of stake transaction validation system are less vulnerable to a 51% attack than crypto-currencies implementing a proof of work transaction validation system. In this article, we show that it is not the case and that, in fact, if the attacker's motivation is large enough (and this is common knowledge), he will succeed in his attack at no cost.
    Keywords: Bitcoin; protocol; proof of work; proof of stake; 51% attack
    Date: 2014–02–11
  25. By: Christophe Starzec (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); François Gardes (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: The presence of rationing or more generally of the situations of constrained demand can make the traditional methods of measuring inflation questionable and give an erroneous image of the reality. In this paper, we use the virtual price approach (Neary, Roberts, 1980) to estimate the real inflation level in a centrally planned economy (CPE) with administrated prices. In the first part of the paper, we discuss various methods used in CPE's to evaluate the real level of inflation by the market disequilibrium indicators or proxies which take into account rationing and incomplete information. In the second part of the paper, we apply the virtual price approach to compute the real inflationist gap between demand and supply under rationing in Poland's centrally planned economy with administrated prices in 1965-1980 period. We estimate for this period the model of consumer behaviour under rationing and recover the virtual prices reflecting the real cost of purchasing rationed goods following Neary, Roberts' (1980) and Barten's (1994) methodology. The results show a very large difference between official and virtual price of food considered as the most rationed good (up to 500%). The natural experiment of shift from the centrally planned economy to the market economy (or from rationing to market equilibrium) observed in Poland during the "shock therapy" (1990) confirms the scale of estimated by the model gap between the official (administrated) and market prices.
    Keywords: Consumer demand;, rationing; inflation; virtual prices
    Date: 2014–01

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