nep-mon New Economics Papers
on Monetary Economics
Issue of 2014‒08‒16
twenty-six papers chosen by
Bernd Hayo
Philipps-Universität Marburg
  1. Monetary Policy and Real Borrowing Costs at the Zero Lower Bound By Gilchrist, Simon; Lopez-Salido, J. David; Zakrajsek, Egon
  2. Hot Money Flows, Cycles in Primary Commodity Prices, and Financial Control in Developing Countries By Ronald McKINNON
  3. Transparency and Deliberation within the FOMC: a Computational Linguistics Approach By Stephen Hansen; Michael McMahon; Andrea Prat
  4. The ECB as Lender of Last Resort:Banks versus Governments By Adalbert Winkler
  5. What the Federal Reserve Is Doing to Promote a Stronger Job Market : a speech at the 2014 National Interagency Community Reinvestment Conference, Chicago, Illinois, March 31, 2014 By Yellen, Janet L.
  6. Monetary Policy and Financial Stability : a speech at the 2014 Michel Camdessus Central Banking Lecture, International Monetary Fund, Washington, D.C., July 2, 2014 By Yellen, Janet L.
  7. Monetary Dialogue 2009-2014: Looking backward, looking forward By Ansgar Belke
  8. Russia’s Monetary Policy in 2013 By Alexandra Bozhechkova; Anna Kiyutsevskaya; Pavel Trunin
  9. Asian Monetary Integration : A Japanese Perspective By Masahiro Kawai
  10. The Monetary Transmission Mechanism in the Euro Area: has it changed with the EMU? A VAR approach, with fiscal policy and financial stress considerations By António Afonso; António Jorge Silva
  11. Optimal monetary policy and financial stability in a non-Ricardian economy. By Salvatore Nisticò
  12. The Renminbi and Exchange Rate Regimes in East Asia By Masahiro Kawai; Victor Pontines
  13. Reserve Requirements, Liquidity Risk, and Credit Growth By Koray Alper; Mahir Binici; Selva Demiralp; Hakan Kara; Pinar Ozlu
  14. QE: when and how should the Fed exit? By Wen, Yi
  15. Macroprudential Rules in Small Open Economies By Amado, María
  16. Small and Large Price Changes and the Propagation of Monetary Shocks By Fernando Alvarez; Hervé Le Bihan; Francesco Lippi
  17. The Benefits and Costs of Renminbi Internationalization By Liqing Zhang; Kunyu Tao
  18. Output Gap in Presence of Financial Frictions and Monetary Policy Trade-offs By Francesco Furlanetto; Paolo Gelain; Marzie Taheri Sanjani
  19. Optimum and Adequate Level of International Reserves By Gerencia Técnica
  20. An estimation of the exchange rate pass-through to prices in Mexico By Josué Fernando Cortés Espada
  21. The Exchange Rate Pass-Through to Import and Export Prices: The Role of Nominal Rigidities and Currency Choice By Ehsan U. Choudhri; Dalia S. Hakura
  22. Direct purchases of U.S. Treasury securities by Federal Reserve banks By Garbade, Kenneth D.
  23. Fed goals and the policy stance By Bullard, James B.
  24. Modeling financial integration, intra-EMU and Asian-US external imbalances By Karl Farmer; Irina Ban
  25. Monetary Policy Indeterminacy and Identification Failures in the U.S.: Results from a Robust Test By Efrem Castelnuovo; Luca Fanelli
  26. The economic outlook and implications for monetary policy By Dudley, William
  1. By: Gilchrist, Simon (Boston University); Lopez-Salido, J. David (Board of Governors of the Federal Reserve System (U.S.)); Zakrajsek, Egon (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper compares the effects of conventional monetary policy on real borrowing costs with those of the unconventional measures employed after the target federal funds rate hit the zero lower bound (ZLB). For the ZLB period, we identify two policy surprises: changes in the 2-year Treasury yield around policy announcements and changes in the 10-year Treasury yield that are orthogonal to those in the 2-year yield. The efficacy of unconventional policy in lowering real borrowing costs is comparable to that of conventional policy, in that it implies a complete pass-through of policy-induced movements in Treasury yields to comparable-maturity private yields.
    Keywords: Unconventional monetary policy; LSAPs; forward guidance; term premia; corporate bond yields; mortgage interest rates
    Date: 2014–05–07
    URL: http://d.repec.org/n?u=RePEc:fip:fedgfe:2014-39&r=mon
  2. By: Ronald McKINNON (University of Stanford)
    Abstract: Because the U.S. Federal Reserve’s monetary policy is at the center of the world dollar standard, it has a first-order impact on global financial stability. However, except during international crises, the Fed focuses on domestic American economic indicators and generally ignores collateral damage from its monetary policies on the rest of the world. Currently, ultra-low interest rates on short-term dollar assets ignite waves of hot money into Emerging Markets (EM) with convertible currencies. When each EM central bank intervenes to prevent its individual currency from appreciating, collectively they lose monetary control, inflate, and cause an upsurge in primary commodity prices internationally. These bubbles burst when some accident at the center, such as a banking crisis, causes a return of the hot money to the United States (and to other industrial countries) as commercial banks stop lending to foreign exchange speculators. World prices of primary products then collapse. African countries with exchange controls and less convertible currencies are not so attractive to currency speculators. Thus, they are less vulnerable than EM to the ebb and flow of hot money. However, African countries are more vulnerable to cycles in primary commodity prices because food is a greater proportion of their consumption, and—being less industrialized—they are more vulnerable to fluctuations in prices of their commodity exports. Supply-side shocks, such as a crop failure anywhere in the world, can affect the price of an individual commodity.  But joint fluctuations in the prices of all primary products— minerals, energy, cereals, and so on—reflect monetary conditions in the world economy as determined by the ebb and flow of hot money from the United States, and increasingly from other industrial countries with near-zero interest rates.
    Date: 2014–07
    URL: http://d.repec.org/n?u=RePEc:fdi:wpaper:1678&r=mon
  3. By: Stephen Hansen (Barcelona Graduate School of Economics (Barcelona GSE)); Michael McMahon (University of Warwick, Department of Economics; Centre for Macroeconomics (CFM)); Andrea Prat (Columbia University, Graduate School of Business)
    Abstract: How does transparency, a key feature of central bank design, affect the deliberation of monetary policymakers? We exploit a natural experiment in the Federal Open Market Committee in 1993 together with computational linguistic models (particularly Latent Dirichlet Allocation) to measure the effect of increased transparency on debate. Commentators have hypothesized both a beneficial discipline effect and a detrimental conformity effect. A difference-in-differences approach inspired by the career concerns literature uncovers evidence for both effects. However, the net effect of increased transparency appears to be a more informative deliberation process.
    Keywords: Monetary policy, deliberation, FOMC, transparency, career concerns
    JEL: E52 E58 D78
    Date: 2014–04
    URL: http://d.repec.org/n?u=RePEc:cfm:wpaper:1411&r=mon
  4. By: Adalbert Winkler
    Abstract: With the OMT program the ECB has de facto taken over the role as a lender of last resort (LoLR) for euro area governments. While this has been welcomed by some, many policymakers and economists, in particular in Germany, have strongly criticized the ECB for taking this step, even though it has been motivated by the same monetary policy considerations as the ECB’s role as a LoLR for banks. This paper addresses four arguments that are used to explain why it is acceptable to have the ECB as a LoLR for banks, while a LoLR role for governments has to be rejected. Overall we find that the arguments fail to convince. At the same time, all of them suggest that decisive steps towards fiscal and banking union are needed for the ECB to act as a successful LoLR for governments in the medium and long term.
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:fmg:fmgsps:sp228&r=mon
  5. By: Yellen, Janet L. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2014–03–31
    URL: http://d.repec.org/n?u=RePEc:fip:fedgsq:800&r=mon
  6. By: Yellen, Janet L. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2014–07–02
    URL: http://d.repec.org/n?u=RePEc:fip:fedgsq:812&r=mon
  7. By: Ansgar Belke
    Abstract: This paper comments on the role of the Monetary Dialogue in the context of an evolving monetary policy. The discussion is conducted in terms of the adoption of forward guidance on interest rates by the European Central Bank (ECB), the ECB’s model choice and data revision policies in inflation forecasts, its membership in the Troika, its activities as a financial supervisor, as well as regards its bond purchasing activities and the implication for ECB monetary policy stemming from Fed’s envisaged exit from unconventional monetary policies. This paper also assesses on a case-by-case basis the actual exchange of information between the European Parliament (EP) and the ECB. We argue that the new ECB supervisory role has made the Monetary Dialogue exercise even more important "now" than in “normal” times. Still, we suggest changes, both procedural as well as regarding its focus range, to make it even more effective. In our view, the transparency/accountability issue represented by a Supervisory Board 'hosted' by ECB needs to be addressed. A crucial challenge for the Monetary Dialogue is also to assess the optimal degree of ECB transparency and accountability towards the EP, the key democratic institution.
    Keywords: accountability, European Parliament, forward guidance, Monetary Dialogue, transparency.
    JEL: E52 E58
    Date: 2014–04
    URL: http://d.repec.org/n?u=RePEc:rmn:wpaper:201402&r=mon
  8. By: Alexandra Bozhechkova (Gaidar Institute for Economic Policy); Anna Kiyutsevskaya (Gaidar Institute for Economic Policy); Pavel Trunin (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with Russia's monetary policy in 2013
    Keywords: Russian economy; monetary policymoney market; inflation; balance of payments; exchange rate;
    JEL: E31 E43 E44 E51 E58 E52
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:gai:ppaper:186&r=mon
  9. By: Masahiro Kawai (Asian Development Bank Institute (ADBI))
    Abstract: This paper discusses Japan’s strategy for Asian monetary integration. It argues that Japan faces three major policy challenges when promoting intraregional exchange rate stability. First, there must be some convergence of exchange rate regimes in East Asia, and the most realistic option is for the region’s emerging economies to adopt similar managed floating regimes—rather than a peg to an external currency. This requires major emerging economies—particularly the People’s Republic of China (PRC)—to move to a more flexible regime vis-à-vis the US dollar. Second, given the limited degree of the yen’s internationalization and the lack of the renminbi’s (or the prospect of its rapid) full convertibility, it is in the interest of East Asia to create a regional monetary anchor through a combination of some form of national inflation targeting and a currency basket system. Emerging economies in the region need to find a suitable currency basket for their exchange rate target, such as a special drawing rights-plus (SDR+) currency basket—i.e., a basket of the SDR and emerging East Asian currencies. Third, if the creation of a stable regional monetary zone is desirable, the region must have a country or countries assuming a leadership role in this endeavor. There is no question that Japan and the PRC are such potential leaders, and the two countries need to collaborate closely with each other. To assume a leadership role, together with the PRC, in creating a stable monetary zone in Asia, Japan needs to make significant efforts at the national and regional levels and further strengthen financial cooperation. Practical steps that Japan could take include (i) restoring sustained economic growth through Abenomics; (ii) transforming Tokyo into a globally competitive international financial center; (iii) further strengthening regional economic and financial surveillance (Economic Review and Policy Dialogue and ASEAN+3 Macroeconomic Research Office) and regional financial safety nets (Chiang Mai Initiative Multilateralization) and creation of an Asian currency unit index; and (iv) launching serious policy discussions focusing on exchange rate issues to achieve intraregional exchange rate stability.
    Keywords: Asian monetary integration, Japan, currency, exchange rate regime, East Asia, SDR, currency basket, monetary zone, PRC, Chiang Mai
    JEL: F31 F32 F33 F42
    Date: 2014–04
    URL: http://d.repec.org/n?u=RePEc:eab:macroe:24158&r=mon
  10. By: António Afonso; António Jorge Silva
    Abstract: We study whether the adoption of the Euro and a single monetary policy have brought about a change in the monetary transmission mechanism and between the interactions of monetary policy, fiscal policy and financial stress in the Euro area. We find that the stylized facts of monetary transmission remain valid, but the response of output and, especially, fiscal and financial stress variables to a monetary policy shock, seems to be stronger in the post-EMU period. Regarding fiscal and financial stress shocks, the inclusion in the post-EMU period of subprime and sovereign debt crises yields, changes, not only in the scale, but also in the patterns of the responses of our model’s main variables.
    Keywords: monetary transmission mechanism, fiscal policy, financial stress, Euro area, vector autoregressions
    JEL: E42 E44 E52 E58 E63
    Date: 2014–06
    URL: http://d.repec.org/n?u=RePEc:ise:isegwp:wp102014&r=mon
  11. By: Salvatore Nisticò (Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome and LUISS Guido Carli)
    Abstract: This paper presents a normative analysis of monetary policy in a non-Ricardian economy with an active stock market: it derives a welfare-based monetary policy loss function consistent with Calvo and Obstfeld (1988), and shows that financial stability arises as an additional and independent target, besides inflation and output stability. Evaluation of optimal policy under discretion and commitment reveals that price stability is no longer optimal, even absent inefficient supply shocks: some fluctuations in output and inflation will be optimal as long as they reduce financial instability. Ignoring the non-Ricardian features of this economy potentially leads monetary policy to induce substantially higher welfare losses.
    Keywords: Optimal Monetary Policy, Perpetual Youth, Financial Stability, DSGE Model, Asset Prices.
    JEL: E12 E44 E52
    Date: 2014–07
    URL: http://d.repec.org/n?u=RePEc:saq:wpaper:6/14&r=mon
  12. By: Masahiro Kawai (Asian Development Bank Institute (ADBI)); Victor Pontines
    Abstract: With the rise of the People’s Republic of China (PRC) as the world’s largest trading nation (measured by trade value) and second largest economic power (measured by GDP), its economic influence over the neighboring emerging economies in East Asia has also risen. The PRC introduced some exchange rate flexibility in July 2005, and in the wake of the global financial crisis has been pursuing a policy to internationalize its currency, the renminbi (RMB). Clearly the exchange rate policy of the PRC has significant implications for exchange rate regimes in emerging East Asia. This paper examines the behavior of the RMB exchange rate and the impact of RMB movements on those of other currencies in emerging East Asia during the period 2000–2014. We apply the Frankel–Wei regression model to identify changes in the RMB exchange rate regime over time and a modified version of the model, developed by the authors in their earlier paper, to estimate the RMB weight in an emerging East Asian economy’s currency basket. We find that the US dollar continues to be the dominant anchor currency in the region, while the RMB has taken on increasing importance in the currency baskets of many East Asian economies in recent years. The paper also explores how monetary and currency cooperation—led by the PRC and Japan—can promote intra-East Asian exchange rate stability under the pressure of rising financial market openness in the PRC.
    Keywords: Remminbi, China, PRC, exchange rate regime, East Asia, exchange rate policy, the Frankel–Wei model, Japan, financial market openness
    JEL: F15 F31 F36 F41 O24
    Date: 2014–05
    URL: http://d.repec.org/n?u=RePEc:eab:macroe:24218&r=mon
  13. By: Koray Alper (Central Bank of Turkey); Mahir Binici (Central Bank of Turkey); Selva Demiralp (Department of Economics, Koc University); Hakan Kara (Central Bank of Turkey); Pinar Ozlu (Central Bank of Turkey)
    Abstract: Many central banks in emerging economies have used reserve requirements (RR) to alleviate the trade-off between financial stability and price stability in recent years. Notwithstanding their widespread use, transmission channels of RR have remained largely as a black-box. In this paper, we use bank-level data to explore the interaction between RR and bank lending behavior. Our empirical findings suggest that short-term borrowing from the central bank is not a close substitute for deposits for banks. Bank lending behavior responds significantly to reserve requirements and liquidity positions. Our analysis allows us to identify a new channel that we name as the “liquidity channel”. The channel works through a decline in bank liquidity and loan supply due to an increase in reserve requirements.
    Keywords: Monetary transmission mechanism; liquidity risk; bank lending channel; Turkey.
    JEL: E44 E51 E52
    Date: 2014–07
    URL: http://d.repec.org/n?u=RePEc:koc:wpaper:1416&r=mon
  14. By: Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: The essence of Quantitative Easing (QE) is to reduce the costs of private borrowing through large-scale purchases of privately issue debts, instead of public debts (Ben Bernanke, 2009). Notwithstanding the effectiveness of this highly unconventional monetary policy in reviving private investment and the economy, it is time to think about the likely impacts of the unwinding of QE (or the reversed private-asset purchases) on the economy. In a standard economic model, if monetary injections can increase aggregate output and employment, then the reversed action will likely undo such effects. Would this imply that the U.S. economy will dive into a recession once the Fed starts its large-scale asset sales (under the assumption that QE has successfully pulled the economy out of the Great Recession)? This paper shows that three aspects of the Federal Reserve’s exit strategy matter for achieving (or maintaining) maximum gains in aggregate output and employment under QE (if any): (i) the timing of exit, (ii) the pace of exit, and (iii) the private sector’s expectations of when and how the Fed will exit.
    Keywords: Large-Scale Asset Purchases; Unconventional Monetary Policies; Quantitative Easing; Qualitative Easing; Optimal Exit Strategies.
    JEL: E50 E52
    Date: 2014–07–21
    URL: http://d.repec.org/n?u=RePEc:fip:fedlwp:2014-016&r=mon
  15. By: Amado, María (UCLA)
    Abstract: This document to evaluates the effectiveness, in terms of macroeconomic stability, of monetary policy rules and instruments of prudential supervision. Specifically, it seeks to distinguish between the gains of including in the standard monetary policy rule indicators of financial stress, such as credit growth -augmented rule-; and the gains of applying, in parallel to this augmented rule, a macroprudential instrument that allows a supervisory authority to affect credit interest rates directly. This analysis is performed using a dynamic stochastic general equilibrium model for a small open economy with financial rigidities, and is evaluated in the context of four shocks: financial, productivity, foreign demand and foreign interest rate. The model is calibrated in order to reflect the stylized facts of the Peruvian economy. The results obtained suggest that the effectiveness of the rules depends on the nature of the shock affecting the economy.
    Keywords: macroprudential, monetary policy, small open economy, DSGE model
    JEL: E52 E61
    Date: 2014–07
    URL: http://d.repec.org/n?u=RePEc:rbp:wpaper:2014-009&r=mon
  16. By: Fernando Alvarez; Hervé Le Bihan; Francesco Lippi
    Abstract: We document the presence of both small and large price changes in individual price records from the CPI in France and the US. After correcting for measurement error and cross-section heterogeneity, the size-distribution of price changes has a positive excess kurtosis. We propose an analytical menu cost model that encompasses several classic models, as Taylor (1980), Calvo (1983), Reis (2006), Golosov and Lucas (2007) and accounts for observed cross-sectional patterns. We show that the ratio of kurtosis to the frequency of price changes is a sufficient statistics for the real effects of monetary policy in a large class of models.
    JEL: E3
    Date: 2014–05
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:20155&r=mon
  17. By: Liqing Zhang; Kunyu Tao
    Abstract: Despite the increasing recognition that the renminbi (RMB) may eventually become a key global currency, several important questions remain to be answered. This paper analyzes the benefits and costs of the RMB becoming an international currency. The benefits include reduced exchange risk, promotion of the development of the financial market, and expansion of firms in the People’s Republic of China. The costs include general costs, which complicate monetary policy and exchange rate policy, and several transitional risks. We argue that the benefits of RMB internationalization should surpass its costs, particularly in the long run, and provide comprehensive policy choices for a sustainable process of RMB internationalization
    Keywords: RMB, renminbi internationalization, International currency, financial market, PRC, transitional risks
    JEL: F42 F31 F36
    Date: 2014–05
    URL: http://d.repec.org/n?u=RePEc:eab:macroe:24164&r=mon
  18. By: Francesco Furlanetto; Paolo Gelain; Marzie Taheri Sanjani
    Abstract: The recent global financial crisis illustrates that financial frictions are a significant source of volatility in the economy. This paper investigates monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation. We derive a measure of output gap that accounts for frictions in financial market. Furthermore we illustrate that, in the presence of financial frictions, a benevolent central bank faces a substantial trade-off between nominal and real stabilization; optimal monetary policy significantly reduces fluctuations in price and wage inflations but fails to alleviate the output gap volatility. This suggests a role for macroprudential policies.
    Keywords: Economic growth;Business cycles;Monetary policy;Macroprudential Policy;Econometric models;Financial Frictions, Potential output, Optimal Monetary Policy, Output Gap.
    Date: 2014–07–18
    URL: http://d.repec.org/n?u=RePEc:imf:imfwpa:14/128&r=mon
  19. By: Gerencia Técnica
    Abstract: When managing international reserves, central banks generally face the problem of determining what their optimum or adequate level is. A critical review of some methodologies for calculating the optimum amount of reserves is presented in this document. Also, a combination of international liquidity indicators is shown to shed light on the proper level of international reserves, based on a method recently proposed by the International Monetary Fund (IMF). Different exercises are used to illustrate the high sensitivity of the optimum level or reserves when feasible variations in the models’ parameters are considered. In addition, these models rely on the questionable assumption that the country has a level of short term external liabilities that is independent of the level of reserves. These factors significantly limit the practical usefulness of these models in assessing the adequate level of international reserves. Classification JEL: E58, F32
    Date: 2014–05
    URL: http://d.repec.org/n?u=RePEc:bdr:borrec:727i&r=mon
  20. By: Josué Fernando Cortés Espada
    Abstract: This paper estimates the magnitude of the exchange rate pass-through to consumer prices in Mexico. Moreover, it analyzes if the pass-through dynamics have changed in recent years. In particular, it uses a methodology that generates results consistent with the hierarchy implicit in the CPI. The results suggest that the exchange rate pass-through to the general price level is low and not statistically significant. However, the pass-through is positive and significant for goods prices. Furthermore, the exchange rate pass-through declined over the 2000's and the depreciation observed in 2011 did not change this trajectory.
    Keywords: Depreciation, Inflation, Exchange Rate Pass-through
    JEL: E31 F31 F41
    Date: 2013–03
    URL: http://d.repec.org/n?u=RePEc:bdm:wpaper:2013-02&r=mon
  21. By: Ehsan U. Choudhri (Department of Economics, Carleton University); Dalia S. Hakura (International Monetary Fund)
    Abstract: Using both regression- and VAR-based estimates, the paper finds that the exchange rate pass-through to import prices for a large number of countries is incomplete and larger than the pass-through to export prices. Previous studies have reported similar results, which give rise to the puzzle that while local currency pricing is needed to account for incomplete import price pass-through, it would not imply a lower export price pass-through. Recent explanations of this puzzle have emphasized markup adjustment in response to exchange rate changes. This paper suggests an alternative explanation based on the presence of both producer and local currency pricing. Using a dynamic general equilibrium model, the paper shows that a mix of producer and local currency pricing can explain the pass-through evidence even with a constant markup. The model can also explain the observed variability of key variables as well as the fact that the regression and VAR estimates tend to be similar.
    Keywords: Exchange rate pass-through; import and export prices; nominal rigidities; currency choice
    JEL: E31 F42 E52 F41
    Date: 2014–07
    URL: http://d.repec.org/n?u=RePEc:car:carecp:14-09&r=mon
  22. By: Garbade, Kenneth D. (Federal Reserve Bank of New York)
    Abstract: Until 1935, Federal Reserve Banks from time to time purchased short-term securities directly from the United States Treasury to facilitate Treasury cash management operations. The authority to undertake such purchases provided a robust safety net that ensured Treasury could meet its obligations even in the event of an unforeseen depletion of its cash balances. Congress prohibited direct purchases in 1935, but subsequently provided a limited wartime exemption in 1942. The exemption was renewed from time to time following the conclusion of the war but ultimately was allowed to expire in 1981. This paper addresses three questions: 1) Why did Congress prohibit direct purchases in 1935 after they had been utilized without incident for eighteen years, 2) why did Congress provide a limited exemption in 1942 instead of simply removing the prohibition, and 3) why did Congress allow the exemption to expire in 1981?
    Keywords: Treasury debt issuance; Federal Reserve; direct purchases
    JEL: E58 H62 H63
    Date: 2014–08–01
    URL: http://d.repec.org/n?u=RePEc:fip:fednsr:684&r=mon
  23. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: July 17, 2014. Presentation. "Fed Goals and the Policy Stance." Owensboro in 2065 Summit, Owensboro, Ky.
    Date: 2014–07–17
    URL: http://d.repec.org/n?u=RePEc:fip:fedlps:236&r=mon
  24. By: Karl Farmer (University of Graz); Irina Ban (Babes-Bolyai-University Cluj-Napoca)
    Abstract: Intra-EMU external imbalances in the pre-crisis period up to 2008 are traditionally explained by EMU-oriented factors, e.g. euro-related financial integration. Chen et al. (2013) also emphasize external trade shocks, such as the competitive challenge of emerging Asia and oil exporters to EMU-periphery's exports. Moreover, Asian-US external imbalances are attributed to financial integration between East Asia and the USA in the aftermath of the East-Asian currency crises in the late 1990s (Angeletos et al. 2011). Acknowledging these empirical facts this paper develops a Buiter (1981) three-country (EMU, Asia, US), two-region (EMU core, EMU periphery) OLG model to investigate the effects of both intra-EMU and Asian-US financial integration on intra- EMU, Asian and US external imbalances. We find that the widening of the intra-EMU external imbalances, in particular of trade imbalances, is related to the growth in Asian-US imbalances and the dynamic inefficiency of the world economy, caused by excessive saving in Asia.
    Keywords: External Imbalances; European Economic and Monetary Union; Overlapping Generations; Three-Country Model
    Date: 2014–07
    URL: http://d.repec.org/n?u=RePEc:grz:wpaper:2014-06&r=mon
  25. By: Efrem Castelnuovo (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and Department of Economics and Management, University of Padova); Luca Fanelli (Department of Statistical Sciences, University of Bologna)
    Abstract: We propose a novel identification-robust test for the null hypothesis that an estimated new- Keynesian model has a reduced form consistent with the unique stable solution against the alternative of sunspot-driven multiple equilibria. Our strategy is designed to handle identification failures as well as the misspecification of the relevant propagation mechanisms. We invert a likelihood ratio test for the cross-equation restrictions (CER) that the new- Keynesian system places on its reduced form solution under determinacy. If the CER are not rejected, sunspot-driven expectations can be ruled out from the model equilibrium and we accept the structural model. Otherwise, we move to a second-step and invert an Anderson and Rubin-type test for the orthogonality restrictions (OR) implied by the system of Euler equations. The hypothesis of indeterminacy and the structural model are accepted if the OR are not rejected. We investigate the finite sample performance of the suggested identificationrobust two-steps testing strategy by some Monte Carlo experiments and then apply it to a new-Keynesian AD/AS model estimated with actual U.S. data. In spite of some evidence of weak identification as for the ‘Great Moderation’ period, our results offer formal support to the hypothesis of a switch from indeterminacy to a scenario consistent with uniqueness which occurred in the late 1970s. Our identification-robust full-information confidence set for the structural parameters computed on the ‘Great Moderation’ regime turns out to be more precise than the intervals previously reported in the literature through ‘limited-information’ methods.
    Keywords: Confidence set, determinacy, identification failures, indeterminacy, misspecification, new-Keynesian business cycle model, VAR system
    JEL: C31 C22 E31 E52
    Date: 2014–07
    URL: http://d.repec.org/n?u=RePEc:iae:iaewps:wp2014n18&r=mon
  26. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks before the New York Association for Business Economics, New York City.
    Keywords: balance sheet; economic growth; fiscal restraint; capital spending; lift-off; tapering; capital requirements; reverse repo facility (RRP)
    JEL: E2 E52
    Date: 2014–05–20
    URL: http://d.repec.org/n?u=RePEc:fip:fednsp:136&r=mon
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