nep-mon New Economics Papers
on Monetary Economics
Issue of 2015‒01‒26
29 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Lessons for monetary policy from the euro-area crisis By C.A.E Goodhart
  2. When does a central bank's balance sheet require fiscal support? By Christopher Sims; Marco Del Negro
  3. Central Bank Credibility: An Historical and Quantitative Exploration By Michael D. Bordo; Pierre L. Siklos
  4. Trilemmas and trade-offs: living with financial globalisation By Maurice Obstfeld
  5. "Minsky on Banking: Early Work on Endogenous Money and the Prudent Banker" By L. Randall Wray
  6. The Limits of Bimetallism By Christopher M. Meissner
  7. The crisis in the euro area: an analytic overview By Heather D. Gibson; Theodore Palivos; George S. Tavlas
  8. Effectiveness and transmission of the ECB’s balance sheet policies By Jef Boeckx; Maarten Dossche; Gert Peersman
  9. Modeling Money Market Spreads: What Do We Learn about Refinancing Risk? By Brousseau, Vincent; Nikolaou, Kleopatra; Pill, Huw
  10. An evaluation of core inflation measures for Malta By Gatt, William
  11. China’s financial crisis – the role of banks and monetary policy By Le, Vo Phuong Mai; Matthews, Kent; Meenagh, David; Minford, Patrick; Xiao, Zhiguo
  12. A Parallel Currency Proposal for the Stronger Euro-States By Ulrich van Suntum
  13. The Dynamic Effects of Interest Rates and Reserve Requirements By Pérez-Forero, Fernando; Vega, Marco
  14. Post-Crisis Slow Recovery and Monetary Policy By Daisuke Ikeda; Takushi Kurozumi
  15. Monetary Policy and Funding Spreads By Anella Munro; Benjamin Wong
  16. The European crisis in the context of the history of previous financial crises By Michael Bordo; Harold James
  17. Has the transmission of policy rates to lending rates been impaired by the Global Financial Crisis? By Leonardo Gambacorta; Anamaria Illes; Marco Jacopo Lombardi
  18. Development and application of the monetary rule for the base interest rate of the National Bank of Ukraine By Savchenko, Taras; Kozmenko, Serhiy; Piontkovska, Yanina
  19. Asymmetric Liquidity Shocks and Optimality of the Freidman Rule By Eisei Ohtaki
  20. Inferring inflation expectations from fixed-event forecasts By Winkelried, Diego
  21. The dilemma of central bank transparency By Stephen Hansen; Michael McMahon; Andrea Prat
  22. Monetary Policy Accommodation, Risk-Taking, and Spillovers : a speech at the Global Research Forum on International Macroeconomics and Finance, Washington, D.C., November 14, 2014. By Powell, Jerome H.
  23. Reputation and Liquidity Traps By Taisuke Nakata
  24. The coevolution of money markets and monetary policy, 1815-2008 By Jobst, Clemens; Ugolini, Stefano
  25. Lend out IOU: A Model of Money Creation by Banks and Central Banking By Tianxi Wang
  26. Does Social Trust Speed up Reforms? The Case of Central-Bank Independence By Berggren, Niclas; Daunfelt, Sven-Olof; Hellström, Jörgen
  27. Spillovers from United States Monetary Policy on Emerging Markets: Different This Time? By Jiaqian Chen; Tommaso Mancini Griffoli; Ratna Sahay
  28. Principles of Monetary System Transformation By Volodymyr Vysochansky
  29. Do contractionary monetary policy shocks expand shadow banking? By Nelson, Benjamin; Pinter, Gabor; Theodoridis, Konstantinos

  1. By: C.A.E Goodhart (London School of Economics)
    Abstract: The earlier 2007/8 financial crisis generated the main lessons for monetary policy, notably that price stability does not necessarily guarantee financial stability. Nevertheless, the on-going Eurozone crisis has pointed to further lessons, notably that a single currency covering diverse states does need a Banking Union; and to problems of zero risk-weighting for sovereign debts. Without such a Banking Union, economic divergences between the Eurozone states have continued and look likely to persist.
    Keywords: Price stability; financial stability; banking union; zero lower-bound
    JEL: E52 E44 F36 G01
    Date: 2013–07
  2. By: Christopher Sims (Princeton University); Marco Del Negro (Federal Reserve Bank of New York)
    Abstract: A central bank whose assets and liabilities are both nominal cannot produce a uniquely determined price level, no matter what policies it adopts, unless it is backed by a treasury with the power to tax. If it is so backed, the backing need not be visible in equilibrium; it can be a commitment by the treasury to act in circumstances that do not occur in equilibrium, and the action required in those circumstances need not be large. A central bank, though, can require fiscal transfers on the equilibrium path even when fiscal backing makes the price level unique. The likelihood of its needing such transfers increases when its balance sheet expands and when the duration of its assets diverges from that of its interest-bearing liabilities. The need for such transfers also depends on the strictness of its control of inflation and on the nature of demand for its non-interest bearing liabilities. A model calibrated to the current situation of the US Federal Reserve System suggests that the need for transfers is unlikely to arise, even if the Fed’s net worth at market value temporarily becomes negative.
    Date: 2014
  3. By: Michael D. Bordo; Pierre L. Siklos
    Abstract: In this paper we provide empirical measures of central bank credibility and augment these with historical narratives from eleven countries. To the extent we are able to apply reliable institutional information we can also indirectly assess their role in influencing the credibility of the monetary authority. We focus on measures of inflation expectations, the mean reversion properties of inflation, and indicators of exchange rate risk. In addition we place some emphasis on whether credibility is particularly vulnerable during financial crises, whether its evolution is a function of the type of crisis or its kind (i.e., currency, banking, sovereign debt crises). We find credibility changes over time are frequent and can be significant. Nevertheless, no robust empirical connection between the size of an economic shock (e.g., the Great Depression) and loss of credibility is found. Second, the frequency with which the world economy experiences economic and financial crises, institutional factors (i.e., the quality of governance) plays an important role in preventing a loss of credibility. Third, credibility shocks are dependent on the type of monetary policy regime in place. Finally, credibility is most affected by whether the shock can be associated with policy errors.
    JEL: C32 C36 E31 E58 N10
    Date: 2015–01
  4. By: Maurice Obstfeld
    Abstract: This paper evaluates the capacity of emerging market economies (EMEs) to moderate the domestic impact of global financial and monetary forces through their own monetary policies. Those EMEs that are able to exploit a flexible exchange rate are far better positioned than those that devote monetary policy to fixing the rate - a reflection of the classical monetary policy trilemma. However, exchange rate changes alone do not insulate economies from foreign financial and monetary shocks. While potentially a potent source of economic benefits, financial globalisation does have a downside for economic management. It worsens the trade-offs monetary policy faces in navigating among multiple domestic objectives. This drawback of globalisation raises the marginal value of additional tools of macroeconomic and financial policy. Unfortunately, the availability of such tools is constrained by a financial policy trilemma that is distinct from the monetary trilemma. This second trilemma posits the incompatibility of national responsibility for financial policy, international financial integration and financial stability.
    Keywords: policy trilemma, financial stability, financial globalisation, international policy transmission
    Date: 2015–01
  5. By: L. Randall Wray
    Abstract: In this paper, I examine whether Hyman P. Minsky adopted an endogenous money approach in his early work--at the time that he was first developing his financial instability approach. In an earlier piece (Wray 1992), I closely examined Minsky's published writings to support the argument that, from his earliest articles in 1957 to his 1986 book (as well as a handout he wrote in 1987 on "securitization"), he consistently held an endogenous money view. I'll refer briefly to that published work. However, I will devote most of the discussion here to unpublished early manuscripts in the Minsky archive (Minsky 1959, 1960, 1970). These manuscripts demonstrate that in his early career Minsky had already developed a deep understanding of the nature of banking. In some respects, these unpublished pieces are better than his published work from that period (or even later periods) because he had stripped away some institutional details to focus more directly on the fundamentals. It will be clear from what follows that Minsky's approach deviated substantially from the postwar "Keynesian" and "monetarist" viewpoints that started from a "deposit multiplier." The 1970 paper, in particular, delineates how Minsky's approach differs from the "Keynesian" view as presented in mainstream textbooks. Further, Minsky's understanding of banking in those years appears to be much deeper than that displayed three or four decades later by much of the post-Keynesian endogenous-money literature.
    Keywords: Banks; Deposit Multiplier; Endogenous Money; Financial Innovation; Financial Instability Hypothesis; Horizontalists; Minsky; Originate to Distribute; Prudent Banking; Say’s Law; Securitization
    JEL: B3 B50 B52 E2 E4 E5
    Date: 2015–01
  6. By: Christopher M. Meissner
    Abstract: Bimetallism disappeared as a monetary regime in the 1870s. Flandreau (1996) clearly demonstrates that French bimetallism would have been able to withstand the German de-monetization of silver. Could it have withstood if many other countries in the world moved to the gold standard following in the footsteps of Bismarck? The answer is no. By 1875 bimetallism would have been unviable, and the US return to convertibility in 1879 would have made it impossible to sustain true bimetallism. It is difficult to understand the end of the bimetallic strategy as the outcome of a repeated game between rational actors. Rather, it would appear that very few actors had a good model of how the international monetary system worked in practice as of 1873. An attempt to resuscitate bimetallism, with France and the US both bimetallic at the mint ratio of 15.5 to one, would have been tenuous. No wonder then that there were few countries enthusiastic about reviving bimetallism at the International Monetary Conference of 1878. A similar lack of cooperation risks sending the European Monetary Union-as currently constituted-the way of bimetallism.
    JEL: E42 N10 N40
    Date: 2015–01
  7. By: Heather D. Gibson (Bank of Greece); Theodore Palivos (Athens University of Economics and Business); George S. Tavlas (Bank of Greece)
    Abstract: This paper provides an introduction to the special issue “The Crisis in the Euro Area”. We take stock of what the euro area crisis has taught us about monetary integration. At the inception of the euro area in 1999, the main parameters of the theory of monetary integration seemed to have been pretty well-settled. Although it was common knowledge that the euro area fell short of fully satisfying all the conditions needed for an optimallyfunctioning monetary union, most politicians and many economists thought that the euro area satisfied enough conditions so that it would not encounter major difficulties. This paper discusses several developments that came as surprises about the conditions needed for monetary unification as the euro crisis unfolded. These developments include the need of an adequate adjustment mechanism, the links between banking and sovereign crises, and the sharp costs of adjustment to adverse asymmetric shocks.
    Keywords: Financial crises; euro-area; monetary integration; optimum currency areas; adjustment mechanism
    JEL: E51 E52 F33 F41 G01
    Date: 2013–07
  8. By: Jef Boeckx (Research Department, NBB); Maarten Dossche (Research Department, NBB, ECB); Gert Peersman (Ghent University)
    Abstract: We estimate the effects of exogenous innovations to the balance sheet of the ECB since the start of the financial crisis within a structural VAR framework. An expansionary balance sheet shock stimulates bank lending, stabilizes financial markets, and has a positive impact on economic activity and prices. The effects on bank lending and output turn out to be smaller in the member countries that have been more affected by the financial crisis, in particular those countries where the banking system is less well-capitalized.
    Keywords: unconventional monetary policy, ECB blance sheet, euro area, VAR
    JEL: C32 E30 E44 E51 E52
    Date: 2014–12
  9. By: Brousseau, Vincent (European Central Bank); Nikolaou, Kleopatra (Board of Governors of the Federal Reserve System (U.S.)); Pill, Huw (Goldman Sachs)
    Abstract: We quantify the effect of refinancing risk on euro area money market spreads, a major factor driving spreads during the financing crisis. With the advent of the crisis, market participants' perception of their ability to refinance over a given period of time changed radically. As a result, borrowers preferred to obtain funding for longer tenors and lenders were willing to provide funding for shorter tenors. This discrepancy resulted in a need to refinance more frequently in order to borrow over a given horizon, thus increasing refinancing risk. We measure refinancing risk by quantifying the sensitivity of the spread to the refinancing frequency. In order to do so we introduce a model to price EURIBOR-based money market spreads vis-à-vis the overnight index swap. We adopt a methodology akin to a factor model in which the parameters determining the spreads are the intensity of the crisis, its expected half-life, and the sensitivity of spreads to the refinancing frequency. Results suggest that refinancing risk affects the spread significantly across time, albeit in a largely varying manner. Central bank interventions have reduced the spreads as well as the effect of refinancing risk on them.
    Keywords: Financial crisis; liquidity risk; money market spread; money markets; refinancing risk
    JEL: E58 G12 G21
    Date: 2014–11–19
  10. By: Gatt, William
    Abstract: A box presenting a number of core inflation estimates for Malta.
    Keywords: Core inflation, trimmed-mean, persistence-weighted
    JEL: E31 E58
    Date: 2014–11
  11. By: Le, Vo Phuong Mai (Cardiff Business School); Matthews, Kent (Cardiff Business School); Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Xiao, Zhiguo
    Abstract: This paper develops a model of the Chinese economy using a DSGE framework that accommodates a banking sector and money. The model is used to shed light on the period of the recent period of financial crisis. It differs from other applications in the use of indirect inference to estimate and test the fitted model. We find that the main shocks that hit China in the crisis were international and that domestic banking shocks were unimportant. Officially mandated bank lending and government spending were used to supplement monetary policy to aggressively offset shocks to demand. An analysis of the frequency of crises shows that crises occur on average about every half-century, with about a third accompanied by financial crises. We find that monetary policy can be used more vigorously to stabilise the economy, making direct banking controls and fiscal activism unnecessary.
    Keywords: DSGE model; Financial Frictions; China; Crises; Indirect Inference; Money; Credit
    JEL: E3 E44 E52 C1
    Date: 2015–01
  12. By: Ulrich van Suntum
    Abstract: It is argued that the stronger member states of the European Monetary Union should find their way out of the Euro in order to avoid being dragged into a disastrous course of inflation and over-indebtedness by the weaker members. A sudden exit would presumably cause financial turmoil as well as political damage and is, thus, no realistic option. However, by creating a parallel currency called “Hard-Euro” as an intermediate solution, there would indeed be a way of separating the EMU into two parts, with a weaker Euro in the southern countries and a stronger Euro in the northern countries. Using a small macro-model, the paper discusses this idea and its economic consequences in more detail. Following the early idea of separating the functions of money by Eisler (1932), the Hard-Euro is invented in the form of a pure book-money, while the Euro is still the only cash money until further notice. The Hard-Euro is designed as an index-currency such that its exchange rate exactly compensates for the inflation rate of the common Euro. Hence, it is absolutely stable in terms of consumer prices, and at the same time the exchange rate can never overshoot. By this means, savers in the stronger member states are protected from both inflation and financial repression, while the weaker member states can improve their competitiveness by inflating the Euro. It is shown, that this approach is likely to increase both investment and total output in the EMU. Later on, this intermediate regime could be substituted by the definite separation of the Euro-Zone into a stronger northern and a weaker southern part.
    Keywords: Monetary policy, parallel currency
    JEL: E50 E58
  13. By: Pérez-Forero, Fernando (Banco Central de Reserva del Perú); Vega, Marco (Banco Central de Reserva del Perú)
    Abstract: This paper quantifies the dynamic macroeconomic effects derived from both; shocks to conventional monetary policy and shocks to reserve requirement ratios applied to bank deposits in Peru. The analysis tackles reserve requirements on domestic as well as foreign currency deposits. Structural Vector Autoregressive (SVAR) models are identified through a mixture of zero and sign restrictions for the period 1995-2013. Contractionary monetary policy shocks generate a negative effect on aggregate credit and a positive effect on bank spreads between loan and deposit rates. Likewise, shocks to the two reserve requirement ratios produce a negative effect on aggregate credit in their corresponding currencies and a mild effect on both aggregate real economic activity and the price level. We consider possible mechanisms that may help explain the dynamic effects uncovered in the paper.
    Keywords: Monetary Policy, Interest Rates, Reserve Requirements, Sign Restrictions
    JEL: E43 E51 E52
    Date: 2014–12
  14. By: Daisuke Ikeda (Institute for Monetary and Economic Studies, Bank of Japan.); Takushi Kurozumi (Institute for Monetary and Economic Studies, Bank of Japan.)
    Abstract: In the aftermath of the recent financial crisis and subsequent recession, slow recoveries have been observed and slowdowns in total factor productivity (TFP) growth have been measured in many economies. This paper develops a model that can describe a slow recovery resulting from an adverse financial shock in the presence of an endogenous mechanism of TFP growth, and examines how monetary policy should react to the financial shock in terms of social welfare. It is shown that in the face of the financial shocks, a welfare-maximizing monetary policy rule features a strong response to output, and the welfare gain from output stabilization is much more substantial than in the model where TFP growth is exogenously given. Moreover, compared with the welfare-maximizing rule, a strict inflation or price-level targeting rule induces a sizable welfare loss because it has no response to output, whereas a nominal GDP growth or level targeting rule performs well, although it causes high interest-rate volatility. In the presence of the endogenous TFP growth mechanism, it is crucial to take into account a welfare loss from a permanent decline in consumption caused by a slowdown in TFP growth.
    Keywords: Financial shock; Endogenous TFP growth; Slow recovery; Monetary policy; Welfare cost of business cycle
    JEL: E52 O33
    Date: 2014–12
  15. By: Anella Munro; Benjamin Wong (Reserve Bank of New Zealand)
    Abstract: Fluctuations in the margins banks paid (over risk-free interest rates) on their funding costs have been a significant factor since the financial crisis of 2008/09. This paper uses a model to analyse the response of New Zealand’s monetary policy to such fluctuations since 1993, On average, the 90 day bill rate moved seven times as much as the initial shock to funding cost margins.
    Date: 2014–12
  16. By: Michael Bordo (Rutgers University); Harold James (Princeton University)
    Abstract: There are some striking similarities between the pre 1914 gold standard and EMU today. Both arrangements are based on fixed exchange rates, monetary and fiscal orthodoxy. Each regime gave easy access by financially underdeveloped peripheral countries to capital from the core countries. But the gold standard was a contingent rule—in the case of an emergency like a major war or a serious financial crisis --a country could temporarily devalue its currency. The EMU has no such safety valve. Capital flows in both regimes fueled asset price booms via the banking system ending in major crises in the peripheral countries. But not having the escape clause has meant that present day Greece and other peripheral European countries have suffered much greater economic harm than did Argentina in the Baring Crisis of 1890.
    Keywords: Gold Standard; Gold Exchange Standard; Debt Crisis; Euro
    JEL: F33
    Date: 2013–07
  17. By: Leonardo Gambacorta; Anamaria Illes; Marco Jacopo Lombardi
    Abstract: Central banks of major advanced economies have maintained a very accommodative monetary policy stance in the last few years. However, concerns have surfaced that the transmission of low policy rates to lending rates has been weaker than in the past. Has the transmission of policy rates to lending rates been impaired by the Global Financial Crisis? To answer this question, we first estimate standard cointegrating equations linking policy and lending rates for non-financial firms in Italy, Spain, United Kingdom and United States. We then test for structural change in the cointegration parameters, reporting strong evidence of a break after Lehman Brothers' default. Such structural break is due to a strong increase in the mark-up between the lending rate and the policy rate that standard models assume constant in the long run. The structural shift is explained by compounding the lending rate equation with measures of risk.
    Keywords: monetary policy, lending rates, cointegration, global financial crisis
    Date: 2014–12
  18. By: Savchenko, Taras; Kozmenko, Serhiy; Piontkovska, Yanina
    Abstract: The paper studies methodological approaches to the formation of monetary policy rules for the base interest rate of the National Bank of Ukraine demonstrating the expediency of their development on the basis of the spread-adjusted Tay- lor rule. It carries out the assessment of equilibrium values for the rule’s parameters by using a modified Hodrick- Prescott filter as well as the identification of the possible parameters of the monetary rule and the estimation of their coefficients through the development of multivariate regression models.
    Keywords: monetary policy rule, spread-adjusted Taylor rule, central bank, monetary market, inflation targeting
    JEL: E52 E58
    Date: 2014
  19. By: Eisei Ohtaki
    Abstract: This article examines the optimality of the Freidman rule in an overlapping generations model with spatial separation, wherein asymmetric liquidity shocks are observed. Suboptimality of the Freidman rule is shown. Furthermore, when the number of locations is sufficiently large, there is no room for monetary policy to improve social welfare.
  20. By: Winkelried, Diego (Universidad del Pacífico)
    Abstract: Often, expected inflation measured by surveys are available only as fixed-event forecasts. Even though these surveys do contain information of a complete term structure of expectations, direct inferences about them are troublesome. Records of a fixed-event forecast through time are associated with time-varying forecast horizons, and there is no straightforward way to interpolate such figures. This paper proposes an adaptation of the measurement model of Kozicki and Tinsley (2012) [“Effective use of survey information in estimating the evolution of expected inflation”, Journal of Money, Credit and Banking, 44(1), 145-169] to suit the intricacies of fixed-event data. Using the Latin American Consensus Forecasts, the model is estimated to study the behavior of inflation expectations in four inflation targeters (Chile, Colombia, Mexico and Peru). For these countries, the results suggest that the announcement of credible inflation targets has been instrumental in anchoring long-run expectations.
    Keywords: Survey expectations, fixed-event forecasts, Kalman filter, inflation targeting, Latin America
    JEL: C32 E37 E52
    Date: 2014–12
  21. By: Stephen Hansen; Michael McMahon; Andrea Prat
    Abstract: If central banks publish the transcripts of their internal policy debates, will discussions be enhanced or inhibited? Michael McMahon and colleagues use tools from computational linguistics to analyse the positive and negative effects of transparency on deliberations of the monetary policymakers at the US Federal Reserve.
    Keywords: Monetary policy, deliberation, FOMC, transparency, career concerns
    JEL: E52 E58 D78
    Date: 2015–01
  22. By: Powell, Jerome H. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2014–11–14
  23. By: Taisuke Nakata (Federal Reserve Board)
    Abstract: Can the central bank credibly commit to keeping the nominal interest rate low for an extended period of time in the aftermath of a deep recession? By analyzing credible plans in a sticky-price economy with occasionally binding zero lower bound constraints, I find that the answer is yes if contractionary shocks hit the economy with sufficient frequency. In the best credible plan, if the central bank reneges on the promise of low policy rates, it will lose reputation and the private sector will not believe such promises in future recessions. When the shock hits the economy suffi- ciently frequently, the incentive to maintain reputation outweighs the short-run incentive to close consumption and inflation gaps, keeping the central bank on the originally announced path of low nominal interest rates.
    Keywords: Commitment, Credible Policy, Forward Guidance, Liquidity Trap, Reputation, Sustainable Plan, Time Consistency, Trigger Strategy, Zero Lower Bound.
    JEL: E32 E52 E61 E62 E63
    Date: 2013–03
  24. By: Jobst, Clemens; Ugolini, Stefano
    Abstract: Money market structures shape monetary policy design, but the way central banks perform their operations also has an impact on the evolution of money markets. This is important, because microeconomic differences in the way the same macroeconomic policy is implemented may be non-neutral. In this paper, we take a panel approach in order to investigate both directions of causality. Thanks to three newly-collected datasets covering ten countries over two centuries, we ask (1) where, (2) how, and (3) with what results interaction between money markets and central banks has taken place. Our findings allow establishing a periodization singling out phases of convergence and divergence. They also suggest that exogenous factors – by changing both money market structures and monetary policy targets – may impact coevolution from both directions. This makes sensible theoretical treatment of the interaction between central bank policy and market structures a particularly complex endeavor. JEL Classification: E52, G15, N20
    Keywords: central banking, monetary policy implementation, money markets
    Date: 2014–12
  25. By: Tianxi Wang
    Abstract: This paper considers the efficiency of money creation by banks and the principles of the central bank issuance to improve over it. The ability to issue deposit liability as a means of payment enlarges banks lending capacities and subjects them to fiercer competition. In curcumstances where banks issue too much money, interest-rate policy may help. In circumstances of a credit crunch, quantitative- easing policy helps, under which the central bank lends its issues to all banks. These issues are unbacked by taxation and purely nominal. The optimal quantity of the central bank's lending is unique and implements the first-best allocation.
    Date: 2014–10–23
  26. By: Berggren, Niclas (Research Institute of Industrial Economics (IFN)); Daunfelt, Sven-Olof (HUI Research and Dalarna University); Hellström, Jörgen (Umeå University)
    Abstract: Many countries have undertaken central-bank independence reforms, but the years of implementation differ. What explains such differences in timing? This is of interest more broadly, as it sheds light on factors that matter for the speed at which economic reforms come about. We study a rich set of potential determinants, both economic and political, but put special focus on a cultural factor, social trust. We find empirical support for an inverse u-shape: Countries with low and high social trust implemented their reforms earlier than countries with intermediate levels. We make use of two factors to explain this pattern: the need to undertake reform (which is more urgent in countries with low social trust) and the ability to undertake reform (which is greater in countries with high social trust).
    Keywords: Central banks; Independence; Social trust; Inflation; Monetary policy; Reform
    JEL: E52 E58 P48 Z13
    Date: 2015–01–08
  27. By: Jiaqian Chen; Tommaso Mancini Griffoli; Ratna Sahay
    Abstract: The impact of monetary policy in large advanced countries on emerging market economies—dubbed spillovers—is hotly debated in global and national policy circles. When the U.S. resorted to unconventional monetary policy, spillovers on asset prices and capital flows were significant, though remained smaller in countries with better fundamentals. This was not because monetary policy shocks changed (in size, sign or impact on stance). In fact, the traditional signaling channel of monetary policy continued to play the leading role in transmitting shocks, relative to other channels, affecting longer-term bond yields. Instead, we find that larger spillovers stem more from structural factors, such as the use of new instruments (asset purchases). We obtain these results by developing a new methodology to extract, separate, and interpret U.S. monetary policy shocks.
    Keywords: Monetary policy;Spillovers;United States;Emerging markets;Capital flows;Regression analysis;monetary policy announcements, unconventional monetary policies, spillovers, capital flows, equity markets, bond markets, exchange rates, emerging markets.
    Date: 2014–12–24
  28. By: Volodymyr Vysochansky (Uzhhorod University)
    Abstract: The paper considers theoretic reasoning of necessity and technological implementation of self-regulated monetary system based on commodity backed money. Transformational approach to conversion of the current monetary system model using modern exchange infrastructure and technologies in the USA is proposed.
    Keywords: money, commodity units, exchange-traded fund, futures contracts, monetary system
    JEL: E42 G1 G2
    Date: 2014–12–12
  29. By: Nelson, Benjamin (Bank of England); Pinter, Gabor (Bank of England); Theodoridis, Konstantinos (
    Abstract: Using vector autoregressive models with either constant or time-varying parameters and stochastic volatility for the United States, we find that a contractionary monetary policy shock has a persistent negative impact on the asset growth of commercial banks, but increases the asset growth of shadow banks and securitisation activity. To explain this ‘waterbed’ effect, we propose a standard New Keynesian model featuring both commercial and shadow banking, and we show that the model comes close to explaining the empirical results. Our findings cast doubt on the idea that monetary policy can usefully ‘get in all the cracks’ of the financial sector in a uniform way.
    Keywords: Monetary policy; financial intermediaries; shadow banking; VAR; DSGE
    JEL: E43 E52 G21
    Date: 2015–01–16

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