nep-mon New Economics Papers
on Monetary Economics
Issue of 2015‒09‒26
thirty-two papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Country shocks, monetary policy expectations and ECB decisions. A dynamic non-linear approach By Maximo Camacho; Danilo Leiva-Leon; Gabriel Perez-Quiros
  2. Monetary Policy and Employment By McGrattan, Ellen R.
  3. A Long, Long Way to Go By Bullard, James B.
  4. Country shocks, monetary policy expectations and ECB decisions. A dynamic non-linear approach By Camacho, Maximo; Leiva-Leon, Danilo; Pérez-Quirós, Gabriel
  5. Can Univariate Time Series Models of Inflation Help Discriminate Between Alternative Sources of Inflation Persistence By Naveen Srinivasan; Pankaj Kumar
  7. The choice of flexibility in targeting inflation during normal times and during disinflation By Cukierman, Alex
  8. Ben Bernanke vs. Janet Yellen: Exploring the (a)symmetry of individual and aggregate inflation expectations By Nikola Mirkov; Andreas Steinhauer
  9. Normalization of Global Financial Conditions: The Implications for Brazil By Troy Matheson
  10. Bond markets and monetary policy dilemmas for the emerging markets By Jhuvesh Sobrun; Philip Turner
  11. Disinflations in a model of imperfectly anchored expectations By Christopher G. Gibbs; Mariano Kulish
  12. Managing the Fed’s Liftoff and Transmission of Monetary Policy By Manmohan Singh
  13. Deficit Rules and Monetization in a Growth Model with Multiplicity and Indeterminacy By Maxime Menuet; Alexandru Minea; Patrick Villieu
  14. Modeling Dependency and Conditional Volatility between Asian Economic Community (AEC) Country Exchange Rate and Inflation Using the Copula-GARCH Model. By KANTA TANNIYOM; Paponpat Taveeapiradeecharoen; Prapatchon Jariyapan
  15. Monetary Policy, Bond Risk Premia, and the Economy By Peter N. Ireland
  16. Prospects for the Russian Ruble to Become Regional Reserve Currency By Pavel Trunin; Sergey Narkevich
  17. Rational Inattention, Multi-Product Firms and the Neutrality of Money By Raphael Schoenle; Ernesto Pasten
  18. Breaking the Curse of Kareken and Wallace with Private Information By Gomis-Porqueras, Pedro; Kam, Timothy; Waller, Christopher J.
  19. Taylor rule in practice : Evidence from tunisia By Chaouech, Olfa
  20. How to De-Dollarize Financial Systems in the Caucasus and Central Asia? By Sami Ben Naceur; Amr Hosny; Gregory Hadjian
  21. Gradualism in Monetary Policy: A Time-Consistency Problem? By Jeremy C. Stein; Adi Sunderam
  22. What Measure of Inflation Should a Developing Country Central Bank Target? By Rahul Anand; Eswar Prasad
  23. Long-Run and Short-Run Effects of Money Injections By Tsz-Nga Wong; Pierre-Olivier Weill; Guillaume Rocheteau
  24. Is the Monetary Policy Rate Effective? Recent Evidence from Ghana By Nana Kwame Akosah
  25. Extent of Exchange Rate Coordination in Asia By Sen Gupta, Abhijit
  26. Money Creation: Tax or Public Liquidity? By Reichlin, Pietro
  27. The bank lending channel: An empirical analysis of EU accession countries from 2004-2013 By Khosravi, Taha
  28. An SVAR Approach to Evaluation of Monetary Policy in India: Solution to the Exchange Rate Puzzles in an Open Economy By Barnett, William A.; Bhadury, Soumya; Ghosh, Taniya
  29. On the Theoretical Efficacy of Quantitative Easing at the Zero Lower Bound By Boel, Paola; Waller, Christopher J.
  30. Fear of Liftoff: Uncertainty, Rules and Discretion in Monetary Policy Normalization By Orphanides, Athanasios
  31. Implementation of Monetary Policy and its Influence on the Output By Ricardo Álvarez Torres; María Irma Manrique Campos; Alejandra Fernández Hernández
  32. Les indicateus avanc\'es de l'inflation en RDCongo By Henry Ngongo

  1. By: Maximo Camacho (University of Murcia); Danilo Leiva-Leon (Central Bank of Chile); Gabriel Perez-Quiros (Banco de España, Airef and CEPR)
    Abstract: Previous studies have shown that the effectiveness of monetary policy largely depends on market expectations about future policy actions. This paper proposes an econometric framework to address the effect of the current state of the economy on monetary policy expectations. Specifically, we study the effect of contractionary (or expansionary) demand (or supply) shocks hitting the euro area countries on the expectations about the ECB’s monetary policy in two stages. In the first stage, we construct indices of real activity and inflation dynamics for each country, based on soft and hard indicators. In the second stage, we use those indices to provide assessments of the type of aggregate shock hitting each country and assess its effect on monetary policy expectations at different horizons. Our results indicate that expectations are responsive to aggregate contractionary shocks, but not to expansionary shocks. In particular, contractionary demand shocks have a negative effect on short-term monetary policy expectations, while contractionary supply shocks have a negative effect on medium and long-term expectations. Moreover, shocks to different economies do not have significantly different effects on expectations, although some cross-country differences arise.
    Keywords: business cycles, inflation cycles, monetary policy
    JEL: E32 C22 E27
    Date: 2015–09
  2. By: McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis)
    Abstract: In its “Statement on Longer-Run Goals and Monetary Policy Strategy,” the Federal Open Market Committee (Federal Reserve Board of Governors, 2014) summarizes its two main objectives: to mitigate (i) deviations of inflation from its longer-run goal and (ii) deviations of employment from the Federal Open Market Committee’s assessment of its maximum level. In the case of employment, the statement acknowledges that “the maximum level ... is largely determined by nonmonetary factors,” which is why the FOMC sets no fixed goal for the employment level. It instead depends on the Committee’s “assessment.” In this paper, I investigate the link between monetary policy and employment using predictions of current monetary theory. The results show that even with the extraordinary monetary accommodation provided by the Fed since 2008, theory predicts only a small impact of monetary policy on employment. Other research suggests that to understand what does impact employment levels and hours worked, economic theory should be modified to account for factors that impact labor-leisure decisions.
    Date: 2015–09–23
  3. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: During an event in Nashville, Tenn., St. Louis Fed President James Bullard discussed the case for monetary policy normalization, noting that the FOMC's objectives for unemployment and inflation have essentially been met but policy settings remain far from normal. He said that, even during normalization, the Fed's highly accommodative policy will be putting upward pressure on inflation, encouraging continued improvement in labor markets, and providing the best contribution to global growth that the Fed can provide.
    Date: 2015–09–19
  4. By: Camacho, Maximo; Leiva-Leon, Danilo; Pérez-Quirós, Gabriel
    Abstract: Previous studies have shown that the effectiveness of monetary policy depends, to a large extent, on the market expectations of its future actions. This paper proposes an econometric framework to address the effect of the current state of the economy on monetary policy expectations. Specifically, we study the effect of contractionary (or expansionary) demand (or supply) shocks hitting the euro area countries on the expectations of the ECB’s monetary policy in two stages. In the first stage, we construct indexes of real activity and inflation dynamics for each country, based on soft and hard indicators. In the second stage, we use those indexes to provide assessments on the type of aggregate shock hitting each country and assess its effect on monetary policy expectations at different horizons. Our results indicate that expectations are responsive to aggregate contractionary shocks, but not to expansionary shocks. Particularly, contractionary demand shocks have a negative effect on short term monetary policy expectations, while contractionary supply shocks have negative effect on medium and long term expectations. Moreover, shocks to different economies do not have significantly different effects on expectations, although some differences across countries arise.
    Keywords: business cycles; inflation cycles; monetary policy
    JEL: C22 E32 E37
    Date: 2015–09
  5. By: Naveen Srinivasan (Madras School of Economics); Pankaj Kumar (Indira Gandhi Institute of Development Research and Reserve Bank of India)
    Abstract: When it comes to measuring inflation persistence, a common practice in empirical research is to estimate univariate autoregressive moving average (ARMA) time series models and measure persistence as the sum of the estimated AR coefficients. We examine four potential sources of lag dynamics in inflation: the evolution of policymakers willingness to stabilize output, shifts in the mean inflation rate, imperfect credibility and learning and unemployment persistence. We show that the reduced-form solution for inflation in all these models have an ARMA(p,q) representation. By implication estimating a reduced-form for inflation will not be able to distinguish among these alternative hypotheses. We illustrate this using US and UK data.
    Keywords: Inflation Persistence; Identification; Kalman Filter
    JEL: E31 E52 E58
    Date: 2015–05
  6. By: Pippenger, John
    Abstract: Teh Forward-Bias Puzzle, failure of uncovered interest parity and related puzzles suggest that there is a fundamental failure in internatonal financial markets.  Many theories attempt to explain this bias and failure.  But none of them has been widely accepted; at least partly because they are not consistent with the related puzzles.  The model of monetary policy in Table 6 explains the Forward-Bias Puzzle and the UIP failure without appealing to risk premia or information failures.  It also explains, or is at least consistent with, the related puzzles.  Finally it suggests that we need to change the way we think about UIP.
    Keywords: Social and Behavioral Sciences, exchange rates, interest rates, risk premia, uncovered interest parity, forward bias, arbitrage, expectations
    Date: 2015–08–26
  7. By: Cukierman, Alex
    Abstract: This paper investigates the relationship between the return path to price stability and the extent of flexibility in targeting inflation under perfect reputation as well as under imperfectly anchored inflation targeting systems characterized by imperfect reputation. The first part of the paper shows that the mapping from the flexibility parameter, to the return path to price stability is generally non-unique. It discusses reasons and consequences of this non-uniqueness, and proposes several ways to address the communication and related problems that this fact creates for the conduct of monetary policy. The second part investigates the impact of reputation (defined as the weight given by the public to preannounced interim targets in forming inflationary expectations) on the speed of inflation stabilization. The main result is that higher reputation is associated with faster stabilizations at all levels of the flexibility parameter.
    Keywords: anchoring expectations; reputation; return to price stability
    JEL: E02 E31 E50 E52
    Date: 2015–09
  8. By: Nikola Mirkov; Andreas Steinhauer
    Abstract: We conducted a simple, anonymous survey at the beginning of 2014, asking around 200 economists worldwide to reveal their inflation expectations, conditional on either Ben Bernanke or Janet Yellen being the chair of the Board of Governors of the Federal Reserve. We use the change in the Fed's leadership to focus attention on the difference in conditional expectations, while we are interested in the distribution of those expectations. The outcome of the survey shows that a significant share of respondents revealed asymmetric inflation expectations and that the deviation from symmetry is sizeable. Nonetheless, individual asymmetry in forecasts appears to be irrelevant for the aggregate distribution, as the number of respondents who factor in excess inflation broadly matches the number of those who gave more weight to disinflationary outcomes. The aggregate distribution we obtain is largely comparable to the outcome of the Survey of Professional Forecasters for the first quarter of 2014.
    Keywords: inflation expectations, subjective probability distributions
    JEL: C42 E31
    Date: 2015
  9. By: Troy Matheson
    Abstract: Global financial conditions are poised to tighten further as the global recovery proceeds. While monetary policy normalization should be a healthy global development as growth continues to recover in advanced economies, financial spillovers seen during the taper episode—which started with the announcement in May 2013 of possible tapering of U.S. asset purchases—hint at potential challenges for Brazil. The Fed’s communications related to normalization have improved significantly since the taper episode and, at present, a rise in Fed Funds rate in 2015 is widely anticipated by markets—arguably the most widely anticipated tightening of monetary policy in history. While Brazil could benefit from tighter global financial conditions associated with improved global prospects, bouts of heightened uncertainty about the future course of monetary policy cannot be ruled out. Thus, the correct diagnosis of the underlying reasons behind tighter global financial conditions remains crucially important for Brazil. Adverse spillovers can be mitigated by strengthening policy frameworks and fundamentals.
    Date: 2015–09–03
  10. By: Jhuvesh Sobrun; Philip Turner
    Abstract: Financial conditions in the emerging markets (EMs) have become more dependent on the 'world' long-term interest rate, which has been driven down by monetary policies in the advanced economies - notably Quantitative Easing (QE) - and by several non-monetary factors. This paper analyses some new mechanisms that link global long-term rates to monetary policy and to domestic bank lending in the EMs. Understanding these mechanisms could help EM central banks prepare for the exit from QE and higher (and perhaps divergent) policy rates in advanced economies. Although monetary policy in the EMs has continued to be guided by domestic objectives, it has nevertheless lost some traction. Difficult trade-offs now confront central banks.
    Keywords: Exit from QE, long-term interest rate, emerging market economies, bond markets
    Date: 2015–08
  11. By: Christopher G. Gibbs; Mariano Kulish
    Abstract: We study disinflations under imperfect credibility of the central bank. Imperfect credibility is modeled as the extent to which agents rely on adaptive learning to form expectations. Lower credibility increases the mean, variance, and skewness of the distribution of sacrifice ratios. When credibility is low, disinflationary policies become very costly for adverse realizations of the shocks. Even if the impact of an announcement decreases with lower credibility, pre-announcing a disinflation reduces the sacrifice ratio. Additionally, disinflationary policies implemented after a period of below trend inflation lead to lower sacrifice ratios. Opportunistic disinflations are desirable when credibility is low.
    Date: 2015–09
  12. By: Manmohan Singh
    Abstract: In recent years, many money and repo rates in the United States have been between zero and 25 basis points. As Fed’s liftoff approaches, the question of the level of these rates (and the markets that determine them) becomes increasingly important. The paper discusses (i) whether the Fed can control short–term rates as it starts to tighten; and (ii) what are the advantages and disadvantages of using asset sales versus a large reverse repo program (RRP). A large RRP by the Fed will deprive the financial system of the money pool (i.e., GSEs and money market funds) as the Fed will directly absorb the money on to its balance sheet. This will rust the financial plumbing that connects the money pool to collateral suppliers. Some asset sales may be preferred to a large RRP as this will result in a market-determined repo rate and will allow the Fed to reach its monetary policy liftoff objectives with minimal footprint on market plumbing. We also discuss cost of issuing short tenor T-bills relative to a large RRP in a rising rate environment.
    Date: 2015–09–23
  13. By: Maxime Menuet (LEO - Laboratoire d'Economie d'Orléans - CNRS - Université d'Orléans); Alexandru Minea (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Patrick Villieu (LEO - Laboratoire d'Economie d'Orléans - CNRS - Université d'Orléans)
    Abstract: In response to the Great Recession, Central Banks around the world adopted " unconven-tional " monetary policies. In particular, the Fed, and more recently the ECB, launched massive debt monetization programs. In this paper, we develop a formal analysis of the short-and long-run consequences of deficit and debt monetization, through an endoge-nous growth model in which economic growth interacts with productive public expenditure. This interaction can generate two positive balanced growth paths (BGP) in the long-run: a high BGP and a low BGP, and further, depending on the form of the CIA constraint, possible multiplicity and indeterminacy. Thus, monetizing deficits is found to be remarkably powerful. First, a large dose of monetization might allow avoiding, whenever present, BGP indeterminacy. Second, monetization always allows increasing growth and welfare along the (high) BGP, by weakening the debt burden in the long-run. Third, with a CIA on consumption only, monetization provides a rationale for deficits in the long-run: for high degrees of monetization, the impact of deficits and debts on economic growth and welfare becomes positive in the steady-state.
    Keywords: public debt, indeterminacy, monetization, economic growth
    Date: 2015–09–17
  14. By: KANTA TANNIYOM (Chiang Mai Rajabhat University); Paponpat Taveeapiradeecharoen (Chiang Mai University); Prapatchon Jariyapan (Chiang Mai University)
    Abstract: Structural dependence and conditional volatility are solutions to comprehend financial crisis behavior. Investigation has been widely analyzed especially to what circumstances occurred in EURO zone countries. This leads many economic researchers attention to prepare uncertainty beyond relationship and variation. This paper aims at estimating the dependency and conditional volatilities the growth rate of AEC exchange rate and inflation of Thailand using COPULA-GARCH models. The motivation of this journal is to reach the most rational policy for BANK of Thailand, since exchange rate is one among tangible strategies. Both margins are distributed by skewed-t, and ARMA-GARCH is fitted to monthly data. Growth rate of those variables residual independence are checked by bivariate random dependence which is represented by P-Value and for Marginal Persistence Volatilities will be tested by using Dynamic Conditional Correlation Method, Fifteen static copulas are applied to those dependencies. AIC, SIC and Kendall’s tau will be an appropriate approach to assess results. Empirical results show huge coefficients of correlations between AEC exchange rates and Thailand inflation in the short-term period and slightly correlated in the long-term period of conditional volatility and dependency. In addition, there is evidence to convince that it was a positive relationship.
    Keywords: Copula; Conditional Valatility; ARMA-GARCH; Exchange Rate; Dynamic Conditional Correlation; Bivariate Independent Test
    JEL: C01 C50 C58
  15. By: Peter N. Ireland
    Abstract: This paper develops an affine model of the term structure of interest rates in which bond yields are driven by observable and unobservable macroeconomic factors. It imposes restrictions to identify the effects of monetary policy and other structural disturbances on output, inflation, and interest rates and to decompose movements in long-term rates into terms attributable to changing expected future short rates versus risk premia. The estimated model highlights a broad range of channels through which monetary policy affects risk premia and the economy, risk premia affect monetary policy and the economy, and the economy affects monetary policy and risk premia.
    JEL: E32 E43 E44 E52 G12
    Date: 2015–09
  16. By: Pavel Trunin (Gaidar Institute for Economic Policy); Sergey Narkevich (Gaidar Institute for Economic Policy)
    Abstract: 2007-2009 global financial crisis demonstrated that financial markets of major countries can be subject to the large scale system shocks. One of the manifestations of the crisis was the slump of the global trade and significant capital outflow from the emerging markets. This papers deals with the issue of the Russian ruble becoming a regional reserve currency.
    Keywords: Russian economy, financial crisis, reserve currency, regional reserve currency, Russian ruble
    JEL: E42 E44 E58 F31 F33 F36 F42 F55 G15
    Date: 2013
  17. By: Raphael Schoenle (Brandeis University); Ernesto Pasten (Banco Central de Chile, Toulouse School of Economics)
    Abstract: In a quantitative rational inattention model, monetary non-neutrality quickly vanishes as rms price more goods while monetary non-neutrality is strong in a single-product setting under otherwise identical conditions. This result is due to (1) economies of scope that arise naturally in the multi-product setting, where processing information is costly but using already internalized information is free, and (2) good-specic shocks that account for a nonzero fraction of the within-rm dispersion of log price changes, which we document in U.S. data. As a consequence, as rms price more goods, they shift attention from good-specic to common shocks, such as monetary shocks. Aggregate prices then respond much faster to monetary shocks due to strategic complementarity.
    Keywords: rational inattention, multi-product rms, monetary non-neutrality
    JEL: E3 E5 D8
    Date: 2015–08
  18. By: Gomis-Porqueras, Pedro (Deakin University, Australia); Kam, Timothy (The Australian National University); Waller, Christopher J. (Federal Reserve Bank of St. Louis)
    Abstract: We study the endogenous choice to accept at objects as media of exchange and their implications for nominal exchange rate determination. We consider a two-country environment with two currencies which can be used to settle any transactions. However, currencies can be counterfeited at a fixed cost and the decision to counterfeit is private information. This induces equilibrium liquidity constraints on the currencies in circulation. We show that the threat of counterfeiting can pin down the nominal exchange rate even when the currencies are perfect substitutes, thus breaking the Kareken-Wallace indeterminacy result. When the two currencies are not perfect substitutes, an international currency can exist whereby one country has two currencies circulating while the other country uses only one. We also find that with appropriate fiscal policies we can enlarge the set of monetary equilibria with determinate nominal exchange rates. Finally, we show that the threat of counterfeiting can also help determine nominal exchange rates in a variety of different trading environments.
    Keywords: Multiple Currencies; Counterfeiting Threat; Liquidity; Exchange Rates
    JEL: D82 D83 E4 F4
    Date: 2015–06–20
  19. By: Chaouech, Olfa
    Abstract: This paper estimates the Taylor rule under the static version, then the dynamic version of the Central bank of Tunisia (CBT), using monthly data from 2002:Q1 to 2014:Q12. The empirical results indicate that the CBT followed the Taylor rule in its dynamic version.
    Keywords: Tylor rule, GMM, Monetary policy, Reaction function
    JEL: C13 E52
    Date: 2015–06–01
  20. By: Sami Ben Naceur; Amr Hosny; Gregory Hadjian
    Abstract: Dollarization rates in the Caucasus and Central Asia (CCA) region are among the highest in the world, with adverse consequences for macroeconomic stability, monetary policy transmission, and financial sector development. Using dynamic panel data models, we find that foreign exchange deposits and loans in the CCA are mainly driven by volatile inflation and exchange rates, low financial depth, and asymmetric exchange rate policies biased toward depreciation. Although there is no unique formula for success, empirical studies and cross-country experiences suggest that credible monetary and exchange rate frameworks, low and stable inflation, and deep domestic financial markets are essential ingredients of any de-dollarization strategy. In implementation, policymakers need to consider proper sequencing of policies, effective communication as well as risks from potential financial disintermediation and instability, and/or capital flight.
    Date: 2015–09–23
  21. By: Jeremy C. Stein; Adi Sunderam
    Abstract: We develop a model of monetary policy with two key features: (i) the central bank has private information about its long-run target for the policy rate; and (ii) the central bank is averse to bond-market volatility. In this setting, discretionary monetary policy is gradualist, or inertial, in the sense that the central bank only adjusts the policy rate slowly in response to changes in its privately-observed target. Such gradualism reflects an attempt to not spook the bond market. However, this effort ends up being thwarted in equilibrium, as long-term rates rationally react more to a given move in short rates when the central bank moves more gradually. The same desire to mitigate bond-market volatility can lead the central bank to lower short rates sharply when publicly-observed term premiums rise. In both cases, there is a time-consistency problem, and society would be better off appointing a central banker who cares less about the bond market. We also discuss the implications of our model for forward guidance once the economy is away from the zero lower bound.
    JEL: E44 E52 E58
    Date: 2015–09
  22. By: Rahul Anand; Eswar Prasad
    Abstract: In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high. We develop an open economy model with incomplete financial markets to show that headline inflation targeting improves welfare outcomes. We also compute the optimal price index, which includes a positive weight on food prices but, unlike headline inflation, assigns zero weight to import prices.
    Date: 2015–09–23
  23. By: Tsz-Nga Wong (Bank of Canada); Pierre-Olivier Weill (UCLA); Guillaume Rocheteau (University of California, Irvine)
    Abstract: We construct a tractable model of monetary exchange with search and bargaining that features a non-degenerate distribution of money holdings in which one can study the short-run and long-run effects of changes in the money supply. While money is neutral in the long run, an unanticipated, one-time, money injections in a centralized market with flexible prices and unrestricted participation generates an increase in aggregate real balances and aggregate output, a decrease in the rate of return of money, and a redistribution of output and consumption levels across agents in the short run. Moreover, the initial impact on the price level is non-monotonic with the size of the money injection, e.g., small injections can lead to a deflation followed by inflation. We also study repeated money injections and show they can lead to higher output and higher welfare.
    Date: 2015
  24. By: Nana Kwame Akosah (Bank of Ghana)
    Abstract: We examine the effectiveness of monetary policy transmission mechanism in Ghana using several of statistical and econometric techniques for the period 2002M1 – 2014M12. We find monetary policy rate (MPR) to be quite effective in signaling the money market interest rates in both the short run and long run, as the effect is incomplete (that is, not one-to-one). In addition, a hierarchy of short-term money market rates in Ghana is identified as follows: Monetary Policy Rate, Treasury bill rate, Interbank rate and retail rates (preferably, lending rate), accentuating the large role played by Treasury bill interest rate in the interest rate transmission channel in Ghana. Essentially, monetary authority responds positively and contemporaneously to output and inflationary pressures. Inflation is mostly driven by interest rate shock over the medium to long term, pointing to an impact of monetary policy. In the short term, however, exchange rate shock has relatively larger influence on inflation than that emanating from interest rate. In contrast, output is largely driven by credit and assets prices shocks. This suggests that agents’ knowledge about future output prospects are immediately reflected in assets prices before impacting on output. The paper therefore supports policies that would promote strong financial and macroeconomic stability to help inure effective monetary policy transmission in Ghana.
    Keywords: Monetary Policy, Inflation Targeting, Transmission Mechanism, Structural Shocks.
    JEL: E52 E58
    Date: 2015–06–01
  25. By: Sen Gupta, Abhijit
    Abstract: High level of intra-regional trade and negative spillovers from competitive devaluation make exchange rate coordination extremely desirable in Asia. Employing a hypothetical Asian Currency Unit we evaluate the degree of coordination among Asian currencies. Traditional empirical tests yield little evidence of coordination among real and nominal exchange rates. However, introducing endogenously determined structural breaks to account for changes in exchange rate regimes provides more mixed evidence. While there is still little evidence for coordination in nominal terms, some degree of coordination among real rates emerges. The limited evidence for exchange rate coordination can be explained by the diverse exchange rate regimes prevailing in these economies, signaling differences in policy objectives.
    Keywords: Asian Currency Unit, currency coordination, structural breaks, exchange rate regimes, panel unit root
    JEL: E58 F33 F36 N15
    Date: 2015
  26. By: Reichlin, Pietro
    Abstract: When the nominal return on all public liabilities is allowed to adjust to changing market conditions, or the central bank has access to unlimited open market operations, money growth is likely to stimulate output. This is shown in the model used by Lucas in his Nobel Prize Lecture as an example of the non neutral effects of anticipated monetary expansions. A rise in net outside assets increases households' incentives to work through a reallocation of consumption across periods. This result survives with non interest-bearing cash when the latter does not generate relevant distortions.
    Keywords: inflation; monetary policy
    JEL: E40 E41 E44 E52 E58 G10
    Date: 2015–09
  27. By: Khosravi, Taha
    Abstract: In this paper a methodical empirical analysis of the bank lending channel of monetary transmission in the European Union’s 10 new member states is conducted. We specifically investigate the influence of monetary policy changes on bank lending activity and if this potential influence is contingent on bank characteristics, such as banks’ size, capital, liquidity and risk factor. Panel data compiled from a large number of banks from 2004 to 2013, and dynamic panel estimation methods are used. The results indicate the existence of a bank lending channel through bank liquidity; however, while liquidity and GDP growth maintain a beneficial and substantial impact on bank loan growth, the other bank characteristics are not considered to be important factors. Additionally, there is an indication of the effect of bank risk and liquidity from 2008 to 2010. Nevertheless, the lending channel has been weakened, serving as an additional refutation of bank-specific traits in allowing banks to maintain lending activity and growth during a financial crisis.
    Keywords: Bank lending channel, EU-10 countries, Monetary policy transmission, Panel data.
    JEL: C23 E51 E52 G21
    Date: 2015–09–19
  28. By: Barnett, William A.; Bhadury, Soumya; Ghosh, Taniya
    Abstract: Following the exchange-rate paper by Kim and Roubini (2000), we revisit the questions on monetary policy, exchange rate delayed overshooting, the inflationary puzzle, and the weak monetary transmission mechanism; but we do so for the open Indian economy. We further incorporate a superior monetary measure, the aggregation-theoretic Divisia monetary aggregate. Our paper confirms the efficacy of the Kim and Roubini (2000) contemporaneous restriction, customized for the Indian economy, especially when compared with recursive structure, which is damaged by the price puzzle and the exchange rate puzzle. The importance of incorporating correctly measured money into the exchange rate model is illustrated, when we compare models with no-money, simple-sum monetary measures, and Divisia monetary measures. Our results are confirmed in terms of impulse response, variance decomposition analysis, and out-of-sample forecasting. In addition, we do a flip-flop variance decomposition analysis, finding two important phenomena in the Indian economy: (i) the existence of a weak link between the nominal-policy variable and real-economic activity, and (ii) the use of inflation-targeting as a primary goal of the Indian monetary authority. These two main results are robust, holding across different time period, dissimilar monetary aggregates, and diverse exogenous model designs.
    Keywords: Monetary Policy; Monetary Aggregates; Divisia monetary aggregates; Structural VAR; Exchange Rate Overshooting; Liquidity Puzzle; Price Puzzle; Exchange Rate Puzzle; Forward Discount Bias Puzzle.
    JEL: C32 E51 E52 F3 F41
    Date: 2015–09–19
  29. By: Boel, Paola (Sveriges Riksbank, Sweden); Waller, Christopher J. (Federal Reserve Bank of St. Louis)
    Abstract: We construct a monetary economy in which agents face aggregate demand shocks and hetero- generous idiosyncratic preference shocks. We show that, even when the Friedman rule is the best interest rate policy, not all agents are satiated at the zero lower bound. Thus, quantitative easing can be welfare improving since it temporarily relaxes the liquidity constraint of some agents, without harming others. Moreover, due to a pricing externality, quantitative easing may also have beneficial general equilibrium effects for the unconstrained agents. Lastly, our model suggests that it can be optimal for the central bank to buy private debt claims instead of government debt.
    Keywords: Money; Heterogeneity; Stabilization Policy; Zero Lower Bound; Quantitative Easing
    JEL: E40 E50
    Date: 2015–09–01
  30. By: Orphanides, Athanasios
    Abstract: The Federal Reserve’s muddled mandate to attain simultaneously the incompatible goals of maximum employment and price stability invites short-term-oriented discretionary policymaking inconsistent with the systematic approach needed for monetary policy to contribute best to the economy over time. Fear of liftoff—the reluctance to start the process of policy normalization after the end of a recession—serves as an example. Causes of the problem are discussed, drawing on public choice and cognitive psychology perspectives. The Federal Reserve could adopt a framework that relies on a simple policy rule subject to periodic reviews and adaptation. Replacing meeting-by-meeting discretion with a simple policy rule would eschew discretion in favor of systematic policy. Periodic review of the rule would allow the Federal Reserve the flexibility to account for and occasionally adapt to the evolving understanding of the economy. Congressional legislation could guide the Federal Reserve in this direction. However the Federal Reserve may be best placed to select the simple rule and could embrace this improvement on its own, within its current mandate, with the publication of a simple rule along the lines of its statement of longer-run goals.
    Keywords: discretion; Federal Reserve; liftoff; policy normalization; policy rules
    JEL: E32 E52 E58 E61
    Date: 2015–09
  31. By: Ricardo Álvarez Torres (Economic Research Institute of the National Autonomous University of Mexico (UNAM)); María Irma Manrique Campos (Economic Research Institute of the National Autonomous University of Mexico (UNAM)); Alejandra Fernández Hernández (Universidad Politécnica del Estado de Morelos (UPEMOR))
    Abstract: The output plays one of the main roles in both theoretical: orthodox and heterodox framework. In Mexico, where was embrace, and it is still ruling, an Inflation Targeting policy, it says that the output gap determines the inflation level, hence it symbolize worthy role of the application policy. Besides the fact that, in the heterodox framework, where the aggregate demand determines the output, it in turn, affect the level of employment, etc. This paper portrays, though statistics analysis, how monetary policy affects the output in Mexican case, also to provide a contrast of the role of product into the orthodox and heterodox framework.
    Keywords: Monetary Policy, Output, Mexico
    JEL: E52 E58 O42
  32. By: Henry Ngongo (UEA)
    Abstract: This study aims to identify the leading of inflation indicators of monetary policy in DRC. The results reveal that the most relevant inflation indicators usually come from the monetary origin than the real sector. Variance decomposition analyzes place in the foreground the rate of exchange, the money supply and the public consumption like the most relevant indicators. In order to achieve its goal of price stability and to support a strong economic growth, the intermediate objective of the Central Bank baseded on the controle of the money supply seems to be less relevant. Relates to a high level of the dollarization, the central bank will be able to adopt either the strategy of nominal anchoring of the rate of exchange, this calls the return of the fixed exchange regime or to adopt a strategy of inflation targeting is to restore the credibility of the monetary policy
    Date: 2015–09

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