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on Monetary Economics |
| By: | Neuenkirch, Edith; Hayo, Bernd |
| Abstract: | We analyse the German citizens knowledge about monetary policy and the European Central Bank (ECB), as well as the public s use of mass communication media to obtain information about the ECB. We employ a unique representative public opinion survey of German households conducted in 2011. We find that a person s own desire to be informed about the ECB together with the use of various media channels to keep informed are decisive for both (i) the own perception of knowledge about the ECB and (ii) the actual level of knowledge. The media-related influence differs with a person s level of education and is stronger for subjective knowledge. Women are less interested and knowledgeable. We conclude that the ECB is well advised to continue its education programmes to convince the public of the importance of monetary policy literacy. |
| JEL: | A20 E52 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113218&r=mon |
| By: | Tillmann, Peter; Meinusch, Annette |
| Abstract: | In this paper we analyze the effects of changes in peoples' beliefs about the timing of the exit from Quantitative Easing ("tapering") on asset prices. To quantify beliefs of market participants, we use data from Twitter, the social media application, covering the entire Twitter volume on Federal Reserve tapering in 2013. Based on the time series of beliefs about an early or late tapering, we estimate a VAR model with appropriate sign restrictions on the impulse responses to identify a belief shock. The results show that shocks to tapering beliefs have strong and robust effects on interest rates, exchange rates and asset prices. We also derive measures of monetary policy uncertainty and disagreement of beliefs, respectively, and estimate their impact. The paper is the first to use social media data for |
| JEL: | E52 E43 F31 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112906&r=mon |
| By: | Lemke, Wolfgang; Vladu, Andreea |
| Abstract: | We model the dynamics of the euro area yield curve using a shadow-rate term structure model (SRTSM), with particular attention to the period since late 2011 when interest rates have been at the lowest level since the inception of EMU. The shadow rate is driven by latent factors with linear Gaussian dynamics, while the actual short rate is the maximum between the shadow rate and a lower bound (estimated at 10 bps) so that interest rates will never fall below that level. The estimated SRTSM performs attractively with respect to cross-sectional fit and forecast performance. The model implies that since mid-2012 the median horizon when future one-month rates would return to 50 bps has been ranging between about 25 and 40 months. Deriving such lift-off timing instead from the simple metric of the forward curve crossing 50 bps would underestimate the SRTSM-implied median timing by between 5 to 15 months. As a novelty in the literature, we analyze the effect of a downward shift in the lower bound on the yield curve: for short maturities, rates decrease one-to-one with a drop in the lower bound, while the effect diminishes for longer maturities. The shift-down in the euro area yield curve between April and June 2014 appears to partially reflect such a drop in the (perceived) lower bound. |
| JEL: | G12 C32 E43 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113159&r=mon |
| By: | Cycon, Lisa; Koetter, Michael |
| Abstract: | Based on detailed loan portfolio data of a top-20 universal bank in Germany, we investigate the effect of unconventional monetary policy on corporate loan pricing. We can decompose corporate lending rates, thereby shedding light on intra-bank transmission of monetary policy. We identify policy effects on contracted customer rates, refinancing rates charged internally, markups earned by the bank, and loan volumes by exploiting the co-existence of eurozone-wide security purchase programs by the European Central Bank (ECB) and local fiscal policies that are determined autonomously at the district level where bank customers reside between August 2011 until December 2013. The purchase programs of the ECB reduced refinancing costs significantly. Local fiscal stimuli increased loan prices and margins earned. The differential effect of unconventional expansionary monetary policy given local tax environments is significantly negative. Lending volumes do not respond significantly though. |
| JEL: | E43 G18 G21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112831&r=mon |
| By: | Weber, Patrick |
| Abstract: | Using a unique data set, I study whether structural bank characteristics can help to explain a bank's propensity to take recourse to the ECB's marginal lending facility (MLF). My key finding is that besides structural measures capturing a bank's business model, indicators for its liquidity risk management have a highly significant predictive power for a bank's access to the lender-of-the-last-resort (LLR) facility. A bank with volatile reserve holdings, a lower average reserve fulfillment and a more aggressive bidding behavior in the main refinancing operations, is significantly more likely to revert to the MLF. These results suggest that the option value of having access to the ECB's LLR varies significantly across banks. Thus (i) a uniform Marginal Lending rate undermines market efficiency and (ii) structural bank characteristics could be used to adequately adjust the pricing of the MLF to bank specific structural liquidity risks. |
| JEL: | E58 G01 G21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113123&r=mon |
| By: | Siekmann, Helmut |
| Abstract: | [Introduction ...] The following questions which are closely related to each other but deserve a distinctively different treatment have to be answered: I. Is it legally possible for a Member State to leave the eurozone? II. May Member State introduce a new currency parallel to the euro? III. Can a Member State be excluded from the eurozone or the Monetary Un-ion? IV. May permission be granted to introduce a new currency in a Member State of the eurozone? V. What are the consequences of an illegal exit from the eurozone? |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:99&r=mon |
| By: | Scharnagl, Michael; Mandler, Martin |
| Abstract: | We apply wavelet analysis to compare the relationship between simple sum and Divisa monetary aggregates with real GDP and CPI infl ation for the U.S. using data from 1967 to 2013. Wavelet analysis allows to account for variations in the relationships both across the frequency spectrum and across time. While we find evidence for a weaker comovement of Divisia compared to simple sum monetary aggregates with real GDP the relationship between money growth and infl ation is estimated to be much tighter between Divisia monetary aggregates and CPI infl ation than for simple sum aggregates, in particular at lower frequencies. Furthermore, for the Divisia indices for broader monetary aggregates (M2, M2M, MZM) we estimate a stable lead before CPI in flation of about four to five years. |
| JEL: | C30 E31 E40 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112879&r=mon |
| By: | Strehl, Wolfgang; Engler, Philipp |
| Abstract: | We analyse the welfare properties of progressive income taxes in a stylized DSGE model of a currency union calibrated to the Eurozone. When the central bank follows a standard Taylor rule and volatility originates solely in productivity shocks, we find that considerable welfare gains can be achieved by introducing a progressive income tax schedule. The reason is that the slightly lower average levels of consumption and greater volatility of hours are more than offset in their effects on welfare by a significant reduction in consumption volatility. However, at the aggregate level this result is not robust to the introduction of rule-of-thumb households, but we find a positive welfare effect for the latter type of households while intertemporally optimizing households lose. Furthermore, under an optimal monetary policy, welfare falls even in the absence of rule-of-thumb households. When demand shocks are considered, progressive taxes cannot improve welfare. Increasing tax progression above the Eurozone average is a "beggar-thyself" policy for all specifications. |
| JEL: | E62 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112823&r=mon |
| By: | Daniela Bragoli (Università Cattolica - Milan); Massimiliano Rigon (Bank of Italy); Francesco Zanetti (Oxford University) |
| Abstract: | This study investigates the appropriate measure of inflation in the euro area that the central bank should adopt in order to minimize social welfare losses stemming from volatility in the output gap, inflation and relative prices. We use a model that accounts for both the heterogeneity observed in the degree of price rigidity across regions and sectors, and the asymmetry of real disturbances in relative prices. Our work shows that the optimal weights to assign to each region or economic sector depend on complex interactions between the degree of price stickiness, a country’s economic size and the distribution of shocks across regions. Moreover, the optimal system of weights is primarily affected by the distribution of real shocks across countries. It follows that there is no simple rule of thumb for establishing the optimal weights for each region or economic sector. |
| Keywords: | optimal monetary policy, euro area regions, asymmetric shocks, asymmetric price stickiness |
| JEL: | E52 F41 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1045_16&r=mon |
| By: | Paul Hubert (OFCE-SciencesPo); Becky Maule (Bank of England) |
| Abstract: | How do private agents interpret central bank actions and communication? To what extent do the effects of monetary shocks depend on the information disclosed by the central bank? This paper investigates the effect of monetary shocks and shocks to the Bank of England’s inflation and output projections on the term structure of UK private inflation expectations, to shed light on private agents’ interpretation of central bank signals about policy and the macroeconomic outlook. We proceed in three steps. First, we correct our dependent variables - market-based inflation expectation measures - for potential risk, liquidity and inflation risk premia. Second, we extract exogenous shocks following Romer and Romer (2004)’s identification approach. Third, we estimate the linear and interacted effects of these shocks in an empirical framework derived from the information frictions literature. We find that private inflation expectations respond negatively to contractionary monetary policy shocks, consistent with the usual transmission mechanism. In contrast, we find that inflation expectations respond positively to positive central bank inflation or output projection shocks, suggesting private agents put more weight on the signal that they convey about future economic developments than about the policy outlook. However, when shocks to central bank inflation projections are interacted with shocks to output projections of the same sign, they have no effect on inflation expectations, suggesting that private agents understand the functioning of the central bank reaction function and put more weight on the policy signal when there is no trade-off. We also find that the effects of contractionary monetary shocks are amplified when they are accompanied by positive shocks to central bank inflation projections. The coordination of policy decisions and macroeconomic projections thus appears important for managing inflation expectations. |
| Keywords: | monetary policy, information processing, signal extraction, market-based inlfation expectations, central bank projections, real-time forecasts |
| JEL: | E52 E58 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1602&r=mon |
| By: | Marco Hoeberichts; Ad Stokman |
| Abstract: | Persistent price differences across euro area countries are an indication of incomplete economic integration. We analyze long and short run developments of price level dispersion in the euro area and compare the results with the situation in the US. We find that monetary and economic integration in Europe has been successful in establishing a major downward trend in price level differences across countries since 1960. In 2007, price level dispersion in the euro area was at the same level as in the US. After the financial crisis, dispersion first continued its downward trend before diverging economic conditions across euro area countries contributed to a widening of price level differences again. Short-run dynamics show that price dispersion in Europe deviates more from the long-term equilibrium than in the US, although deviations have become smaller since EMU. |
| Keywords: | economic integration; price-level convergence; law of one price; EMU; US |
| JEL: | E31 E37 F15 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:497&r=mon |
| By: | Stefano Eusepi; Bruce Preston |
| Abstract: | New Keynesian theory identifies a set of principles central to the design and implementation of monetary policy. These principles rely on the ability of a central bank to manage expectations precisely, with policy prescriptions typically derived under the assumption of perfect information and full rationality. In consequence the prevailing policy regime is credible and correctly understood by market participants. Despite considerable advances in understanding, recent events have engendered a reevaluation of the theory and practice of monetary policy. The challenging macroeconomic environment bequeathed by the financial crisis has led many to question the efficacy of monetary policy, and, particularly, question whether central banks can influence expectations with as much control as previously thought. The objective of this survey is to review what is understood about the challenges to the New Keynesian paradigm posed by imperfect knowledge and to assess the degree of confidence with which one should hold the basic prescriptions of modern monetary economics. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2016-07&r=mon |
| By: | Hahn, Volker |
| Abstract: | We integrate monetary policy-making by committee into a New Keynesian model to assess the consequences of the committee's institutional characteristics for inflation, output, and welfare. Our analysis delivers the following results. First, we demonstrate that transparency about the committee's future composition may be harmful. Second, we show that longer terms for central bankers lead to more effective output stabilization at the expense of higher inflation variability. Third, larger committees allow for more efficient stabilization of inflation but for less efficient output stabilization. Fourth, large committees and short terms are therefore socially desirable if the weight on output stabilization in the social loss function is low. Fifth, we show that a central banker with random preferences may be preferable to a central banker who shares the preferences of society. |
| JEL: | E58 D71 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112811&r=mon |
| By: | Palek, Jakob |
| Abstract: | Recent work on financial frictions in New Keynesian models suggest that there is a sizable spread between the risk-less interest rate and the borrowing rate. We analyze the optimal policy mix of monetary and fiscal authorities in a currency union with a country-specific credit spread by introducing a cost channel differential. The cost channel decreases the efficiency of monetary policy and increases the need for fiscal stabilization. We show that the importance of fiscal policy in stabilizing shocks increases, when there is a gap in the inflation differential due to a relative shock, an idiosyncratic shock or a credit spread differential. The welfare losses will be increasing (decreasing) in the size of the cost channel, if the nominal interest rate is a demand- (supply-) side instrument. |
| JEL: | E63 E52 E62 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113047&r=mon |
| By: | Floro, Danvee; van Roye, Björn |
| Abstract: | This study tests for regime-switching changes in monetary policy's response to increases in overall financial stress and financial sector-specific stresses across a panel of advanced and emerging economy central banks for the periods 1994Q1 to 2013Q2 and 1996Q2 to 2013:Q3, respectively. We put forward a Factor-Augmented Dynamic Panel Threshold regression model with (estimated) common factors in order to deal with endogeneity and crosssectional dependence. First, we find strong evidence of regime-dependence in the response of monetary policy to financial sector-specific stresses. Second, advanced economy central banks pursue aggressive monetary policy loosening in response to stock market and banking stresses only during times of high financial market stress. This result is robust throughout different sample periods and most of our specifications in the model with and without common factor augmentation. On the other hand, emerging market central banks generally conduct restrictive monetary policy in response to stock market, banking and foreign exchange market stresses, but respond only to stock market stress in an accommodative manner in a high financial market stress regime. However, this evidence virtually disappears in the post-2001 period, as we find instead some evidence that exchange rate and banking stresses have a significant tightening effect on policy rates in a high financial stress environment. Third, the estimated common factors have substantial and time-varying effects on the explanatory power of idiosyncratic stock market and foreign exchange stress components in emerging markets. |
| Keywords: | Financial stress,monetary policy,threshold panel regression,cross-section dependence |
| JEL: | E31 E44 E52 E58 C23 C24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112840&r=mon |
| By: | von Borstel, Julia; Eickmeier, Sandra; Krippner, Leo |
| Abstract: | We investigate the pass-through of monetary policy to bank lending rates in the euro area before and during the sovereign debt crisis. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specific interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the IP has changed. Expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer-term bank funding risk in peripheral and core countries during the crisis, but has been unable to lower banks markups. Unconventional monetary policy helped decreasing lending rates, mainly due to large shocks rather than a strong propagation. |
| JEL: | E52 E43 C32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113035&r=mon |
| By: | Quint, Dominic; Tristani, Oreste |
| Abstract: | We study the macroeconomic consequences of the money market tensions associated with the financial crisis of 2008-2009. Our structural model includes the banking model of Gertler and Kyiotaki (2011) in the Smets and Wouters (2003) framework. We highlight two main results. First, a financial shock calibrated to account for the observed increase in spreads on the interbank market can account for one third of the observed, large fall in aggregate investment after the financial crisis of 2008. Second, the liqudity injected on the market by the ECB played an important role in attenuating the macroeconomic impact of the shock. In their absence, aggregate investment would have fallen much more--by between 50 and 70 percent. These effects are somewhat larger than estimated in other available studies. |
| JEL: | E58 E44 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112974&r=mon |
| By: | Lein, Sarah Marit; Beck, Günter W. |
| Abstract: | To appropriately model the observed slow response of real variables to nominal shocks, macroeconomic models augment nominal with real rigidities. One very popular way of modelling such a real rigidity is to assume a non-constant demand elasticity. While there has been conducted ample empirical work on the degree and importance of nominal rigidities, there exists very little direct evidence on real rigidities of the form described above so far. By using a unique, very rich data set on micro prices, quantities bought and consumer characteristics we provide comprehensive new evidence on the degree of real rigidities across several European goods markets. We find that consumer goods markets are characterized by non-constant demand elasticities. However, the data suggests that superelasticities are much smaller that what is usually assumed in macroeconomic models. We calibrate a menu-cost model augmented with demand-side real rigidiy and find that this type of real rigidity can explain only about 10% of the monetary non-neutrality observed in the data. |
| JEL: | E31 E50 E30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113144&r=mon |
| By: | Beck, Günther W.; Beyer, Robert C. M.; Kontny, Markus; Wieland, Volker |
| Abstract: | Ever since the European Central Bank presented its monetary policy strategy on the basis of two pillars "economic" and "monetary" analysis with the latter being used as a cross-check of the first it has been criticized for giving too much importance to monetary aggregates. Opponents argue these aggregates are largely unrelated to monetary policy and provide little or no relevant information. Supporters have instead referred to the success of the Bundesbank in controlling inflation by using monetary targets during the 1970s and early 1980s. Furthermore, loose monetary conditions in the 2000s are viewed by many as a driver of excessive growth of credit and asset prices that set the stage for the global financial crisis. We use a formal characterization of monetary cross-checking and go on to study its role in policy practice empirically. Firstly, we derive historical measures of monetary conditions using this definition of cross-checking for Germany from the 1970s to 1998 and for the euro area since then. We investigate when monetary cross-checking would have called for significant adjustments in interest rate policy. Secondly, we test empirically whether interest rate policy responded to significant deviations of money. Such cross-checks induce a nonlinear shift in rates based on a threshold in terms of filtered money growth. Our estimates of threshold autoregressive models indicate that the behavior of the Bundesbank can well be described by a standard Taylor interest-rate rule augmented by a nonlinear component which induces an interest-rate adjustment when a filtered money growth measure exceeds an empirically specified threshold. Concerning the policy making of the ECB, we find supportive evidence for Trichet s(2008) claim of an interest-rate adjustment induced by a signal from monetary cross-checking at the end of 2004. However, our empirical results would have suggested an even larger (and earlier) response. |
| JEL: | C10 E41 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113126&r=mon |
| By: | Winkelmann, Lars; Netsunajev, Aleksei |
| Abstract: | This paper extends the discussion of international comovements of actual inflation rates to inflation expectations. Financial market expectations about inflation rates in the United States (US) and Euro Area (EA) are modeled in a structural vector autoregression (SVAR). We demonstrate how the heteroscedasticity of the expectations data enables a flexible and data-driven statistical identification of the model. A multi-step procedure is proposed to explore the economic nature and geographical source of structural shocks. We emphasize the SVAR s ability to derive shocks that disentangle US specific, EA specific and global components. Our main empirical finding indicates that so-called global inflation translates to short horizon inflation expectations. In contrast, long expectations horizons are mostly driven by domestic shocks, thus, appear rather local. Results support the view of credible monetary policy strategies that anchor inflation expectations. |
| JEL: | E31 F42 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112900&r=mon |
| By: | Fischer, Christoph |
| Abstract: | The study presents an empirical strategy for determining global currency bloc equilibria. The procedure includes, first, a nested logit estimation of the combined determinants of currency regime and anchor currency choice; second, a test for a welfare-maximising regime decision, in which estimates of the relative welfare of alternative regimes are inferred from the results of the first step estimation; third, taking the path dependency of regime choice into account, a currency bloc equilibrium is derived. In equilibrium, the dollar bloc is somewhat smaller and the euro bloc larger than at present. Counterfactual exercises assess among others the potential for a renminbi bloc. |
| JEL: | F02 F31 F33 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113197&r=mon |
| By: | Kang, Dae Woong; Ligthart, Nick; Mody, Ashoka |
| Abstract: | As the financial crisis gathered momentum in 2007, the United States Federal Reserve brought its policy interest rate aggressively down from 5 1/4 percent in September 2007 to virtually zero by December 2008. In contrast, although facing the same economic and financial stress, the European Central Bank's first action was to raise its policy rate in July 2008. The ECB began lowering rates only in October 2008 once near global financial meltdown left it with no choice. Thereafter, the ECB lowered rates slowly, interrupted by more hikes in April and July 2011. We use the "abnormal" increase in stock prices - the rise in the stock price index that was not predicted by the trend in the previous 20 days - to measure the market's reaction to the announcement of the interest rate cuts. Stock markets responded favorably to the Fed interest rate cuts but, on average, they reacted negatively when the ECB cut its policy rate. The Fed's early and aggressive rate cuts established its intention to provide significant monetary stimulus. That helped renew market optimism, consistent with the earlier economic recovery. In contrast, the ECB started building its shelter only after the storm had started. Markets interpreted even the simulative ECB actions either as "too little, too late" or as signs of bad news. We conclude that by recognizing the extraordinary nature of the circumstances, the Fed's response not only achieved better economic outcomes but also enhanced its credibility. The ECB could have acted similarly and stayed true to its mandate. The poorer economic outcomes will damage the ECB's long-term credibility. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:527&r=mon |
| By: | Jannsen, Nils; Potjagailo, Galina; Wolters, Maik |
| Abstract: | We study the effects of monetary policy on output during financial crises. We use a large panel of advanced and emerging economies to guarantee a sufficiently high number of financial crises episodes. A financial crises dummy, which is constructed based on the narrative approach, is interacted with other key macroeconomic variables in a panel VAR. Theory suggests that monetary policy might be more effective in financial crises if it can ease malfunctioning of financial markets for example by loosening credit constraints or restoring confidence. Alternatively, deleveraging and uncertainty might predominate and make the economy less interest rate responsive and monetary policy less effective in financial crises. Taking a sample from the mid 1980s to today we find that an expansionary monetary policy shock is very effective in raising GDP during the recessionary period of a financial crisis. The effect is stronger than in non-crises times. In contrast, during the recovery period of a financial crisis, monetary policy has a very small effect on GDP. These differences can be explained by a confidence channel. During the joint occurrence of a recession and a financial crisis an expansionary monetary policy shock increases consumer confidence and GDP. During the following recovery monetary policy has no effects on confidence or GDP. Other variables like credit, housing prices and exchange rates can at most partially explain differences in transmission between the different regimes. |
| JEL: | E52 E58 G01 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113096&r=mon |
| By: | ITO Hiroyuki; KAWAI Masahiro |
| Abstract: | In this paper, we investigate how much a major national currency is used for trade invoicing by focusing primarily on the experiences of the U.S. dollar, Japanese yen, and Deutsche mark (DM) in the 1970s through the 1990s. We then attempt to draw lessons for China's renminbi (RMB) internationalization. Our data on the shares of the three major currencies in export invoicing show that the dollar has unequivocally been a global invoicing currency, the DM was a major regional currency in Europe, while the yen has neither been a global nor regional currency. DM invoicing was driven by European countries' trade ties with Germany. In contrast, the yen was not and is still not widely used for trade invoicing by Asia-Oceania countries, even including Japan itself, despite the region's strong trade ties with Japan. Our regression analysis on the determinants of the major currency share for trade invoicing (also including UK pound, French franc, Italian lira, and Swiss franc) in the 1970-1998 period suggests that the invoicing share of a major currency tends to be positively affected by the degree of other economies' trade ties with the major currency country and negatively affected by the degree of their financial development or openness. Also, the major currency share for trade invoicing is affected by both the weight of the major currencies in the implicit currency baskets of other economies or these economies' trade shares with major-currency zone countries. Economies belonging to the U.S. dollar zone tend to invoice their trade more in the dollar and less in the DM, while the opposite is observed for economies in the DM zone. The use of yen for trade invoicing is not much affected by its currency weight or the trade share with currency zones. European countries largely belonged to the DM zone, thereby contributing to higher DM use for trade invoicing, whereas Asia-Oceania countries belonged mainly to the U.S. dollar zone, leading to a lower degree of yen use. We also find that major currency countries tend to invoice their trade in their own currencies when they have a large presence in international trade and high levels of per capita income, and when their financial markets are more developed and at the same time are sufficiently open. Furthermore, major currency countries with high trade shares with U.S. dollar zone countries tend to invoice their exports less in their own currencies. For China, its low level of per capita income and limited financial openness as well as the presence of the U.S. dollar bloc in Asia stand as a big challenge to the nation's ambition to promote the RMB as a major regional or global trade-invoicing currency. |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:16005&r=mon |
| By: | Seitz, Franz; Albuquerque, Bruno; Baumann, Ursel |
| Abstract: | We analyse the forecasting power of different monetary aggregates and credit variables for US GDP. Special attention is paid to the influence of the recent financial market crisis. For that purpose, in the first step we use a three-variable single-equation framework with real GDP, an interest rate spread and a monetary or credit variable, in forecasting horizons of one to eight quarters. This first stage thus serves to pre-select the variables with the highest forecasting content. In a second step, we use the selected monetary and credit variables within different VAR models, and compare their forecasting properties against a benchmark VAR model with GDP and the term spread. Our findings suggest that narrow monetary aggregates, as well as different credit variables, comprise useful predictive information for economic dynamics beyond that contained in the term spread. However, this finding only holds true in a sample that includes the most recent financial crisis. Looking forward, an open question is whether this change in the relationship between money, credit, the term spread and economic activity has been the result of a permanent structural break or whether we might go back to the previous relationships. |
| JEL: | E41 E52 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113066&r=mon |
| By: | Blagov, Boris; Funke, Michael |
| Abstract: | An estimated Markov-switching DSGE modelling framework that allows for parameter shifts across regimes is employed to test the hypothesis of regime-dependent credibility of Hong Kong s linked exchange rate system. The model distinguishes two regimes with respect to the time-series properties of the risk premium. Regime-dependent impulse re- sponses to macroeconomic shocks reveal substantial differences in spreads. These findings contribute to efforts at modelling exchange rate regime credibility as a non-linear process with two distinct regimes. |
| JEL: | E32 F41 C51 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112819&r=mon |
| By: | Jochen Mierau; Mark Mink |
| Abstract: | We integrate a banking sector into an accessible macroeconomic framework, which then provides new explanations for developments around the Global Financial Crisis. The analysis shows that growth of banking sector money supply may explain the secular decline in long-term interest rates before the crisis. A new bank funding channel of monetary transmission clarifies why even large increases in central bank policy rates could not reverse this trend. Our analysis challenges the view that monetary policy becomes ineffective in a liquidity trap, and shows that bank recapitalizations are more effective than fiscal expansions in restoring aggregate demand after a banking crisis. |
| Keywords: | banking; aggregate demand; monetary transmission; global financial crisis |
| JEL: | E32 E50 E63 G01 G21 G28 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:500&r=mon |