nep-mon New Economics Papers
on Monetary Economics
Issue of 2016‒03‒10
28 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The Impact of Unconventional Monetary Policy Measures by the Systemic Four on Global Liquidity and Monetary Conditions By Yevgeniya Korniyenko; Elena Loukoianova
  2. Interest Rate Pass-Through in the Dominican Republic By Francesco Grigoli; José M. Mota
  3. The effect of interest rate and communication shocks on private inflation expectations By Paul Hubert
  4. Monetary Policy Transmission and Financial Stability in a LIC; The Case of Bangladesh By Sohrab Rafiq
  5. Effects of Monetary and Macroprudential Policies on Financial Conditions; Evidence from the United States By Aleksandra Zdzienicka; Sally Chen; Federico Diaz Kalan; Stefan Laseen; Katsiaryna Svirydzenka
  6. Will Macroprudential Policy Counteract Monetary Policy’s Effects on Financial Stability? By Itai Agur; Maria Demertzis
  7. A Macro-Model Approach to Monetary Policy Analysis and Forecasting for Vietnam By Allan Dizioli; Jochen M. Schmittmann
  8. Changing Imperatives for U.S. Monetary Policy Normalization By Bullard, James B.
  9. Asymmetric Exchange Rate Pass-through: Evidence from Nonlinear SVARs By Fernando J. Pérez Forero; Marco Vega
  10. Lending-of-last-resort is as lending-of-last-resort does: central bank liquidity provision and interbank market functioning in the euro area By Garcia-de-Andoain, Carlos; Heider, Florian; Hoerova, Marie; Manganelli, Simone
  11. Inflation Expectations and a Model-Based Core Inflation Measure in Colombia By Hernando Vargas-Herrera
  12. Non-Linear Exchange Rate Pass-Through in Emerging Markets By Francesca G Caselli; Agustin Roitman
  13. Inflation Targeting and Exchange Rate Regimes in Emerging Markets By Christian Ebeke; Armand Fouejieu
  14. Bank Lending Margins in the Euro Area: The Effects of Financial Fragmentation and ECB Policies By Helen Louri; Petros M. Migiakis
  15. Cost-Benefit Analysis of Leaning Against the Wind; Are Costs Larger Also with Less Effective Macroprudential Policy? By Lars E. O. Svensson
  16. The U.S. economic outlook and implications for monetary policy By Dudley, William
  17. Lenders on the storm of wholesale funding shocks: Saved by the central bank? By de Haan, Leo; Vermeulen, Philip; van den End, Jan Willem
  18. "Money, Power, and Monetary Regimes" By Pavlina R. Tcherneva
  19. Inflation and Activity – Two Explorations and their Monetary Policy Implications By Olivier J. Blanchard; Eugenio Cerutti; Lawrence Summers
  20. Monetary Operations and Islamic Banking in the GCC; Challenges and Options By Ritu Basu; Ananthakrishnan Prasad; Sergio L. Rodriguez
  21. Implementing the zero lower bound in an estimated regime-switching DSGE model By Andrew Binning; Junior Maih
  22. The Price Stability Under Inflation Targeting Regime : An Analysis With a New Intermediate Approach By Zied Ftiti; Walid Hichri
  23. A Monetary Policymaker’s Lexicon at Market News International, New York, NY By Mester, Loretta J.
  24. The Lender of Last Resort Function after the Global Financial Crisis By Marc Dobler; Simon Gray; Diarmuid Murphy; Bozena Radzewicz-Bak
  25. Can the Chinese bond market facilitate a globalizing renminbi? By Ma, Guonan; Yao, Wang
  26. Are Capital Inflows Expansionary or Contractionary? Theory, Policy Implications, and Some Evidence By Olivier J. Blanchard; Jonathan David Ostry; Atish R. Ghosh; Marcos Chamon
  27. If the Fed Acts, How Do You React? The Liftoff Effect on Capital Flows By Swarnali Ahmed
  28. Robust Measures of Core Inflation for Vietnam By Sanjay Kalra; Bui Thi Trang Dzung

  1. By: Yevgeniya Korniyenko; Elena Loukoianova
    Abstract: The paper examines the impact of unconventional monetary policy measures (UMPMs) implemented since 2008 in the United States, the United Kingdom, Euro area and Japan— the Systemic Four—on global monetary and liquidity conditions. Overall, the results show positive significant relationships. However, there are differences in the impact of the UMPMs of individual S4 countries on these conditions in other countries. UMPMs of the Bank of Japan have positive association with global liquidity but negative association with securities issuance. The quantitative easing (QE) of the Bank of England has the opposite association. Results for the quantitative easing measures of the United States Federal Reserve System (U.S. Fed) and the ECB UMPMs are more mixed.
    Keywords: Asia and Pacific;United Kingdom;Western Hemisphere;Global liquidity;Euro Area;Europe;Japan;Monetary aggregates;Spillovers;unconventional monetary policy, capital flows, liquidity, monetary policy, securities, balance sheets, issuance, International Policy Coordination and Transmission, Government Policy and Regulation, capital flows.,
    Date: 2015–12–30
  2. By: Francesco Grigoli; José M. Mota
    Abstract: A well-functioning monetary transmission mechanism is critical for monetary policy. As the Dominican Republic recently adopted an inflation targeting regime, it is even more relevant to guarantee that changes in the monetary policy rates are quickly and fully reflected in retail rates, to eventually influence aggregate demand and inflation. This paper estimates the interest rate pass-through of the monetary policy rate to retail rates and explores asymmetries in the adjustment. We find evidence of complete pass-through to retail rates, confirming the effectiveness of the monetary policy transmission mechanism. However, our results also suggest a faster pass-through to lending rates than to deposit rates and asymmetric adjustments of short-term rates, as deposit rates respond faster to policy rate cuts and lending rates respond faster to policy rate hikes. Measures to enhance competition in the financial system could help to achieve a symmetric adjustment of retail rates.
    Keywords: Western Hemisphere;Dominican Republic;asymmetric, interest rate, pass-through, transmission mechanism, monetary policy, interest, lending, deposit, Monetary Policy (Targets, Instruments, and Effects),
    Date: 2015–12–10
  3. By: Paul Hubert (OFCE – Sciences Po)
    Abstract: The European Central Bank publishes inflation projections quarterly. This paper aims at establishing empirically whether they influence private inflation forecasts and whether they may be considered as an enhanced means of implementing policy decisions by facilitating private agents’ information processing. We compare the effect of an ECB inflation projection shock to an ECB interest rate shock.We provide original evidence that ECB inflation projections do influence private inflation expectations positively. We find that ECB projections convey signals about future ECB rate movements. This paper suggests that ECB projections enable private agents to correctly interpret and predict policy decisions.
    Keywords: Monetary Policy, ECB, Private Forecasts, Influence, Structural VAR
    JEL: E52 E58
    Date: 2015–09–01
  4. By: Sohrab Rafiq
    Abstract: This paper explores how monetary policy affects the real economy and its efficacy in promoting financial stability in a large low income country. This paper shows that monetary policy modestly impacts real economic activity and inflation via the bank lending and financial accelerator channels. Second, money market and treasury rates signal changes in the policy stance, while altering banks’ intermediation cost curves due to shifting risk premia. At the same time, evidence points to monetary policy inducing an overshooting in asset prices. These findings suggest that financial stability could be undermined if the calibration of monetary policy is based solely on output and inflation without accounting for the stage of the financial cycle. Finally, the paper discusses policy measures that would enhance the transmission of monetary policy and promote financial stability in Bangladesh.
    Keywords: Liquidity;Credit;Development;Asia and Pacific;Bangladesh;Monetary policy;Prices;inflation, financial stability, reserve, Monetary Policy (Targets, Instruments, and Effects), Open Economy Macroeconomics,
    Date: 2015–11–09
  5. By: Aleksandra Zdzienicka; Sally Chen; Federico Diaz Kalan; Stefan Laseen; Katsiaryna Svirydzenka
    Abstract: The Global Financial Crisis has reopened discussions on the role of the monetary policy in preserving financial stability. Determining whether monetary policy affects financial variables domestically—especially compared to the effects of macroprudential policies— and across borders, is crucial in this context. This paper looks into these issues using U.S. exogenous monetary policy shocks and macroprudential policy measures. Estimates indicate that monetary policy shocks have significant and persistent effects on financial conditions and can attenuate long-term financial instability. In contrast, the impact of macroprudential policy measures is generally more immediate but shorter-lasting. Also, while an exogenous increase in U.S. monetary policy rates tends to reduce credit and house prices in other countries—with the effects varying with country-specific characteristics—an increase driven by improved U.S. economic conditions tends to have the opposite effect. Finally, we do not find evidence of cross-border spillover effects associated with U.S. macroprudential policies.
    Keywords: Financial stability;Monetary policy;Central banks and their policies;Financial crises;United States;Western Hemisphere;spillovers, international monetary fund, exchange rate, transmission mechanism, Monetary Policy (Targets, Instruments, and Effects), spillovers.,
    Date: 2015–12–31
  6. By: Itai Agur; Maria Demertzis
    Abstract: How does monetary policy impact upon macroprudential regulation? This paper models monetary policy's transmission to bank risk taking, and its interaction with a regulator's optimization problem. The regulator uses its macroprudential tool, a leverage ratio, to maintain financial stability, while taking account of the impact on credit provision. A change in the monetary policy rate tilts the regulator's entire trade-off. We show that the regulator allows interest rate changes to partly "pass through" to bank soundness by not neutralizing the risk-taking channel of monetary policy. Thus, monetary policy affects financial stability, even in the presence of macroprudential regulation.
    Keywords: Financial crises;Macroprudential, Supervision, Transmission, bank, risk, banks, financial stability, interest, Monetary Policy (Targets, Instruments, and Effects), Government Policy and Regulation, All Countries, Leverage,
    Date: 2015–12–29
  7. By: Allan Dizioli; Jochen M. Schmittmann
    Abstract: The paper develops a small New-Keynesian FPAS model for Vietnam. The model closely matches actual data from 2000-2014. We derive an optimal monetary policy rule that minimizes variability of output, inflation, and the exchange rate. Compared to the baseline model, the optimal rule places a larger weight on output stabilization as the intermediate target to achieve inflation stability, while allowing greater exchange rate flexibility. We analyze the dynamics of key macro variables under various shocks including external and domestic demand shocks and a lift-off of U.S. interest rates. We find that the optimal monetary policy rule delivers greater macroeconomic stability for Vietnam under the shock scenarios.
    Keywords: Vietnam;Monetary policy;Inflation targeting;Asia and Pacific;Bayesian Estimation, exchange rate, interest rates, monetary policy rule, central bank, Forecasting and Simulation, Monetary Policy (Targets, Instruments, and Effects),
    Date: 2015–12–23
  8. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: During a presentation to the CFA Society St. Louis, President James Bullard said that recent data-based developments—namely, further declines in inflation expectations and a reduced risk of asset price bubbles—likely give the FOMC more leeway in its normalization program. He also discussed the need for monetary policy to be more clearly data dependent and suggested that the FOMC may wish to consider changes to the way it approaches the policy rate projections in the Summary of Economic Projections.
    Date: 2016–02–17
  9. By: Fernando J. Pérez Forero (Central Reserve Bank of Peru); Marco Vega (Central Reserve Bank of Peru)
    Abstract: We study the response of headline inflation to exchange rate innovations in a nonlinear context, where we distinguish between positive (depreciation) and negative (appreciation) exchange rate shocks. For that purpose, we specify a nonlinear Structural Vector Autoregressive (SVAR) model and we compute asymmetric impulse response functions for headline inflation after exchange rate innovations. We introduce a bootstrap Monte Carlo routine that allows to compute the error bands for these nonlinear impulse responses. Results for the Peruvian economy exhibit a remarkable statistically significant asymmetry in the response of headline inflation, both on impact and on propagation. In absolute values, the effect of a depreciation shock after one year is about twice the size of that corresponding to an appreciation shock. Roughly speaking, the one-year exchange rate pass-through to prices is 20 percent under a depreciation and only 10 percent under an appreciation.
    Keywords: Exchange rate pass-through, asymmetric impulse responses, non-linear SVARs, Bootstrap, Monte Carlo
    JEL: C32 E31 F31
    Date: 2016–02
  10. By: Garcia-de-Andoain, Carlos; Heider, Florian; Hoerova, Marie; Manganelli, Simone
    Abstract: This paper investigates the impact of ample liquidity provision by the European Central Bank on the functioning of the overnight unsecured interbank market from 2008 to 2014. We use novel data on interbank transactions derived from TARGET2, the main euro area payment system. To identify exogenous shocks to central bank liquidity, we exploit the timing of ECB liquidity operations and use a simple structural vector auto-regression framework. We argue that the ECB acted as a de-facto lender-of-last-resort to the euro area banking system and identify two main effects of central bank liquidity provision on interbank markets. First, central bank liquidity replaces the demand for liquidity in the interbank market, especially during the financial crisis (2008-2010). Second, it increases the supply of liquidity in the interbank market in stressed countries (Greece, Italy and Spain) during the sovereign debt crisis (2011-2013). JEL Classification: E58, F36, G01, G21
    Keywords: central bank policy, financial crisis, interbank markets, lender-of-last-resort, sovereign debt crisis
    Date: 2016–02
  11. By: Hernando Vargas-Herrera (Banco de la República de Colombia)
    Abstract: Inflation expectations in Colombia are characterized. Empirical evidence following conventional tests suggests that they might not be rational, although the period of disinflation included in the sample makes it difficult to ascertain this conclusion. Inflation expectations display close ties with observed past and present headline inflation and are affected by exogenous shocks in a possibly non-linear way. A model-based core inflation measure is computed that addresses the shortcomings of traditional exclusion measures when temporary supply shocks have widespread effects and are persistent. Classification JEL:E31, E37, E52
    Keywords: Inflation expectations, core inflation, supply shocks, monetary policy
    Date: 2016–02
  12. By: Francesca G Caselli; Agustin Roitman
    Abstract: This paper estimates exchange rate pass-through to consumer prices in emerging markets focusing on non-linearities and asymmetries. We document non-linearities and asymmetries in the transmission of exchange rate fluctuations to prices using local projection techniques to obtain state dependent impulse responses in a panel of 28 emerging markets. We find significant evidence of non-linearities during episodes of depreciation greater than 10 and 20 percent. More specifically, we find that, after one month, the exchange rate pass-through coefficient is equal to 18 and 25 percent respectively, compared to a coefficient of 6 percent in the linear case. We also investigate the role of temporary vs. permanent shocks and the adoption of an inflation targeting regime in the transmission from exchange rate movements to prices. We perform a set of robustness checks, addressing the presence of outliers and potential endogeneity concerns.
    Keywords: Exchange rate pass-through;Foreign exchange;Inflation;Emerging markets;Non-Linearities, exchange rate, depreciation, inflation targeting, exchange rate movements, Models with Panel Data, General, All Countries,
    Date: 2016–01–05
  13. By: Christian Ebeke; Armand Fouejieu
    Abstract: This paper investigates the effects of the adoption of inflation targeting (IT) on the choice of exchange rate regime in emerging markets (EMs), conditional on certain macroeconomic conditions. Using a large sample of EMs and after controlling for the selection bias associated with the adoption of IT, we find that IT countries on average have a relatively more flexible exchange rate regime than other EMs. However, the flexibility of the exchange rate regime shows strong heterogeneity among IT countries depending on their degree of openness and exposure to FX risks. Moreover, we find that the marginal effect of IT adoption on the exchange rate flexibility increases with the duration of the IT regime in place, and with the propensity scores to adopt it.
    Date: 2015–10–28
  14. By: Helen Louri; Petros M. Migiakis
    Abstract: In the present paper we study the determinants of the margins paid by euro-area non-financial corporations (NFCs) for their bank loans on top of the rates they earn for their deposits (bank lending margins). We use panel VAR techniques, in order to test for causality relationships and produce impulse response functions for eleven euro-area countries from 2003:1 to 2014:12. The countries are separated into two groups (distressed and non-distressed), in order to examine for heterogeneities in the relationships between lending margins; the period is also separated with reference to the peak of the global financial crisis (before and after the collapse of Lehman in September 2008). We find that significant heterogeneities existed even before the global financial crisis and remained in its aftermath, although the magnitude and the direction of the effects exercised by the explanatory variables have changed. Furthermore, apart from finding that market concentration and the prudence of banks’ management increase the lending margins NFCs pay for their loans, there is evidence of substitution effects between financing obtained from banks and corporate bond markets. The provision of ample liquidity from the ECB, in the aftermath of the global financial crisis was found to be effective only for the core countries, suggesting that further policy actions are needed in order to reduce the fragmentation of bank lending and promote financial integration to the benefit of the euro-area real economy.
    Keywords: bank lending margins, financial fragmentation, global financial crisis, ECB, euro area
    JEL: E44 E51 E58 F36 F42
    Date: 2016–02
  15. By: Lars E. O. Svensson
    Abstract: “Leaning against the wind†(LAW) with a higher monetary policy interest rate may have benefits in terms of lower real debt growth and associated lower probability of a financial crisis but has costs in terms of higher unemployment and lower inflation, importantly including a higher cost of a crisis when the economy is weaker. For existing empirical estimates, costs exceed benefits by a substantial margin, even if monetary policy is nonneutral and permanently affects real debt. Somewhat surprisingly, less effective macroprudential policy and generally a credit boom, with resulting higher probability, severity, or duration of a crisis, increases costs of LAW more than benefits, thus further strengthening the strong case against LAW.
    Keywords: Financial stability;Monetary policy;Central banks and their policies;macroprudential policy, unemployment, unemployment rate, debt, marginal cost, benchmark, Monetary Policy (Targets, Instruments, and Effects), All Countries, macroprudential policy.,
    Date: 2016–01–11
  16. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the People’s Bank of China-Federal Reserve Bank of New York Joint Symposium, Hangzhou, Zhejiang, China.
    Keywords: taper tantrum; emerging market economies (EME); overnight reverse repurchase (ON RRP); standardized over-the-counter (OTC) derivatives contracts; invisible hand; FOMC; economic growth
    Date: 2016–02–29
  17. By: de Haan, Leo; Vermeulen, Philip; van den End, Jan Willem
    Abstract: We provide empirical evidence on banks’ responses to shocks in wholesale funding, using data of 181 euro area banks over the period August 2007 to June 2013. Banks’ adjustments of loan volumes and lending rates in response to funding liquidity shocks are analysed in a panel VAR framework. The results show that shocks in the securities and interbank markets have significant effects on loan rates and credit supply, particularly of banks in stressed countries. The results also suggest that central bank liquidity has mitigated this effect most clearly on lending volumes. Lending to non-financial corporations is more sensitive to wholesale funding shocks than lending to households. Moreover, bank characteristics matter for monetary transmission: loan growth of large banks that are typically more dependent on wholesale funding and of banks with large exposure to government bonds shows relatively stronger responses to wholesale funding shocks. JEL Classification: G21, G32
    Keywords: banking/financial intermediation, financial crisis
    Date: 2016–02
  18. By: Pavlina R. Tcherneva
    Abstract: Money, in this paper, is defined as a power relationship of a specific kind, a stratified social debt relationship, measured in a unit of account determined by some authority. A brief historical examination reveals its evolving nature in the process of social provisioning. Money not only predates markets and real exchange as understood in mainstream economics but also emerges as a social mechanism of redistribution, usually by some authority of power (be it an ancient religious authority, a king, a colonial power, a modern nation state, or a monetary union). Money, it can be said, is a "creature of the state" that has played a key role in the transfer of real resources between parties and the redistribution of economic surplus. In modern capitalist economies, the currency is also a simple public monopoly. As long as money has existed, someone has tried to tamper with its value. A history of counterfeiting, as well as that of independence from colonial and economic rule, is another way of telling the history of "money as a creature of the state." This historical understanding of the origins and nature of money illuminates the economic possibilities under different institutional monetary arrangements in the modern world. We consider the so-called modern "sovereign" and "nonsovereign" monetary regimes (including freely floating currencies, currency pegs, currency boards, dollarized nations, and monetary unions) to examine the available policy space in each case for pursuing domestic policy objectives.
    Keywords: History of Money; Monetary Sovereignty; Chartalism; Counterfeiting; Public Monopoly; Currency Issuers vs. Currency Users; Exchange Rate Systems
    JEL: B5 E6 E42 E63 N1 Z1
    Date: 2016–02
  19. By: Olivier J. Blanchard; Eugenio Cerutti; Lawrence Summers
    Abstract: We explore two issues triggered by the crisis. First, in most advanced countries, output remains far below the pre-recession trend, suggesting hysteresis. Second, while inflation has decreased, it has decreased less than anticipated, suggesting a breakdown of the relation between inflation and activity. To examine the first, we look at 122 recessions over the past 50 years in 23 countries. We find that a high proportion of them have been followed by lower output or even lower growth. To examine the second, we estimate a Phillips curve relation over the past 50 years for 20 countries. We find that the effect of unemployment on inflation, for given expected inflation, decreased until the early 1990s, but has remained roughly stable since then. We draw implications of our findings for monetary policy.
    Date: 2015–11–06
  20. By: Ritu Basu; Ananthakrishnan Prasad; Sergio L. Rodriguez
    Abstract: The assessment provides evidence of market segmentation across Islamic and conventional banks in the Gulf Cooperation Council (GCC), leading to excess liquidity, and an uneven playing field for Islamic banks that might affect their growth. Liquidiy management has been a long-standing concern in the global Islamic finance industry as there is a general lack of Shari’ah compliant instruments than can serve as high-quality short-term liquid assets. The degree of segmentation and bank behavior varies across countries depending on Shari’ah permissibility and the availability of Shari’ah-compliant instruments. A partial response would be to support efforts to build Islamic liquid interbank and money markets, which are crucial for monetary policy transmission through the Islamic financial system.This can be achieved, to a large extent, by deepening Islamic government securities and developing Shari’ah-compliant money market instruments.
    Keywords: Islamic banking;Cooperation Council for the Arab States of the Gulf;Basel Committee on Banking Supervision;Liquidity management;Monetary operations;Monetary policy;Islamic banking;Cooperation Council for the Arab States of the Gulf;Basel Committee on Banking Supervision;Liquidity management;Monetary operations;Monetary policy;Shari'ah-compliant financial instruments;Shari'ah-compliant lender of last resort (S-LOLR);Sukuk
    Date: 2015–11–09
  21. By: Andrew Binning (Norges Bank (Central Bank of Norway)); Junior Maih (Norges Bank (Central Bank of Norway) and BI Norwegian Business School)
    Abstract: The Zero Lower Bound (ZLB) on policy rates is one of the key monetary policy issues du jour. In this paper we investigate the problem of modelling and estimating the ZLB in a simple New Keynesian model with regime switches. The key features of the model include switches in the time preference shock, productivity growth rate and the steady state rate of inflation leading to two steady states: a normal steady state and a ZLB steady state. The model is tted to US data using Bayesian methods and is found to match the US experience over the great moderation and the ZLB periods very well. The key features of the model allow us to test competing theories about the determinants of the ZLB steady state. Our results suggest that the ZLB steady state is driven by precautionary savings behavior. It is also found that expectations over different regimes crucially matter for the dynamics of the system.
    Keywords: Zero Lower Bound, Regime-switching, DSGE, Bayesian Estimation
    Date: 2016–02–11
  22. By: Zied Ftiti; Walid Hichri
    Date: 2016–02–18
  23. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: Thank you for the invitation to present some remarks and to participate in what I am sure will be an interesting question and answer session to follow. I say “interesting” because over the 18 months in which I’ve served as president of the Federal Reserve Bank of Cleveland, I find that whenever I present remarks, I learn a lot from the questions posed by the audience – most likely, more than they learn from me. I view the exchange of ideas with the public as one of a Fed president’s duties, but it has also turned out to be one of its pleasures. Another pleasure of mine is serving on the Federal Open Market Committee’s Subcommittee on Communications. The Federal Reserve has worked over many years to improve its communications with the public and to increase transparency. This work is gratifying but it is also challenging. One of the challenges is trying to explain policy decisions and the rationale behind those decisions, which can be quite complex.
    Keywords: vocabulary; communication; monetary policy;
    Date: 2016–02–04
  24. By: Marc Dobler; Simon Gray; Diarmuid Murphy; Bozena Radzewicz-Bak
    Abstract: The global financial crisis (GFC) has renewed interest in emergency liquidity support (sometimes referred to as “Lender of Last Resort†) provided by central banks to financial institutions and challenged the traditional way of conducting these operations. Despite a vast literature on the topic, central bank approaches and practices vary considerably. In this paper we focus on, for the most part, the provision of idiosyncratic support, approaching it from an operational perspective; highlighting different approaches adopted by central banks; and also identifying some of the issues that arose during the GFC.
    Keywords: Lender of last resort;Central banks and their policies;collateral, risk control measures, market, lender, liquidity, central bank, Government Policy and Regulation, All Countries,
    Date: 2016–01–22
  25. By: Ma, Guonan (BOFIT); Yao, Wang (BOFIT)
    Abstract: A global renminbi needs to be backed by a large, deep and liquid renminbi bond market with a world-class Chinese government bond (CGB) market as its core. China’s CGB market is the seventh largest in the world while sitting alongside a huge but non-tradable and captive central bank liability in the form of required reserves. By transforming the non-tradable central bank liabilities into homogeneous and tradable CGBs through halving the high Chinese reserve requirements, the size of the CGB market can easily double. This would help over-come some market impediments and elevate the CGBs to a top three government bond market globally, boosting market liquidity while trimming distortions to the banking system. With a foreign ownership similar to that of the JGBs, CGBs held by foreign investors may increase ten-fold by 2020, approaching 5 percent of the 2014 global foreign reserves and facilitating a potential global renminbi, especially in the wake of the renminbi’s inclusion into the basket of the IMF Special Drawing Rights.
    Keywords: bond market; government bond market; renminbi internationalization
    JEL: E42 E44 E58 F02 G10 H63
    Date: 2016–02–06
  26. By: Olivier J. Blanchard; Jonathan David Ostry; Atish R. Ghosh; Marcos Chamon
    Abstract: The workhorse open-economy macro model suggests that capital inflows are contractionary because they appreciate the currency and reduce net exports. Emerging market policy makers however believe that inflows lead to credit booms and rising output, and the evidence appears to go their way. To reconcile theory and reality, we extend the set of assets included in the Mundell-Fleming model to include both bonds and non-bonds. At a given policy rate, inflows may decrease the rate on non-bonds, reducing the cost of financial intermediation, potentially offsetting the contractionary impact of appreciation. We explore the implications theoretically and empirically, and find support for the key predictions in the data.
    Keywords: Foreign exchange intervention;Capital controls;capital inflows, bonds, bond, return, domestic bonds, All Countries, apital inflows,
    Date: 2015–10–23
  27. By: Swarnali Ahmed
    Abstract: After more than six years of ultra-low interest rates, a Fed liftoff (rate hike) is just a matter of time. This paper goes back to history to understand the spillover effect – or what is termed in the paper as the ‘liftoff’ effect – of the previous five Fed liftoffs on capital flows. Using a dynamic panel framework covering 48 countries (27 advanced economies, 21 emerging markets) over the period 1982-2006, the paper shows that the liftoff effect on capital flows (total private, portfolio) is significantly higher for emerging market economies (EM) than advanced market economies (AM). EM capital flows are hit indiscriminately one quarter before liftoff, suggesting that markets usually price in the liftoff before the actual event. Over time, there is a bit more variation among EM as policy responses/framework can to some extent dampen market reactions. The findings are similar to the unfolding of events during the taper tantrum episode indicating that, even though current circumstances are very different, history could still provide a good guidance.
    Keywords: Capital flows;Western Hemisphere;Fed liftoffs, policy responses, policy framework, emerging market economies, interest, market, portfolio, interest rate, Monetary Policy (Targets, Instruments, and Effects), All Countries, emerging market economies.,
    Date: 2015–12–09
  28. By: Sanjay Kalra; Bui Thi Trang Dzung
    Abstract: The paper develops robust measures of core inflation for Vietnam that can be used in policy making. These core inflation measures (CIMs) are based on an analytical evaluation of the inflation process in Vietnam, and use a filtering approach to narrow down potential measures that satisfy certain empirically desirable criteria. The paper finds that commonly used exclusion-based measures (EBMs) do not perform well against these empirical criteria; trimmed mean measures (TMMs) do better. Among TMMs, “one trim does not fit all periods†; periods of high and variable inflation require larger trims, and conversely. EVIEWS and MATLAB programs which accompany the paper allow quick, timely replication of CIMs as new data become available, making them valuable tools for the State Bank of Vietnam on an ongoing basis.
    Keywords: Inflation;Vietnam;Inflation measurement;Monetary policy;Interest rate increases;Central bank policy;Core inflation, Monetary Policy; Vietnam
    Date: 2016–02–10

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