nep-mon New Economics Papers
on Monetary Economics
Issue of 2016‒04‒09
27 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. A Bitcoin Standard: Lessons from the Gold Standard By Warren E. Weber
  2. Exchange Rate Pass-through in Emerging Countries: Do the Inflation Environment, Monetary Policy Regime and Institutional Quality Matter? By Antonia Lopez-Villavicencio; Valérie Mignon
  3. Theoretical Foundations for Quantitative Easing By Sohei Kaihatsu; Koichiro Kamada; Mitsuru Katagiri
  4. The "Mystery of the Printing Press" Monetary Policy and Self-fulfilling Debt Crises By Giancarlo Corsetti; Luca Dedola; ;
  5. Deflation risk in the euro area and central bank credibility By Gabriele Galati; Zion Gorgi; Richhild Moessner; Chen Zhou
  6. Capital Inflow Transmission of Monetary Policy to Emerging Markets By Adugna Olani
  7. The Theory of Unconventional Monetary Policy By Farmer, Roger E A; Zabczyk, Pawel
  8. Monetary Policy and Large Crises in a Financial Accelerator Agent-Based Model By Giri, Federico; Riccetti, Luca; Russo, Alberto; Gallegati, Mauro
  9. Asymmetric pass-through effects from monetary policy to housing prices in South Africa By Phiri, Andrew
  10. Monetary transmission in developing countries: Evidence from India By Prachi Mishra; Peter Montiel; Rajeswari Sengupta
  11. The speed of the exchange rate pass-through By Bonadio, Barthélémy; Fischer, Andreas M; Sauré, Philip
  12. On the Optimal Inflation Rate By Markus K. Brunnermeier; Yuliy Sannikov
  13. Limited Liability, Asset Price Bubbles and the Credit Cycle: The Role of Monetary Policy By Jakub Mateju; Michal Kejak
  14. Countercyclical versus Procyclical Taylor Principles By Chatelain, Jean-Bernard; Ralf Kirsten
  15. Banking Limits on Foreign Holdings: Disentangling the Portfolio Balance Channel By Pamela Cardozo; Fredy Gamboa; David Perez-Reyna; Mauricio Villamizar-Villegas
  16. A Literature Survey on Proposed African Monetary Unions By Asongu, Simplice A; Nwachukwu, Jacinta; Tchamyou, Vanessa
  17. The role of the Federal Reserve—lessons from financial crises: Remarks at the Annual Meeting of the Virginia Association of Economists, Virginia Military Institute, Lexington, Virginia By Dudley, William
  18. The evolution of the anchoring of inflation expectations By Ines Buono; Sara Formai
  19. Taxpayers Subsidise Private Money Creation. By Musgrave, Ralph S.
  20. The Impact of Unconventional Monetary Policy on Firm Financing Constraints : Evidence from the Maturity Extension Program By Foley-Fisher, Nathan; Ramcharan, Rodney; Yu, Edison
  21. The Outlook, Uncertainty, and Monetary Policy : a speech at the Economic Club of New York, New York, New York, March 29, 2016. By Yellen, Janet L.
  22. Animal Spirits in a Monetary Model By Farmer, Roger E A; Platonov, Konstantin
  23. The Billion Prices Project: Using Online Prices for Measurement and Research By Alberto Cavallo; Roberto Rigobon
  24. Discussion of “Language after liftoff: Fed communication away from the zero lower bound” By Williams, John C.
  25. Public spending, monetary policy and growth: Evidence from EU countries By Papaioannou, Sotiris
  26. Modelling Overnight RRP Participation By Anderson, Alyssa G.; Huther, Jeff W.
  27. Financial Dampening By Johannes F. Wieland; Mu-Jeung Yang

  1. By: Warren E. Weber
    Abstract: This paper imagines a world in which countries are on the Bitcoin standard, a monetary system in which all media of exchange are Bitcoin or are backed by it. The paper explores the similarities and differences between the Bitcoin standard and the gold standard and describes the media of exchange that would exist under the Bitcoin standard. Because the Bitcoin standard would closely resemble the gold standard, the paper explores the lessons about how it would perform by examining the classical gold standard period, specifically 1880–1913. The paper argues that because there would be virtually no arbitrage costs for international transactions, countries could not follow independent interest rate policies under the Bitcoin standard. However, central banks would still have some limited ability to act as lenders of last resort. Based on the experience during the classical gold standard period, the paper conjectures that there would be mild deflation and constant exchange rates under the Bitcoin standard. The paper also conjectures how long the Bitcoin standard might last if it were to come into existence.
    Keywords: E-Money, Exchange rates, Financial services, Inflation and prices
    JEL: E E4 E41 E42 E5 E58
    Date: 2016
  2. By: Antonia Lopez-Villavicencio; Valérie Mignon
    Abstract: In this paper, we estimate the exchange rate pass-through (ERPT) to consumer prices and assess its dynamics for a sample of 15 emerging countries over the 1994-2015 period. To this end, we augment the traditional bivariate relationship between the nominal effective exchange rate and inflation by accounting for the inflation environment, monetary policy regime, as well as domestic institutional factors. We show that both the level and volatility of inflation matter in the sense that declining ERPT is evidenced with more stable and anti-inflationary environment. Monetary policy also plays a key role since adopting an inflation target—especially de jure—leads to a significant reduction in ERPT for most countries. Adopting exchange rate targeting regime matters as well, contributing to a diminishing ERPT. Finally, we find evidence that transparency of monetary policy decisions clearly reduces ERPT, while this is not the case for central bank independence.
    Keywords: exchange rate pass-through;inflation;emerging countries;monetary policy
    JEL: E31 E52 F31
    Date: 2016–04
  3. By: Sohei Kaihatsu (Director and Senior Economist, Monetary Affairs Department, Bank of Japan (E-mail:; Koichiro Kamada (Associate Director-General and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Mitsuru Katagiri (Deputy Director and Economist, Research and Statistics Department, Bank of Japan (E-mail:
    Abstract: This paper presents theoretical foundations for quantitative easing (QE). Since the late 2000s, with no room for lowering policy interest rates, central banks in the major advanced economies have adopted various unconventional monetary policies. QE is one of those unconventional policies and has so far achieved visible results in practice. However, our theoretical understanding of how QE achieves these results remains incomplete. The purpose of this paper is to introduce an inflation-sensitive money provision rule and show theoretically how QE helps an economy escape from a liquidity trap.
    Keywords: Liquidity trap, Quantitative easing, Monetary policy rule
    JEL: E31 E52 E58
    Date: 2016–03
  4. By: Giancarlo Corsetti; Luca Dedola; ;
    Abstract: Sovereign debt crises may be driven by either self-fulfilling expectations of default or fundamental fiscal stress. This paper studies the mechanisms by which either conventional or unconventional monetary policy can rule out the former. Conventional monetary policy is modelled as a standard choice of inflation, while unconventional policy as outright purchases in the debt market. By intervening in the sovereign debt market, the central bank effectively swaps risky government paper for monetary liabilities only exposed to inflation risk and thus yielding a lower interest rate. We show that, provided fiscal and monetary authorities share the same objective function, there is a minimum threshold for the size of interventions at which a backstop rules out self-fulfilling default without eliminating the possibility of fundamental default under fiscal stress. Fundamental default risk does not generally undermine the credibility of a backstop, nor does it foreshadow runaway inflation, even when the central bank is held responsible for its own losses.
    Keywords: Sovereign risk and default, Lender of last resort, Seigniorage, inflationary financing
    JEL: E58 E63 H63
    Date: 2014–09–19
  5. By: Gabriele Galati; Zion Gorgi; Richhild Moessner; Chen Zhou
    Abstract: This paper investigates how the perceived risk that the euro area will experience deflation has evolved over time, and what this risk implies for the credibility of the ECB. We use a novel dataset on market participants' perceptions of short- to long-term deflation risk implied by year-on-year options on forward inflation swaps. We investigate whether long-term inflation expectations have become de-anchored, by studying whether long-term deflation risk has been affected by changes in oil prices and by short-term deflation risk. Our analysis suggests that the anchoring properties of euro area inflation expectations have weakened, albeit in a still subtle way.
    Keywords: Deflation; inflation expectations; monetary policy; financial crisis
    JEL: E31 E44 E52 E58
    Date: 2016–04
  6. By: Adugna Olani (Queen's University)
    Abstract: In this paper, I examine the effects of advanced economies' conventional monetary policy on gross foreign direct and portfolio investment inflows to emerging economies. I use structural vector autoregressions to analyse and compare the response of each inflow category to world interest rate and emerging economies' monetary and exchange rate shocks. Gross foreign direct inflows respond slowly to shocks while gross portfolio reacts on impact. Furthermore, the reaction of foreign direct investment to the shocks is not as high. These results suggest that monetary and exchange rate policies of emerging economies influence portfolio inflows more than they impact foreign direct investment in ows. These results also imply the existence of fundamental differences in capital flow categories beyond what we know to date. I address the "push" and "pull" debate in categories capital flows by quantitatively comparing the forecast error variance decomposition. I do not find evidence of "push" over "pull" factors in either class of inflows.
    Keywords: Monitary Policy, Capital Flows, Emerging Markets, Exchange Rate, Interest Rates
    JEL: E52 F32 E43 E58 F37
    Date: 2016–03
  7. By: Farmer, Roger E A; Zabczyk, Pawel
    Abstract: This paper is about the effectiveness of qualitative easing, a form of unconventional monetary policy that changes the risk composition of the central bank balance sheet with the goal of stabilizing economic activity. We construct a general equilibrium model where agents have rational expectations and there is a complete set of financial securities, but where some agents are unable to participate in financial markets. We show that a change in the risk composition of the central bank's balance sheet will change equilibrium asset prices and we prove that, in our model, a policy in which the central bank stabilizes non-fundamental fluctuations in the stock market is Pareto improving and self-financing.
    Keywords: Qualitative Easing; Sunspots; Unconventional Monetary Policy
    JEL: E02 E6 G11 G21
    Date: 2016–03
  8. By: Giri, Federico; Riccetti, Luca; Russo, Alberto; Gallegati, Mauro
    Abstract: An accommodating monetary policy followed by a sudden increase of the short term interest rate often leads to a bubble burst and to an economic slowdown. Two examples are the Great Depression of 1929 and the Great Recession of 2008. Through the implementation of an Agent Based Model with a financial accelerator mechanism we are able to study the relationship between monetary policy and large scale crisis events. The main results can be summarized as follow: a) sudden and sharp increases of the policy rate can generate recessions; b) after a crisis, returning too soon and too quickly to a normal monetary policy regime can generate a "double dip" recession, while c) keeping the short term interest rate anchored to the zero lower bound in the short run can successfully avoid a further slowdown.
    Keywords: Monetary Policy; Large Crises; Agent Based Model; Financial Accelerator; Zero Lower Bound.
    JEL: C63 E32 E44 E58
    Date: 2016–03–30
  9. By: Phiri, Andrew
    Abstract: Following the recent financial crisis, spurred by the crash of house prices in the US, there has been a renewed interest by academics in examining the pass-through effects of monetary policy instrument to house price inflation. This study examines the asymmetric pass through effects from monetary policy to house price inflation for the case of South Africa. Our study uses a momentum threshold autoregressive model and a corresponding threshold error correction model (MTAR-TECM). The empirical results reveal a negative and significant pass through from interest rates to house price inflation, even though such pass-through effects are relatively weak. Overall, these findings undermine the ability of the South African Reserve Bank (SARB) to control real house price inflation.
    Keywords: asymmetric cointegration; monetary policy instrument; house price inflation; South Africa.
    JEL: C22 C52 E31 E52
    Date: 2016–03–24
  10. By: Prachi Mishra; Peter Montiel; Rajeswari Sengupta (Indira Gandhi Institute of Development Research)
    Abstract: There are strong a priori reasons to believe that monetary transmission may be weaker and less reliable in low- than in high-income countries. This is as true in India as it is elsewhere. While its floating exchange rate gives the RBI monetary autonomy, the country's limited degree of integration with world financial markets and RBI's interventions in the foreign exchange markets limit the strength of the exchange rate channel of monetary transmission. The country lacks large and liquid secondary markets for debt instruments, as well as a well-functioning stock market. This means that monetary policy effects on aggregate demand would tend to operate primarily through the bank-lending channel. Yet the formal banking sector is small, and does not intermediate for a large share of the economy. Moreover, there is evidence both that the costs of financial intermediation are high and that the banking system may not be very competitive. The presence of all of these factors should tend to weaken the process of monetary transmission in India. This paper examines what the empirical evidence has to say about the strength of monetary transmission in India, using the structural vector autoregression (SVAR) methods that have been applied broadly to investigate this issue in many countries, including high-,middle-, and low-income ones. We estimate a monthly VAR with data from April 2001 to December 2014. Applying a variety of methods to identify exogenous movements in the policy rate in the data, we find consistently that positive shocks to the policy rate result in statistically significant effects (at least at confidence levels typically used in such applications) on the bank-lending rate in the direction predicted by theory. Specifically, a tightening of monetary policy is associated with an increase in bank lending rates, consistent with evidence for the first stage of transmission in the bank-lending channel. While passthrough from the policy rate to bank lending rates is in the right (theoretically-expected) direction, the passthrough is incomplete. When the monetary policy variable is ordered first, effects on the real effective exchange rate are also in the theoretically expected direction on impact, but are extremely weak and not statistically significant, even at the 90 percent confidence level, for any of the four monetary policy variants that we investigate. Finally, we are unable to uncover evidence for any effect of monetary policy shocks on aggregate demand, as recorded either in the industrial production (IIP) gap or the inflation rate. None of these effects is estimated with strong precision, which may reflect either instability in monetary transmission or the limitations of the empirical methodology. Overall, the empirical tests yield a mixed message on the effectiveness of monetary policy in India, but perhaps one that is more favourable than is typical of many countries at similar income levels.
    Keywords: monetary policy, bank lending, exchange rate, interest rate, institutions
    JEL: E5 E4 F4
    Date: 2016–03
  11. By: Bonadio, Barthélémy; Fischer, Andreas M; Sauré, Philip
    Abstract: This paper analyzes the speed of the exchange rate pass-through into importer and exporter unit values for a large, unanticipated, and unusually 'clean' exchange rate shock. Our shock originates from the Swiss National Bank's decision to lift the minimum exchange rate policy of one euro against 1.2 Swiss francs on January 15, 2015. This policy action resulted in a permanent appreciation of the Swiss franc by more than 11% against the euro. We analyze the response of unit values to this exchange rate shock at the daily frequency for different invoicing currencies using the universe of Switzerland's transactions-level trade data. The main finding is that the speed of the exchange rate pass-through is fast: it starts on the second working day after the exchange rate shock and reaches the medium-run pass-through after eight working days on average. Moreover, we decompose the pass-through by invoicing currencies and find strong evidence that underlying price adjustments occurred within a similar time frame. Our observations suggest that nominal rigidities play only a minor role in the face of large exchange rate shocks.
    Keywords: daily exchange rate pass-through; large exchange rate shock; speed
    JEL: F14 F31 F41
    Date: 2016–03
  12. By: Markus K. Brunnermeier; Yuliy Sannikov
    Abstract: In our incomplete markets economy financial frictions affect the optimal inflation target. Households choose portfolios consisting of risky (uninsurable) capital and money. Money is a bubbly store of value. The market outcome is constrained Pareto inefficient due to a pecuniary externality. Each individual agent takes the real interest rate as given, while in the aggregate it is driven by the economic growth rate, which in turn depends on individual portfolio decisions. Higher inflation due to higher money growth lowers the real interest rate (on money) and tilts the portfolio choice towards physical capital investment. The optimal inflation target boosts growth and welfare and is higher for emerging market economies.
    JEL: E44 E51 E52
    Date: 2016–03
  13. By: Jakub Mateju; Michal Kejak
    Abstract: This paper suggests that the dynamics of the non-fundamental component of asset prices are one of the drivers of the credit cycle. The presented model builds on the financial accelerator literature by including a stock market where investors with limited liability trade stocks of productive firms with stochastic productivities. Investors borrow funds from the banking sector and can go bankrupt. Their limited liability induces a moral hazard problem which shifts demand for risk and drives prices of risky assets above their fundamental value. Embedding the contracting problem in a New Keynesian general equilibrium framework, the model shows that expansionary monetary policy induces loose credit conditions and leads to a rise in both the fundamental and non-fundamental components of stock prices. A positive shock to the non-fundamental component triggers a credit cycle: collateral value rises, and lending and default rates decrease. These effects reverse after several quarters, inducing a credit crunch. The credit boom lasts only while stock market growth maintains sufficient momentum. However, monetary policy does not reduce the volatility of inflation and the output gap by reacting to asset prices.
    Keywords: Credit cycle, limited liability, monetary policy, non-fundamental asset pricing
    JEL: E32 E44 E52 G10
    Date: 2015–12
  14. By: Chatelain, Jean-Bernard; Ralf Kirsten
    Abstract: Assuming inflation is a forward variable in Taylor (1999) model, this paper finds opposite policy rule recommandations with counter-cyclical policy rule parameters (Taylor principle: inflation rule larger than one and bounded upwards) in the case of optimal policy under commitment versus pro-cyclical policy rule parameters (inflation rule parameter below zero) in the case of discretionary policy. For the observed high inertia of the Fed with variations of the nominal policy rate within the range [0%,4%] during the great moderation, the cost of time-inconsistency is negligible for optimal policy. Time-inconsistency cannot be the ultimate argument to reject counter-cyclical Taylor principle.
    Keywords: Monetary policy,Optimal policy under commitment,Time consistent discretionary policy,Taylor rule
    JEL: C6 E4 E5
    Date: 2016
  15. By: Pamela Cardozo (Banco de la República de Colombia); Fredy Gamboa (Banco de la República de Colombia); David Perez-Reyna (Universidad de los Andes); Mauricio Villamizar-Villegas (Banco de la República de Colombia)
    Abstract: In this paper we analyze the effects of financial constraints on the exchange rate through the portfolio balance channel. Our contribution is twofold: First, we construct a tractable two-period general equilibrium model in which financial constraints inhibit capital flows. Hence, departures from the uncovered interest rate parity condition are used to explain the effects of sterilized foreign exchange intervention. Second, using high frequency data during 2004-2015, we use a sharp policy discontinuity within Colombian regulatory banking limits to empirically test for the portfolio balance channel. Consistent with our model's postulations, our findings suggest that the effects on the exchange rate are short-lived, and significant only when banking constraints are binding. Classification JEL:C14, C21, C31, E58, F31
    Keywords: Sterilized foreign exchange intervention, portfolio balance channel, uncovered interest rate parity, financial constraints, regression discontinuity design
    Date: 2016–03
  16. By: Asongu, Simplice A; Nwachukwu, Jacinta; Tchamyou, Vanessa
    Abstract: This study provides a survey of recent advances in the literature on proposed African monetary unions. The survey comprises about 60 empirical papers published during the past fifteen years. Four main strands are discussed individually and collectively, notably, the proposed: West African Monetary Zone (WAMZ), East African Monetary Union (EAMU), Southern African Monetary Union (SAMU) and African Monetary Union (AMU). We observe a number of issues with establishing the feasibility and/or desirability of potential monetary unions, inter alia, variations in: choice of variables, empirical strategies, sampled countries and considered periodicities. We address this ambiguity by reviewing studies with scenarios that are consistent with Hegelian dialectics and establish selective expansion as the predominant mode of monetary integration. Some proponents make cases for strong pegs and institutions as viable alternatives to currency unions. Using cluster analysis, disaggregating panels into sub-samples and distinguishing shocks from responses in the examination of business cycle synchronisation provide more subtle policy implications. We caution that for inquiries using the same theoretical underpinnings, variables and methods just by modifying the scope/context and periodicity may only contribute to increasing the number of conflicting findings. Authors should place more emphasis on new perspectives and approaches based on caveats of, and lessons from the European Monetary Union (EMU) and CFA zones.
    Keywords: Currency Area; Policy Coordination; Africa
    JEL: F15 F36 F42 O55 P52
    Date: 2015–09
  17. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the Annual Meeting of the Virginia Association of Economists, Virginia Military Institute, Lexington, Virginia.
    Keywords: Federal Reserve decentralization; Paul Warburg; Large Institution Supervision Coordination Committee (LISCC); unusual and exigent; too-big-to-fail”(TBTF)
    Date: 2016–03–31
  18. By: Ines Buono (Bank f Italy); Sara Formai (Bank f Italy)
    Abstract: We investigate the degree of anchoring in inflation expectations for different advanced economies using data from professional forecasters' surveys. We define expectations as anchored when movements in short-run expectations do not trigger movements in expectations at longer horizons. Using time-varying parameter regressions, we provide evidence that anchoring has varied noticeably across economies and over time. In particular, we find that starting from the second half of 2008, inflation expectations in the euro area, unlike in the US and in the UK, have shown signs of a de-anchoring.
    Keywords: anchoring, inflation expectations, nonparametric estimation
    JEL: E31 E52 D84 C14
    Date: 2016–03
  19. By: Musgrave, Ralph S.
    Abstract: Publicly created money, i.e. base money, costs much less to produce than privately created money because amongst other things private banks have to check up on the credit worthiness of borrowers before supplying them with money. In contrast governments do not need to do those checks when creating and spending base money into the economy. It might be claimed that the cost of private money creation is the cost of organising loans and hence that the cost of private money creation as such is not particularly high. That claim does not stand inspection. Despite the high cost of private money, it nevertheless manages to drive public money to near extinction (except in the current very low interest scenario). Reason is that private banks can create and lend out money at below the going rate of interest because they are not burdened with one of the main costs normally involved in lending, namely earning money and abstaining from consumption (so that borrowers can consume.) When an economy is at capacity, the result of that extra lending is inflationary, so government has to withdraw base money from the economy, i.e. rob taxpayers, in order to counteract the inflation, for example by cutting the deficit / raising the surplus or by raising interest rates. In short, private money printing is subsidised by taxpayers, and subsidies reduce GDP, unless there is a good reason for a subsidy. The net result of letting private money displace base money is an artificially low rate of interest and an artificially high level of debt, plus GDP is reduced. Thus GDP would be increased if privately issued money was banned, though its complete elimination is not necessary.
    Keywords: money; bank
    JEL: E4 E41 E42 E5 E58
    Date: 2016–03–20
  20. By: Foley-Fisher, Nathan; Ramcharan, Rodney; Yu, Edison
    Abstract: This paper investigates the impact of unconventional monetary policy on firm financial constraints. It focuses on the Federal Reserve’s maturity extension program (MEP), intended to lower longer-term rates and flatten the yield curve by reducing the supply of long-term government debt. Consistent with those models that emphasize bond market segmentation and limits to arbitrage, around the MEP’s announcement, stock prices rose most sharply for those firms that are more dependent on longer-term debt. These firms also issued more long-term debt during the MEP and expanded employment and investment. These responses are most pronounced for those firms that are larger and older, and hence less likely to be financially constrained. There is also evidence of “reach for yield” behavior among some institutional investors, as the demand for riskier corporate debt also rose during the MEP. Our results suggest that unconventional monetary policy might have helped to relax financial constraints for some types of firms in part by inducing gap-filling behavior and affecting the pricing of risk in the bond market.
    Keywords: unconventional monetary policy ; firm‐financial constraints ; bond markets
    JEL: E52 G23 G32
    Date: 2016–02
  21. By: Yellen, Janet L. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2016–03–29
  22. By: Farmer, Roger E A; Platonov, Konstantin
    Abstract: We integrate Keynesian economics with general equilibrium theory in a new way. Our approach differs from the prevailing New Keynesian paradigm in two ways. First, our model displays steady state indeterminacy. This feature allows us to explain persistent unemployment which we model as movements among the steady state equilibria of our model. Second, our model displays dynamic indeterminacy. This feature allows us to explain the real effects of nominal shocks by selecting a dynamic equilibrium where prices are slow to respond to unanticipated money supply disturbances. Price rigidity arises as part of a rational expectations equilibrium in which the equilibrium is selected by beliefs. To close our model, we introduce a new fundamental that we refer to as the belief function.
    Keywords: animal spirits; belief function; Keynesian economics; Unemployment
    JEL: E12 E3 E4
    Date: 2016–03
  23. By: Alberto Cavallo; Roberto Rigobon
    Abstract: New data-gathering techniques, often referred to as “Big Data” have the potential to improve statistics and empirical research in economics. In this paper we describe our work with online data at the Billion Prices Project at MIT and discuss key lessons for both inflation measurement and some fundamental research questions in macro and international economics. In particular, we show how online prices can be used to construct daily price indexes in multiple countries and to avoid measurement biases that distort evidence of price stickiness and international relative prices. We emphasize how Big Data technologies are providing macro and international economists with opportunities to stop treating the data as “given” and to get directly involved with data collection.
    JEL: E31 F3 F4
    Date: 2016–03
  24. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation at U.S. Monetary Policy Forum, New York, New York, February 26, 2016
    Date: 2016–02–26
  25. By: Papaioannou, Sotiris
    Abstract: This study examines whether differences in monetary policy are associated with diverging effects of public spending on growth. At first stage, we estimate public spending multipliers for each country of the European Union (EU). Their size varies considerably across countries. Then we incorporate in the analysis the role of monetary policy and examine whether real interest rates affect the relationship between public spending and growth. The main result of the econometric analysis is that government spending can affect growth positively only when real interest rates become negative. This result remains robust to several changes in the econometric specification and measures of interest rate.
    Keywords: Public spending, Fiscal multipliers, Monetary policy, Economic growth.
    JEL: E43 E62 O40
    Date: 2016–03–15
  26. By: Anderson, Alyssa G.; Huther, Jeff W.
    Abstract: We examine how market participants have used the Federal Reserve’s overnight reverse repurchase (ON RRP) exercise and how short-term interest rates have evolved between December 2013 and November 2014. We show that money market fund (MMF) participation is sensitive to the spread between market repo rates and the ON RRP offering rate as well as Treasury bill issuance, government sponsored enterprise (GSE) participation is more heavily driven by calendar effects, dealers tend to only participate when rate spreads are negative, and banks generally do not participate. We also find that the effect of the ON RRP on overnight interest rates is more significant in the collateralized market than the uncollateralized market.
    Keywords: Federal Reserve System operations ; Monetary policy ; federal funds ; money market funds ; overnight RRP ; repurchase agreements
    JEL: E52 E58 G21 G23
    Date: 2016–02
  27. By: Johannes F. Wieland; Mu-Jeung Yang
    Abstract: We propose a novel mechanism, “financial dampening,” whereby loan retrenchment by banks attenuates the effectiveness of monetary policy. The theory unifies an endogenous supply of illiquid local loans and risk-sharing among subsidiaries of bank holding companies (BHCs). We derive an IV-strategy that separates supply-driven loan retrenchment from local loan demand, by exploiting linkages through BHC-internal capital markets across spatially-separate BHC member-banks. We estimate that retrenching banks increase loan supply substantially less in response to exogenous monetary policy rate reductions. This relative decline has persistent effects on local employment and thus provides a rationale for slow recoveries from financial distress.
    JEL: E5 E50 E51 E52 G20 G21
    Date: 2016–03

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