nep-mon New Economics Papers
on Monetary Economics
Issue of 2016‒04‒23
29 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Central Bank Transparency and Inflation (Volatility) – New Evidence By Christoph S. Weber
  2. The effects of us unconventional monetary policies in Latin America By Fructuoso Borrallo; Ignacio Hernando; Javier Vallés
  3. The "Mystery of the Printing Press" Monetary Policy and Self-fulfilling Debt Crises By Giancarlo Corsetti; Luca Dedola; ;
  4. UK term structure decompositions at the zero lower bound. By A. Carriero; S. Mouabbi; E. Vangelista
  5. The Federal Reserve and market confidence By Boyarchenko, Nina; Haddad, Valentin; Plosser, Matthew
  6. Monetary Policy Transmission in an Open Economy: New Data and Evidence from the United Kingdom By Ambrogio Cesa-Bianchi; Gregory Thwaites; Alejandro Vicondoa
  7. Dismantling the boundaries of the ECB's monetary policy mandate: The CJEU's OMT judgement and its consequences By Feld, Lars P.; Fuest, Clemens; Haucap, Justus; Schweitzer, Heike; Wieland, Volker; Wigger, Berthold U.
  8. Private News and Monetary Policy: Forward guidance or the expected virtue of ignorance By FUJIWARA Ippei; WAKI Yuichiro
  9. "Colonial American Paper Money and the Quantity Theory of Money: An Extension" By Farley Grubb
  10. Monetary Transmission: Are Emerging Market and Low-Income Countries Different? By Ales Bulir; Jan Vlcek
  11. Inflation is Always and Everywhere an Interest-Rate Phenomenon By Belanger, Gilles
  12. Cash and Negative Interest Rates By Berentsen, Aleksander; Schär, Fabian
  13. Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States By DellAriccia, Giovanni; Laeven, Luc; Suarez, Gustavo
  14. Real-Time Forecasting for Monetary Policy Analysis: The Case of Sveriges Riksbank By Iversen, Jens; Laseen, Stefan; Lundvall, Henrik; Söderström, Ulf
  15. Inflation at the Household Level By Schulhofer-Wohl, Sam; Kaplan, Greg
  16. 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
  17. Animal Spirits in a Monetary Model By Farmer, Roger E A; Platonov, Konstantin
  18. Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms By Kudlyak, Marianna; Sanchez, Juan M.
  19. Changes in inflation persistence prior and subsequent to the subprime crisis: What are the implications for South Africa? By Phiri, Andrew
  20. Can Currency Competition Work? By Fernández-Villaverde, Jesús; Sanches, Daniel
  21. Monetary policy when households have debt: new evidence on the transmission mechanism By Cloyne, James; Ferreira, Clodomiro; Surico, Paolo
  22. “The Distributive effects of conventional and unconventional monetary policies” By Karen Davtyan
  23. Quantitative Easing and the Liquidity Channel of Monetary Policy By Herrenbrueck, Lucas
  24. “Income Inequality and Monetary Policy: An analysis on the Long Run Relation” By Karen Davtyan
  25. The Federal Reserve as lender of last resort during the subprime crisis: Successful stabilisation without structural changes By Herr, Hansjörg; Rüdiger, Sina; Pédussel Wu, Jennifer
  26. The Internationalization of the Renminbi By Ronald W. Anderson
  27. The Theory of Unconventional Monetary Policy By Farmer, Roger E A; Zabczyk, Pawel
  28. Profit distribution and loss coverage rules for central banks By Bunea, Daniela; Karakitsos, Polychronis; Merriman, Niall; Studener, Werner
  29. Three Lectures on the Theory of Money and Financial Institutions: Lecture 1: A Nontechnical Overview By Martin Shubik

  1. By: Christoph S. Weber
    Abstract: The last decades have shown a tendency towards higher central bank transparency. It became customary for central bankers to explain their monetary policy decisions in detail and for them to publish inflation forecasts. This leads to the question of how central bank transparency is entangled with price stability and inflation volatility. A plethora of studies analysed the relationship from a theoretical point of view and came to contradictory results. Whilst some studies argued that transparency leads to lower inflation, others concluded that openness of central banks results in higher prices. Conversely, there is only a small amount of studies looking at this issue empirically. Most studies found a diminishing effect of transparency on inflation. However, these studies hardly controlled for other causes of inflation. This paper tries to close this gap by employing a panel data set on central bank transparency. We find that transparency significantly reduces inflation rates even if we control for other determinants of inflation. This result still holds under various robustness checks. The same is true for inflation volatility: central bank transparency seems to diminish inflation uncertainty. This confirms the economic importance of central bank transparency.
    Keywords: Central Bank Transparency, Inflation, Inflation Volatility, Determinants of Inflation, Central Bank Independence
    JEL: E31 E42 E58
    Date: 2016–03
  2. By: Fructuoso Borrallo (Banco de España); Ignacio Hernando (Banco de España); Javier Vallés (Banco de España)
    Abstract: This paper offers an empirical analysis of the way in which US unconventional monetary policy has affected Latin American countries. First, we estimate the effects of US monetary policy announcements on sovereign bond interest rates, exchange rates and stock market indices for a set of emerging countries, including five Latin American economies. We find that QE announcements in 2008/2009 and the “tapering talk” in 2013 generated sizable sovereign yield and exchange rate fluctuations. We further find some excess response of Latam asset prices that disappear once we take into account their country characteristics. In the second part of the paper we estimate a simple model that measures the influence of country-specific macroeconomic fundamentals on the transmission of US financial disturbances. An estimated model including the inflation rate, the CDS spread, the ratio of official reserves and market capitalisation explains some of the observed cross-country heterogeneity of spillovers from US monetary policy announcements. Under this model, a greater impact from the normalisation of US monetary policy can be expected in Latin America relative to other emerging economies
    Keywords: unconventional monetary policy, spillovers, emerging economies, event study
    JEL: E52 F32 G11
    Date: 2016–03
  3. 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
  4. By: A. Carriero; S. Mouabbi; E. Vangelista
    Abstract: This paper employs a Zero Lower Bound (ZLB) consistent shadow-rate model to decompose UK nominal yields into expectation and term premia components. Compared to a standard affine term structure model, it performs relatively better in a ZLB setting and effectively captures the countercyclical nature of term premia. The ZLB model is then exploited to estimate inflation expectations and risk premia. This entails jointly pricing and decomposing nominal and real UK yields. We find evidence that medium- and long-term inflation expectations are contained within narrower bounds since the early 1990s, suggesting monetary policy credibility improved after the introduction of inflation targeting.
    Keywords: No-arbitrage, term structure, zero-lower bound, risk premia, inflation expectations.
    JEL: E31 E43 E52 E58 G12
    Date: 2016
  5. By: Boyarchenko, Nina (Federal Reserve Bank of New York); Haddad, Valentin (Princeton University); Plosser, Matthew (Federal Reserve Bank of New York)
    Abstract: We discover a novel monetary policy shock that has a widespread impact on aggregate financial conditions. Our shock can be summarized by the response of long-horizon yields to Federal Open Market Committee (FOMC) announcements; not only is it orthogonal to changes in the near-term path of policy rates, but it also explains more than half of the abnormal variation in the yield curve on announcement days. We find that our long-rate shock is positively related to changes in real interest rates and market volatility, and negatively related to market returns and mortgage demand, consistent with policy announcements affecting market confidence. Our results demonstrate that Federal Reserve pronouncements influence markets independent of changes in the stance of conventional monetary policy.
    Keywords: policy announcement; risk premium; uncertainty; financial conditions
    JEL: E44 G12 G14
    Date: 2016–04–01
  6. By: Ambrogio Cesa-Bianchi (Bank of England; Centre for Macroeconomics (CFM)); Gregory Thwaites (Bank of England; Centre for Macroeconomics (CFM)); Alejandro Vicondoa (European University Institute)
    Abstract: This paper constructs a new series of monetary policy surprises for the United Kingdom and estimates their effects on macroeconomic and financial variables, employing high-frequency identification methods. Using direct projections, monetary policy is found to have persistent effects on real interest rates and expected inflation at long horizons. We use our series of surprises as an instrument in a SVAR and show that monetary policy affects economic activity, prices, the exchange rate, and the trade balance. Exploiting the availability of the narrative series of monetary policy shocks computed by Cloyne and Huertgen (2014), we propose a test of overidentifying restrictions and find no evidence that either set of shocks contains any 'endogenous' response to macroeconomic variables.
    Keywords: Monetary Policy Transmission, External Instrument, High-Frequency Identification, Structural VAR, Local Projections
    JEL: E31 E32 E43 E44 E52 E58
    Date: 2016–04
  7. By: Feld, Lars P.; Fuest, Clemens; Haucap, Justus; Schweitzer, Heike; Wieland, Volker; Wigger, Berthold U.
    Abstract: The German Federal Constitutional Court (Bundesverfassungsgericht) submitted an order for referral to the European Court of Justice (CJEU) in 2014, asking it to clarify the compatibility of the "Outright Monetary Transactions" (OMT)-Programme with European Union law. The OMT-Programme prepares the ground for the selective purchasing of government bonds of crisis-struck Member States of the European Monetary Union (EMU). A year later, the CJEU decided that the OMT-Programme is covered by the mandate of the European Central Bank (ECB) and does not violate the prohibition of the monetary financing of Member States. Concerns raised by the Federal Constitutional Court were only partially adressed. Now the ball has been passed back to the Federal Constitutional Court. In this study, the Kronberger Kreis, Scientific Council of the Stiftung Marktwirtschaft, explains why the CJEU's reasoning would have irreversable consequences, if the German Federal Constitutional Court were to follow. The CJEU's judgment dismantles the boundaries of the ECB's monetary policy mandate and significantly weakens the prohibition of the monetary financing of Member States in the long run. Effective judicial review of the scope of the ECB's competence would no longer be guaranteed. An act of crisis intervention by the ECB threatens to irrevocably turn the future structure of the EMU into the wrong direction. Nonetheless, the Federal Constitutional Court remains obliged to execute its ultra vires control in an EU-friendly manner. A rupture in the cooperative relationship between the German Federal Constitutional Court and the CJEU could have far-reaching consequences, especially considering the current crisis-riddled state of the EU. The Federal Constitutional Court may therefore want to follow the operative part of the CJEU's judgment, but base it on a different legal reasoning, so as to reserve itself the possibility for future judicial review of the acts of the ECB based on more demanding legal standards than those laid out by the CJEU.
    Date: 2016
  8. By: FUJIWARA Ippei; WAKI Yuichiro
    Abstract: When the central bank has information that can help the private sector predict the future better, should it communicate such information to the public? Not always. In a canonical New Keynesian model, the central bank finds it optimal to commit to being secretive about news shocks. There exists an expected virtue of ignorance; and secrecy constitutes optimal policy. This result holds in the canonical model when the news is about cost-push shocks, or shocks to the monetary policy objective, or shocks to the natural rate of interest, and even when the zero lower bound of nominal interest rates is taken into account. We also demonstrate through numerical examples that the same result holds for richer models too. A lesson of our analysis for a central bank's communication strategy is that, while it is crucial that the central bank uses Odyssean forward guidance to communicate its history-dependent policy action plan to the private sector, Delphic forward guidance that helps the private sector form more accurate forecasts of future shocks can be undesirable.
    Date: 2016–03
  9. By: Farley Grubb (Department of Economics, University of Delaware)
    Abstract: The quantity theory of money is applied to the paper money regimes of seven of the nine British North American colonies south of New England. Individual colonies, and regional groupings of contiguous colonies treated as one monetary unit, are tested. Little to no statistical relationship, and little to no magnitude of influence, between the quantities of paper money in circulation and prices are found. The failure of the quantity theory of money to explain the value and performance of colonial paper money is a general and widespread result, and not an isolated and anomalous phenomenon.
    Keywords: bills of credit, bills of exchange, border effects, price indices, purchasing power parity
    JEL: E31 E42 E51 N11
    Date: 2016
  10. By: Ales Bulir; Jan Vlcek
    Abstract: We use two representations of the yield curve, by Litterman and Scheinkman (1991) and by Diebold and Li (2006), to test the functioning of the interest rate transmission mechanism along the yield curve based on government paper in a sample of emerging market and low-income countries. We find a robust link from short-term policy and interbank rates to longer-term bond yields. Two policy implications emerge. First, the presence of well-developed secondary financial markets does not seem to affect transmission of short term rates along the yield curve. Second, the strength of the transmission mechanism seems to be affected by the choice of monetary regime: advanced countries with a credible IT regime seem to have "better behaved" yield curves than those with other monetary regimes.
    Keywords: Monetary transmission, yield curve
    JEL: E43 E52 G12
    Date: 2016–03
  11. By: Belanger, Gilles
    Abstract: Following an earlier paper, I investigate an economy where nominal interest rates are rigid, but aggregate prices are not. Though the title exaggerates, interest rates rigidity does account for an uncanny number of stylized facts about inflation. This paper shows that previously shown results are robust to changes in the specification of interest rate rigidity. Results investigated include: (1) the procyclicality of inflation, (2) inflation control through interest rate manipulation,(3) the persistence of inflation since World War II, (4) the Great Moderation under inflation targeting, (5) real rate volatility under a gold standard, (6) the price puzzle.
    Keywords: Interest Rate Rigidity, Inflation, Monetary Policy, Fisher Effect.
    JEL: E31 E43 E52
    Date: 2016–04–19
  12. By: Berentsen, Aleksander; Schär, Fabian
    Abstract: Cash is accused of three sins: First, cash is inefficient and costly to use, and society would be better off without it. Second, it promotes crime, and facilitates money laundering and tax evasion. Third, it makes negative nominal interest rates infeasible. In certain situations, this may hinder central banks from implementing optimal monetary policies. In this article, we argue that all three accusations are fallacies; they are based on faulty reasoning. There is absolutely no need to limit the use of cash. On the contrary, societies should facilitate its use.
    Keywords: Cash, Negative Interest Rates, Lower Bound
    JEL: E4 E5
    Date: 2016–01–01
  13. By: DellAriccia, Giovanni; Laeven, Luc; Suarez, Gustavo
    Abstract: We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on banks' internal ratings on loans to businesses over the period 1997 to 2011 from the Federal Reserve's survey of terms of business lending. We find that ex-ante risk taking by banks (measured by the risk rating of new loans) is negatively associated with increases in short-term interest rates. This relationship is more pronounced in regions that are less in sync with the nationwide business cycle, and less pronounced for banks with relatively low capital or during periods of financial distress.
    Keywords: banks; interest rates; leverage; Monetary policy; risk
    JEL: E43 E52 G21
    Date: 2016–04
  14. By: Iversen, Jens; Laseen, Stefan; Lundvall, Henrik; Söderström, Ulf
    Abstract: We evaluate forecasts made in real time to support monetary policy decisions at Sveriges Riksbank (the central bank of Sweden) from 2007 to 2013. We compare forecasts made with a DSGE model and a BVAR model with judgemental forecasts published by the Riksbank, and we evaluate the usefulness of conditioning information for the model-based forecasts. We also study the perceived usefulness of model forecasts for central bank policymakers when producing the judgemental forecasts.
    Keywords: Forecast evaluation; Inflation targeting; Monetary policy; Real-time forecasting
    JEL: E37 E52
    Date: 2016–03
  15. By: Schulhofer-Wohl, Sam (Federal Reserve Bank of Minneapolis); Kaplan, Greg (Princeton University)
    Abstract: We use scanner data to estimate inflation rates at the household level. Households' inflation rates are remarkably heterogeneous, with an interquartile range of 6.2 to 9.0 percentage points on an annual basis. Most of the heterogeneity comes not from variation in broadly defined consumption bundles but from variation in prices paid for the same types of goods - a source of variation that previous research has not measured. The entire distribution of household inflation rates shifts in parallel with aggregate inflation. Deviations from aggregate inflation exhibit only slightly negative serial correlation within each household over time, implying that the difference between a household's price level and the aggregate price level is persistent. Together, the large cross-sectional dispersion and low serial correlation of household-level inflation rates mean that almost all of the variability in a household's inflation rate over time comes from variability in household-level prices relative to average prices for the same goods, not from variability in the aggregate inflation rate. We provide a characterization of the stochastic process for household inflation that can be used to calibrate models of household decisions.
    Keywords: Inflation; Heterogeneity
    JEL: D12 D30 E31
    Date: 2016–04–11
  16. 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
  17. 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
  18. By: Kudlyak, Marianna (Federal Reserve Bank of Richmond); Sanchez, Juan M. (Federal Reserve Bank of Richmond)
    Abstract: Gertler and Gilchrist (1994) provide evidence for the prevailing view that adverse shocks are propagated via credit constraints of small firms. We revisit the behavior of small versus large firms during the episodes of credit disruption andrecessions in the sample extended to cover the 2007-09 economic crisis. We find that large firms' short-term debt and sales contracted relatively more than those of small firms during the 2007-09 episode. Furthermore, the short-term debt of large firms also contracted relatively more in the previous tight money episodes if one takes into account the longer period that it takes for large firms' debt to reach its post-shock trough. Our findings challenge the view that propagation of shocks in the economy takes place via credit constraints of small firms.
    JEL: E32 E51 E52
    Date: 2016–04–13
  19. By: Phiri, Andrew
    Abstract: The appropriateness of the inflation targeting regime as a policy framework for the South African Reserve Bank (SARB) continues to be a furiously debated topic for both academics and policymakers alike. In this study, we approach this debate by examining whether there have been any changes in the persistence of the inflation process for periods prior and subsequent to the global financial crisis. By effect, our study attempts to answer the question of whether inflation targets have been successful in controlling inflation rates in the face of unanticipated financial crisis. Indeed, our empirical results indicate that persistence in the inflation process has decreased in periods subsequent to the subprime crisis, and yet this has been accompanied by decreases in economic growth and unchanged high levels of unemployment. Our study ultimately suggests that given the current status of the economy, inflation may be required to be lowered to close-to-zero levels which will have to be accompanied with higher levels of economic growth, separate macroeconomic policies which specifically target unemployment and a change in domestic real interest rates.
    Keywords: Inflation persistence; inflation targeting; global financial crisis; monetary policy; South Africa; sub-Saharan Africa (SSA)
    JEL: C22 C23 C31 C51
    Date: 2016–04–11
  20. By: Fernández-Villaverde, Jesús; Sanches, Daniel
    Abstract: Can competition among privately issued fiat currencies such as Bitcoin or Ethereum work? Only sometimes. To show this, we build a model of competition among privately issued fiat currencies. We modify the current workhorse of monetary economics, the Lagos-Wright environment, by including entrepreneurs who can issue their own fiat currencies in order to maximize their utility. Otherwise, the model is standard. We show that there exists an equilibrium in which price stability is consistent with competing private monies, but also that there exists a continuum of equilibrium trajectories with the property that the value of private currencies monotonically converges to zero. These latter equilibria disappear, however, when we introduce productive capital. We also investigate the properties of hybrid monetary arrangements with private and government monies, of automata issuing money, and the role of network effects.
    Keywords: cryptocurrencies; currency competition; Monetary policy; Private money
    JEL: E40 E42 E52
    Date: 2016–04
  21. By: Cloyne, James (Bank of England); Ferreira, Clodomiro (London Business School); Surico, Paolo (London Business School and CEPR)
    Abstract: In response to an interest rate change, mortgagors in the United Kingdom and United States adjust their spending significantly (especially on durable goods) but outright home-owners do not. While the dollar change in mortgage payments is nearly three times larger in the United Kingdom than in the United States, these magnitudes are much smaller than the overall change in expenditure. In contrast, the income change is sizable and similar across both household groups and countries. Consistent with the predictions of a simple heterogeneous agents model with credit-constrained households and multi-period fixed-rate debt contracts, our evidence suggests that the general equilibrium effect of monetary policy on income is quantitatively more important than the direct effect on cash flows.
    Keywords: Monetary policy; mortgage debt; liquidity constraints
    JEL: E21 E32 E52
    Date: 2016–04–08
  22. By: Karen Davtyan (AQR Research Group-IREA, University of Barcelona)
    Abstract: The distributional effect of monetary policy is estimated in the case of the USA. In order to identify a monetary policy shock, the paper employs contemporaneous restrictions with ex-ante identified monetary policy shocks as well as log run identification. In particular, a cointegration relation has been determined among the considered variables and the vector error correction methodology has been applied for the identification of the monetary policy shock. The obtained results indicate that contractionary monetary policy decreases income inequality in the country. These results could have important implications for the design of policies to reduce income inequality by giving more weight to monetary policy.
    Keywords: income inequality, monetary policy, cointegration, identification JEL classification: C32, D31, E52
    Date: 2016–04
  23. By: Herrenbrueck, Lucas
    Abstract: How do central bank purchases of illiquid assets affect interest rates and the real economy? In order to answer this question, I construct a parsimonious and very flexible general equilibrium model of asset liquidity. In the model, households are heterogeneous in their asset portfolios and demand for liquidity, and asset trade is subject to frictions. I find that open market purchases of illiquid assets are fundamentally different from helicopter drops: asset purchases stimulate private demand for consumption goods at the expense of demand for assets and investment goods, while helicopter drops do the reverse. A temporary program of quantitative easing can therefore cause a 'hangover' of elevated yields and depressed investment after it has ended. When assets are already scarce, further purchases can crowd out the private flow of funds and cause high real yields and disinflation, resembling a liquidity trap. In the long term, lowering the stock of government debt reduces the supply of liquidity but increases the capital-output ratio. The consequences for output are ambiguous in theory but a calibration to US data suggests that the liquidity effect dominates; in other words, the supply of Treasuries is 'too small'.
    Keywords: Monetary theory, asset liquidity, search frictions, quantitative easing, liquidity trap
    JEL: E31 E40 E50 G1 G12
    Date: 2014–12–06
  24. By: Karen Davtyan (AQR Research Group-IREA. University of Barcelona)
    Abstract: The distributional effect of monetary policy is estimated in the case of the USA. In order to identify a monetary policy shock, the paper employs contemporaneous restrictions with ex-ante identified monetary policy shocks as well as log run identification. In particular, a cointegration relation has been determined among the considered variables and the vector error correction methodology has been applied for the identification of the monetary policy shock. The obtained results indicate that contractionary monetary policy decreases income inequality in the country. These results could have important implications for the design of policies to reduce income inequality by giving more weight to monetary policy.
    Keywords: income inequality; monetary policy; cointegration; identification. JEL classification: C32; D31; E52
    Date: 2016–04
  25. By: Herr, Hansjörg; Rüdiger, Sina; Pédussel Wu, Jennifer
    Abstract: This paper studies the actions of the U.S. Federal Reserve Bank (FRB) during the financial crisis from 2007-2012 rating the performance of the Federal Reserve during the crisis. The chosen scoring model approach shows that the average performance of five specific measures taken by the FRB only ranks between fair and good. Comparing Stiglitz (2010) viewpoints with those of the FRB, this paper analyses several policies and events and argues that the resulting decisions were well intentioned but that the outcome was different from expectations because of missing regulations and restrictions. Furthermore, the structure of the FRB is examined and criticized.
    JEL: E42 E58 G18 E65
    Date: 2016
  26. By: Ronald W. Anderson
    Abstract: This special paper discusses the inclusion of the Chinese Renminbi in the international reserve asset Special Drawing Right (SDR) created by the International Monetary Fund.
    JEL: J1
    Date: 2016–01–15
  27. 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
  28. By: Bunea, Daniela; Karakitsos, Polychronis; Merriman, Niall; Studener, Werner
    Abstract: The issue of central bank profit distribution is both complex and often politically controversial. Based on the replies of 57 central banks worldwide to an ECB questionnaire, this paper analyses how profit distribution rules can affect the amounts distributed and the financial strength of central banks. The paper also investigates the link between profit distribution, accounting rules and financial strength. Research shows that central banks apply divergent rules as regards profit distribution and loss coverage. While they are not a measure of central bank performance, in the long run profits strengthen the credibility of central banks and contribute to their financial independence, whereas profit distribution rules that do not allow central banks to set up adequate reserves might have the opposite effect. The interaction of profit distribution rules and accounting rules also plays an important role in central banks achieving financial strength. Accounting frameworks can materially influence central banks’ net results via their treatment of unrealised results and the creation of general risk provisions. Distribution policies can offset the volatility of distributed profits by recording changes in value in a separate account before calculating the amount of distributable profit. This paper also shows that central banks with less volatile distributable profits display higher ratios of equity to total assets over time. Finally, the paper examines the role of stakeholders in influencing the profit distribution regimes of central banks, and develops a non-exhaustive set of general principles that could be considered in relation to profit distribution frameworks, with the aim of strengthening the financial, and therefore institutional, independence of central banks. JEL Classification: E37, E58, M48
    Keywords: accounting framework, financial independence, financial strength, loss coverage, profit distribution
    Date: 2016–04
  29. By: Martin Shubik (Cowles Foundation, Yale University)
    Abstract: This is a nontechnical retrospective paper on a game theoretic approach to the theory of money and financial institutions. The stress is on process models and the reconciliation of general equilibrium with Keynes and Schumpeter’s approaches to non-equilibrium dynamics.
    Keywords: Bankruptcy, Innovation, Growth, Competition, Price-formation
    JEL: C7 E12
    Date: 2016–04

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