nep-mon New Economics Papers
on Monetary Economics
Issue of 2016‒04‒30
thirty-one papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Forecast Disagreement and the Inflation Outlook: New International Evidence By Pierre L. Siklos
  2. The impact of monetary strategies on inflation persistence By Evzen Kocenda; Balazs Varga
  3. Exchange rates and monetary policy uncertainty By Philippe Mueller; Alireza Tahbaz-Salehi; Andrea Vedolin
  4. Essays in Financial Economics By Francois Koulischer
  5. On the limits of macroprudential policy By Marcin Kolasa
  6. Are Low Interest Rates Deflationary? A Paradox of Perfect- Foresight Analysis By Mariana Garcıa-Schmidt; Michael Woodford
  7. Inflation and the growth rate of money in the long run and the short run By Díaz-Giménez, Javier; Kirkby, Robert
  8. De-dollarization of credit in Peru: the role of unconventional monetary policy tools By Castillo, Paul; Vega, Hugo; Serrano, Enrique; Burga, Carlos
  9. Elasticity and Discipline in the Global Swap Network By Perry Mehrling
  10. Inertia of the U.S. Dollar as a Key Currency through the Two Crises By OGAWA Eiji; MUTO Makoto
  11. The impact of monetary policy on household consumption in South Africa. Evidence from Vector Autoregressive Techniques By Emmanuel Owusu-Sekyere
  12. The Mechanism of Inflation Expectation Formation among Consumers By Naohito Abe; Yuko Ueno
  13. Evaluation of unconventional monetary policy in a small open economy By Martin Pietrzak
  14. Monetary Policy and the Current Account: Theory and Evidence By Hjortsoe, Ida; Weale, Martin; Wieladek, Tomasz
  15. Drivers of global liquidity and global bank flows: A view from the euro area By Mary Everett
  16. Hoarding and short-squeezing in times of crisis: Evidence from the Euro overnight money market By Olivier Brossard; Susanna Saroyan
  17. The Dilemma or Trilemma Debate: Empirical Evidence By Pablo Anaya. Michael Hachula
  18. Dynamic Debt Deleveraging and Optimal Monetary Policy By Benigno, Pierpaolo; Eggertsson, Gauti; Romei, Federica
  19. Monetary aggregates in Italy since 1861: evidence from a new dataset By Federico Barbiellini Amidei; Riccardo De Bonis; Miria Rocchelli; Alessandra Salvio; Massimiliano Stacchini
  20. Monetary policy, market structure and the income shares in the U.S By Bitros, George C.
  21. Real-Time Forecasting for Monetary Policy Analysis: The Case of Sveriges Riksbank By Iversen, Jens; Laséen, Stefan; Lundvall, Henrik; Söderström, Ulf
  22. 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.
  23. Modelling Overnight RRP Participation By Anderson, Alyssa G.; Huther, Jeff W.
  24. Discussion of “Language after liftoff: Fed communication away from the zero lower bound” By Williams, John C.
  25. How Monetary Policy Changes Bank Liability Structure and Funding Cost. By M. Girotti
  26. Social network effects on mobile money adoption in Uganda By Murendo, Conrad; Wollni, Meike; de Brauw, Alan; Mugabi, Nicholas
  27. Volatility effects of news shocks in New Keynesian models with optimal monetary policy: Updated version By Offick, Sven; Wohltmann, Hans-Werner
  28. Zero Lower Bound (ZLB) Economics By Thomas I. Palley
  29. How to stabilize the currency exchange rate By BLINOV, Sergey
  30. On the influence of the U.S. monetary policy on the crude oil price volatility By Amendola, Alessandra; Candila, Vincenzo; Scognamillo, Antonio
  31. The impact of the elderly on inflation rates in developed countries By Tim Vlandas

  1. By: Pierre L. Siklos (Lazaridis School of Business and Economics, Balsillie School of International Affairs, Wilfrid Laurier University (E-mail:
    Abstract: Short-term inflation forecast disagreement in nine advanced economies is examined. Domestic versus global determinants are considered. Disagreement is evaluated vis-à-vis several benchmarks. An indicator of central bank communication is added. A quasi-confidence interval for disagreement is also estimated. Disagreement is sensitive to the chosen group of forecasters examined. The GFC led to a spike in inflation forecast disagreement that was short- lived. Forecast disagreement can be reasonably seen as a variable that can change abruptly from high to low disagreement regimes. Furthermore, low and high levels of forecast disagreement can coexist with high levels of uncertainty. There is a global component in forecast disagreement but domestic determinants appear to be of first order importance. There appear to be relatively few indications that forecasts are coordinated with those of central banks with the possible exception of professional forecasters. Finally, central bank communication appears to play an only small role in explaining forecast disagreement.
    Keywords: forecast disagreement, inflation, central bank communication
    JEL: E52 E58 C53
    Date: 2016–03
  2. By: Evzen Kocenda (Institute of Economic Studies, Charles University); Balazs Varga (Corvinus University of Budapest)
    Abstract: We analyze the impact of price stability-oriented monetary strategies (inflation targeting - IT - and constraining exchange rate arrangements) on inflation persistence using a timevarying coefficients framework in a panel of 68 countries (1993-2013). We show that explicit IT has a stronger effect on taming inflation persistence than implicit IT and is effective even during and after the financial crisis. Regimes with the U.S. dollar as a reserve currency are less effective than those using the Euro; this effect correlates with the level of the reserve currency's inflation persistence. Further, we document the existence of structure in inflation persistence data. Our results are robust to differences in four well established inflation persistence measures and are not affected by existing structural breaks or the endogeneity of monetary strategies.
    Keywords: Inflation persistence; inflation targeting; exchange rate regime; flexible least squares; structural breaks
    JEL: C22 C32 E31 E52 F31
    Date: 2016–04
  3. By: Philippe Mueller; Alireza Tahbaz-Salehi; Andrea Vedolin
    Abstract: We document that a trading strategy that is short the U.S. dollar and long other currencies exhibits significantly larger excess returns on days with scheduled Federal Open Market Committee (FOMC) announcements. We also show that these excess returns (i) are higher for currencies with higher interest rate differentials vis-à-vis the U.S.; (ii) increase with uncertainty about monetary policy; and (iii) intensify when the Federal Reserve adopts a policy of monetary easing. We interpret these excess returns as a compensation for monetary policy uncertainty within a parsimonious model of constrained financiers who intermediate global demand for currencies.
    Keywords: Monetary policy; foreign exchange; uncertainty
    JEL: J1 F3 G3
    Date: 2016–01–15
  4. By: Francois Koulischer
    Abstract: The financial crisis that started in 2007 has seen central banks play an unprecedented role both to ensure financial stability and to support economic activity. While the importance of the central bank in ensuring financial stability is well known (see e.g. Padoa-Schioppa (2014)), the unprecedented nature of the financial crisis led central banks to resort to new instruments for which the literature offered little guidance. This thesis aims to bridge this gap, using both theory and data to better understand one of the main instruments used by central banks: collateralized loans. The general contribution of the thesis is thus both retrospective and forward looking. On a retrospective point of view, it helps understanding the actions of the central bank during the crisis and the mechanisms involved. Looking forward, a better understanding of the tools used during the crisis allows to better inform future policies.The first chapter starts from the observation that the literature, starting with Bagehot (1873), has generally assumed that the central bank should lend against high quality collateral. However in the 2007-2013 crisis central banks lent mostly against low quality collateral. In this chapter, we explore when it is efficient for the central bank to relax its collateral policy. In our model, a commercial bank funds projects in the real economy by borrowing against collateral from the interbank market or the central bank. While collateral prevents the bank from shirking (in the spirit of Holmstrom and Tirole (2011)), it is costly to use as its value is lower for investors and the central bank than for the bank. We find that when the bank has high levels of available collateral, it borrows in the interbank market against low collateral requirements so that the collateral policy of the central bank has no impact on banks' borrowing. However, when the amount of available collateral falls below a threshold, the lack of collateral prevents borrowing. In this case, the collateral policy of the central bank can affect lending, and it can therefore be optimal for the central bank to relax its collateral requirements to avoid the credit crunch.The second chapter focuses on collateralized loans in the context of the euro area. According to the literature on optimum currency area, one of the main drawbacks of currency unions is the inability for the central bank to accommodate asymmetric shocks with its interest rate policy. Suppose that there are 2 countries in an economy and one suffers a negative shock while the other has a positive shock. Theory would suggest an accommodative policy - low interest rates - in the first country and a restrictive policy - high interest rates - in the second one. This is however impossible in a currency union because the interest rate must be the same for both countries (Mundell 1961, McKinnon 1963, de Grauwe 2012). In this chapter I show that collateral policy can accommodate asymmetric shocks. I extend the model of collateralized lending of the first chapter to two banks A and B and two collateral types 1 and 2 .I also introduce a central bank deposit facility which allows the interest rate instrument to be compared with the collateral policy instrument in the context of a currency area hit by asymmetric shocks. Macroeconomic shocks impact the investment opportunities available to banks and the value of their collateral and the central bank seeks to steer economy rates towards a target level. I show that when banks have different collateral portfolios (as in a monetary union where banks invest in the local economy), an asymmetric shock on the quality and value of their collateral can increase interest rates in the country hit by the negative shock while keeping them unchanged in the country with a positive shock.The third chapter provides an empirical illustration of this “collateral channel” of open market operations. We use data on assets pledged by banks to the ECB from 2009 to 2011 to quantify the “collateral substitution / smoother transmission of monetary policy” trade-off faced by the central bank. We build an empirical model of collateral choice that is similar in spirit to the model on institutional demand for financial assets of Koijen (2014). We show how the haircut of the central bank can affect the relative cost of pledging collateral to the central bank and how this cost can be estimated using the amount of assets pledged by banks. Our model allows to perform a broad set of policy counterfactuals. For example, we use the recovered coefficient to assess how a 5% haircut increase on all collateral belonging to a specific asset class (e.g. government bonds or ABS) would affect the type of collateral used at the central bank. The final chapter focuses on the use of loans as collateral by banks in the euro area. While collateral is generally viewed as consisting of liquid and safe assets such as government bonds, we show that banks in Europe do use bank loans as collateral. We identify two purposes of bank loan collateral: funding and liquidity purposes. The main distinction between the two purposes is with respect to the maturity of the instruments involved: liquidity purposes refer to the use of bank loans as collateral to obtain short term liquidity and manage unexpected liquidity shocks. In practice the central bank is the main acceptor of these collateral. The second type of use is for funding purposes, in which case bank loans are used as collateral in ABSs or covered bonds. The collateral in these transactions allow banks to obtain a lower long-term funding cost.
    Keywords: Collateral; Monetary Policy; Central Bank
    Date: 2016–03–24
  5. By: Marcin Kolasa
    Abstract: This paper studies how macroprudential policy tools can complement the interest rate-based monetary policy in achieving a selection of dual stabilization objectives. We show analytically in a canonical New Keynesian model with collateral constraints that using the loan-to-value ratio as an additional policy instrument does not resolve the in flation-output volatility tradeoff. Perfect targeting of in ation and either credit or house prices with monetary and macroprudential policy is possible only if the role of credit in the economy is suciently small. Any of these three dual stabilization objectives can be achieved with the monetary-fiscal policy mix. The identifed limits to the LTV ratio-based policy are related to its predominantly intertemporal effect on decisions made by financially constrained agents.
    Keywords: macroprudential policy, monetary policy, stabilization tradeoffs
    JEL: E32 E58 E63 G21 G28
    Date: 2016–03
  6. By: Mariana Garcıa-Schmidt (Columbia University); Michael Woodford (Columbia University)
    Abstract: A prolonged period of extremely low nominal interest rates has not resulted in high inflation. This has led to increased interest in the “Neo-Fisherian†proposition according to which low nominal interest rates may themselves cause inflation to be lower. The fact that standard models of the effects of monetary policy have the property that perfect foresight equilibria in which the nominal interest rate remains low forever necessarily involve low inflation (at least eventually) might seem to support such a view. Here, however, we argue that such a conclusion depends on a misunderstanding of the circumstances under which it makes sense to predict the effects of a monetary policy commitment by calculating the perfect foresight equilibrium consistent with the policy. We propose an explicit cognitive process by which agents may form their expectations of future endogenous variables. Under some circumstances, such as a commitment to follow a Taylor rule, a perfect foresight equilibrium (PFE) can arise as a limiting case of our more general concept of reflective equilibrium, when the process of reflection is pursued sufficiently far. But we show that an announced intention to fix the nominal interest rate for a long enough period of time creates a situation in which reflective equilibrium need not resemble any PFE. In our view, this makes PFE predictions not plausible outcomes in the case of policies of the latter sort. According to the alternative approach that we recommend, a commitment to maintain a low nominal interest rate for longer should always be expansionary and inflationary, rather than causing deflation; but the effects of such “forward guidance†are likely, in the case of a long horizon commitment, to be much less expansionary or inflationary than the usual PFE analysis would imply.
    JEL: E31 E43 E52
  7. By: Díaz-Giménez, Javier; Kirkby, Robert
    Abstract: Between 1960 and 2013, in the United States the inflation rate was essentially proportional to the growth rate of money in the long run, but that relationship did not hold in the short run. We ask whether three standard monetary model economies from the Cash-in-Advance, the New-Keynesian, and the Search-Money frameworks replicate these two facts. We find that all three deliver the first fact, but that they fail to deliver the second fact, since in all three of them the inflation rate is proportional to the growth rate of money both in the long run and in the short run. This is because in all three model economies the price level responds too quickly to changes in the growth rate of money.
    Keywords: Monetary Economics, Quantity Theory of Money, Cash-in-Advance, New-Keynesian, Search-Money,
    Date: 2016
  8. By: Castillo, Paul (Banco Central de Reserva del Perú); Vega, Hugo (Banco Central de Reserva del Perú); Serrano, Enrique (Banco Central de Reserva del Perú); Burga, Carlos (Banco Central de Reserva del Perú)
    Abstract: In this paper we document and empirically evaluate the use of unconventional monetary policy tools in Peru to reduce credit dollarization. Our empirical analysis uses the counter-factual test proposed by Pesaran and Smith (2012) and shows that both high reserve requirements, used counter cyclically since 2010, and the de-dollarization program put in place by the Central Reserve Bank of Peru (BCRP) since 2013 had statistically significant effects on reducing credit dollarization in Peru. The paper also discusses the impact on bank’s balance sheet of the complementary tools created as part of the de-dollarization program to inject domestic currency liquidity.
    Keywords: Unconventional policy tools, reserve requirements, Monetary Policy, Dollarization, and Peru.
    JEL: E52 E58 E61 G38
    Date: 2016–04
  9. By: Perry Mehrling (Barnard College)
    Abstract: This paper sketches the outlines of the new international monetary system that has emerged in the aftermath of the global financial crisis. At the center of the system, a network of central bank swaps between the six major central banks serves as an elastic backstop for private foreign exchange operations. Farther out on the periphery, a further network of central bank swaps operates to economize on scarce reserves of the major currencies. Meanwhile, in the private foreign exchange market, basis swaps are emerging as the central location where liquidity is explicitly priced, inside the bounds set by central bank swaps.
    JEL: E58 F33 G15
    Date: 2015–11
  10. By: OGAWA Eiji; MUTO Makoto
    Abstract: The current international monetary system with the U.S. dollar as a key currency is considered as the background of the U.S. dollar liquidity shortage during the global financial crisis. However, once facing a U.S. dollar liquidity shortage or crisis, financial institutions are likely to avoid their overdependence on the U.S. dollar. This implies that the international monetary system with the U.S. dollar as a key currency may be changed, especially during the global financial crisis even though key currencies show inertia due to network externalities in using international currencies. In this paper, we focus on the effects of both the global financial crisis and the euro zone crisis on the position of the U.S. dollar as a key currency in the current international monetary system. We base this on a theoretical framework in Ogawa and Sasaki (1998) in which a money-in-the-utility model is used to take into account the U.S. dollar's functions as both a medium of exchange and a store of value in the international currency competition. A parameter on the real balance of the U.S. dollar or its contribution to utility in the model is focused on, analyzing empirically whether both the global financial crisis and the euro zone crisis have changed its contribution to utility. One of the main empirical results from our models is that the contribution of the U.S. dollar to utility decreased during the global financial crisis. This corresponds to a period when financial institutions faced liquidity shortages from mid 2007 to late 2008. U.S. dollar liquidity shortage may have decreased the contribution of the U.S. dollar to utility.
    Date: 2016–03
  11. By: Emmanuel Owusu-Sekyere
    Abstract: This paper investigates the “cost of credit effect†of monetary policy on household consumption of final goods and services in South Africa, testing the hypotheses of the Keynesian interest rate channel of monetary policy transmission. We focus on three periods; post transition from apartheid, during inflation targeting and during the global financial crisis. Quarterly data from 1994Q1 to 2012Q4, constant parameter vector autoregressive techniques (VAR) by Sims (1980) and time varying parameter VAR by Primicieri (1995) are used in this study. The results show that household credit and consumption declined and stayed negative post transition and after inflation targeting - periods of monetary tightening in South Africa, but turned positive during the global financial crisis which saw passive or quasi expansionary monetary policy measures aimed at mitigating the negative output gap in South Africa. These changes in household credit and consumption across the different time periods show evidence of the cost of credit effect of monetary policy on household consumption in South Africa. They further reflect the impact of different structural changes and exogenous shocks on monetary policy conduct in South Africa and its pass through effect on household consumption in South Africa.
    Keywords: Bayesian inference, Household consumption, Monetary policy, Household credit, Time-varying parameter VAR
    JEL: C11 C32 E51 E52
    Date: 2016
  12. By: Naohito Abe (Institute of Economic Research Hitotsubashi University); Yuko Ueno (Institute of Economic Research Hitotsubashi University)
    Abstract: How do we determine our expectations of inflation? Because inflation expectations greatly influence the economy, researchers have long considered this question. Using a survey with randomized experiments among 15,000 consumers, we investigate the mechanism of inflation expectation formation. Learning theory predicts that once people obtain new information on future inflation, they change their expectations. In this regard, such expectations are the weighted average of prior belief and information. We confirm that the weight for prior belief is a decreasing function of the degree of uncertainty. Our results also show that monetary authority information affects consumers to a greater extent when expectations are updated. With such information, consumers change their inflation expectations by 32% from the average. This finding supports improvements to monetary policy publicity.
    Keywords: inflation expectations, Bayesian updating, rational expectation, randomized survey experiments.
    JEL: E31 C81 D80
    Date: 2016–03
  13. By: Martin Pietrzak
    Abstract: This paper shows what are the consequences of omitting international dimension issues like international trade and financial channels when modeling the effects of unconventional monetary policy tools. To evaluate the size of discrepancies between consequences of a large-scale asset purchase program in a small open economy and a closed one, we extend one of the existing models analyzing a large-scale asset purchases by adding small open economy features. Finally we compare it with the original version. We find that previous studies might overestimate the extent to what large-scale asset purchases affect real activity. Allowing agents to trade internationally with goods as well as saving via foreign, currency denominated deposits leads to a leakages that result in substantial differences between large-scale asset purchases in a small open economy and an autarky. Moreover, our results show that negative supply side shocks have less severe consequences in a small open economy comparing to an autarky, because they are offset by the real exchange rate depreciation which boosts competitiveness.
    Keywords: unconventional monetary policy, financial frictions, small open economy
    JEL: E52 F41
    Date: 2016–03
  14. By: Hjortsoe, Ida; Weale, Martin; Wieladek, Tomasz
    Abstract: Does the current account improve or deteriorate following a monetary policy expansion? We examine this issue theoretically and empirically. We show that a standard open economy DSGE model predicts that the current account response to a monetary policy shock depends on the degree of economic regulation in different markets. In particular, financial (product market) liberalisation makes it more likely that the current account deteriorates (improves) following a monetary expansion. We test these theoretical predictions with a varying coefficient Bayesian panel VAR model, where the coefficients are allowed to vary as a function of the degree of financial, product and labour market regulation on data from 1976Q1-2006Q4 for 19 OECD countries. Our empirical results support the theory. We therefore conclude that following a monetary policy expansion, the current account is more likely to go into deficit (surplus) in countries with more liberalised financial (product) markets.
    Keywords: Balance of Payments; Current Account; Bayesian Panel VAR; Economic Liberalisation; Monetary Policy. JEL classification: F32; E52
    JEL: C11 C23 E52 F32
    Date: 2016–03
  15. By: Mary Everett
    Abstract: This paper exploits a novel bank-level monthly dataset to assess the effects of global liquidity on the global flows of euro area banks. The period associated with the European sovereign debt crisis has witnessed increased growth in euro area bank claims on extra-euro area residents, against a background of contracting euro area credit supply. Controlling for bank risk, global credit demand, and price effects such as interest rate differentials and exchange rates, empirical evidence supports a range of determinants of global liquidity - including global risk, global bank equity and unconventional monetary policy in the US, UK, Japan and euro area - as drivers of the global flows of euro area banks. Moreover, regression analysis indicates heterogeneity in the influence of global liquidity on global flows across euro area bank type, defined by their balance sheet composition and country of residence (stressed versus non-stressed euro area countries). The results highlight the importance of exogenous factors as drivers of global bank flows and the potential for international leakages of unconventional monetary policy.
    Keywords: Global bank flows, cross-border banking, global risk, global liquidity, European sovereign crisis, unconventional monetary policy spillovers, credit supply
    JEL: F60 G15 G21
    Date: 2016–03
  16. By: Olivier Brossard (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT1 - Université Toulouse 1 Capitole - UT2 - Université Toulouse 2 - Institut d'Études Politiques [IEP] - Toulouse - École Nationale de Formation Agronomique - ENFA); Susanna Saroyan (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT1 - Université Toulouse 1 Capitole - UT2 - Université Toulouse 2 - Institut d'Études Politiques [IEP] - Toulouse - École Nationale de Formation Agronomique - ENFA)
    Abstract: We study at an individual level the prices that banks pay for liquidity, measured here by overnight rates charged for unsecured loans on the e-MID trading platform, which is an important and transparent money market for European banks. Using data from both before and within crisis sub-periods, we provide evidence that borrower's and lender's own liquidity status has a significant impact on overnight rates, both before and during the turmoil periods. We first review the literature focused on the role of liquidity risk in the recent interbank turmoil. We then implement an integrative LSDV estimation to assess the determinants of e-MID overnight rates. In these regressions, we put together measures of the three types of factors that have received theoretical and empirical support, namely, counterparty risk, liquidity factors and market imperfections. We find that even when counterparty risk and market imperfections are controlled for, banks with higher funding liquidity risk pay an interest rate premium. We show that this is probably explained by hoarding and short-squeezing behavior of liquidity-long banks. These phenomena disappeared when the ECB launched its full allotment policy in October 2008.
    Keywords: short-squeezing ,Funding liquidity,Liquidity risk,Overnight interest rates,hoarding
    Date: 2016
  17. By: Pablo Anaya. Michael Hachula
    Abstract: One of the central results in international economics is that an economy cannot have at the same time independent monetary policy, free capital flows, and a fixed exchange rate. Over the last few years, however, this so-called Mundell-Flemming ‘trilemma’ has increasingly been challenged. It is argued that given the rising importance and synchronization of capital and credit flows across countries and their underlying common driving forces, the ‘trilemma’ has morphed into a ‘dilemma’: an economy cannot have at the same time independent monetary policy and an open capital account, independent of the exchange rate regime. This Roundup provides a brief overview of the debate, reviews recent empirical findings on the topic, and outlines possible directions for future research.
    Date: 2016
  18. By: Benigno, Pierpaolo; Eggertsson, Gauti; Romei, Federica
    Abstract: This paper studies optimal monetary policy under dynamic debt deleveraging once the zero bound is binding. Unlike much of the existing literature, the natural rate of interest is endogenous and depends on macroeconomic policy. We provide microfoundation for debt deleveraging based both on household over accumulation of debt and leverage constraint on banks; and show that they are isomorphic in our proposed post-crisis New Keynesian model, thus integrating two popular narrative for the crisis. Optimal monetary policy successfully raises the natural rate of interest by creating an environment that speeds up deleveraging, thus endogenously shortening the duration of the crisis and a binding zero bound. Inflation should be front loaded. Fiscal-policy multipliers can be even higher than in existing models, but depend on the way in which public spending is financed.
    Date: 2016–03
  19. By: Federico Barbiellini Amidei (Bank of Italy); Riccardo De Bonis (Bank of Italy); Miria Rocchelli (Bank of Italy); Alessandra Salvio (Bank of Italy); Massimiliano Stacchini (Bank of Italy)
    Abstract: The paper builds annual time series of Italian monetary aggregates. While previous contributions focused on certain periods in Italy’s economic history, our work covers the years 1861-2014 uninterruptedly; we improve the quality of the existing time series and provide further details on the components of aggregates. The paper also documents the sources and methods used for the estimates. Finally, we discuss the key trends of the aggregates since 1861 and present an econometric analysis of money demand.
    Keywords: moneta, circolante, M1, M2, M3, domanda di moneta
    JEL: E51 E52 G21 N10
    Date: 2016–04
  20. By: Bitros, George C.
    Abstract: This paper investigates whether the monetary policy and the market structure have anything to do with the declining share of labor in the U.S in recent decades. For this purpose: (a) a dynamic general equilibrium model is constructed and used in conjunction with data over the 2000-2014 period to compute the income shares; (b) the latter are compared to those reported from various sources for significant differences, and (c) the influence of monetary policy is subjected to several statistical tests. With comfortable margins of confidence it is found that the interest rate the Federal Open Market Committee charges for providing liquidity to the economy is related positively with the shares of labor and profits and negatively with the share of interest. What these findings imply is that, by moving opposite to the equilibrium real interest rate, the relentless reduction of the federal funds rate since the 1980s may have contributed to the decline in the equilibrium share of labor, whereas the division of the equilibrium non-labor income between interest and profits has been evolving in favor of the former, because according to all indications the stock of producers’ goods in the U.S has been aging. As for the market structure, it is found that even if firms had and attempted to exercise monopoly power, it would be exceedingly difficult to exploit it because the demand of consumers’ goods is significantly price elastic. Should these results be confirmed by further research, they would go a long way towards explaining the deceleration of investment and economic growth.
    Keywords: Useful life of capital, equilibrium real interest, federal funds rate, income shares
    JEL: E19 E25 E40 E50
    Date: 2016–04–15
  21. By: Iversen, Jens (Monetary Policy Department, Central Bank of Sweden); Laséen, Stefan (IMF); Lundvall, Henrik (National Institute of Economic Research (NIER)); Söderström, Ulf (Monetary Policy Department, Central Bank of Sweden)
    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: Real-time forecasting; Forecast evaluation; Monetary policy; Inflation targeting
    JEL: E37 E52
    Date: 2016–03–01
  22. By: Yellen, Janet L. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2016–03–29
  23. 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
  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: M. Girotti
    Abstract: U.S. banks obtain most of their funding from a combination of zero-interest deposits and interest-bearing deposits. Using local demographic variations as instruments for banks' liability composition, I show that when monetary policy tightens, banks with a larger proportion of zero-interest deposits on their balance sheet experience larger increases in their interest-bearing deposit rate. This happens because tight monetary policy reduces the quantity of zero-interest deposits available to banks. Banks react issuing more interest-bearing deposits, but pay an interest rate that increases with the quantity being borrowed. This new evidence supports the existence of the bank lending channel of monetary policy.
    Keywords: Banks, Deposits, Lending Channel, Monetary Policy.
    JEL: E44 E50 G21 L16
    Date: 2016
  26. By: Murendo, Conrad; Wollni, Meike; de Brauw, Alan; Mugabi, Nicholas
    Abstract: Social networks play a vital role in generating social learning and information exchange that can drive the diffusion of new financial innovations. This is particularly relevant for developing countries where education, extension and financial information services are underprovided. This article identifies the effect of social networks on the adoption of mobile money by households in Uganda. Using data from a household survey, conditional logistic regression is estimated controlling for correlated effects and other information sources. Results show that mobile money adoption is positively influenced by the size of social network members exchanging information, and the effect is more pronounced for non-poor households. The structure of social network however has no effect. The findings show that information exchange through social networks is crucial for adoption of mobile money. Mobile money adoption is likely to be enhanced if promotion programs reach more social networks.
    Keywords: social networks, mobile money, adoption, Uganda, Consumer/Household Economics, Research and Development/Tech Change/Emerging Technologies, D14, D85, O33, Q12,
    Date: 2015
  27. By: Offick, Sven; Wohltmann, Hans-Werner
    Abstract: This paper studies the volatility implications of anticipated cost-push shocks (i.e. news shocks) in a New Keynesian model with hybrid price setting both under optimal unrestricted and discretionary monetary policy with flexible inflation targeting. If the degree of backward-looking price setting behavior is sufficiently small (large), anticipated cost-push shocks lead in both policy regimes to a higher (lower) volatility in the output gap and in the central bank's loss than an unanticipated shock of the same size. This inversion of the volatility effects of news shocks follows from the inverse relation between the price-setting behavior and the optimal monetary policy. Under a fully microfounded hybrid New Keynesian Phillips curve with price indexation, this inversion of volatility results is not possible since the Phillips curve remains hybrid even in the limit case of full price indexation.
    Keywords: Anticipated shocks,Optimal monetary policy,Volatility
    JEL: E32 E52
    Date: 2016
  28. By: Thomas I. Palley
    Abstract: This paper explores zero lower bound (ZLB) economics. The ZLB is widely invoked to explain stagnation and it fits with the long tradition that argues Keynesian economics is a special case based on nominal rigidities. The ZLB represents the newest rigidity. Contrary to ZLB economics, not only does a laissez-faire monetary economy lack a mechanism for delivering the natural rate of interest, it may also lack such an interest rate. Moreover, the ZLB can be a stabilizing rigidity that prevents negative nominal interest rates exacerbating excess supply conditions.
    Keywords: zero lower bound (ZLB), stagnation, New Keynesianism, normal rigidities
    JEL: E0 E10 E12 E20 E40 E50
    Date: 2016
  29. By: BLINOV, Sergey
    Abstract: In 2015, many countries had to deal with the weakening of their currencies. Issues regarding exchange rate management by the Central Banks have again become the focal point of heated debate. For example, the Russian Ruble exchange rate has been fluctuating hugely. The problem now is not so much the Ruble's weakness as instability of its exchange rate, volatility. The management of the Central Bank claims that stabilization of the Ruble exchange rate is not possible though it is the responsibility of the Bank of Russia under the Constitution. As a matter of fact, any country's Central Bank has two methods of stabilizing the exchange rate available to it. Firstly, «adaptive» approach to stabilization may be adopted. In this case, the Central Bank, as it were, «adjusts itself» to the tendencies unfolding in the market, without being active in trying to influence them. Secondly, the Central Bank may use an «active» way of stabilizing the exchange rate. In such a case, it needs to influence the exchange rate without resorting to foreign exchange interventions. Both methods, the adaptive one and the active one, do not require gold or foreign exchange reserves to be spent. It is even the other way round, - the reserves become replenished, while economy gets an impetus for growth.
    Keywords: Monetary Policy, Central Banking, Business Cycles, International Finance, Foreign Exchange
    JEL: E30 E52 E58 E65 F30 F31
    Date: 2016–04–11
  30. By: Amendola, Alessandra; Candila, Vincenzo; Scognamillo, Antonio
    Abstract: Modeling crude oil volatility is of substantial interest for both energy researchers and policy makers. This paper aims to investigate the impact of the U.S. monetary policy on crude oil future price (COFP) volatility. By means of the recently proposed generalized autoregressive conditional hetroskedasticity mixed data sampling (GARCH-MIDAS) model, a proxy of the U.S. monetary policy is included into the COFP volatility equation, alongside with other macroeconomic determinants. Strong evidence that an expansionary monetary policy is associated with an increase of the COFP volatility is found. In particular, an expansionary (restrictive) variation in monetary policy anticipates a positive (negative) variation in COFP volatility. Furthermore, an out of sample forecasting procedure shows that the estimated GARCH-MIDAS model has a superior predictive ability with respect to that of the GARCH(1,1), when the U.S. monetary policy exhibits severe changes in the run-up period.
    Keywords: volatility, garch-midas, firecasting, crude oil, Agricultural and Food Policy, c22, c58, e30, q43,
    Date: 2015–06
  31. By: Tim Vlandas
    Abstract: What explains the cross-national variation in inflation rates in developed countries? Previous literature has emphasised the role of ideas and institutions, and to a lesser extent interest groups, while leaving the role of electoral politics comparatively unexplored. This paper seeks to redress this neglect by focusing on one case where electoral politics matters for inflation: the share of the population above 65 years old in a country. I argue that countries with a larger share of elderly have lower inflation because older people are both more inflation averse and politically powerful, forcing governments to pursue lower inflation. I test my argument in three steps. First, logistic regression analysis of survey data confirms older people are more inflation averse. Second, panel data regression analysis of party manifesto data reveals that European countries with more old people have more economically orthodox political parties. Third, time series cross-section regression analyses demonstrate that the share of the elderly is negatively correlated with inflation in both a sample of 21 advanced OECD economies and a larger sample of 175 countries. Ageing may therefore push governments to adopt a low inflation regime.
    Keywords: ageing, inflation, elderly, economic policy, electoral politics, OECD
    Date: 2016–03

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