nep-mon New Economics Papers
on Monetary Economics
Issue of 2016‒06‒14
thirty-one papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The interaction of monetary and macroprudential policies in economic stabilisation By Silvo, Aino
  2. How Friedman and Schwartz became monetarists By James R. Lothian; George S. Tavlas
  3. Monetary Policy and Efficiency in Over-the-Counter Financial Trade By Athanasios, Geromichalos; Kuk Mo, Jung
  4. Quantitative Easing and Financial Stability By Michael Woodford
  5. The interest rate effects of government bond purchases away from the lower bound By De Rezende, Rafael B.
  6. Is there a need for additional monetary stimulus? Insights from the original Taylor Rule By Alcidi, Cinzia; Busse, Matthias; Gros, Daniel
  7. Prospects for returning to more conventional monetary policy: remarks at Colby College, Waterville, Maine, February 16, 2016. By Rosengren, Eric S.
  8. Investigating the Effect of U.S. Monetary Policy Normalization on the ASEAN-4 Economies By Willem THORBECKE
  9. Global Commodity Prices and Inflation in a Small Open Economy By Muhammad Nadeem Hanif; Javed Iqbal; Imran Naveed Khan
  10. Estimating the impact of monetary policy on inequality in China By Sánchez-Fung, José R.
  11. Bernanke's No-arbitrage Argument Revisited: Can Open Market Operations in Real Assets Eliminate the Liquidity Trap? By Gauti B. Eggertsson; Kevin Proulx
  12. The age-structure–inflation puzzle By Juselius, Mikael; Takats, Elod
  13. Monetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate control By Funke, Michael; Mihaylovski, Petar; Zhu, Haibin
  14. Economic Policy Uncertainty and the Credit Channel: Aggregate and Bank Level U.S. Evidence over Several Decades By Michael D. Bordo; John V. Duca; Christoffer Koch
  15. How informative are aggregated inflation expectations? Evidence from the ECB Survey of Professional Forecasters By Oinonen, Sami; Paloviita, Maritta
  16. The Collateral Channel of Open Market Operations By N. Cassola; F. Koulischer
  17. Analysis of aggregated inflation expectations based on the ECB SPF survey By Oinonen, Sami; Paloviita, Maritta
  18. Terms of Trade Shocks and Monetary Policy in India By Ghate, Chetan; Gupta, Sargam; Mallick, Debdulal
  19. On the Nexus of Monetary Policy and Financial Stability: Effectiveness of Macroprudential Tools in Building Resilience and Mitigating Financial Imbalances By H. Evren Damar; Miguel Molico
  20. Band or Point Inflation Targeting? An Experimental Approach By Camille Cornand; Cheick Kader M'baye
  21. Can the Chinese bond market facilitate a globalizing renminbi? By Ma, Guonan; Yao, Wang
  22. Lessons for the euro from early US monetary and financial history By Jeffry Frieden
  23. Stabilisation and rebalancing with fiscal or monetary devaluation: a model-based comparison By Lukas Vogel
  24. Are there Bubbles in Exchange Rates? Some New Evidence from G10 and Emerging Markets Countries By Yang Hu; Les Oxley
  26. A note on money creation in emerging market economies By Ponomarenko, Alexey
  27. Panel remarks at the 7th High-Level Conference on the International Monetary System, Zürich, Switzerland, May 2016 By Dudley, William
  29. Better More Than One: Portfolio Currency Pricing and Exchange Rate Hedging By Maria V. Sokolova
  31. Currency demand stability in the presence of seasonality and endogenous financial innovation: Evidence from India By Singh, Sunny Kumar

  1. By: Silvo, Aino
    Abstract: I analyse the dynamics of a New Keynesian DSGE model where the financing of investments is affected by a moral hazard problem. I solve for jointly Ramsey-optimal monetary and macroprudential policies. I find that when a financial friction is present in addition to the standard nominal friction, the optimal policy can replicate the first-best if the social planner can conduct both monetary and macroprudential policy to control both inflation and the level of investments. Using monetary policy alone is not enough to fully stabilise the economy: it leads to a policy trade-off between stabilising inflation and the output gap. When policy follows simple rules instead, the source of fluctuations is highly relevant for the choice of the appropriate policy mix.
    Keywords: monetary policy, macroprudential policy, financial frictions
    JEL: E32 E44 E52 G28
    Date: 2016–02–10
  2. By: James R. Lothian (Fordham University); George S. Tavlas (Bank of Greece and University of Leicester)
    Abstract: During the late-1940s and the early-1950s Milton Friedman favored a rule under which fiscal policy would be used to generate changes in the money supply with the aim of stabilizing output at full employment. He believed that the economy is inherently unstable because of endogenous movements in money supply under a fractional-reserve banking system. In her work, Anna Schwartz downplayed the role of monetary factors in business cycles and the role of monetary policy as a stabilization tool. We show how the joint work of Friedman and Schwartz from 1948 to 1958 led Friedman to view money as the “primary mover” of the business cycle and underpinned his shift to a rule based on money growth so that discretionary monetary policy would not act as a source of destabilizing shocks. The decisive factor in the evolution of Friedman’s thinking was the empirical confirmation that the Great Depression had been both initiated and deepened by the Fed. The largely neglected influence of Clark Warburton on the evolution of Friedman’s thinking provides a missing -- but crucial -- link in explaining Friedman’s recognition of the role of monetary factors in the Great Depression and of the Fed’s ability to offset the destabilizing effects produced by shifts from deposits into currency under a fractional-reserve banking system.
    Keywords: B22; E52
    Date: 2016–05
  3. By: Athanasios, Geromichalos; Kuk Mo, Jung
    Abstract: We develop a monetary model that incorporates Over-the-Counter (OTC) asset trade. After agents have made their money holding decisions, they receive an idiosyncratic shock that affects their valuation for consumption and, hence, for the unique liquid asset, namely, money. Subsequently, agents can choose whether they want to enter the OTC market in order to sell assets and, thus, boost their liquidity, or to buy assets and, thus, provide liquidity to other agents. A unique feature of our model is that inflation affects welfare not only through the traditional channel, i.e., through determining equilibrium real balances, but also through influencing agents' entry decisions in the financial market. We use our framework to study the effect of inflation on welfare, asset prices, and OTC trade volume. In contrast to most monetary models, which predict a negative relationship between inflation and welfare, we find that inflation can be welfare improving within a certain range, because it mitigates a search externality that agents impose on one another when they make their OTC market entry decision.
    Keywords: monetary-search models, liquidity, asset prices, over-the-counter markets
    JEL: E31 E50 E52 G12
    Date: 2016–05
  4. By: Michael Woodford
    Abstract: The massive expansion of central-bank balance sheets in response to recent crises raises important questions about the effects of such "quantitative easing" policies, both their effects on financial conditions and on aggregate demand (the intended effects of the policies), and their possible collateral effects on financial stability. The present paper compares three alternative dimensions of central bank policy — conventional interest-rate policy, increases in the central bank's supply of safe (monetary) liabilities, and macroprudential policy (possibly implemented through discretionary changes in reserve requirements) — showing in the context of a simple intertemporal general-equilibrium model why they are logically independent dimensions of variation in policy, and how they jointly determine financial conditions, aggregate demand, and the severity of the risks associated with a funding crisis in the banking sector. In the proposed model, each of the three dimensions of policy can be used independently to influence aggregate demand, and in each case a more stimulative policy also increases financial stability risk. However, the policies are not equivalent, and in particular the relative magnitudes of the two kinds of effects are not the same. Quantitative easing policies increase financial stability risk (in the absence of an offsetting tightening of macroprudential policy), but they actually increase such risk less than either of the other two policies, relative to the magnitude of aggregate demand stimulus; and a combination of expansion of the central bank's balance sheet with a suitable tightening of macroprudential policy can have a net expansionary effect on aggregate demand with no increased risk to financial stability. This suggests that quantitative easing policies may be useful as an approach to aggregate demand management not only when the zero lower bound precludes further use of conventional interest-rate policy, but also when it is not desirable to further reduce interest rates because of financial stability concerns.
    JEL: E44 E52
    Date: 2016–05
  5. By: De Rezende, Rafael B. (Monetary Policy Department, Central Bank of Sweden)
    Abstract: I analyze the recent experience of unconventional monetary policy in Sweden to study the interest rate transmission mechanisms of government bond purchases when interest rates are not constrained by a lower bound. Using dynamic term structure models and event study regressions I find that government bond purchases have important portfolio balance and signaling effects. The signaling channel operates mainly by lowering short-rate expectations in the intermediate segment of the yield curve, while the portfolio balance channel is effective in lowering longer maturity term premia. In addition, I find that target interest rate policy and government bond purchases operate in different segments of the yield curve. This suggests that a combination of the two policies can be used to lower interest rates across the whole maturity spectrum, making monetary policy more expansionary.
    Keywords: quantitative easing; signaling channel; portfolio balance channel; yield curve; dynamic affine term structure models; short rate expectations; term premium
    JEL: E43 E44 E52
    Date: 2016–05–01
  6. By: Alcidi, Cinzia; Busse, Matthias; Gros, Daniel
    Abstract: Central banks in the developed world are being misled into fighting the perceived dangers of a ‘deflationary spiral’ because they are looking at only one indicator: consumer prices. This Policy Brief finds that while consumer prices are flat, broader price indices do not show any sign of impending deflation: the GDP deflator is increasing in the US, Japan and the euro area by about 1.2-1.5%. Nor is the real economy sending any deflationary signals either: unemployment is at record lows in the US and Japan, and is declining in the euro area while GDP growth is at, or above potential. Thus, the overall macroeconomic situation does not give any indication of an imminent deflationary spiral. In today’s high-debt environment, the authors argue that central banks should be looking at the GDP deflator and the growth of nominal GDP, instead of CPI inflation. Nominal GDP growth, as forecasted by the major official institutions, remains robust and is in excess of nominal interest rates. They conclude that if the ECB were to set the interest rate according to the standard rules of thumb for monetary policy, which take into account both the real economy and price developments of broader price indicators, it would start normalising its policy now, instead of pondering over additional measures to fight deflation, which does not exist. In short, economic conditions are slowly normalising; so should monetary policy.
    Date: 2016–04
  7. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: In this speech in Maine, Boston Fed President Eric Rosengren discussed a return to the Federal Reserve's 2 percent target level for inflation, and the implications for normalizing monetary policy
    Date: 2016–02–16
  8. By: Willem THORBECKE
    Abstract: U.S. monetary policy normalization is triggering capital outflows in the Association of South East Asian Nations (ASEAN). Using an event study, this paper reports that capital-intensive firms, the financial sector, and small firms in ASEAN are exposed to these outflows. Capital outflows also cause exchange rate depreciations that improve the price competitiveness of exports. To gauge this effect, this paper estimates price and income elasticities for ASEAN exports. The results indicate that a 10% exchange rate depreciation will increase ASEAN labor-intensive exports by 8%. ASEAN firms should use the tailwind provided by weaker exchange rates to increase exports.
    Date: 2016–05
  9. By: Muhammad Nadeem Hanif (State Bank of Pakistan); Javed Iqbal (State Bank of Pakistan); Imran Naveed Khan (State Bank of Pakistan)
    Abstract: Global commodity prices surge of 2007-08 sent an inflationary shock across the countries. 2014 global prices descend resulted in significant disinflation in many countries and even deflation in some economies. We have explored the linkages between global commodity prices fluctuations and inflation in small open economy, Pakistan. Global price fluctuations are found to be dominant sources of inflation dynamics in Pakistan during July 1992 to June 2014. Food inflation and overall inflation in Pakistan is linked to international food prices changes. Non-food and administered prices’ inflation are result of global oil price increases. For core inflation, global prices of metal and cotton matter most. Global commodity prices changes impact overall inflation in Pakistan rather quickly compared to monetary policy actions. Core inflation takes longer to respond to all type of shocks including global price fluctuations. Monetary and exchange rate policies do have role in influencing inflation outcome in Pakistan (barring administrated prices’ inflation).
    Keywords: Global Commodity Prices, Exchange Rate, Money Supply, Inflation
    JEL: E31 E51 F62
    Date: 2016–04
  10. By: Sánchez-Fung, José R.
    Abstract: ​The paper estimates the impact of monetary policy on income inequality in China. The empirical modelling finds that a battery of monetary indicators, including a monetary overhang measure derived from a money demand equation, and the change in the unemployment rate lead to increases in the Gini coefficient. However, only unemployment is statistically significant. The lack of significance of the monetary indicators is robust to alternative specifications with variability in nominal aggregate demand instead of unemployment.
    Keywords: monetary policy, inequality, inflation, unemployment, China
    JEL: E52 D31
    Date: 2015–05–13
  11. By: Gauti B. Eggertsson; Kevin Proulx
    Abstract: We first show that, at least in theory, open market operations in real assets can be a useful tool for overcoming a liquidity trap because they change the inflation incentives of the government, and thus change private sector expectations from deflationary to inflationary. We argue that this formalizes Ben Bernanke's arbitrage argument for why a central bank can always increase nominal demand, despite the zero lower bound. We illustrate this logic in a calibrated New Keynesian model assuming the government acts under discretion. Numerical experiments suggest, however, that the needed intervention is incredibly high, creating a serious limitation of this solution to the liquidity trap. Our experiments suggest that while asset purchases can be a helpful commitment device in theory, they may need to be combined in practice with fiscal policy coordination to achieve the desired outcome.
    JEL: E31 E4 E42 E43 E50 E51 E52 E58 E61 E62
    Date: 2016–05
  12. By: Juselius, Mikael; Takats, Elod
    Abstract: We uncover a puzzling link between low-frequency inflation and the population age-structure: the young and old (dependents) are inflationary whereas the working age population is disinflationary. The relationship is not spurious and holds for different specifications and controls in data from 22 advanced economies from 1955 to 2014. The age-structure effect is economically sizable, accounting eg for about 6.5 percentage points of US disinflation from 1975 to today’s low inflation environment. It also accounts for much of inflation persistence, which challenges traditional narratives of trend inflation. The age-structure effect is forecastable and will increase inflationary pressures over the coming decades.
    Keywords: demography, ageing, inflation, monetary policy
    JEL: E31 E52 J11
    Date: 2016–04–02
  13. By: Funke, Michael; Mihaylovski, Petar; Zhu, Haibin
    Abstract: The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector.
    Keywords: DSGE model, monetary policy, financial market reform, shadow banking, China
    JEL: E32 E42 E52 E58
    Date: 2015–03–09
  14. By: Michael D. Bordo; John V. Duca; Christoffer Koch
    Abstract: Economic policy uncertainty affects decisions of households, businesses, policy makers and financial intermediaries. We first examine the impact of economic policy uncertainty on aggregate bank credit growth. Then we analyze commercial bank entity level data to gauge the effects of policy uncertainty on financial intermediaries' lending. We exploit the cross-sectional heterogeneity to back out indirect evidence of its effects on businesses and households. We ask (i) whether, conditional on standard macroeconomic controls, economic policy uncertainty affected bank level credit growth, and (ii) whether there is variation in the impact related to banks' balance sheet conditions; that is, whether the effects are attributable to loan demand or, if impact varies with bank level financial constraints, loan supply. We find that policy uncertainty has a significant negative effect on bank credit growth. Since this impact varies meaningfully with some bank characteristics - particularly the overall capital-to-assets ratio and bank asset liquidity-loan supply factors at least partially (and significantly) help determine the influence of policy uncertainty. Because other studies have found important macroeconomic effects of bank lending growth on the macroeconomy, our findings are consistent with the possibility that high economic policy uncertainty may have slowed the U.S. economic recovery from the Great Recession by restraining overall credit growth through the bank lending channel.
    Keywords: money and banking, economic policy uncertainty, business cycle
    JEL: E40 E50 G21
    Date: 2016–02
  15. By: Oinonen, Sami; Paloviita, Maritta
    Abstract: This study examines aggregated short- and long-term inflation expectations in the unbalanced panel of the ECB Survey of Professional Forecasters. The focus of the study is on heterogeneity of expectations and changing panel composition. First, we compare two sub-groups of survey respondents divided on the basis of forecast accuracy. Then, we examine possible differences between regular and irregular forecasters. Finally, we assess the relevance of aggregated forecast revisions in the unbalanced panel by constructing alternative forecast revisions based on the set of sub-panels of fixed composition. The results show that, because of heterogeneity across individual views, aggregated inflation expectations in the ECB SPF must be analysed also on a micro level.
    Keywords: survey data, aggregated inflation expectations, euro area, ECB SPF
    JEL: C53 E37 E31
    Date: 2016–05–24
  16. By: N. Cassola; F. Koulischer
    Abstract: We build a model of collateral choice by banks to quantify how changes in the haircut policy of the central bank affect the collateral used by banks and the funding cost of banks. We estimate the model using data on assets pledged to the European Central Bank from 2009 to 2011. Our results suggest for example that a 5% higher haircut on low rated collateral would have reduced the use of this collateral by 10% but would have increased the average funding cost spread between high yield and low yield countries by 5% over our sample period.
    Keywords: Collateral, Haircut, Central Bank, Money market.
    JEL: E52 E58 G01 F36
    Date: 2016
  17. By: Oinonen, Sami; Paloviita, Maritta
    Abstract: This paper examines aggregated inflation expectations based on the ECB Survey of Professional Forecasters (ECB SPF). We analyse possible impacts of changing panel composition on short and long term point forecasts and forecast uncertainties using approach, which is based on a set of sub-panels of fixed composition. Our results indicate that the unbalanced panel data do not cause systematic distortions to aggregated survey information. However, micro level analysis of expectations would also be useful, especially in times of wide disagreement across forecasters and high levels of inflation uncertainty. Keywords: survey data, expectations, changing panel composition
    JEL: C53 E37 E31
    Date: 2014–11–28
  18. By: Ghate, Chetan; Gupta, Sargam; Mallick, Debdulal
    Abstract: Central banks in emerging markets often grapple with understanding the monetary policy response to an inter-sectoral terms of trade shock. To address this, we develop a three sector closed economy NK-DSGE model calibrated to India. Our framework can be generalized to other emerging markets and developing countries. The model is characterized by a manufacturing sector and an agricultural sector. The agricultural sector is disaggregated into a food grain and vegetable sector. The government procures grain from the grain market and stores it. We show that the procurement of grain leads to higher inflation, a change in the sectoral terms of trade, and a positive output gap because of a change in the sectoral allocation of labor. We compare the transmission of a single period positive procurement shock with a single period negative productivity shock and discuss what implications such shocks have for monetary policy setting. Our paper contributes to a growing literature on monetary policy in India and other emerging market economies.
    Keywords: Multi-sector New Keynesian DSGE Models, Terms of Trade Shocks, Reserve Bank of India, Indian Economy, Agricultural Procurement
    JEL: E31 E52 E58 Q18
    Date: 2016–05–09
  19. By: H. Evren Damar; Miguel Molico
    Abstract: This paper reviews the Canadian and international evidence of the effectiveness of macroprudential policy measures in building resilience and mitigating financial imbalances. The analysis concludes that these measures have broadly achieved their goal of increasing the overall resilience of the financial system to the buildup of imbalances and increasing the financial system’s ability to withstand adverse shocks. However, evidence of their effectiveness in providing countercyclical stabilization by curbing credit growth (“leaning against the financial cycle”) is limited. Among the different types of macroprudential measures, those that are “sectoral” in nature and/or those that target borrowers are most effective in leaning against the financial cycle. Overall, the observed effectiveness of macroprudential tools in addressing systemic risk implies that these policies can be complementary to monetary policy in achieving the goals of macroeconomic and financial stability.
    Keywords: Credit and credit aggregates, Financial stability, Financial system regulation and policies
    JEL: E51 E58 G18 G28
    Date: 2016
  20. By: Camille Cornand (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Cheick Kader M'baye (University of Bamako, Bamako, Mali)
    Abstract: We conduct laboratory experiments with human subjects to test the rationale of adopting a band versus point inflation targeting regime. Within the standard New Keynesian model, we evaluate the macroeconomic performances of both regimes according to the strength of shocks affecting the economy. We find that when the economy faces small shocks, the average level of inflation as well as its volatility are significantly lower in a band targeting regime, while the output gap and interest rate levels and volatility are significantly lower in a point targeting regime with tolerance bands. However, when the economy faces large shocks, choosing the suitable inflation targeting regime is irrelevant because both regimes lead to comparable performances. These findings stand in contrast to those of the literature and question the relevance of clarifying a mid-point target within the bands, especially in emerging market economies more inclined to large and frequent shocks.
    Keywords: band inflation target, point inflation target, inflation expectations, monetary policy, New Keynesian model, macroeconomic shocks, laboratory experiments
    JEL: E58 E52 C91 C92
    Date: 2016
  21. By: Ma, Guonan; Yao, Wang
    Abstract: A global renminbi needs to be backed by a large, deep and liquid renminbi bond market with a world-class Chinese government bond (CGB) market as its core. China’s CGB market is the seventh largest in the world while sitting alongside a huge but non-tradable and captive central bank liability in the form of required reserves. By transforming the non-tradable cen-tral bank liabilities into homogeneous and tradable CGBs through halving the high Chinese reserve requirements, the size of the CGB market can easily double. This would help over-come some market impediments and elevate the CGBs to a top three government bond mar-ket globally, boosting market liquidity while trimming distortions to the banking system. With a foreign ownership similar to that of the JGBs, CGBs held by foreign investors may increase ten-fold by 2020, approaching 5 percent of the 2014 global foreign reserves and facilitating a potential global renminbi, especially in the wake of the renminbi’s inclusion into the basket of the IMF Special Drawing Rights.
    Keywords: bond market, government bond market, renminbi internationalization
    JEL: F02 E42 E44 E58 G10 H63
    Date: 2016–02–06
  22. By: Jeffry Frieden
    Abstract: Watch Jeffry Frieden's lecture delivered at Bruegel on 25 May 2016. Europe’s central goal for several decades has been to create an economic union that can provide monetary and financial stability. This goal is often compared to the long-standing monetary union that is the United States. Easy celebration of the successful American union ignores the fact that it took an extremely long time to accomplish. In fact, the creation and completion of the US monetary and financial union was a long, laborious, and politically conflictual process.
    Date: 2016–05
  23. By: Lukas Vogel
    Abstract: The paper uses a small open economy general-equilibrium model to compare fiscal and nominal exchange rate devaluation with respect to their impact on economic activity and the current account. In particular, it investigates the extent to which fiscal devaluation mimics nominal exchange rate adjustment and mitigates the output loss associated with demand rebalancing and external adjustment. The results suggest that internal or external devaluation can support external adjustment and mitigate its impact on economic activity, without leading to lasting adjustment themselves. However, the quantitative contribution of a tax shift from labour to consumption, the standard example of fiscal devaluation, remains moderate.
    JEL: E52 F41 F47
    Date: 2015–12
  24. By: Yang Hu (University of Waikato); Les Oxley (University of Waikato)
    Abstract: We apply the generalized sup ADF (GSADF), unit root tests of Phillips, Shi and Yu (2015b, PSY) to investigate exchange rate bubbles in some G10, Asian and BRICS countries between March 1991 and December 2014. We present results based upon tests of the unit root null with and without an intercept. We show, with an intercept, that we can identify equivalent periods of collapse or recovery and also spurious bubbles. Whereas without an intercept in the null leads to identification of only bubbles (if they exist) and none is spurious. Bubbles are considered in the nominal exchange rate, which are then tested whether they are driven by exchange rate fundamentals (the relative price of traded or non-traded goods) or represent rational bubbles. We also test for bubbles in the exchange rate fundamentals themselves. Of particular interest is that we conclude that the US Dollar-Mexican Peso crisis of 1994-95 was a bubble.
    Keywords: bubbles; rational bubbles; GSADF test; G10 countries; emerging markets countries
    JEL: C12 C15 F31
    Date: 2016–05–11
    Date: 2016
  26. By: Ponomarenko, Alexey
    Abstract: This paper discusses the money creation mechanisms in emerging markets with special focus on external transactions. We argue that one should not rule out the possibility that fluctuations in the loans-to-deposits and non-core liabilities ratios are driven by the banks. We also argue that, under a flexible exchange rate regime in which the central bank is not trying to accumulate foreign reserves, external transactions are unlikely to contribute significantly to money growth. To make our argument, we analyze a historical episode of these flows in Korea and Russia and conduct a canonical correlation analysis for a cross-section of emerging market economies.
    Keywords: Money supply, non-core liabilities, loans-to-deposits ratio, emerging markets
    JEL: E51 F30 G21
    Date: 2016–03–15
  27. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the 7th High-Level Conference on the International Monetary System, Zürich, Switzerland.
    Keywords: reserve currency; exorbitant privilege; seigniorage; currency regime
    Date: 2016–05–10
    Date: 2016
  29. By: Maria V. Sokolova (IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: This paper examines the relationship between the composition of exporters' currency pricing portfolio - number and value of product sales in different currencies at a destination - and their success in trade as measured by continuing to their exporting activity. Detailed investigation of currency choice data of Russian exporters between 2005-2009 shows that many exporters use only one currency pricing per destination. Among those who use more than one currency pricing, higher diversification is indeed associated with up to 18% higher odds of survival as an exporter at the product-destination. Nevertheless, many exporters still use only one currency pricing per destination. This puzzle is explained in this paper by incorporating the concept of "exchange rate hedging costs" into the existent literature on currency choice. These costs are firm-speci c and relate to the complexity on the part of the firm of using more than one currency. The firms that have high exchange rate hedging costs will be using only one currency, but still continue exporting to the destination.
    Keywords: international currency choice, currency portfolio, exchange rate, export data, vehicle currency, emerging economy, exchange rate hedging
    JEL: F14 F31 F36 F41 G11
    Date: 2014–08
    Date: 2016
  31. By: Singh, Sunny Kumar
    Abstract: Based on the money-in-the-utility function, this paper intends to examine the stability of the currency demand function for India with real private consumption expenditure, tax-GDP ratio and deposit rate as explanatory variables by applying the seasonal cointegration technique developed by EGHL (1993) and HEGY (1990) for the period 1996:1 to 2014:4. The empirical findings show that there is absence of long-run cointegrationg relationship among the variables at the zero and annual frequency, however, there is evidence of a relationship among the variables at the biannual frequency. Moreover, the time-varying coefficient of deposit rate elasticity, used to test the Gurley-Shaw hypothesis, suggests that innovations in financial markets, especially improvements in the payment technology, raises the deposit rate elasticity, beginning from 2010 onward.
    Keywords: Currency demand; Seasonal cointegration; Seasonal error correction; Financial innovation; State-space Modeling
    JEL: E51 O3
    Date: 2016–01–01

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