nep-mon New Economics Papers
on Monetary Economics
Issue of 2016‒10‒23
thirty papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Central Bank Sentiment and Policy Expectations By Paul Hubert; Fabien Labondance
  2. Effects of Changing Monetary and Regulatory Policy on Overnight Money Markets By Elizabeth C. Klee; Zeynep Senyuz; Emre Yoldas
  3. Necessity as the Mother of Invention: Monetary Policy after the Crisis By Alan S. Blinder; Michael Ehrmann; Jakob de Haan; David-Jan Jansen
  4. Money, Asset Prices and the Liquidity Premium By Lee, Seungduck
  5. Balance Sheet Effects on Monetary and Financial Spillovers: The East Asian Crisis Plus 20 By Joshua Aizenman; Menzie D. Chinn; Hiro Ito
  6. Triffin Dilemma and Regional Monetary Approach : An Appraisal By Pierre-Hernan Rojas
  7. Supplementary Paper Series for the "Comprehensive Assessment" (1): Developments in Inflation Expectations over the Three Years since the Introduction of Quantitative and Qualitative Monetary Easing (QQE) By Kousuke Nishino; Hiroki Yamamoto; Jun Kitahara; Takashi Nagahata
  8. Monetary transmission in low-income countries : an overview By Montiel, Peter J.
  9. Liquidity Trap and Stability of Taylor Rules By Antoine Le Riche; Francesco Magris; Antoine Parent
  10. Supplementary Paper Series for the "Comprehensive Assessment" (2): Developments in the Natural Rate of Interest in Japan By Shigeaki Fujiwara; Yuto Iwasaki; Ichiro Muto; Kenji Nishizaki; Nao Sudo
  11. Household Debt and Monetary Policy: Revealing the Cash-Flow Channel By Roine Vestman; Matilda Kilström; Josef Sigurdsson; Martin Floden
  12. Achieving Price Stability by Manipulating the Central Bank's Payment on Reserves By Robert E. Hall; Ricardo Reis
  13. Endogenous interest rate with accommodative money supply and liquidity preference By Angel Asensio
  14. The role of central banks in supporting economic growth and creation of productive employment : the case of Pakistan By Sayeed, Asad.; Abbasi, Zubair Faisal.
  15. Financial inclusion policy in Ecuador : roles of the Central Bank towards economic and job creation By Arias, Daniela.
  16. Taylor rule in practice: Evidence from Tunisia By Chaouech, Olfa
  17. Role of the Central Bank in supporting economic diversification and productive employment in Cambodia By Khou, Vouthy.; Cheng, Oudom.; Leng, Soklong.; Meng, Channarith.
  18. Observing and shaping the market: the dilemma of central banks By Romain Baeriswyl; Camille Cornand; Bruno Ziliotto
  19. The Effects of Foreign Exchange Intervention: Evidence from a Rule-Based Policy in Colombia By Guido M. Kuersteiner; David C. Phillips; Mauricio Villamizar-Villegas
  20. Challenges of price stability, growth and employment in Bangladesh : role of the Bangladesh Bank By Muqtada, Muhammed.
  21. Distribution and Cost-Push inflation in Brazil under inflation targeting, 1999-2014 By Serrano, Franklin; Summa , Ricardo
  22. Challenges for the ECB in times of deflation By Saraceno, Francesco.
  23. "Limited Attention" and Inflation Expectations of Households By Claudia R. Sahm; Jason A. Sockin
  24. Band or Point Inflation Targeting? An Experimental Approach By Camille Cornand; Cheick Kader M'Baye
  25. Inflation and Broadband Revisited. Evidence from an OECD Panel By Klaus S. Friesenbichler
  26. Regime switches under policy uncertainty in monetary unions By Canofari Paolo; Di Bartolomeo Giovanni
  27. Relationship Between Inflation and Economic Activity and Its Variation Over Time in Latvia By Andrejs Bessonovs; Olegs Tkacevs
  28. Restricting the use of cash in the European Monetary Union By Siekmann, Helmut
  29. Asymmetric Effects of Monetary Policy on the Colombian House Prices By Juan Andres Espinosa Torre
  30. Reflection Around the Reality of Long-run concept: application to Money Neutrality By FAKHRI, ISSAOUI

  1. By: Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques)
    Abstract: We explore empirically the theoretical prediction that waves of optimism or pessimism may have aggregate effects, in the context of monetary policy. We investigate whether the sentiment conveyed by ECB and FOMC policymakers in their statements affect the term structure of private short-term interest rate expectations. First, we quantify central bank tone using a computational linguistics approach. Second, we identify sentiment as exogenous shocks to these quantitative measures using an augmented narrative approach following the information friction literature. Third, we estimate the impact of sentiment on private agents’ expectations about future short-term interest rates using a high-frequency methodology and an ARCH model. We find that sentiment shocks increase private interest rate expectations around maturities of one and two years. We also find that this effect is non-linear and depends on the state of the economy and on the characteristics (precision, sign and size) of the sentiment signal.
    Keywords: Animal spirits; Optimism; Confidence; Central Bank communication; Interest rate expectations; ECB; FOMC
    JEL: E43 E52 E58
    Date: 2016–09
  2. By: Elizabeth C. Klee; Zeynep Senyuz; Emre Yoldas
    Abstract: Money markets have been operating under a new monetary policy implementation framework since the Federal Reserve started paying interest on bank reserves in late 2008. The regulatory environment has also evolved substantially over this period. We develop and test hypotheses regarding the effects of changes in the monetary and regulatory policy on dynamics of key overnight funding markets. We find that the federal funds rate continued to provide an anchor, albeit weaker, for unsecured funding rates amid substantial decline in activity and changing composition of trades, while its transmission to the repo market had been hampered. The overnight reverse repurchase (ON RRP) operations that started in late 2013 contributed to stronger co-movement among overnight funding rates and markedly reduced their volatility. The change in the FDIC assessment fees and Basel III leverage ratio regulations have exacerbated financial-reporting-day effects in unsecured markets. In contrast, consistent with lower dealer leverage in the post-crisis period, such effects have weakened in the repo market, especially after the inception of the ON RRP facility. Finally, superabundant bank reserves appear to have significantly diminished the effects of reserve-maintenance on the money market rates.
    Keywords: Overnight money markets ; Federal funds ; Repo ; Eurodollar ; Commercial paper ; VAR models ; GARCH models
    JEL: C32 E43 E52
    Date: 2016–09
  3. By: Alan S. Blinder; Michael Ehrmann; Jakob de Haan; David-Jan Jansen
    Abstract: We ask whether recent changes in monetary policy due to the financial crisis will be temporary or permanent. We present evidence from two surveys—one of central bank governors, the other of academic specialists. We find that central banks in crisis countries are more likely to have resorted to new policies, to have had discussions about mandates, and to have communicated more. But the thinking has changed more broadly—for instance, central banks in non-crisis countries also report having implemented macro-prudential measures. Overall, we expect central banks in the future to have broader mandates, use macro-prudential tools more widely, and communicate more actively than before the crisis. While there is no consensus yet about the usefulness of unconventional monetary policies, we expect most of them will remain in central banks’ toolkits, as governors who gain experience with a particular tool are more likely to assess that tool positively. Finally, the relationship between central banks and their governments might well have changed, with central banks “crossing the line” more often than in the past.
    JEL: E52 E58
    Date: 2016–10
  4. By: Lee, Seungduck
    Abstract: This paper examines the effect of monetary policy on the liquidity premium, i.e., the market value of the liquidity services that financial assets provide. To guide the empirical analysis, I set up a monetary search model in which bonds provide liquidity services in addition to money. The theory predicts that money supply and the nominal interest rate are positively correlated with the liquidity premium, but the latter is negatively correlated with the bond supply. The empirical analysis over the period from 1946 and 2008 confirms the theoretical findings. This indicates that liquid bonds are substantive substitutes for money and the opportunity cost of holding money plays a key role in asset price determination. The model can rationalize the existence of negative nominal yields, when the nominal interest rate is low and liquid bond supply decreases.
    Keywords: asset price, money search model, liquidity, liquidity premium, money supply
    JEL: E31 E41 E51 E52 G12
    Date: 2016–08
  5. By: Joshua Aizenman; Menzie D. Chinn; Hiro Ito
    Abstract: We study how the financial conditions in the Center Economies [the U.S., Japan, and the Euro area] impact other countries over the period 1986 through 2015. Our methodology relies upon a two-step approach. We focus on five possible linkages between the center economies (CEs) and the non-Center economics, or peripheral economies (PHs), and investigate the strength of these linkages. For each of the five linkages, we first regress a financial variable of the PHs on financial variables of the CEs while controlling for global factors. Next, we examine the determinants of sensitivity to the CEs as a function of country-specific macroeconomic conditions and policies, including the exchange rate regime, currency weights, monetary, trade and financial linkages with the CEs, the levels of institutional development, and international reserves. Extending our previous work (Aizenman et al. (2016)), we devote special attention to the impact of currency weights in the implicit currency basket, balance sheet exposure, and currency composition of external debt. We find that for both policy interest rates and the real exchange rate (REER), the link with the CEs has been pervasive for developing and emerging market economies in the last two decades, although the movements of policy interest rates are found to be more sensitive to global financial shocks around the time of the emerging markets’ crises in the late 1990s and early 2000s, and since 2008. When we estimate the determinants of the extent of connectivity, we find evidence that the weights of major currencies, external debt, and currency compositions of debt are significant factors. More specifically, having a higher weight on the dollar (or the euro) makes the response of a financial variable such as the REER and exchange market pressure in the PHs more sensitive to a change in key variables in the U.S. (or the euro area) such as policy interest rates and the REER. While having more exposure to external debt would have similar impacts on the financial linkages between the CEs and the PHs, the currency composition of international debt securities does matter. Economies more reliant on dollar-denominated debt issuance tend to be more vulnerable to shocks emanating from the U.S.
    JEL: F15 F2 F31 F36 F41
    Date: 2016–10
  6. By: Pierre-Hernan Rojas (LEDa SDFi - Université Paris Dauphine (Paris 9), PSL - Université Paris-Dauphine)
    Abstract: Robert Triffin (1960) was the first to formalize that , under the gold exchange standard , the key currency issuing country faced a dilemma. Either the United States would stop providing more dollar balances for international finance , leading to trade stagnation and deflationary bias in the global economy ; either the United States would continue to provide more of the international reserve currency , leading ultimately to a loss of confidence in the dollar. This paper shows that the formulation of this dilemma is the consequence of Triffin ' s early critics of the Bretton Woods system in the 1940s leading him to advocate a reform of the international monetary system at the regional level , ie. the European one , in the 1950s .
    Keywords: clearing mechanism,Bretton Woods,International Monetary Fund,European Payments Union,Triffin Classification,international money
    Date: 2016–03–01
  7. By: Kousuke Nishino (Bank of Japan); Hiroki Yamamoto (Bank of Japan); Jun Kitahara (Bank of Japan); Takashi Nagahata (Bank of Japan)
    Abstract: More than three years have passed since the Bank of Japan introduced QQE. This article provides analysis on developments in inflation expectations and on factors that have affected those developments during that period. Developments in inflation expectations can be divided into three phases in which inflation expectations rose, were flat, and weakened. While QQE pushed up inflation expectations, exogenous developments, such as the decline in crude oil prices and the volatility in global financial markets stemming from emerging economies, seem to have exerted downward pressure. Inflation expectations in Japan are inclined to develop in tandem with observed inflation; that is, expectations formation is largely adaptive. Thus, since summer 2014, with a fall in observed inflation rates due to exogenous factors, such as the decline in crude oil prices, inflation expectations followed suit, strongly reflecting the fall.
    Keywords: Monetary policy; inflation expectations
    JEL: E52 E31 E44
    Date: 2016–10–14
  8. By: Montiel, Peter J.
    Abstract: The paper starts with the premise that, throughout the world, monetary policy has come to bear primary responsibility for short-run macroeconomic stabilization. In order to perform this function, however, monetary policy must have the capacity to exert a reliable influence on aggregate demand. This is known as the monetary policy transmission mechanism.
    Keywords: monetary system, banking, credit, low income, monetary policy, developing countries, système monétaire, activité bancaire, crédit, faible revenu, politique monétaire, pays en développement, sistema monetario, actividad bancaria, crédito, bajos ingresos, política monetaria, países en desarrollo
    Date: 2015
  9. By: Antoine Le Riche (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix Marseille Université, Laboratoire GAINS - Université du Maine - UM - Université du Maine, CAC – IXXI - Complex Systems Institute - CAC – IXXI - Complex Systems Institute); Francesco Magris (LEO - Laboratoire d'économie d'Orleans - CNRS - Centre National de la Recherche Scientifique - UO - Université d'Orléans, CAC – IXXI - Complex Systems Institute - CAC – IXXI - Complex Systems Institute); Antoine Parent (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - École Nationale des Travaux Publics de l'État [ENTPE] - CNRS - Centre National de la Recherche Scientifique, IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon, CAC – IXXI - Complex Systems Institute - CAC – IXXI - Complex Systems Institute)
    Abstract: We study a productive economy with safe government bonds and fractional cash-in-advance constraint on consumption expenditures. Government issues bonds and levies taxes to finance public expenditures, while the Central Bank follows a feedback Taylor rules by pegging the nominal interest rate. We show that when the nominal interest rate is bound to be non-negative, under active policy rules a liquidity trap steady state does emerge besides the Leeper (1991) equilibrium. The stability of the two steady states depends, in turns, upon the amplitude of the liquidity constraint. When the share of consumption to be paid cash is set lower than one half, the liquidity trap equilibrium is unstable. The stability of Leeper equilibrium too depends dramatically upon the amplitude of the liquidity constraint. Policy and Taylor rules are thus theoretically rehabilitated since their targets, by contrast with a vast literature, may be now stable. We also show that a relaxation of the liquidity constraint is Pareto-improving and that the liquidity trap equilibrium Pareto-dominates the Leeper one, in view of the zero cost of money.
    Keywords: cash-in-advance,liquidity trap,monetary policy,multiple equilibria
    Date: 2016–05
  10. By: Shigeaki Fujiwara (Bank of Japan); Yuto Iwasaki (Bank of Japan); Ichiro Muto (Bank of Japan); Kenji Nishizaki (Bank of Japan); Nao Sudo (Bank of Japan)
    Abstract: The natural rate of interest is the real interest rate at which economic activity and prices neither accelerate nor decelerate. The basic mechanism of monetary easing -- regardless of whether it is conducted through conventional or unconventional policy means -- consists of driving the real interest rate below the natural rate of interest. Theoretically, therefore, in order to assess the effects of monetary easing, it is necessary to estimate the natural rate of interest, which is by nature unobservable, and determine whether the real interest rate is higher or lower, relative to the estimated natural rate of interest. This paper estimates the natural rate of interest using a number of different approaches. While the estimates differ to some extent depending on the approach taken, the estimation results suggest that it is likely that Japan's natural rate of interest is currently at a low level of around 0 percent.
    Date: 2016–10–18
  11. By: Roine Vestman (Stockholm University); Matilda Kilström (Stockholm University); Josef Sigurdsson (Stockholm University); Martin Floden (Sveriges Riksbank)
    Abstract: We study the effect of monetary policy on spending when households hold debt with variable interest rates. When interest rates on outstanding loans vary with the short-term market interest rate, monetary policy has a direct and immediate effect on households' expenses and disposable income. If households are borrowing constrained, they will respond to a shock to disposable income by adjusting their spending. As a result, a monetary policy-induced interest rate change leads to a larger change in consumption than what is predicted by the elasticity of intertemporal substitution. We examine this income channel of monetary policy using administrative data on Swedish households. We estimate a strong and statistically significant response in consumption to increases in interest expenses. Highly indebted households with fully adjustable interest-rate loans, such as adjustable rate mortgages, reduce consumption growth by 4 to 5 percentage points in response to a one percentage point increase in the household interest rate. Less indebted households, who are less likely to be borrowing constrained, reduce consumption by much less. Our findings imply that the monetary policy will have a stronger affect on real economic activity when households are highly indebted and have adjustable rate mortgages.
    Date: 2016
  12. By: Robert E. Hall (Stanford University; National Bureau of Economic Research (NBER)); Ricardo Reis (Centre for Economic Policy Research (CEPR); Centre for Macroeconomics (CFM); Economics Department London School of Economics (LSE); National Bureau of Economic Research (NBER))
    Abstract: Today, all major central banks pay or collect interest on reserves, and stand ready to use the interest rate as an instrument of monetary policy. We show that by paying an appropriate rate on reserves, the central bank can pin the price level uniquely to a target. The essential idea is to index reserves to the market interest rate, the price level, and the target price level in a way that creates a contractionary financial force if the price level is above the target and an expansionary force if below. Our payment-on-reserves policy process does not require terminal conditions like Taylor rules, exogenous fiscal surpluses like the fiscal theory of the price level, liquidity preference as in quantity theories, or local approximations as in new Keynesian models. The process accommodates liquidity services from reserves, segmented financial markets where only some institutions can hold reserves, and nominal rigidities. We believe it would be easy to implement.
    Date: 2016–10
  13. By: Angel Asensio (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The paper offers theoretical discussion and modelling showing that -in accordance to the post Keynesian approach to endogenous money- the credit-worthy demand for loans determines the supply of loans at the prevailing interest rate, while -in accordance with Keynes's liquidity preference theory- the rate of interest is endogenously determined as to equalize the demand and supply of liquidity-money in terms of stocks. As a consequence, the markup reflected in the spread between the central bank refinancing interest rate and the market interest rate is endogenously determined by the total demand and supply of liquidity-money. The paper also argues that, while the central bank effectively controls the base interest rate, additional conditions are required to control the liquidity-money market interest rate, owing to the conventional nature of the rate of interest Keynes pointed out.
    Keywords: Accommodationism,Credit-money,Endogenous money,Horizontalism,Interest rate,Liquidity preference,Monetary policy,Verticalism
    Date: 2015–11–20
  14. By: Sayeed, Asad.; Abbasi, Zubair Faisal.
    Abstract: This study explores different facets of the evolving structure, functions and conduct of Pakistan’s central bank or the State Bank as it is usually called. The study commences by offering an overview of the country’s macroeconomic, labour market and social indicators and evaluates how they have evolved over time. It attempts to gauge the conduct of the State Bank through its response to moments of economic significance faced by the country in the last two and a half decades. Specific attention is paid to the conduct of monetary policy, the role of the State Bank in channelling investment resources to priority sectors and its coordination with fiscal policy.
    Keywords: bank, economic growth, employment creation, Pakistan, banque, croissance économique, création d'emploi, Pakistan, banco, crecimiento económico, creación de empleos, Pakistán
    Date: 2015
  15. By: Arias, Daniela.
    Abstract: The basic premise of this study is that promoting financial inclusion is one of the most effective ways in which a central bank can support economic growth and productive employment creation. The study shows that the scope of the government's financial inclusion programme in Ecuador is wide and varied. It then proceeds to encapsulate the main objectives of the financial inclusion policy and identify the main actors involved in its execution.
    Keywords: bank, financial policy, economic policy, employment creation, Ecuador, banque, politique financière, politique économique, création d'emploi, Equateur, banco, política financiera, política económica, creación de empleos, Ecuador
    Date: 2015
  16. By: Chaouech, Olfa
    Abstract: This paper estimates the Taylor rule under the statistical version, then the dynamic version of the Central bank of Tunisia (CBT), using monthly data from 1995 M1 to 2015 M12. The empirical results indicate that the CBT follows the Taylor rule in its dynamic version.
    Keywords: GMM Monetay Policy Taylor rule Reaction function
    JEL: E43 E51 E52
    Date: 2015–02–15
  17. By: Khou, Vouthy.; Cheng, Oudom.; Leng, Soklong.; Meng, Channarith.
    Abstract: This study was undertaken by a team from the National Bank of Cambodia (NBC). It is a prime example of collaboration between a major national institution responsible for the conduct of monetary and financial policy and the ILO.
    Keywords: economic growth, bank, employment creation, Cambodia, croissance économique, banque, création d'emploi, Cambodge, crecimiento económico, banco, creación de empleos, Camboya
    Date: 2015
  18. By: Romain Baeriswyl (Swiss National Bank - Swiss National Bank); Camille Cornand (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - UCBL - Université Claude Bernard Lyon 1 - UL2 - Université Lumière - Lyon 2 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - ENS Lyon - École normale supérieure - Lyon); Bruno Ziliotto (UP9 - Université Paris 9, Dauphine - Université Paris-Dauphine)
    Abstract: While the central bank observes the market activity to assess economic fundamentals, it shapes the market outcome through its policy interventions. The more the central bank influences the market, the more it spoils the informational content of economic aggregates. How should the central bank act and communicate when it derives its information from observing the market? This paper analyses the optimal central bank's action and disclosure under endogenous central bank's information for three operational frameworks: pure communication, action and communication, and signaling action. When the central bank takes an action, it would be optimal for the central bank to be fully opaque to prevent its disclosure from deteriorating the information quality of market outcomes. However, in the realistic case where central bank's action is observable, it may be optimal to refrain from implementing any action.
    Keywords: heterogeneous information, public information, endogenous information, overreaction, transparency, coordination.
    Date: 2016
  19. By: Guido M. Kuersteiner; David C. Phillips; Mauricio Villamizar-Villegas (Banco de la República de Colombia)
    Abstract: We investigate the effectiveness of foreign exchange interventions using the Colombian experience as a case study. Recent theoretical work emphasizes the importance of financial sector balance sheets and capital flows in determining the effects of currency interventions. We use a unique data set from the Colombian Central Bank comprised of tick by tick intervention and order book data, daily capital in- and outflow data, and balance sheet information of financial institutions. We use rule based foreign exchange interventions of the Colombian Central Bank to identify responses of price, stock and flow variables to policy shocks. At horizons of a few days, our empirical findings support sterilized exchange rate intervention effectiveness via a portfolio channel, as in Gabaix and Maggiori (2015). The exchange rate effects we see are short-lived. At horizons of a month or longer, capital flows originating from foreign investors restore the exchange rate back to its original level. Our findings also show that the effects of sterilized interventions are amplified by capital controls. A methodological contribution of the paper is to extend regression discontinuity designs to a time series environment and to show how these techniques can be used to identify and estimate non-linear impulse response functions. Classification JEL: E58, F31, C22
    Keywords: Rule-Based Foreign Exchange Interventions, Portfolio Balance, Central Bank Policy, Regression Discontinuity, Non-linear Impulse Response
    Date: 2016–10
  20. By: Muqtada, Muhammed.
    Abstract: This study is inspired by the current debate on whether central banks, especially in the developing world, should pursue a single mandate or dual/multiple mandates. It examines the Bangladesh Bank’s (BB) aspiration to adopt a multiple mandates approach. These include, besides the objective of price stability, the promotion of “output, employment and real income”. In recent years, the BB has widened its developmental role to play its part in the national strategy of “inclusive growth”, and is seeking to model itself as a developmental central bank. According to an ILO content-analysis study of objectives and missions of central banks, Bangladesh is cited among the very few countries where the central bank has an explicit development objective.
    Keywords: economic reform, bank, monetary policy, price stabilization, employment security, Bangladesh, réforme économique, banque, politique monétaire, stabilisation des prix, sécurité de l'emploi, Bangladesh, reforma económica, banco, política monetaria, estabilización de los precios, seguridad en el empleo, Bangladesh
    Date: 2015
  21. By: Serrano, Franklin (Federal University of Rio de Janeiro); Summa , Ricardo (Federal University of Rio de Janeiro)
    Abstract: In this paper we analyze the evolution of Brazilian inflation under the inflation targeting system from a cost-push perspective. We identify the main features of three quite distinct phases (1999-2003, 2004-2009 and 2010-2014) and explain them in terms of tradable price trends in local currency, changes in the dynamics of monitored prices and behavior of wage inflation. We conclude that the trend towards continuous nominal exchange rate devaluation after mid-2011, together with the strengthening of the bargaining power of workers and the trend of rising real wages since 2006, means that distributive conflicts in Brazil are getting much more intense. We also suggest that the apparently very irrational recent (early 2015) change in the orientation of economic policy towards contractionary fiscal, incomes and monetary policies in a stagnating economy seems to be ultimately based on the desire to weaken the bargaining power of workers that was much strengthened during the brief but intense Brazilian “golden age” of 2004-2010.
    Keywords: Cost-Push inflation; Inflation Target System; Functional Income Distribution; Brazilian Economy
    JEL: B51 E31 E58
    Date: 2015–11
  22. By: Saraceno, Francesco.
    Abstract: This paper highlights how European Monetary Union (EMU) governance, as designed by the Maastricht Treaty and subsequent modifications, is unfit to deliver sound and effective macroeconomic management that is conducive to sustained and sustainable economic prosperity for all Europeans.
    Keywords: monetary policy, economic recession, deflation, banking, impact evaluation, fiscal policy, EMU, politique monétaire, récession économique, déflation, activité bancaire, évaluation de l'impact, politique fiscale, UEM, política monetaria, recesión económica, deflación, actividad bancaria, evaluación de impacto, política fiscal, UEM
    Date: 2015
  23. By: Claudia R. Sahm; Jason A. Sockin
    Abstract: In this note, we use the household-level data in the University of Michigan's Surveys of Consumers, including respondents' own changes in expectations, to document new signs that households pay limited attention to inflation developments.
    Date: 2016–10–19
  24. By: Camille Cornand (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Cheick Kader M'Baye (Université de Bamako - Université de Bamako)
    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
    Date: 2016
  25. By: Klaus S. Friesenbichler (WIFO)
    Abstract: This note revisits the conjecture that the use of broadband internet lowers transaction costs and thereby inflation. Using a macroeconomic panel of OECD countries, it roughly confirms previous findings reported by Yi and Choi (2005) by addressing conceptual and econometric issues.
    Keywords: Inflation, broadband
    Date: 2016–10–12
  26. By: Canofari Paolo; Di Bartolomeo Giovanni
    Abstract: This paper analyzes the effects of policy uncertainty on the stability of a monetary union. Focusing on peripheral countries, we study how uncertainty over the consequences of a possible exit affects regime switches. Applying game theory and a cost-benefit analysis, we model a regime switch as the endogenous result of a two-stage policy game. We find that the effects of uncertainty are not trivial. Unilateral exits are less probable, but contagion is more likely to be observed. Our results are driven by two opposite forces: a traditional conservative effect induced by policy uncertainty in a single policymaker framework, which calls for more stability, and a strategic effect arising from the strategic interaction, which may undermine the monetary union’s foundation and strengthen incentives for contagion.
    Keywords: currency crisis, common currency, contagion, multiplicative uncertainty, policy game
    Date: 2016–11
  27. By: Andrejs Bessonovs (Bank of Latvia); Olegs Tkacevs (Bank of Latvia)
    Abstract: This paper studies the relationship between inflation and economic slack in Latvia with a particular focus on its time variation. The results suggest that the Phillips curve for Latvia had been steepening before the crisis against the backdrop of rising inflation. In the more recent years, there has been tentative evidence of the Phillips curve flattening as Latvia's economy entered a period of very low inflation. If the current trend of an even weaker response of inflation to economic activity in Latvia persists and proves to be statistically significant, unconventional monetary policy instruments may be of limited effectiveness to control inflation in Latvia. This calls for structural reforms aimed at increasing competition and reducing price stickiness.
    Keywords: inflation, Phillips curve, business cycles, Bayesian estimation
    JEL: C32 C51 E31 E52
    Date: 2016–09–23
  28. By: Siekmann, Helmut
    Date: 2016
  29. By: Juan Andres Espinosa Torre
    Abstract: This article examines asymmetric effects of monetary policy on real estate price growth dynamics. We estimate a Markov Switching model using monthly data from 1994 to 2015 for theColombianhouseprices’growthrates. Empiricalresultssuggestthathousingpricegrowth has alarger magnitude decreasewith acontractionary monetary shock in higher volatility periods than during calm ones, but is not as persistent as in less volatile ones. This suggests thatmonetarypolicyismoreeffectiveintermsofreducinghousingpricegrowthduringcrisis periods than those when economic conditions are more favorable.
    Keywords: Markov switching model, real estate price, monetary polic
    Date: 2016–04–14
    Abstract: According to my own thought I can assume that Economists often use the concept of long-term, without knowing that the said concept is the moment in which the major crises trigger. When the optimistic replaces the economic pessimism, the short-terms are born and the economic agents reproduce their stupid behavior which consists on the purchase of future transactions by the fictional creation of the money. The time, at the time of crises, increases speed by trying to settle transactions that occurred in previous periods in differentiated time horizons Present / Future.
    Keywords: Time, Long run, money neutrality
    JEL: E4 E41 E5
    Date: 2016–10–15

This nep-mon issue is ©2016 by Bernd Hayo. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.