nep-mon New Economics Papers
on Monetary Economics
Issue of 2017‒03‒12
thirty papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Stabilising virtues of central banks: (re)matching bank liquidity By Legroux, Vincent; Rahmouni-Rousseau, Imène; Szczerbowicz, Urszula; Valla, Natacha
  2. The E-Monetary Theory By Ngotran, Duong
  3. Inflation uncertainty, disagreement and monetary policy: Evidence from the ECB Survey of Professional Forecasters By Glas, Alexander; Hartmann, Matthias
  4. Investigating First-Stage Exchange Rate Pass-Through: Sectoral and Macro Evidence from Euro Area Countries By Cheikh, Nidhaleddine Ben; Rault, Christophe
  5. Central Bank Policies and the Debt Trap By Orphanides, Athanasios
  6. Starting from a blank page? Semantic similarity in central bank communication and market volatility By Ehrmann, Michael; Talmi, Jonathan
  7. An Empirical Study of Japanese and South Korean Exchange Rates Using the Sticky-Price Monetary Theory By Works, Richard; Haan, Perry
  8. The Symmetry of ECB Monetary Policy Impact Under Scrutiny: An Assessment By Andrea Venegoni; Massimiliano Serati
  9. Fundamental uncertainty and unconventional monetary policy: an info-gap approach By Yakov Ben-Haim; Maria Demertzis; Jan Willem Van den End
  10. To guide or not to guide? Quantitative monetary policy tools and macroeconomic dynamics in China By Chen, Hongyi; Funke, Michael; Lozev, Ivan; Tsang, Andrew
  11. Monetary policy and bank lending in a low interest rate environment: diminishing effectiveness? By Claudio Borio; Leonardo Gambacorta
  12. Monetary Policy and the Predictability of Nominal Exchange Rates By Eichenbaum, Martin; Johannsen, Benjamin; Rebelo, Sérgio
  13. Fundamental uncertainty and unconventional monetary policy: an info-gap approach By Yakov Ben-Haim; Maria Demertzis; Jan Willem van den End
  14. The Transmission of Monetary Policy Shocks By Silvia Miranda-Agrippino; Giovanni Ricco
  15. Economic crises and the eligiblity for the lender of last resort: evidence from 19th century France By Bignon, Vincent; Jobst, Clemens
  16. Aftershocks of Monetary Unification: Hysteresis with a Financial Twist By Bayoumi, Tamim; Eichengreen, Barry
  17. Global inflation: the role of food, housing and energy prices By Parker, Miles
  18. Heterogeneity in euro area monetary policy transmission: results from a large multi-country BVAR model By Scharnagl, Michael; Mandler, Martin; Volz, Ute
  19. Effects of monetary and macro-prudential policies – evidence from inflation targeting economies in the Asia-Pacific region and potential implications for China By Kim, Soyoung; Mehrotra, Aaron
  20. The unbiased forward rate hypothesis before and after the inflation targeting regime in South Africa: A cointegration Analysis By Mavee, Nasha; Bonga-Bonga, Lumengo
  21. How robust is the result that the cost of "leaning against the wind" exceeds the benefit? By Svensson, Lars E. O.
  22. Endogenous Asymmetric Shocks in the Eurozone. The Role of Animal Spirits By De Grauwe, Paul; Ji, Yuemei
  23. Forecasting Inflation in a Macroeconomic Framework: An Application to Tunisia By Souhaïb Chamseddine Zardi
  24. Regional Banking Instability and FOMC Voting By Eichler, Stefan; Lähner, Tom; Noth, Felix
  25. The Effectiveness of the Negative Interest Rate Policy in Japan: An Early Assessment By Yuzo Honda; Hitoshi Inoue
  26. Portfolio Investment Response to U.S. Monetary Policy Announcements: An Event By Hernández Vega Marco A.
  27. The Size of Fiscal Multipliers and the Stance of Monetary Policy in Developing Economies By Jair N. Ojeda-Joya; Oscar E. Guzman
  28. The Exchange Rate Effects of Macro News after the Global Financial Crisis By Cheung, Yin-Wong; Fatum, Rasmus; Yamamoto, Yohei
  29. Central Bank Digital Currencies: assessing implementation possibilities and impacts By Olga Gouveia; Enestor Dos Santos; Santiago Fernández de Lis; Alejandro Neut; Javier Sebastián
  30. An empirical investigation on dollarization and currency devaluation: A case study of Tanzania By Musoke, Zakia

  1. By: Legroux, Vincent; Rahmouni-Rousseau, Imène; Szczerbowicz, Urszula; Valla, Natacha
    Abstract: Central banks have been blamed for the negative side effects of the non-conventional monetary policy measures they have implemented since 2008. In this paper, we argue that central banks played a positive role in the money market and interbank liquidity recovery. Using novel, micro data of the French banking system on the pool of collateral eligible to ECB open market operations, we construct a "liquidity mismatch indicator (LMI)" for the aggregate banking sector that highlights the central bank influence on the bank liquidity condition. Our results show that central bank liquidity and haircut policies have indeed helped banks to reduce the mismatch of liquidity between their assets and their liabilities that had widened after the 2011 stress episode. Moreover, our bank liquidity measure can be useful as an early warning indicator for the macro-prudential purposes. It gives the "cash equivalent value" of the French banking sector and indicates the amount of the liquidity support that the ECB might have to provide in case of financial crisis. The LMI can also help identify the systematically important French institution in terms of their liquidity exposures.
    Keywords: bank liquidity,liquidity crises,unconventional monetary policy,macroprudential regulation
    JEL: E58 G21 G28
    Date: 2017
  2. By: Ngotran, Duong
    Abstract: Using the sparse grid, we solve a DSGE model where there are two types of electronic money: reserves (e-money that is issued by the central bank for banks) and zero maturity deposits (e-money that is issued by banks). Transactions between bankers are settled by reserves, while transactions in the non-bank private sector are settled by zero maturity deposits. We use our model to discuss about unconventional monetary policy tools during the Great Recession. Due to the maturity mismatch between deposits and loans, we find that keeping the federal funds rate at the lower bound for a long but finite time stimulates the economy in the short run but creates deflation and lower outputs in the long run. To get out of the zero lower bound, the central bank can conduct helicopter money and increase the interest rate paid on reserves simultaneously, which is impossible in the Keynesian theory, but possible with the current electronic money system.
    Keywords: e-money, reserves, quantitative easing, zero lower bound, interest on reserves, helicopter money
    JEL: E4 E40
    Date: 2016–10–29
  3. By: Glas, Alexander; Hartmann, Matthias
    Abstract: We analyze the determinants of average individual inflation uncertainty and disagreement based on data from the European Central Bank’s Survey of Professional Forecasters. We empirically confirm the implication from a theoretical decomposition of inflation uncertainty that disagreement is an incomplete approximation to overall uncertainty. Both measures are associated with macroeconomic conditions and indicators of monetary policy, but the relations differ qualitatively. In particular, average individual inflation uncertainty is higher during periods of expansionary monetary policy, whereas disagreement rises during contractionary periods.
    JEL: E31 E52 E58
    Date: 2016
  4. By: Cheikh, Nidhaleddine Ben (ESSCA School of Management); Rault, Christophe (University of Orléans)
    Abstract: In this paper, we evaluate the first-stage pass-through, namely the responsiveness of import prices to the exchange rate changes, for a sample of euro area (EA) countries. Our study aims to shed further light on the role of microeconomic factors vs. macroeconomic factors in influencing the extent of the exchange rate pass-through (ERPT). As a first step, we conduct a sectoral analysis using disaggregated import prices data. We find a much higher degree of pass-through for more homogeneous goods and commodities, such as oil and raw materials, than for highly differentiated manufactured products, such as machinery and transport equipment. Our results confirm that cross-country differences in pass-through rates may be due to divergences in the product composition of imports. The higher share of imports from sectors with lower degrees of pass-through, the lower ERPT for an economy will be. In a next step, we investigate for the impact of some macroeconomics factors or common events experienced by EA members on the extent of pass-through. Using the System Generalized Method of Moments within a dynamic panel-data model, our estimates indicate that decline of import-price sensitivity to the exchange rate is not significant since the introduction of the single currency. Our findings suggest instead that the weakness of the euro during the first three years of the monetary union significantly raised the extent of the ERPT. This outcome could explain why the sensitivity of import prices has not fallen since 1999. We also point out a significant role played by the inflation in the Eurozone, as the responsiveness of import prices to exchange rate fluctuations tends to decline in a low and more stable inflation environment. Overall, our findings support the view that the extent of pass-through is comprised of both macro- and microeconomic aspects that policymakers should take into account.
    Keywords: exchange rate pass-through, import prices, dynamic panel data
    JEL: E31 F31 F40
    Date: 2017–02
  5. By: Orphanides, Athanasios
    Abstract: Monetary policy and fiscal dynamics are inexorably linked. When a government faces the risk of getting caught in a high debt trap, debt monetization may become an appealing option. However, independent central banks may be able to allay debt concerns without compromising price stability. One option is financial repression which, despite associated distortions, can create some fiscal space while preserving price stability. Financial repression is a feature of quantitative easing, which has proven to be an effective policy tool at the zero lower bound. This paper examines the policies of the Federal Reserve, the Bank of Japan and the ECB in relation to debt dynamics for the United States, Japan, Germany and Italy since the crisis. Important differences are identified across the four states, reflecting differences in the policy choices of the three central banks. While decisive QE policies by the Federal Reserve and, more recently, by the Bank of Japan have been effective, ECB policies have had decidedly uneven consequences on Germany and Italy. The normalization of the Federal Reserve’s balance sheet is also discussed in a historical context.
    Keywords: Bank of Japan; debt sustainability; ECB; Federal Reserve; financial repression; Germany; Italy; Japan; Quantitative easing; United States
    JEL: E52 E58 E61 G12 H63
    Date: 2017–02
  6. By: Ehrmann, Michael; Talmi, Jonathan
    Abstract: Press releases announcing and explaining monetary policy decisions play a critical role in the communication strategy of central banks. Due to their market-moving potential, it is particularly important how they are drafted. Often, central banks start from the previous statement, and update the earlier text at the margin. This makes it straightforward to compare statements and see how the central bank’s thinking has evolved; however, more substantial changes, which will eventually be required, might then be harder to understand. Using variation in the drafting process at the Bank of Canada, this paper studies the extent to which similarity in central bank statements matters for the reception of their content in financial markets. It shows that similar press releases generate less market volatility, but that more substantial textual changes after a sequence of very similar statements lead to much larger volatility. JEL Classification: E43, E52, E58
    Keywords: ARCH models, Bank of Canada, central bank communication, semantic similarity, volatility
    Date: 2017–02
  7. By: Works, Richard; Haan, Perry
    Abstract: Researchers have studied connections between exchange rates and macroeconomic variables for developed and emerging market economies. However, few address whether relationships differ by market classification. This study examines the impact that macroeconomic variables in the sticky-price monetary theory has on exchange rates for Japan and South Korea. Results show money supply and inflation differentials constitute a significant impact for South Korea, whereas no macroeconomic variable within the model had a significant impact on Japan. In addition, the autoregressive error analyses yielded small coefficients for South Korea. Given those estimates and low error variance, the study suggest there may not be a significant difference in how the sticky-price monetary theory predicts exchange rates by market classification. Therefore, firms may use forecasting techniques similarly between developed and emerging market economies.
    Keywords: Developed economies, Emerging economies, Exchange rates, Sticky-price
    JEL: F31 F37
    Date: 2017–03–01
  8. By: Andrea Venegoni; Massimiliano Serati
    Abstract: Since its inception, EMU adequacy to be an Optimal Currency Area was questioned, and, along with it, the homogeneous transmission of the monetary impulses across the Eurozone. Adopting a Bayesian Time-Varying parameter FAVAR model that fixes the flaws present in the existing literature and exploits a sufficiently extended dataset, we provide an updated assessment of the transmission mechanism’s functioning and of its symmetry along these first years of ECB operations. The empirical analysis shows that the occurrence of the two crises significantly altered the policy transmission, with the interest rate channel being the most affected. Policy-wise, our findings suggest that authorities must push towards a consistent innovation both on fiscal and monetary sides.
    Date: 2017–03
  9. By: Yakov Ben-Haim; Maria Demertzis; Jan Willem Van den End
    Abstract: This paper applies the info-gap approach to the unconventional monetary policy of the Eurosystem and so takes into account the fundamental uncertainty on inflation shocks and the transmission mechanism. The outcomes show that a more demanding monetary strategy, in terms of lower tolerance for output and inflation gaps, entails less robustness against uncertainty, particularly if financial variables are taken into account. Augmenting the Taylor rule with a financial variable leads to a smaller loss of robustness than taking into account the effect of financial imbalances on the economy. However, in some situations, the augmented model is more robust than the baseline model. A conclusion from our framework is that including financial imbalances in the monetary policy objective does not necessarily increase policy robustness, and may even decrease it.
    Keywords: Monetary Policy; Monetary Strategy; Knightian uncertaint; info-gaps
    JEL: E42 E47 E52
    Date: 2017–02
  10. By: Chen, Hongyi; Funke, Michael; Lozev, Ivan; Tsang, Andrew
    Abstract: This paper discusses the macroeconomic effects of China’s informal banking regulatory tool “win-dow guidance,” introduced in 1998. Using an open-economy DSGE model that includes the com-mercial banking sector, we study the stabilizing effects of this non-standard quantitative monetary policy tool and the implications of quantity-based vs. price-based monetary policy instruments for welfare. The analyses are relevant to the current overhaul of Chinese monetary policy.
    JEL: C61 E32 E44 E52
    Date: 2017–02–27
  11. By: Claudio Borio; Leonardo Gambacorta
    Abstract: This paper analyses the effectiveness of monetary policy on bank lending in a low interest rate environment. Based on a sample of 108 large international banks, our empirical analysis suggests that reductions in short-term interest rates are less effective in stimulating bank lending growth when rates reach a very low level. This result holds after controlling for business and financial cycle conditions and different bank-specific characteristics such as liquidity, capitalisation, funding costs, bank risk and income diversification. We find that the impact of low rates on the profitability of banks' traditional intermediation activity helps explain the subdued evolution of lending in the period 2010-14.
    Keywords: bank lending, monetary transmission mechanisms, low interest rate environment
    Date: 2017–02
  12. By: Eichenbaum, Martin; Johannsen, Benjamin; Rebelo, Sérgio
    Abstract: This paper documents two facts about the behavior of floating exchange rates in countries where monetary policy follows a Taylor-type rule. First, the current real exchange rate is highly negatively correlated with future changes in the nominal exchange rate at horizons greater than two years. This negative correlation is stronger the longer is the horizon. Second, for most countries, the real exchange rate is virtually uncorrelated with future inflation rates both in the short and in the long run. We develop a class of models that can account for these and other key observations about real and nominal exchange rates.
    Keywords: currency forecasting; Taylor rule
    JEL: E52 F31 F41
    Date: 2017–02
  13. By: Yakov Ben-Haim; Maria Demertzis; Jan Willem van den End
    Abstract: This paper applies the info-gap approach to the unconventional monetary policy of the Eurosystem and so takes into account the fundamental uncertainty on inflation shocks and the transmission mechanism. The outcomes show that a more demanding monetary strategy, in terms of lower tolerance for output and inflation gaps, entails less robustness against uncertainty, particularly if financial variables are taken into account. Augmenting the Taylor rule with a financial variable leads to a smaller loss of robustness than taking into account the effect of financial imbalances on the economy. However, in some situations, the augmented model is more robust than the baseline model. A conclusion from our framework is that including financial imbalances in the monetary policy objective does not necessarily increase policy robustness, and may even decrease it.
    Date: 2017–02
  14. By: Silvia Miranda-Agrippino (Bank of England; Centre for Macroeconomics (CFM)); Giovanni Ricco (Department of Economics University of Warwick)
    Abstract: Despite years of research, there is still uncertainty around the effects of monetary policy shocks. We reassess the empirical evidence by combining a new identification that accounts for informational rigidities, with a exible econometric method robust to misspecifications that bridges between VARs and Local Projections. We show that most of the lack of robustness of the results in the extant literature is due to compounding unrealistic assumptions of full information with the use of severely misspecified models. Using our novel methodology, we find that a monetary tightening is unequivocally contractionary, with no evidence of either price or output puzzles.
    Keywords: Monetary Policy, Local Projections, VARs, Expectations, Information Rigidity, Survey Forecasts, External Instruments
    JEL: C32 E52 G14
    Date: 2015–09
  15. By: Bignon, Vincent; Jobst, Clemens
    Abstract: This paper shows that a central bank can more efficiently mitigate economic crises when it broadens eligibility for its discount facility to any safe asset or solvent agent. We use difference-in-differences panel regressions and emulate crises by studying how defaults of banks and non-agricultural firms were affected by the arrival of an agricultural disease. We exploit the specificities of the implementation of the discount window to deal with the endogeneity of the access to the central bank to the arrival of the crisis and local default rates. We find that broad eligibility reduced significantly the increase in the default rate when the shock hit the local economy. A counterfactual exercise shows that defaults would have been 10% to 15% higher if the central bank would have implemented the strictest eligibility rule. This effect is identified independently of changes in policy interest rates and the fiscal deficit. JEL Classification: E44, E51, G28, E58, N14, N54
    Keywords: Bagehot rule, Bank of France, collateral, default, discount window
    Date: 2017–02
  16. By: Bayoumi, Tamim; Eichengreen, Barry
    Abstract: Once upon a time, in the 1990s, it was widely agreed that neither Europe nor the United States was an optimum currency area, although moderating this concern was the finding that it was possible to distinguish a regional core and periphery (Bayoumi and Eichengreen, 1993). Revisiting these issues, we find that the United States is remains closer to an optimum currency area than the Euro Area. More intriguingly, the Euro Area shows striking changes in correlations and responses which we interpret as reflecting hysteresis with a financial twist, in which the financial system causes aggregate supply and demand shocks to reinforce each other. An implication is that the Euro Area needs vigorous, coordinated regulation of its banking and financial systems by a single supervisor - ”that monetary union without banking union will not work.
    Keywords: euro; hysteresis; Monetary Unification
    Date: 2017–02
  17. By: Parker, Miles
    Abstract: This paper studies the role of global factors in causing common movements in consumer price inflation, with particular focus on the food, housing and energy sub-indices. It uses a comprehensive dataset of 223 countries and territories collected from national and international sources. Global factors explain a large share of the variance of national inflation rates for advanced countries – and more generally those with greater GDP per capita, financial development and central bank transparency – but not for middle and low income countries. Common factors explain a large share of the variance in food and energy prices. JEL Classification: E31, E52, F42
    Keywords: common factor, energy prices, food prices, global inflation
    Date: 2017–02
  18. By: Scharnagl, Michael; Mandler, Martin; Volz, Ute
    Abstract: We study cross-country differences in monetary policy transmission across the large four euro area countries (France, Germany, Italy and Spain) using a large Bayesian vector autoregressive model with endogenous prior selection. Drawing both on the posterior distributions of the cross-country differences in impulse responses as well as on a battery of other tests we find real output to respond less negatively to a monetary policy tightening in Spain than in the other three countries while the price level decline is weaker in Germany. Bond yields rise stronger and more persistently in France and Germany than in Italy and Spain.
    JEL: C11 C54 E52
    Date: 2016
  19. By: Kim, Soyoung; Mehrotra, Aaron
    Abstract: We examine the effects of monetary and macroprudential policies in the Asia-Pacific region, where many inflation targeting economies have adopted macroprudential policies in order to safeguard financial stability. Using structural panel vector autoregressions that identify both monetary and macro-prudential policy actions, we show that tighter macroprudential policies used to contain credit growth have also had a significant negative impact on macroeconomic aggregates such as real GDP and the price level. The similar effects of monetary and macroprudential policies may suggest a complementary use of the two policies at normal times. However, they could also create challenges for policy-makers, especially during times when low inflation coincides with buoyant credit growth.
    JEL: E58 E61
    Date: 2017–03–02
  20. By: Mavee, Nasha; Bonga-Bonga, Lumengo
    Abstract: This paper investigates the relationship between the future spot and forward rates in the South African foreign exchange market to infer whether the unbiased forward rate hypothesis (UFRH) holds in South Africa. More specifically we examine whether the hypothesis holds in the face of the different monetary policy regimes taken by the South African reserve bank. We distinguish between two periods; (1) the period before inflation targeting and (2) the period after inflation targeting from February 2000 to the present. The study applies the autoregressive dynamic lag (ARDL) cointegration technique to test the existence of the long-run relationship between the two variables. The results of this investigation indicate that existence of a long-run relationship between the two variables for all forward rates horizons, especially for the period after inflation targeting. This indicates that an improvement of market efficiency in South Africa during the inflation targeting period.
    Keywords: UFRH, cointegration, monetary policy
    JEL: C50 G15
    Date: 2017–01–08
  21. By: Svensson, Lars E. O.
    Abstract: The main result in Svensson (2017) and its previous versions is that, given current knowledge and empirical estimates, the cost of using monetary policy to "lean against the wind" for nancialstability purposes exceeds the benefit by a substantial margin. Adrian and Liang (2016a) conduct a sensitivity analysis of this result, state that "the result that costs exceed benefits rely critically on assumptions about the change in unemployment in a recession or crisis, the crisis probability, and the elasticity of crisis probability with respect to the interest rate," and provide alternative assumptions that they assert would overturn the result. This paper shows that Adrian and Liang's alternative assumptions are hardly realistic: they exceed existing empirical estimates by more than 11, 13, and 40 standard errors. Adrian and Liang furthermore do not comment on the extensive sensitivity analysis already done in previous versions of Svensson (2017), which supports the robustness of my result. JEL Classification: E52, E58, G01
    Keywords: Financial crises, monetary policy., nancial stability
    Date: 2017–02
  22. By: De Grauwe, Paul; Ji, Yuemei
    Abstract: Business cycles among Eurozone countries are highly correlated. We develop a two-country behavioral macroeconomic model in a monetary union setting where the two countries are linked with each other by international trade. The net export of country 1 depends on the output gap of country 2 and on real exchange rate movements. The synchronization of the business cycle is produced endogenously. The main channel of synchronization occurs through a propagation of "animal spirits" , i.e. waves of optimism and pessimism that become correlated internationally. We find that this propagation occurs with relatively low levels of trade integration. We analyze the role of the common central bank in this propagation mechanism. We explore the transmission of demand and supply shocks and we study how the central bank affects this transmission. We verify the main predictions of the model empirically.
    Keywords: animal spirits; behavioral macroeconomics; Business Cycles; monetary union
    Date: 2017–03
  23. By: Souhaïb Chamseddine Zardi (Central Bank of Tunisia)
    Abstract: The aim of this paper is to evaluate the relative performance of different forecasts of inflation methods for the case of Tunisia. For that, we use a large number of econometric models to forecast short-run inflation. Specifically, we use univariate models as Random Walk, SARIMA, a Time Varying Parameter model and a suite of multivariate autoregressive models as Bayesian VAR and Dynamic Factor models. The forecasting results suggest that models which incorporate more economic information outperform the benchmark random walk for the first two quarters ahead. Furthermore, we combine our forecasts by means and the results reveal that the combination of forecasts leads to a reduction in forecast errors compared to individual models.
    Keywords: Short-run forecasting, Dynamic Factor Models, Forecast combination
    Date: 2017–03
  24. By: Eichler, Stefan; Lähner, Tom; Noth, Felix
    Abstract: This study analyzes if regionally affiliated Federal Open Market Committee (FOMC) members take their districts’ regional banking sector instability into account when they vote. Considering the period 1978–2010, we find that a deterioration in a district’s bank health increases the probability that this district’s representative in the FOMC votes to ease interest rates. According to member-specific characteristics, the effect of regional banking sector instability on FOMC voting behavior is most pronounced for Bank presidents (as opposed to Governors) and FOMC members who have career backgrounds in the financial industry or who represent a district with a large banking sector.
    JEL: E43 E52 E58
    Date: 2016
  25. By: Yuzo Honda (Department of Informatics, Kansai University); Hitoshi Inoue (Faculty of Economics, Sapporo Gakuin University)
    Abstract: This paper examines the effects of the negative interest rate policy (NIRP) introduced by the Bank of Japan in January 2016. It has effectively stimulated private residential investment, and in lowering long-term interest rates, it has likely supported private nonresidential investment. There is also reason to believe that it likely stopped the appreciation of the yen and arrested the downward trend in Japanese stock prices around August 2016. Overall, we find that the NIRP has had expansionary effects, and therefore serves as a legitimate policy tool in alleviating Japan fs zero-interest rate lower bound, notwithstanding some potential negative side effects.
    Keywords: Negative Interest Rates, Residential/Nonresidential Investment, Foreign Exchange Rates
    JEL: E52
    Date: 2017–02
  26. By: Hernández Vega Marco A.
    Abstract: We study how unconventional monetary policy announcements affect the entry of foreign investment in debt and equity in Mexico, placing special focus on announcements related to the third QE program and the taper tantrum episode. A novel dataset on daily debt and equity flows, that maps Balance of Payments data quite well, allows this paper to provide a better insight into movements of capital. The results suggest that both equity and debt flows appear to react immediately to unexpected U.S. monetary policy announcements, in particular if these are considered as bad news by investors. In turn, results using weekly data support the idea that investors interested in fixed income instruments move more prudently than those interested in equity who react quickly.
    Keywords: Monetary Policy Announcements, Unconventional Monetary Policies, Foreign Portfolio Investment, Mexican Equity and Bond Market
    JEL: E4 E52 F21 F3 F62 G10
    Date: 2017–02
  27. By: Jair N. Ojeda-Joya (Banco de la Republica, Bogotá D.C.); Oscar E. Guzman (Office of the National Comptroller, Bogotá D.C.)
    Abstract: In this paper we estimate the effect of government consumption shocks on GDP using a panel of 21 developing economies. Our goal is to better understand the reasons for the low fiscal multipliers found in the literature by performing estimations for alternative exchange rate regimes, business-cycle phases, and monetary policy stances. In addition, we perform counterfactual simulations to analyze the possible gains from fiscal-monetary policy coordination. The results imply that government consumption shocks are usually followed by monetary policy tightening in developing economies with flexible regimes. Our simulations show that this reaction partially explains the presence of low fiscal multipliers in these economies. On the other hand, we find that government consumption shocks have better multipliers in developing economies during fixed regimes, economic booms and monetary expansions. In particular, implementing fiscal programs during monetary expansions seems to improve significantly their economic stimulus.
    Keywords: Fiscal Policy, Monetary Policy, Structural Vector Autoregression, Exchange Rate Regime, Panel VAR
    JEL: E62 E63 F32
    Date: 2017–03
  28. By: Cheung, Yin-Wong (City University of Hong Kong); Fatum, Rasmus (University of Alberta); Yamamoto, Yohei (Hitotsubashi University)
    Abstract: This paper explores whether the exchange rate effects of macro news are time- and state-dependent by analyzing and comparing the relative influence of US and Japanese macro news on the JPY/USD rate before, during, and after the Global Financial Crisis. A comprehensive set totaling 40 time-stamped US and Japanese news variables and preceding survey expectations along with 5-minute indicative JPY/USD quotes spanning the 1 January 1999 to 31 August 2016 period facilitate our analysis. Our results suggest that while US macro news are now more important than before the Crisis, the influence of Japanese macro news has waned to the point of near-irrelevance. These findings are of particular importance to exchange rate modeling of the New Era.
    JEL: F31 G15
    Date: 2017–02–01
  29. By: Olga Gouveia; Enestor Dos Santos; Santiago Fernández de Lis; Alejandro Neut; Javier Sebastián
    Abstract: Distributed ledgers are a technology that can support a digitized version of cash while potentially withholding its four major features: universality, anonymity, peer-to-peer exchangeability (P2P) and a constant nominal value.
    Keywords: Banks , Digital economy , Global , Working Paper
    JEL: E42 E50 E61 G20 O33
    Date: 2017–03
  30. By: Musoke, Zakia
    Abstract: The debate regarding the usage of domestic currency versus dollarizing an economy is still robust in many developing countries. Dollarizing an economy commonly entails dollarizing bank deposits and loans, transacting in dollars and tagging prices of goods and services in dollar. In Tanzania, commercial banks have the power to open foreign currency deposit accounts for any account holder, giving them the freedom to hold foreign currency and pay in foreign currency. Due to the strength of foreign currencies over the domestic shilling, investors prefer to hold bank accounts in foreign currencies preferably USD. This paper's main focus is dollarization and currency devaluation; of which are yet unresolved both theoretically and empirically. Using monthly nominal exchange rate data for the study period 2000-2014, the author introduced GARCH models to examine the relationship between dollarization and exchange rate. The Autoregressive Conditional Heteroscedasticity models indicate that dollarization does indeed induce currency depreciation as well as exchange rate volatility. Based on the findings and conclusions from other literature, this paper also proposes measures on how the country can prevent or offset the negative impacts of dollarization.
    Keywords: dollarization,currency devaluation,GARCH,exchange rates
    JEL: C8 E5 E41
    Date: 2017

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