nep-mon New Economics Papers
on Monetary Economics
Issue of 2017‒05‒21
twenty-six papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Interbank Market Frictions and Unconventional Policy in a Currency Union By Swarbrick, Jonathan Mark; Blattner, Tobias
  2. Ultra-low or Negative Yields on Euro-Area Long-term Bonds: Causes and Implications for Monetary Policy By Gros, Daniel
  3. The transmission channels of monetary, macro- and microprudential policies and their interrelations By Beyer, Andreas; Nicoletti, Giulio; Papadopoulou, Niki; Papsdorf, Patrick; Rünstler, Gerhard; Schwarz, Claudia; Sousa, João; Vergote, Olivier
  4. The Eurosystem collateral framework explained By Bindseil, Ulrich; Corsi, Marco; Sahel, Benjamin; Visser, Ad
  5. Do conventional monetary policy instruments matter in unconventional times? By Buchholz, Manuel; Schmidt, Kirsten; Tonzer, Lena
  6. The Macroeconomic Effects of Japan's Unconventional Monetary Policies By MIYAO Ryuzo; OKIMOTO Tatsuyoshi
  7. Unconventional monetary policy: interest rates and low inflation. A review of literature and methods By Mariarosaria Comunale; Jonas Striaukas
  8. The Renminbi central parity : An empirical investigation By Cheung, Yin-Wong; Hui, Cho-Hoi; Tsang, Andrew
  9. The Time-Varying Effect of Monetary Policy on Asset Prices By Paul, Pascal
  10. Central bank communication: Managing expectations through the monetary dialogue By Belke, Ansgar
  11. Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy By Feldkircher, Martin; Gruber, Thomas; Huber, Florian
  12. Milton Friedman and Data Adjustment By Neil R. Ericsson; David F. Hendry; Stedman B. Hood
  13. Exchange Rate Disconnect in General Equilibrium By Oleg Itskhoki; Dmitry Mukhin
  14. International Reserves, Credit Constraints, and Systemic Sudden Stops By Samer Shousha
  15. Negative Rates and Seigniorage: Turning the central bank business model upside down? The special case of the ECB By Gros, Daniel
  16. What Has Publishing Inflation Forecasts Accomplished? Central Banks And Their Competitors By Siklos, Pierre
  17. Monetary Policy through Production Networks: Evidence from the Stock Market By Ali Ozdagli; Michael Weber
  18. The Macroeconomic Effects of Quantitative Easing in the Euro Area: Evidence from an Estimated DSGE Model By Hohberger, Stefan; Priftis, Romanos; Vogel, Lukas
  19. Effects of Monetary Policy Shocks on Inequality in Japan By Masayuki Inui; Nao Sudo; Tomoaki Yamada
  20. Monetary-Fiscal Interactions and the Euro Area's Malaise By Jarocinski, Marek; Mackowiak, Bartosz Adam
  21. Systematic Monetary Policy and the Macroeconomic Effects of Shifts in Loan-to-Value Ratios By Bachmann, Rüdiger; Rueth, Sebastian
  22. EU Consumers’ Quantitative Inflation Perceptions and Expectations: An Evaluation By Rodolfo Arioli; Colm Bates; Heinz Dieden; Ioana Duca; Roberta Friz; Christian Gayer; Geoff Kenny; Aidan Meyler; Iskra Pavlova
  23. A Road Map To Cashless Economy In India By Varma, Vijaya Krushna Varma
  24. The nature of the eurocrisis. A reply to Febrero, Uxò and Bermejo By Sergio Cesaratto
  25. Testing the Fisher Hypothesis in the G-7 Countries Using I(d) Techniques By Guglielmo Maria Caporale; Luis A. Gil-Alana
  26. Central Bank Legal Frameworks in the Aftermath of the Global Financial Crisis By Ashraf Khan

  1. By: Swarbrick, Jonathan Mark; Blattner, Tobias
    Abstract: In this paper we show how interbank market frictions can play an important role in propagating and enhancing the effects of shocks in a currency union, and discuss the efficacy of two unconventional policy measures; multi-period central bank refinance operations and large scale asset purchases. To this end, a two-country structural model with idiosyncratic risk and country-specific transactional costs on interbank lending is proposed and used to show that (i) the effectiveness of monetary policy is enhanced when banks face an external finance premium in the interbank market; (ii) adverse shocks to the real economy can be the source of banking crisis, causing an increase in the interbank finance premia, aggravating the initial shock; and (iii) asset purchase policies and long-term refinancing operations can both be successful in supporting conventional monetary policy in mitigating the adverse effects of shocks.
    Keywords: Interbank market,monetary union,financial frictions,unconventional monetary policy
    JEL: E44 E52 F32 F36
    Date: 2017
  2. By: Gros, Daniel
    Abstract: The importance of monetary policy for the current ultra-low interest rates is often over-estimated. As emphasised by ECB President Draghi himself, monetary policy cannot determine long-term rates directly, and its influence on long-term real rates is even more limited and indirect. Moreover, long-term bond yields have fallen to unprecedented low levels throughout developed countries. The influence of any single central bank on bond yields in its currency area must be quite limited if global capital markets are integrated. The importance of the ECB’s policy in driving down rates in the euro area is widely assumed to be substantial. But even the ECB does not attribute more than a one percentage point decline in rates to QE. The author of this study believes that the impact of QE has been much smaller, due to the state of global markets. It is widely accepted that a sudden reversal of rates to ‘normal’ would pose a threat to financial stability, but few believe that this is likely to materialise any time soon.
    Date: 2016–09
  3. By: Beyer, Andreas; Nicoletti, Giulio; Papadopoulou, Niki; Papsdorf, Patrick; Rünstler, Gerhard; Schwarz, Claudia; Sousa, João; Vergote, Olivier
    Abstract: This paper investigates the interrelations between monetary macro- and microprudential policies. It first provides an overview of the three policies, starting with their main instruments and objectives. Monetary policy aims at maintaining price stability and promoting balanced economic growth, macroprudential policies aim at safeguarding the stability of the overall financial system, while microprudential policies contribute to the safety and soundness of individual entities. Subsequently, the paper provides a simplified description of their respective transmission mechanisms and analyses the interactions between them. A conceptual framework is first presented on the basis of which the analysis of the interactions across the different policies can be demonstrated in a stylised manner. These stylised descriptions are then further complemented by model-based simulations illustrating the significant complementarities and interactions between them. Finally, the paper concludes that from a conceptual point of view there are numerous areas of interaction between the policies. These create scope for synergies, which can be reaped by sharing information and expertise across the various policy areas. JEL Classification: E58, G28
    Keywords: banking, central bank policies, DSGE models, financial regulation, non-standard measures
    Date: 2017–05
  4. By: Bindseil, Ulrich; Corsi, Marco; Sahel, Benjamin; Visser, Ad
    Abstract: The Eurosystem collateral framework ESCF) has played a key role in the ECB monetary policy implementation since 1999. Moreover, the financial and sovereign debt crisis and with it the increased reliance of banks on central bank credit have underlined the importance of central bank collateral frameworks. Broad collateral frameworks have helped prevent large-scale liquidity-driven defaults of financial institutions in all major advanced economies. More recently, they have allowed central banks to provide a large amount of – at times targeted – longer-term credit. Nevertheless, a number of authors have argued that the ESCF is too forthcoming or broad and that it does not afford the central bank sufficient protection. This paper first explains and justifies the logic of collateral frameworks in general and that of the ESCF in particular. It then reviews the main critical comments. It concludes that the ESCF has been effective (i) in providing an adequate level of elasticity for Eurosystem credit, and (ii) in protecting the Eurosystem from financial losses despite the severity of the financial and sovereign debt crisis and the large amounts of longer-term credit provided by the Eurosystem. JEL Classification: E58
    Keywords: central banking, collateral, ECB, Eurosystem, lender of last resort, operations
    Date: 2017–05
  5. By: Buchholz, Manuel; Schmidt, Kirsten; Tonzer, Lena
    Abstract: This paper investigates how declines in the deposit facility rate set by the European Central Bank (ECB) affect bank behavior. The ECB aims to reduce banks' incentives to hold reserves at the central bank and thus to encourage loan supply. However, given depressed margins in a low interest environment, banks might reallocate their liquidity toward more profitable liquid assets other than traditional loans. Our analysis is based on a sample of euro area banks for the period from 2009 to 2014. Three key findings arise. First, banks reduce their reserve holdings following declines in the deposit facility rate. Second, this effect is heterogeneous across banks depending on their business model. Banks with a more interest-sensitive business model are more responsive to changes in the deposit facility rate. Third, there is evidence of a reallocation of liquidity toward loans but not toward other liquid assets. This result is most pronounced for non-GIIPS countries of the euro area.
    Keywords: bank portfolio,central bank reserves,monetary policy
    JEL: E52 G11 G21
    Date: 2017
  6. By: MIYAO Ryuzo; OKIMOTO Tatsuyoshi
    Abstract: Japan is the country with the longest history of implementing unconventional monetary policies, which were first introduced 15 years ago and have since been expanded several times. A case in point is the quantitative and qualitative monetary easing (QQE) policy introduced by the Bank of Japan (BOJ) in early 2013 along with the commitment to continue with the program as long as necessary to achieve a 2% price stability target. This study attempts to assess the overall macroeconomic effects of Japan's unconventional monetary policies, with an emphasis on the recent QQE program. Using a stylized block-recursive vector autoregression (VAR) framework, the analysis suggests that expansionary unconventional monetary policy shocks have clear macroeconomic effects, leading to a persistent rise in real output and inflation in Japan. The evidence also suggests that these macroeconomic effects became larger and more persistent after the introduction of QQE. A formal analysis that allows for a regime shift based on a smooth-transition VAR model supports these findings.
    Date: 2017–05
  7. By: Mariarosaria Comunale (Bank of Lithuania and The Australian National University); Jonas Striaukas (Louvain School of Management)
    Abstract: In this paper, we review a range of approaches used to capture monetary policy in a period of Zero Lower Bound (ZLB). We concentrate here on methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analysis, and different shadow rates. Next, we calculate these measures for the euro area, draw comparisons among different approaches, and look at the effects on main macroeconomic variables, with a special focus on inflation. By and large, the impact of unconventional monetary policy shocks on inflation is found to be significantly positive across studies and methods. Finally, we summarize the literature on the Natural Real Rate of Interest. This overview may help to assess how long low (real) interest rates in a ZLB stay in place, potentially leading to more accurate policy recommendations.
    Keywords: Unconventional monetary policy; zero lower bound; shadow rates; natural interest rate; inflation
    JEL: E43 E52 E58 F42
    Date: 2017–05–12
  8. By: Cheung, Yin-Wong; Hui, Cho-Hoi; Tsang, Andrew
    Abstract: On August 11, 2015, China revamped its procedure for setting the official central parity of the renminbi (RMB) against the US dollar. Our empirical investigation suggests that the intertemporal dynamics of China’s central parity shifted after this policy change, though the deviation of the RMB offshore rate from the central parity and the US dollar index remained the two significant determi-nants of central parity after the policy change. In contrast, the VIX index only offered explanatory power up to August 2015. Thereafter, the onshore RMB rate and the difference between the one-month offshore and onshore RMB forward points have significant impacts on the central parity. While the US dollar index effect remains, we find no evidence of a rate-fixing role for the RMB exchange rate against the currency basket announced by China in December 2015.
    JEL: F31 F33 G15 G17 G18
    Date: 2017–05–11
  9. By: Paul, Pascal (Federal Reserve Bank of San Francisco)
    Abstract: This paper estimates the time-varying responses of stock and house prices to changes in monetary policy in the United States. To this end, I augment a time-varying vector autoregressive model (VAR) with a series of monetary policy surprises obtained from federal funds futures, as a proxy for structural monetary policy shocks. The series of surprises enters the model as an exogenous variable and I show analytically that this approach gives identical relative impulse responses compared with an identification that uses the proxy as an external instrument within a constant parameter VAR. However, the exogenous variable approach allows for a convenient and tractable extension to a time-varying parameter VAR that is estimated with standard Bayesian methods. The results show that stock and house prices have been less responsive to monetary policy shocks during periods of high and rising asset prices. Moreover, I find that attempts by the Federal Reserve to lean against the house price boom before the Great Recession would have come with the risk of large deviations from its output target.
    Date: 2017–05–08
  10. By: Belke, Ansgar
    Abstract: Successfully managing a course back to normality ("exit") will depend crucially on the central banks' ability to communicate effectively a credible strategy for an orderly exit from such kind of policies. In this context, clear, deliberate, coordinated messages that are anchored in the central banks' mandate are essential. We focus upon transparency and "forward guidance" as potential tools to stimulate the economy in the Euro Area. We then deliver details on whether and how the effectiveness of central bank's policies can be improved through more transparency and "forward guidance". We do so by highlighting marked differences in the Fed's and the ECB's interpretation of "forward guidance". In order to highlight the key issues of central bank communication and the management of expectations referring to a practical institutional example, we also comment on the role of the Monetary Dialogue, i.e. the regular appearances of the President of the European Central Bank (ECB) before the European Parliament (EP), in the context of an evolving monetary policy. Communication is finally described as a policy option in terms of minimising risk in the context of exit from unconventional monetary policies and of the signalling channel which refers to what the public learns from announcements of unconventional monetary policy operations such as Quantitative Easing.
    Keywords: central bank communication,European Central Bank,forward guidance,monetary dialogue,transparency
    JEL: E52 E58 G14
    Date: 2017
  11. By: Feldkircher, Martin; Gruber, Thomas; Huber, Florian
    Abstract: As a consequence of asset purchases by the European Central Bank (ECB), longer-term yields in the euro area decline, and spreads between euro area long-term yields narrow. To assess spillovers of these recent financial developments, we use a Bayesian variant of the global vector autoregressive (BGVAR) model with stochastic volatility and propose a novel mixture of zero impact and sign restrictions that we impose on the cross-section of the data. Both shocks generate positive and significant spillovers to industrial production in Central, Eastern and Southeastern Europe (CESEE) and other non-euro area EU member states. These effects are transmitted via the financial channel (mainly through interest rates and equity prices) and outweigh costs of appreciation pressure on local currencies vis-á-vis the euro (trade channel). While these results represent general trends, we also find evidence for both cross-country heterogeneity of effects within the euro area and region-specific spillovers thereof.
    Keywords: Euro area monetary policy, quantitative easing, spillovers
    Date: 2017–05
  12. By: Neil R. Ericsson; David F. Hendry; Stedman B. Hood
    Abstract: When empirically modelling the U.S. demand for money, Milton Friedman more than doubled the observed initial stock of money to account for a "changing degree of financial sophistication" in the United States relative to the United Kingdom. This note discusses effects of this adjustment on Friedman's empirical models.
    Date: 2017–05–15
  13. By: Oleg Itskhoki; Dmitry Mukhin
    Abstract: We propose a dynamic general equilibrium model of exchange rate determination, which simultaneously accounts for all major puzzles associated with nominal and real exchange rates. This includes the Meese-Rogoff disconnect puzzle, the PPP puzzle, the terms-of-trade puzzle, the Backus- Smith puzzle, and the UIP puzzle. The model has two main building blocks — the driving force (or the exogenous shock process) and the transmission mechanism — both crucial for the quantitative success of the model. The transmission mechanism — which relies on strategic complementarities in price setting, weak substitutability between domestic and foreign goods, and home bias in consumption — is tightly disciplined by the micro-level empirical estimates in the recent international macroeconomics literature. The driving force is an exogenous small but persistent shock to international asset demand, which we prove is the only type of shock that can generate the exchange rate disconnect properties. We then show that a model with this financial shock alone is quantitatively consistent with the moments describing the dynamic comovement between exchange rates and macro variables. Nominal rigidities improve on the margin the quantitative performance of the model, but are not necessary for exchange rate disconnect, as the driving force does not rely on the monetary shocks. We extend the analysis to multiple shocks and an explicit model of the financial sector to address the additional Mussa puzzle and Engel’s risk premium puzzle.
    JEL: E30 F30 F4
    Date: 2017–05
  14. By: Samer Shousha
    Abstract: Why do emerging market economies simultaneously hold very high levels of international reserves and foreign liabilities? Moreover, why, even with such huge amounts of international reserves, did countries barely use them during the Global Financial Crisis? I argue that including international reserves as an implicit collateral for external borrowing in a small open economy model subject to exogenous financial shocks can explain both of these puzzling facts. I find that the model can obtain ratios of international reserves and net foreign liabilities to GDP similar to those of Latin American countries. Additionally, the optimal policy implies that the government accumulates international reserves before a sudden stop and that there is a small depletion during it. Finally, an alternative policy of keeping international reserves constant at the average level yields results very similar to those of the optimal policy during sudden stops, highlighting the stabilizing role of international reserves even if central banks do not use them.
    Keywords: International reserves ; Emerging market economies ; Sudden stops ; International crises
    JEL: F32 F34 F41
    Date: 2017–05–04
  15. By: Gros, Daniel
    Abstract: Negative rates have invalidated the normal business model of central banks, which consists of issuing zero-interest bearing cash as liabilities and earning a return on their assets (the resulting profits are called “seigniorage”). But many central banks are now earning a negative rate on their assets. Seigniorage, in fact, might now become negative in the euro area and in Japan. Bond purchasing programmes (called usually QE for quantitative easing) offer central banks at least temporary profit opportunities since they can issue liabilities at lower rates than the long-term bonds they acquire. The resulting profits should be regarded in the same way as those of investment banks. For the time being, central banks are making large profits on their investment banking activities, but little in terms of traditional seigniorage. The QE programme of the European Central Bank does not increase its seigniorage revenues, because 80% of the euro area’s sovereign bond purchase programme is done by the national central banks on their own accounts. The policy implication of this assessment is that the seigniorage income of the ECB will be much smaller than many assume and one should thus not count on it as a source for any euro-area projects.
    Date: 2016–07
  16. By: Siklos, Pierre (Wilfrid Laurier University)
    JEL: E42
    Date: 2017–04–01
  17. By: Ali Ozdagli (Federal Reserve Bank of Boston); Michael Weber (University of Chicago Booth School of Business)
    Abstract: Monetary policy shocks have a large impact on aggregate stock market returns in narrow event windows around press releases by the Federal Open Market Committee. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct (demand) effect and an indirect (network) effect. We attribute 50%-85% of the overall effect to indirect effects. The decomposition is robust to different sample periods, event windows, and types of announcements. Direct effects are larger for industries selling most of the industry output to end-consumers compared to other industries. We find similar evidence of large indirect effects using ex-post realized cash-fundamentals. A simple model with intermediate inputs guides our empirical methodology. Our findings indicate that production networks might be an important propagation mechanism of monetary policy to the real economy.
    Keywords: Input-output linkages, Spillover effects, Asset prices, High frequency identification
    JEL: E12 E31 E44 E52 G12 G14
    Date: 2017
  18. By: Hohberger, Stefan; Priftis, Romanos; Vogel, Lukas
    Abstract: This paper analyses the macroeconomic effects of the ECB's quantitative easing programme using an open-economy DSGE model estimated with Bayesian techniques. Using data on government debt stocks and yields across maturities we identify the parameter governing portfolio adjustment in the private sector. Shock decompositions suggest a positive contribution of ECB QE to EA year-on-year output growth and inflation of up to 0.4 and 0.5 pp in the standard linearised version of the model. Allowing for an occasionally binding zero-bound constraint by using piecewise linear solution techniques raises the positive impact up to 1.0 and 0.7 pp, respectively.
    Keywords: E44, E52, E53, F41
    JEL: E44 E52 F41
    Date: 2017–03–14
  19. By: Masayuki Inui (Bank of Japan); Nao Sudo (Bank of Japan); Tomoaki Yamada (Meiji University)
    Abstract: Impacts of monetary easing on inequality have recently attracted increasing attention. In this paper, we use the micro-level data of Japanese households to study the distributional effects of monetary policy. We construct quarterly series of income and consumption inequality measures from 1981 to 2008, and estimate their response to a monetary policy shock. We do find that monetary policy shocks do not have statistically significant impacts on inequalities across Japanese households in a stable manner. We find evidence, when considering inequality across households whose head is employed, an expansionary monetary policy shock increased income inequality through a rise in earnings inequality, in the period before the 2000s. Such procyclical responses are, however, scarcely observed when the current data is included in the sample period, or when earnings inequality across all households is considered. We also find that, transmission of income inequality to consumption inequality is minor even during the period when procyclicality of income inequality was pronounced. Using a two-sector dynamic general equilibrium model with attached labor inputs, we show that labor market flexibility is the central to the dynamics of income inequality after monetary policy shocks. We also use the micro-level data of households' balance sheet and show that distributions of households' financial assets and liabilities do not play a significant role in the distributional effects of monetary policy.
    Keywords: Monetary Policy; Income inequality; Consumption inequality
    JEL: E3 E4 E5
    Date: 2017–05–10
  20. By: Jarocinski, Marek; Mackowiak, Bartosz Adam
    Abstract: When monetary and fiscal policy are conducted as in the euro area, output, inflation, and government bond default premia are indeterminate according to a standard general equilibrium model with sticky prices extended to include defaultable public debt. With sunspots, the model mimics the recent euro area data. We specify an alternative configuration of monetary and fiscal policy, with a non-defaultable eurobond. If this policy arrangement had been in place since the onset of the Great Recession, output could have been much higher than in the data with inflation in line with the ECB's objective.
    Keywords: fiscal theory of the price level; eurobond; self-ful lfiling expectations; zero lower bound
    JEL: E31 E32 E63
    Date: 2017–05
  21. By: Bachmann, Rüdiger; Rueth, Sebastian
    Abstract: What are the macroeconomic consequences of changing aggregate lending standards in residential mortgage markets, as measured by loan-to-value (LTV) ratios? In a structural VAR, GDP and business investment increase following an expansionary LTV shock. Residential investment, by contrast, falls, a result that depends on the systematic reaction of monetary policy. We show that, historically, the Fed tended to respond directly to expansionary LTV shocks by raising the monetary policy instrument, and, as a result, mortgage rates increase and residential investment declines. The monetary policy reaction function in the US appears to include lending standards in residential markets, a finding we confirm in Taylor rule estimations. Without the endogenous monetary policy reaction residential investment increases. House prices and household (mortgage) debt behave in a similar way. This suggests that an exogenous loosening of LTV ratios is unlikely to explain booms in residential investment and house prices, or run ups in household leverage, at least in times of conventional monetary policy.
    Keywords: Cholesky identification; loan-to-value ratios; monetary policy; residential investment; structural VAR; Taylor rules
    JEL: E30 E32 E44 E52
    Date: 2017–05
  22. By: Rodolfo Arioli; Colm Bates; Heinz Dieden; Ioana Duca; Roberta Friz; Christian Gayer; Geoff Kenny; Aidan Meyler; Iskra Pavlova
    Abstract: This report updates and extends earlier assessments of quantitative inflation perceptions and expectations of consumers in the euro area and the EU, using an anonymised micro data set collected by the European Commission in the context of the Harmonised EU Programme of Business and Consumer Surveys. Confirming earlier findings, consumers' quantitative estimates of inflation are found to be higher than actual HICP (Harmonised Index of Consumer Prices) inflation over the entire sample period (2004-2015). The analysis shows that European consumers hold different opinions of inflation depending on their income, age, education and gender. Although many of the features highlighted for the EU and the euro area aggregates are valid across individual Member States, differences exist also at the country level. Despite the higher inflation estimates, there is a high level of co-movement between measured and estimated (perceived/expected) inflation. Even respondents providing estimates largely above actual HICP inflation, demonstrate understanding of the relative level of inflation during both high and low inflation periods. Based on these economically plausible results, the report concludes that further work should be devoted to defining concrete aggregate indicators of consumers' quantitative inflation perceptions and expectations on the basis of the dataset used in this study. Moreover, it outlines a number of future research topics that can be addressed by exploiting the enormous potential of the data set.
    JEL: D8 D12 E31
    Date: 2016–11
  23. By: Varma, Vijaya Krushna Varma
    Abstract: The cashless economy should be achieved in the phased manner and step by step process instead of forcing it on people overnight without expanding/providing banking infrastructure to every nook and corner of the country, internet connectivity with high speed at cheap rate and unbroken power supply. The government should continue the demonetisation program of high valued notes one by one along with making the cashless transactions step by step and from top to bottom i.e; from the super-rich to rich; from the rich to middle class; from high valued goods to low valued goods; from luxury items to essential commodities
    Keywords: cashless economy
    JEL: E5 O2
    Date: 2016–11–09
  24. By: Sergio Cesaratto
    Abstract: Febrero et al. (2017) criticise the balance of payments (BOP) view of the EMU crisis. I have no major objections to most of the single aspects of the crisis pointed out by these authors, except that they appear to underlie specific sides of the EMU crisis, while missing a unifying and realistic explanation. Specific semi-automatic mechanisms differentiate a BOP crisis in a currency union from a traditional one. Unfortunately, these mechanisms give Febrero et al. the illusion that a BOP crisis in a currency union is impossible. My conclusion is that an interpretation of the Eurozone troubles as a balance of payments (BOP) crisis provides a more consistent framework. The debate has some relevance for the policy prescriptions to solve the eurocrisis. Given the costs that all sides would incur if the currency union were to break up, austerity policies are still seen by European politicians as a tolerable price to pay to keep foreign imbalances at bay - with the sweetener of some ECB support, for as long as Berlin allows the ECB to provide it.
    Keywords: European economic and monetary union, ECB, balance of payment crisis, Target2, Euro
    JEL: E11 E12 E42 E58 F32 F33 F34 F36 N24
  25. By: Guglielmo Maria Caporale; Luis A. Gil-Alana
    Abstract: This paper revisits the Fisher hypothesis by estimating fractional integration and cointegration models that are more general than the standard ones based on the classical I(0)/I(1) dichotomy. Two sets of results are obtained under the alternative assumptions of white noise and Bloomfield (1973) autocorrelated errors respectively. The univariate analysis suggests than the differencing parameter is higher than 1 for most series in the former case, whilst the unit root null cannot be rejected for the majority of them in the latter case. The multivariate results imply that there exists a positive relationship, linking nominal interest rates to inflation; however, there is no evidence of the full adjustment of the former to the latter required by the Fisher hypothesis.
    Keywords: Fisher effect, fractional integration, long memory, G7 countries
    JEL: C22 C32 E43
    Date: 2017
  26. By: Ashraf Khan
    Abstract: Drawing on the 2016 update of the IMF’s Central Bank Legislation Database, this paper examines differences in central bank legal frameworks before and after the Global Financial Crisis. Examples from select countries show that many central bank laws have undergone changes in objectives, decision-making, accountability, and data collection. A wider cross-country survey illustrates the common occurrence of price stability in central bank objectives, and varying practices in defining financial stability, “independence†versus “autonomy,†and who within a central bank determines monetary policy. The highlighted facts illustrate the uses of the database and could be a starting point for further analyses.
    Date: 2017–05–01

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