nep-mon New Economics Papers
on Monetary Economics
Issue of 2017‒06‒04
twenty-six papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Communicating Monetary Policy Rules By Davig, Troy A.; Foerster, Andrew T.
  2. Peculiarities of Exchange Rate Policy under the Floating Exchange Rate Regime in Developing Countries By Kiyutsevskaya, Anna; Morgunov, Vyacheslav; Trunin, Pavel
  3. The Forecasts-based Instrument Rule and Repo Rates Decisions in Sweden. How closely interlinked? By Karolina Tura-Gawron
  4. Monetary Policy Reaction Functions of the TICKs: A Quantile Regression Approach By Christina Christou; Ruthira Naraidoo; Rangan Gupta; Won Joong Kim
  5. Is inflation targeting the proper monetary policy regime in a dual banking system? new evidence from ARDL bounds test By Ndiaye, Ndeye Djiba; Masih, Mansur
  6. Anticipatory Monetary Policy and the 'Price Puzzle' By James Bishop; Peter Tulip
  7. Public debt, central bank and money: Some clarifications By Paul Mercier
  8. Analysis of Transmission Mechanisms of Monetary Policy of the Bank of Russia in Conditions of Transition to Inflation Targeting By Sinelnikova-Muryleva, Elena
  9. House prices and macroprudential policy in an estimated DSGE model of New Zealand By Funke, Michael; Kirkby, Robert; Mihaylovski, Petar
  10. Forward-looking Component in Consumers’ Expectations and the Central Bank’s Forecast: Some Evidence for European Countries By Magdalena Szyszko; Aleksandra Rutkowska
  11. Financial Globalisation, Monetary Policy Spillovers and Macro-modelling: Tales from 1001 Shocks By Georgiadis, Georgios; Jancokova, Martina
  12. Monetary Policy and the Redistribution Channel By Adrien Auclert
  13. Analysis of Approaches to Accounting of the Information Effects of Monetary Policy By Trunin, Pavel; Bozhechkova, Alexandra; Goryunov, Eugene; Petrova, Diana
  14. Central banks preferences and banking sector vulnerability By Gregory Levieuge; Yannick Lucotte; Florian Pradines-Jobet
  15. Monetary Policy through Production Networks: Evidence from the Stock Market By Ali Ozdagli; Michael Weber
  16. The impact of ECBs conventional and unconventional monetary policies on European banking indexes returns. By Salvatore Perdichizzi
  17. Policy Effects in a Simple Fully Non-Linear New Keynesian Model of the Liquidity Trap By Volker Hahn
  18. The Impact of Monetary Policy on Economic Development: Evidence from Lao PDR By srithilat, khaysy; Sun, Gang
  19. Monetary policy implications on the investment decision: Do economies of scope in the banking sector matter? By Eleni Dalla
  20. Patterns of regional inflation persistence in a CEE country. The case of Poland By Pawe³ Gajewski
  21. Analysis of the Regional Differentiation of Inflation By Trunin, Pavel; Sinelnikov-Murylev, Segei; Perevyshin, Yuri; Egorov, D.A.
  22. Asymmetric Stabilizing Impact of International Reserves By Dongwon Lee; Kyungkeun Kim
  23. Macroeconomic Uncertainty, Growth and Inflation in the Eurozone: A Causal Approach By Vasilios Plakandaras; Rangan Gupta; Periklis Gogas; Theophilos Papadimitriou
  24. An Early Experiment with "Permazero" By Quinn, Stephen F.; Roberds, William
  25. Discerning Granger-causal chain between oil prices, exchange rates and inflation rates: Evidence from Turkey By Citak, Yusuf Ensar; Masih, Mansur
  26. Phillips Curve and Price-Change Distribution under Declining Trend Inflation By Sohei Kaihatsu; Mitsuru Katagiri; Noriyuki Shiraki

  1. By: Davig, Troy A. (Federal Reserve Bank of Kansas City); Foerster, Andrew T. (Federal Reserve Bank of Kansas City)
    Abstract: Sixty-two countries around the world use some form of inflation targeting as their monetary policy framework, though none of these countries express explicit policy rules. In contrast, models of monetary policy typically assume policy is set through a rule such as a Taylor rule or optimal monetary policy formulation. Central banks often connect theory with their practice by publishing inflation forecasts that can, in principle, implicitly convey their reaction function. We return to this central idea to show how a central bank can achieve the gains of a rule-based policy without publicly stating a specific rule. {{p}} The approach requires central banks to specify an inflation target, tolerance bands, and provide economic projections. Thus, when inflation moves outside the band, inflation forecasts provide a time frame over which inflation will return to within the band. We show how this approach replicates and provides the same information as a rule-based policy.
    JEL: E4 E43 E5 E61
    Date: 2017–04–01
  2. By: Kiyutsevskaya, Anna (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Morgunov, Vyacheslav (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Trunin, Pavel (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: Study of features and specifics of formation of exchange rates in the developing countries within the floating regimes allow us to determine the objective backgrounds of monetary authorities' failure to support fixed exchange rate and the conditions requiring not only to manage the demand/supply on the internal currency market but to conduct foreign interventions too. As results of investigation show, de-facto the most of inflation targeting central banks of developing countries conduct operations of currency refinancing and realize operations on foreign currency market. The results indicate that the distinctive feature of exchange rate policy implemented by them is the absence of any objective in the level or change the trajectory of the exchange rate. Essential for understanding the permissible degree of participation of the monetary authorities, are targeted inflation rate formation in the process have the methodological aspects of the classification of de facto implemented exchange rate policy, which have been modified only in 2009.
    Date: 2017–03
  3. By: Karolina Tura-Gawron (Gdansk University of Technology, Poland)
    Abstract: The Central Bank of Sweden declares the use of the Svensson’s concept of inflation forecast targeting (IFT). It means that the repo rate decision making process depends on the central banks’ forecasts. The concept evolved from the strict IFT with the decision making algorithm called the ‘rule of thumb’ to the flexible IFT which later includes the optimal monetary policy plan. The aim of the article is to: (1) analyse the influence of the inflation rate and GDP growth rate on the repo rate decisions, (2) analyse the influence of the inflation rate and GDP growth rate forecasts (in two year horizon) on the repo rate decisions in Sweden in years 1999-2006. The main research question is as follows: did the Monetary Policy Commitee in Sweden in years 1999-2006 made the decisions on the repo rates on the basis of forecast-based instrument rules and the rule of the thumb algorithm. The analysis encompasses the repo rates decisions, CPI inflation rate, GDP growth rate, central paths of CPI inflation forecasts and central paths of GDP growth rate forecasts in the two years horizon published by The Central Bank of Sweden in years 1999-2006. The studies are based on the Taylor-type instrument rule and forecast-based Taylor-type instrument rule. The methodology used is multiple linear regression models. The Central Bank of Sweden in years 1999-2006 implemented direct inflation forecast targeting (DIFT) rule. The decision making algorithm was based on the CPI inflation forecasts and rule of the thumb algorithm. The exact rule of the thumb was as follow: if the inflation forecast, in the two year forecast’s horizon exceeded the inflation target by 1 p.p., then the central bank raised the repo rate by 0.4 p.p; if is below , then the central bank reduced the repo rate by 0.4 p.p. If the inflation forecast was equal to the inflation target, then the repo rate remained unchanged. The historical repo rates differ from the theoretical estimated rule of the thumb’s repo rates by +/-0.28 p.p.
    Keywords: inflation targeting regime, decision making process, repo rates
    JEL: E52 E58 E61
    Date: 2017–05
  4. By: Christina Christou (Open University of Cyprus, School of Economics and Finance, Latsia, Cyprus); Ruthira Naraidoo (Department of Economics, University of Pretoria, Pretoria, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Won Joong Kim (Department of Economics, Konkuk University, Seoul, Republic of Korea)
    Abstract: The purpose of this study is to investigate how the four nations of Taiwan, India, China and Korea (i.e., the TICKs member states) set interest rates in the context of policy reaction functions. It adds to the previous literature in that the empirical estimates are conducted not only at the central mean of interest rate but we also take into account the response of interest rate to inflation, output and exchange rate at various points on the conditional distribution of interest rates, hence offering the possibility to test predictions of greater or lesser aggression at different bounds of interest rate. Our results indicate the tendency of a milder response to inflation at low interest rates and greater response at higher quantiles of interest rates, where inflation is presumably higher than desired for China and South Korea and hence offers evidence for nonlinearity. While the response to inflation over the quantiles is significant for India, yet the Taylor principle is less likely to hold. For Taiwan, the results imply that another instrument is employed to deal with its official managed floating currency.
    Keywords: Monetary policy; Taylor rule; Quantile regression; Emerging markets
    JEL: C21 C26 E52 E58
    Date: 2017–05
  5. By: Ndiaye, Ndeye Djiba; Masih, Mansur
    Abstract: This paper explores the appropriateness and consequently the feasibility of inflation targeting in an economy with a dual financial system. We take the case of Malaysia, an example of a successful coexistence of the conventional and Islamic systems. The study employs ARDL bounds testing approach to investigate the long run relationship between inflation rate, real effective exchange rate, statutory reserve rate, narrow money, Islamic interbank rate and the overnight policy of Malaysia, considering the major transmission mechanism channels in the conduct of monetary policy stance. An Error Correction Model (ECM) is used to capture the short run dynamics, and variance decomposition of forecast errors is used to determine the causality direction of the variables. The periods considered was monthly data from the June 2007 to February 2017. Our results show that there is a long and short term relationship between inflation, narrow money, statutory reserve rate, real effective exchange rate and the Islamic interbank rate. However, we suggest that Inflation targeting may not be ideal in a dual banking system, especially the case of Malaysia. Alternatively, interest rate targeting is found to be most effective. Additionally, it will give the central bank more control over the Islamic segment of the financial system.
    Keywords: Dual Banking, Islamic Banking, Interest rate, Inflation Targeting, Islamic Profit rate, Monetary Policy, ARDL
    JEL: C58 E44 G15
    Date: 2017–05–12
  6. By: James Bishop (Reserve Bank of Australia); Peter Tulip (Reserve Bank of Australia)
    Abstract: Vector autoregression (VAR) models often find that inflation increases in response to a tightening in monetary policy, although standard macroeconomics predicts the opposite. This 'price puzzle' is commonly thought to reflect interest rates being tightened in anticipation of future inflation, reflecting information possessed by policymakers beyond that contained in the model. Romer and Romer (2004) and Cloyne and Hürtgen (2016) successfully remove the price puzzle from US and UK data, respectively, by purging the cash rate of systematic policy responses to central bank forecasts. We find that this approach does not work for Australia under a wide range of specifications. This suggests that VARs may not be the most reliable way to analyse monetary policy.
    Keywords: price puzzle; monetary policy; VARs
    JEL: E31 E52
    Date: 2017–05
  7. By: Paul Mercier
    Abstract: The purchase of securities, and more specifically government bonds, belongs to the monetary policy implementation framework of many central banks, the Eurosystem being no exception for that matter. However, as for the euro zone, that tool remained unused until 2010, while present in the Eurosystem’s toolkit since its creation. Its implementation in times of crisis raised many debates, comments and even resorts to courts of justice. One of the central issues relates to the monetary financing of the public sector which in turn questions the relations between public debt, central banks and money. This paper does not aim at providing a definite answer to the many questions, or to offer an arbitrage between the different arguments and schools of thoughts. More simply, in view of the often confused state of discussions, it goes back to the basic concepts of money creation, more specifically to the one of money creation by central banks for the benefit of the public sector. Through a series of “typical cas es” of interactions between central banks, commercial banks, public sector and households, the paper favours a better understanding of the quite complex mechanic of money creation through the purchase of public bonds by central and commercial banks. It also addresses a connected topic, i.e. the article 123 of the treaty on the Functioning of the European Union that prohibits the direct purchase by central bank on the primary market of debt instruments issued by the public sector.
    Keywords: monetary policy implementation, central bank, money creation, monetary financing, public debt.
    JEL: E58 E59
    Date: 2017–05
  8. By: Sinelnikova-Muryleva, Elena (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: This work paper is devoted to the study of monetary transmission mechanisms. The first section of the paper is devoted to the review of theoretical approaches to the analysis of monetary transmission and describes various traditional and credit channels, the information channel is also discussed in this section. The second section examines the experience of empirical research of monetary transmission on Russian data. The third section is devoted to the estimation of the transmission channels in Russia considering the transition of the Bank of Russia to the inflation targeting regime. VAR and FAVAR models are used for the estimation. The conclusions from the empirical part of the work paper are made in the fourth section, including the effectiveness of the interest rate channel, q-Tobin channel and the deposit channel.
    Date: 2017–04
  9. By: Funke, Michael; Kirkby, Robert; Mihaylovski, Petar
    Abstract: We analyse the effects of macroprudential and monetary policies and their interactions using an estimated dynamic stochastic general equilibrium (DSGE) model tailored to New Zealand. We find that the main historical drivers of house prices are shocks specific to the housing sector. While our estimates show that monetary policy has large spillover effects on house prices, it does not appear to have been a major driver of house prices in New Zealand. We consider macroprudential policies, including the loan-to-value restrictions that have been implemented in New Zealand. We find that loan-to-value restrictions reduce house prices with negligible effects on consumer prices, suggesting that they can be used without derailing monetary policy. We estimate that the loan-to-value restrictions imposed in New Zealand in 2013 reduced house prices by 3.8 per cent and that greater forward guidance on their duration would have made them more effective.
    Keywords: Macroprudential policies, Housing, DSGE, Bayesian estimation, New Zealand,
    Date: 2017
  10. By: Magdalena Szyszko (WSB University in Poznan, Poland); Aleksandra Rutkowska (Poznan University of Economics and Business, Poland)
    Abstract: Modern monetary policy should be expectations-oriented. The best way to influence expectations operationally is to use inflation forecasts. As different ways of revealing central bank’s intentions exist, a simple research question arises. Does the forward-looking (FL) component of consumers' expectations depend on the way in which the forecast is revealed and used by the central bank? The main purpose of the article is to address the mentioned above question. The research hypothesis assumes that the forecasting system which is more transparent together with a greater central banks’ consistency in inflation forecast targeting (IFT) result in more FL consumers' expectations. We quantified inflation expectations of consumers on the basis of survey responses (EC Business and Consumer Surveys) with Carlson and Parkin method. When it was needed we applied its version adjusted for deflation. Then, we checked the rationality of consumer expectations (tests for their unbiasedness and orthogonality) and the degree of their FL by means of regression models. Finally, we used the IFT index, which we have elaborated ourselves in order to assess the transparency of the forecasting system and the central banks’ commitment to IFT. The research covers Czechia, Hungary, Romania, Poland, Sweden and the UK and the time span of 2001-2016. For Poland, Sweden and the UK more IFT commitment and transparency was related to more consumers’ forward-lookingness. For Czechia we found low level of FL in expectations but high level of IFT commitment. We did not succeed in estimating the extent of FL for the two remaining countries due to structural breaks in their monetary policy. The following study contributes to the literature on inflation forecast targeting as it presents the novel empirical application of IFT index for the expectations analysis.
    Keywords: inflation forecast, inflation forecast targeting, consumers expectations, forward-lookingness of expectations.
    JEL: E58 E43
    Date: 2017–05
  11. By: Georgiadis, Georgios (European Central Bank); Jancokova, Martina (European Central Bank)
    Abstract: Financial globalisation and spillovers have gained immense prominence over the last two decades. Yet, powerful cross-border financial spillover channels have not become a standard element of structural monetary models. Against this background, we hypothesise that New Keynesian DSGE models that do not feature powerful financial spillover channels confound the effects of domestic and foreign disturbances when confronted with the data. We derive predictions from this hypothesis and subject them to data on monetary policy shock estimates for 29 economies obtained from more than 280 monetary models in the literature. Consistent with the predictions from our hypothesis we find: Monetary policy shock estimates obtained from New Keynesian DSGE models that do not account for powerful financial spillover channels are contaminated by a common global component; the contamination is more severe for economies that are more susceptible to financial spillovers in the data; and the shock estimates imply implausibly similar estimates of the global output spillovers from monetary policy in the US and the euro area. None of these findings applies to monetary policy shock estimates obtained from VAR and other statistical models, financial market expectations and the narrative approach.
    JEL: C50 E52 F42
    Date: 2017–05–01
  12. By: Adrien Auclert
    Abstract: This paper evaluates the role of redistribution in the transmission mechanism of monetary policy to consumption. Three channels affect aggregate spending when winners and losers have different marginal propensities to consume: an earnings heterogeneity channel from unequal income gains, a Fisher channel from unexpected inflation, and an interest rate exposure channel from real interest rate changes. Sufficient statistics from Italian and U.S. data suggest that all three channels are likely to amplify the effects of monetary policy. A standard incomplete markets model can deliver the empirical magnitudes if assets have plausibly high durations but a counterfactual degree of inflation indexation.
    JEL: D31 D52 E21 E52
    Date: 2017–05
  13. By: Trunin, Pavel (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Bozhechkova, Alexandra (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Goryunov, Eugene (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Petrova, Diana (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: In this paper we study informational aspects of monetary policy and the impact of information signals of central banks on economic agents behavior. In the first section we present main theoretical frameworks which take into account the information signals of the central banks in conditions of asymmetric information, including the issue of dynamic inconsistency and key mechanisms of its solutions, channels of influence of Central Bank transparency on decisions of economic agents, the problem of displacement of private information with excessive transparency. In the second section we make a review of the empirical literature and conduct econometric calculations on the effect of Bank of Russia communication signals on the performance of monetary, foreign exchange and stock markets. We found a significant reaction of those markets’ indicators and its’ volatility on signals about expected tightening, softening and immutability of monetary policy. Our results indicate that the informational policy of Bank of Russia is partially effective.
    Date: 2017–03
  14. By: Gregory Levieuge; Yannick Lucotte; Florian Pradines-Jobet
    Abstract: According to "Schwartz’s conventional wisdom" and what has been called "divine coincidence", price stability should imply macroeconomic and financial stability. However, in light of the recent financial crisis, with monetary policy focused on price stability, scholars have held that banking and financial risks were largely unaddressed. According to this alternative view, the belief in divine coincidence turns out to be benign neglect. The objective of this paper is to test Schwartz’s hypothesis against the benign neglect hypothesis. The priority assigned to the inflation goal is proxied by the central banks’ conservatism (CBC) index proposed by Levieuge and Lucotte (2014b), here extended to a large sample of 73 countries from 1980 to 2012. Banking sector vulnerability is measured by six alternative indicators that are frequently employed in the literature on early warning systems. Our results indicate that differences in monetary policy preferences robustly explain cross-country differences in banking vulnerability and validate the benign neglect hypothesis, in that a higher level of CBC implies a more vulnerable banking sector
    Keywords: central banks preferences, inflation aversion, banking sector vulnerability, monetary policy
    JEL: E3 E44 E52 E58
    Date: 2017–05–25
  15. By: Ali Ozdagli; Michael Weber
    Abstract: Monetary policy shocks have a large impact on stock returns in narrow windows around press releases by the Federal Reserve. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct effect and an indirect (network) effect. We attribute 50%-85% of the overall effect to indirect effects. The decomposition is a robust feature of the data and we confirm large indirect effects in realized cash-flow fundamentals. A simple model with intermediate inputs guides our empirical strategy. Our findings indicate that production networks might be an important propagation mechanism of monetary policy to the real economy.
    JEL: E12 E31 E44 E52 G12 G14
    Date: 2017–05
  16. By: Salvatore Perdichizzi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: This paper investigates how conventional and unconventional monetary policies announcements a ect European banking indexes returns through an event-study analysis. We use data of 11 European banking indexes for the periods 1999-2015. We examine the state dependency of such e ects and focus on the surprise elements of policy changes derived from the Euribor futures market. Overall, we nd a positive relation between the unexpected changes in the ECBs reference rate and European banking indexes returns. We also discover that the e ect is stronger during the nancial crisis, especially during the sovereign debt crisis. Moreover, we identify a positive relation between the announcements of unconventional policies and the European banking indexes returns , particularly where the banking system was more risky such as Spain, France and Italy but with a low degree of magnitude than expected. Hence, the Euro banks reactions to monetary policies announcements seem to be more relevant through conventional measures with respect to non-conventional ones.
    Keywords: Banking,Conventional and Unconventional Monetary Policy, Interest rate, ECB.
    JEL: G01 E44 E52
    Date: 2017–05
  17. By: Volker Hahn (Department of Economics, University of Konstanz, Germany)
    Abstract: We analyze a simple yet fully non-linear New Keynesian model with a central bank that pursues an inflation targeting strategy. Our analysis shows that expected adverse productivity shocks may drive the economy into a liquidity trap. As our model entails positive or moderately negative inflation in such a situation, it has the potential to explain the so-called “missing disinflation” in the Great Recession. In contrast with some previous papers, we find that the effects of fiscal policy in a liquidity trap are moderate and that reductions in labor income taxes are expansionary. We do not find support for higher inflation targets. Finally, we provide additional support for the view that the common practice of log-linearizing equilibrium relations can be potentially misleading in models with a lower bound on nominal interest rates.
    Keywords: Zero lower bound, missing disinflation, fiscal multiplier, liquidity trap, new Keynesian model, multiple equilibria, inflation target
    JEL: E52 E58 E62
    Date: 2017–05–18
  18. By: srithilat, khaysy; Sun, Gang
    Abstract: This paper examines the impact of monetary policy on the economic development by using annual time series data from 1989-2016. The unit root testing result suggests that all variables are stationary at first difference; therefore, the Johansen Cointegration and Error Correction Model has been employed to analyze the association between variables. The finding shows that money supply, interest rate, and inflation rate negatively effect on the real GDP per capita in the long run and only the real exchange rate has a positive sign. The error correction model result indicates the existence of short-run causality between money supply, real exchange rate and real GDP per capita.
    Keywords: monetary policy, economic development, laos, VECM, cointegration.
    JEL: E52
    Date: 2017–02–17
  19. By: Eleni Dalla (Department of Economics, University of Macedonia)
    Abstract: In this paper, we investigate the effectiveness of monetary policy, in the context of a theoretical model that captures both the banking and the firm behavior. Following the industrial organization approach to banking, the banking sector is described by a two-stage Cournot game with scope economies. On the other hand, the firm behavior concerns the investment decision which is explained using a second order accelerator model in discrete time. Considering the interbank rate and the reserve requirements as the instruments of monetary policy, it is demonstrated that its effectiveness depends on the type of scope economies in the oligopolistic banking sector..
    Keywords: interbank rate, investment decision, reserve requirements, scope economies.
    JEL: G21 L13 D92 E52
    Date: 2017–03
  20. By: Pawe³ Gajewski (Department of Macroeconomics, Institute of Economics, University of Lodz)
    Abstract: This paper investigates patterns of regional inflation persistence in Poland, a representative CEE country. We first argue that the CEE perspective is relevant in the context of this study due to the recent transitions, incomplete processes of forming forward-looking inflation expectations and pronounced spatial inequalities. Using individual and panel regressions on disaggregate data we provide evidence of the aggregation bias and marked differences in inflation persistence across product categories. Furthermore, we show that cross-regional differences in inflation persistence remain, even after controlling for the product category. While we generally confirm the earlier finding of Vaona and Ascari (2012) that more backward regions exhibit higher CPI inflation persistence, we also show that the picture is more nuanced at the product category level.
    Keywords: Regional economic dynamics, CEE, inflation persistence
    Date: 2017–02
  21. By: Trunin, Pavel (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Sinelnikov-Murylev, Segei (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Perevyshin, Yuri (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Egorov, D.A. (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The paper studied the factors of regional differentiation of price levels and inflation in the Russian regions. The law of one price for certain goods in the Russian regions is true for a group of products that can be called homogeneous: their quality and functional properties do not differ between regions. For 70% goods considered the hypothesis of one price was rejected. The extent of price differences in the Russian regions are declining, but still remain significant. In 2015, the cost of living in the cheapest and most expensive region differed 2.5 times. The reasons for price differences in the Russian regions include the level of per capita income and the degree of remoteness of the region from the rest. Domestic factors, determined on the basis of macroeconomic indicators, explained about 53% of the variation of the regional rate of inflation in 1996-2015.
    Date: 2017–02
  22. By: Dongwon Lee (Department of Economics, University of California Riverside); Kyungkeun Kim
    Keywords: Diminishing returns; Exchange rate volatility; Global financial crisis; International reserves
    JEL: F31 F33
    Date: 2017–05
  23. By: Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Komotini, Greece); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Periklis Gogas (Department of Economics, Democritus University of Thrace, Komotini, Greece); Theophilos Papadimitriou (Department of Economics, Democritus University of Thrace, Komotini, Greece)
    Abstract: In this paper, we evaluate the causal relationship between macroeconomic uncertainty indices, inflation and growth rate for 17 Eurozone countries on a county level examination. In performing a series of linear and non-linear causality tests we find little evidence of a causal relationship between uncertainty and macroeconomic variables. Thus, macroeconomic analysis based on uncertainty indices should be treated with caution.
    Keywords: Output growth, inflation, uncertainty, causality
    JEL: C32 E23 E27 E31 E37
    Date: 2017–05
  24. By: Quinn, Stephen F. (Texas Christian University); Roberds, William (Federal Reserve Bank of Atlanta)
    Abstract: We investigate a monetary regime with persistent, near-zero policy interest rates ("permazero" in the terminology of Bullard 2015). This regime was implemented in 1683 by a prominent early central bank called the Bank of Amsterdam ("Bank"). The Bank fixed its policy rate at one-half percent and held it unchanged for more than a century. Maintaining the rate helped stabilize the value of Bank money. We employ archival data to reconstruct the Bank's activities during a portion of that interval (1736–91) for which data are most readily available. The data suggest that "permazero" worked well for long periods because the Bank counteracted market swings with quantitative operations. These same data show how fiscal exploitation denied the Bank sufficient resources to stabilize large shocks, with adverse results.
    Keywords: central banks; monetary policy; zero lower bound
    JEL: E58 E65 N13
    Date: 2017–05–01
  25. By: Citak, Yusuf Ensar; Masih, Mansur
    Abstract: The purpose of this study is to investigate the Granger-causal relationship between oil prices, exchange rates and inflation rates using Turkey as a case study. Revealing this relationship will give us a roadmap to cure fragile Turkish economy. Standard time-series approaches are used to investigate this relation. Our empirical findings tend to indicate that there is a long run relationship between these variables and that the CPI appears to be the variable leading exchange rate and oil prices. The results are plausible and have strong policy implications.
    Keywords: Oil Price, Exchange Rate, CPI, PPI, Turkey, cointegration, exogeneity, endogeneity
    JEL: C58 E44 G15
    Date: 2017–05–12
  26. By: Sohei Kaihatsu (Bank of Japan); Mitsuru Katagiri (Bank of Japan); Noriyuki Shiraki (Bank of Japan)
    Abstract: The relationship between the price-setting behaviors at the micro level and the inflation dynamics at the macro level is an underexplored research area. In this paper, we first document that (i) a remarkable shift in cross-sectional price-change distributions at the micro level and (ii) a flattening of Phillips curve at the macro level were simultaneously observed in Japan, from the high-inflation periods until the mid-1990s to the low-inflation periods afterward. We, then, empirically show that the menu-cost hypothesis fits the price-setting behavior in Japan and construct a multi-sector general equilibrium model with a higher menu cost in the services sector based on our empirical findings. The quantitative exercise using the model indicates that the above observations at the micro and macro level in Japan can be consistently replicated within a unified model under the declining average inflation and the increasing share of services in output.
    Keywords: Phillips curve; Price-change distribution; Menu cost; Service price rigidity; Deflation; Trend inflation
    JEL: E31 E32 E52
    Date: 2017–05–26

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