nep-mon New Economics Papers
on Monetary Economics
Issue of 2018‒02‒05
thirty-two papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The anatomy of inflation: An economic history perspective By Martin T. Bohl; Pierre L. Siklos
  2. Monetary Policy, Macroprudential Regulation and Inequality By Pierre Monnin
  3. Determinants of low inflation in an emerging, small open economy. A comparison of aggregated and disaggregated approaches By Karol Szafranek; Aleksandra Hałka
  4. A Monetary Conditions Index and its Application on Tunisian Economic Forecasting By Mna, Ali; Younsi, Moheddine
  5. Disaggregated Evidence for Exchange Rate and Import Price Pass-through in the Light of Identification Issues, Aggregation Bias and Heterogeneity By Mustafa Utku Ozmen; Meltem Topaloglu
  6. Banking structure and the bank lending channel of monetary policy transmission: evidence from panel data methods By Chileshe, Patrick Mumbi
  7. Credit controls as an escape from the trilemma. The Bretton Woods experience. By Monnet, Eric
  8. Bond Convenience Yields and Exchange Rate Dynamics By Rosen Valchev
  9. Bank Globalization and Monetary Policy Transmission in Small Open Economies By Inhwan So
  10. Policy Uncertainty and the Demand for Money in Australia: An Asymmetry Analysis By BAHMANI-OSKOOEE, Mohsen; Maki Nayeri, Majid
  11. What has publishing inflation forecasts accomplished? Central banks and their competitors By Pierre L. Siklos
  12. Credit Cycles and Capital Flows : Effectiveness of the Macroprudential Policy Framework in Emerging Market Economies By Salih Fendoglu
  13. Measuring monetary policy deviations from the Taylor rule By Madeira, João; Palma, Nuno Pedro G.
  14. Crowding out in a Dual Currency Regime? Digital versus Fiat Currency By KiHoon Hong; Kyounghoon Park; Jongmin Yu
  15. Bank Market Power and the Risk Channel of Monetary Policy By Elena Afanasyeva; Jochen Guntner
  16. The Effect of Oil Prices on Break-Even Inflation Rates of the United States (in Korean) By Jinyong Kim; Junecheol Kim; Hyung Joon Lim
  17. Bimetallism and its discontents: cooperation and coordination failure in the empire’s monetary politics, 1549-59 By Volckart, Oliver
  18. Are Uncertainty Shocks Aggregate Demand Shocks? By Stefano Fasani; Lorenza Rossi
  19. The Combination of Monetary and Fiscal Policy Shocks: A TVP-FAVAR Approach By Molteni, Francesco; Pappa, Evi
  20. Bank Asset Quality & Monetary Policy Pass-Through By Byrne, David; Kelly, Robert
  21. Price Points and Price Dynamics By Volker Hahn; Michal Marencak
  22. Triffin: dilemma or myth? By Michael D. Bordo; Robert N. McCauley
  23. A Neoclassical Theory of Liquidity Traps By Sebastian Di Tella
  24. A model of the market for bank credit: The case of Germany By Bofinger, Peter; Maas, Daniel; Ries, Mathias
  25. Exchange Rate Volatility and Exports in the run-up to the EMU accession By Łukasz Goczek; Dagmara Mycielska
  26. Evidence for the Explosive Behavior of Food and Energy Prices: Implications in Terms of Inflation Expectations By Aytul Ganioglu
  27. Output Costs of Currency Crises: Shocks, Policies and Cycles By Nakatani, Ryota
  28. The concentration and bank stability in Central and Eastern European countries By Renata Karkowska; Małgorzata Pawłowska
  29. The K-Y Paradox: Problems in Creating a Centralised Sovereign Backed Cryptocurrency on a Decentralised Platform By Hegadekatti, Kartik
  30. A Balanced Approach to Monetary Policy By Kaplan, Robert S.
  31. Towards Regional Monetary Unions through Blockchain Networks By Hegadekatti, Kartik
  32. The Efficiency Wage Hypothesis and monetary policy channels of transmission: developments and progress of Basel III leverage ratios By DiGabriele, Jim; Ojo, Marianne

  1. By: Martin T. Bohl; Pierre L. Siklos
    Abstract: In an important sense the present survey reaches a conclusion similar to the one highlighted by Laidler and Parkin (1975) over forty years ago. Inflation, if fully anticipated, produces modest social costs. We are no closer to knowing what is ‘optimal’ inflation except that low and stable inflation come closest to reducing the loss of purchasing power of money. Because prices of goods and services incorporate elements that are difficult to measure precisely we cannot even be sure what the actual level of inflation really is. Hence, what is deemed low may well differ across countries and across time. Nevertheless, avoiding inflation is not only desirable because it represents a form of taxation without representation but, in theory at least, low and stable inflation ought to be more easily forecasted thereby reducing the likelihood of large and persistent forecast errors.
    Date: 2018–01
  2. By: Pierre Monnin (Council on Economic Policies)
    Abstract: The 2008 global financial crisis profoundly changed the role of central banks in the economy. First, central banks engaged in strong expansionary monetary policy, using new unconventional tools to boost economic activity. Second, they were key to containing financial instability, which led them to implement new macroprudential policies to foster future financial stability. The debate about whether these policies have been effective is still ongoing, and often neglects two other crucial issues: What has been the impact of these policies on income and wealth distribution? Does inequality of income and wealth affect whether central bank policies reach their targets? This note highlights research on these two questions presented during a CEP IMF workshop on “Monetary Policy, Macroprudential Regulation and Inequality” and puts them into perspective with other recent theoretical and empirical results. Evidence shows that monetary policy and macroprudential regulation are not neutral in terms of income and wealth distribution. Conventional and unconventional expansive monetary policy both appear to decrease income inequality, mainly through their impact on the labor market, and to increase wealth inequality. Theoretically, macroprudential regulation could also affect inequality, but empirical studies exploring this hypothesis are scarce. Income and wealth distribution also influences the transmission of monetary policy impulses to the aggregate economy. To design effective monetary policy, it is crucial to assess whether the current income and wealth structures in a country accentuate or dampen monetary impulses, and to what extent they do so. Moreover, theoretical and empirical evidence points to an effect of inequality on financial stability. A thorough understanding of this impact is key to shaping optimal monetary policy and macroprudential regulation.
    Date: 2017–04
  3. By: Karol Szafranek (Narodowy Bank Polski, Warsaw School of Economics); Aleksandra Hałka (Narodowy Bank Polski)
    Abstract: We analyse the determinants of the protracted period of exceptionally low inflation in the emerging, small open economy of Poland. We consider a fairly standard set of macroeconomic variables and establish a structural VAR model estimated using Bayesian methods and disentangle the influence of the global and domestic, supply and demand factors affecting headline and core inflation by means of the mixture of zero and sign restrictions. Next, we extend the analysis on a battery of inflation components and construct inflation indices sensitive to the global and domestic factors. We find that the excessive disinflation has been primarily caused by the deteriorating domestic conditions whilst deflation has resulted from the convolution of waning global demand and plummeting oil prices. Disaggregated analysis corroborates the conclusion of the aggregated approach but reveals considerable heterogeneities in the sensitivity of inflation components to the identified shocks. We conclude that the disaggregated analysis brings important information for the monetary policy conduct.
    Keywords: low inflation, small open economy, Bayesian Vector Autoregression, sign restrictions
    JEL: C32 E31 E52
    Date: 2017
  4. By: Mna, Ali; Younsi, Moheddine
    Abstract: The main purpose of this article is to find out the extent of the influence of internal and external monetary conditions on Tunisian macroeconomic aggregates by constructing a synthetic index. Our contribution is, firstly, to calculate the weights assigned to domestic interest rate and the exchange rate based on the estimated coefficients respectively for these two indicators over the period 1965-2015. Secondly, based on the VAR model, we confirm the long-run dynamic between the selected variables. The analysis of shocks indicates that monetary conditions have a particular importance via their influence on economic activity and inflation. The latter is characterized by its significant negative impact on economic growth and by its contribution in linking between internal and external interest rates. Thirdly, we attempt, through a SVAR model, to examine the short run structural dynamics between the selected variables. Results reveal that the Tunisian economy is highly influenced by external monetary conditions. This influence is demonstrated through the dynamics of structural monetary policy shocks and exchange rate. In conclusion, our findings reflect that the exchange rate plays an increasing role in transmitting the monetary policy effect to the inflation rate and thus the real economy.
    Keywords: Monetary conditions index, SVAR approach, Structural monetary shocks
    JEL: E43 E51 E52
    Date: 2018–01–04
  5. By: Mustafa Utku Ozmen; Meltem Topaloglu
    Abstract: For emerging market economies, changes in import prices and exchange rate are among the major determinants of inflation. In general, studies analyzing the pass-through of foreign prices into inflation consider the headline inflation. However, such an approach may suffer from aggregation bias and may not reveal the differences in pass-through due to heterogeneous nature of the CPI. In this paper, we try to investigate the impact of such issues on the pass-through analysis for Turkey over the sample period of 2005-2015. We propose a disaggregated approach and run an extended VAR model for each of 152 subcomponents of the CPI separately. Then, we aggregate the individual impulse-responses of those components with significantly positive response to exchange rate and import prices. Our results reveal a significant heterogeneity in pass-through coefficients across subcomponents of the CPI. We show that the foreign price pass-through is also sizeable in food and services, as well as in core goods and energy. Our findings further point to a clear aggregation bias. Once the disaggregated approach is used, we report a higher pass-through from the exchange rate to the headline inflation.
    Keywords: Inflation, Pass-Through, Exchange-Rate, Import Prices, VAR Analysis, Turkey
    JEL: E31 E58 F31
    Date: 2017
  6. By: Chileshe, Patrick Mumbi
    Abstract: This study examines comprehensively the bank-lending channel of monetary policy for Zambia using a bank-level panel data covering the period Q1 2005 to Q4 2016. Specifically, the study investigates the effects of monetary policy changes on loan supply by commercial as well as the effect of bank-specific factors on response of loan supply to monetary policy shocks. In addition, the study investigates whether the level of bank competition does affect the bank-lending channel. Using a dynamic panel data approaches developed by Arellano-Bond (1991), the results indicate that a bank-lending channel exists in Zambia. In particular, the results show that is loan supply is negatively correlated with policy rate implying that following monetary policy tightening loan supply shrinks. Further, the results indicate that size, liquidity and bank-competiveness have effects on credit supply while capitalization has no effect. Specifically, the results show that bank size has negative effect on credit supply while liquidity and market power are found to enhance credit supply. Most importantly, the results showed that bank-specific factors and bank-competiveness is responsible for the asymmetrical response of banks to monetary policy. Specifically, the results showed that larger banks, banks with more market power, well-capitalized banks and liquid banks respond less to monetary policy tightening and vice-versa.
    Keywords: Monetary Policy Transmission, Bank Lending Channel, Panel Data, Generalized Method of Moments, Zambia
    JEL: E44 E52 G3
    Date: 2017–09
  7. By: Monnet, Eric
    Abstract: The macroeconomic policy "trilemma" is widely used as a framework to discuss the rationale for capital controls and monetary policy autonomy under the Bretton Woods system (1944-1971). Without denying its usefulness, I highlight two facts at odds with assumptions underlying the "trilemma" argument. First, conflicts between internal and external objectives were uncommon. Second, using quantitative credit controls allowed central banks to disconnect their interest rate from the domestic monetary policy stance. They assigned the interest rate to the external side while managing domestic credit expansion with direct quantitative controls. This paper documents that such mechanism was explicitly considered by contemporary economists and central bankers as a way to escape international financial constraints. In such an environment, capital controls were used to complement credit controls. Interest rate spreads were neither a good measure of capital controls nor of central bank autonomy.
    Keywords: Bretton Woods; capital controls; central banking; credit controls; macroprudential policies; reserve requirements; trilemma
    JEL: E58 F32 N20
    Date: 2017–12
  8. By: Rosen Valchev (Boston College)
    Abstract: This paper proposes a new explanation for the failure of Uncovered Interest Parity (UIP) that rationalize both the classic UIP puzzle and the evidence that the puzzle reverses direction at longer horizons. In the model, excess currency returns arise as compensation for endogenous fluctuations in bond convenience yield differentials. Due to the interaction of monetary and fiscal policy, the impulse response of the equilib- rium convenience yield is non-monotonic, which generates the reversal of the puzzle. The model fits exchange rate dynamics very well, and I also find direct evidence that convenience yields indeed drive excess currency returns.
    Keywords: Uncovered Interest Rate Parity, Exchange Rates, Open Economy Macroeconomics, Bond Convenience Yield, Monetary-Fiscal Interaction, Government Debt Dynamics
    JEL: F31 F41 F42 E43 E52 E63
    Date: 2017–10–16
  9. By: Inhwan So (International Department, The Bank of Korea)
    Abstract: This paper investigates how the openness of banking sector influences the transmission channels of home and foreign monetary policy shocks in small open economies. For the analysis, I construct a small open economy DSGE model enriched with a banking sector. I consider two forms of bank globalization: international bank capital finance and foreign loan account import. From the analysis, I find that bank globalization leads to a significant attenuation of domestic monetary policy transmission. On the other hand, opening of the banking sector intensifies the impact of foreign interest rate shocks on the local bank activities.
    Keywords: Bank globalization, Monetary policy, Dynamic stochastic general equilibrium model, Small open economies
    JEL: E32 E44 E52 E58 F36
    Date: 2017–11–20
  10. By: BAHMANI-OSKOOEE, Mohsen; Maki Nayeri, Majid
    Abstract: Previous research considered impacts of monetary and output uncertainty on the demand for money in Australia using a linear model and found that while output volatility has significantly positive effects, money supply volatility does not. Furthermore, predictive power of the linear model was very low. In this paper we use a nonlinear model and a new measure of uncertainty known as policy uncertainty and show that this new measure has significantly long-run asymmetric effects on the demand for money in Australia. Due to nonlinear adjustment of policy uncertainty measure, the new nonlinear model has a very high predictive power. The adjusted R2 moves from 0.30 in the linear model to 0.80 in the nonlinear model.
    Keywords: Money Demand, Australia, Policy Uncertainty, Asymmetry, Nonlinear ARDL
    JEL: E41
    Date: 2017–04–01
  11. By: Pierre L. Siklos
    Abstract: This paper has examined the evolution of disagreement over the short-term inflation outlook in nine advanced economies during the decade and half beginning in the 2000s. The paper focuses on how disagreement is largely shaped by the benchmark against which this concept is evaluated and the role of potential shocks to the inflation process such as the global financial crisis.
    Date: 2018–01
  12. By: Salih Fendoglu
    Abstract: I assess the effectiveness of macroprudential policy tools in containing credit cycles per se or the impact of portfolio inflows on the cycles in major emerging market economies. The results show that borrower-based tools, measures with a domestic focus, and domestic reserve requirements are particularly effective. The findings are, in most cases, stronger for the recent period during which most of the macroprudential actions are undertaken, and generally hold for alternative definitions of credit cycle, the monetary policy stance, and portfolio inflows. Moreover, the analyses focusing on the recent period and the regional analyses suggest that foreign-currency based measures are effective. Still, these measures being implemented in a few countries or only recently makes it harder to draw general conclusions. Lastly, financial-institutions-based measures are found to be effective for the Emerging Europe which has resorted to these policies relatively frequently. This result hints at the importance of building up experience in implementing macroprudential measures.
    Keywords: Credit cycles, Capital flows, Macroprudential policies, Reserve requirements, Emerging market economies
    JEL: E58 F32 G18 G28
    Date: 2017
  13. By: Madeira, João; Palma, Nuno Pedro G.
    Abstract: We estimate deviations of the federal funds rate from the Taylor rule by taking into account the endogeneity of output and inflation to changes in interest rates. We do this by simulating the paths of these variables through a DSGE model using the estimated time series for the exogenous processes except for monetary shocks. We then show that taking the endogeneity of output and inflation into account can make a significant quantitative difference (which can exceed 40 basis points) when calculating the appropriate value of interest rates according to the Taylor rule.
    Keywords: Bayesian estimation; Business Cycles; DSGE; interest rates; New Keynesian models; sticky prices
    JEL: E32 E37 E50
    Date: 2018–01
  14. By: KiHoon Hong (College of Business, Hongik University); Kyounghoon Park (Economic Research Institute, The Bank of Korea); Jongmin Yu (School of Economics, Hongik University)
    Abstract: In this paper, we analyse a dual currency regime with fiat currency and digital currency and investigate potential crowding-out effects of fiat currency or digital currency under the framework of the traditional monetary economic model. We find that crowding out only occurs under extreme assumptions, i.e. extremely high costs associated with the use (medium of exchange and store of value) of one currency and extremely low costs associated with the use of the other currency.
    Keywords: Bitcoin, Digital currency, Dual currency, Crowding out
    JEL: E00 E41 E42
    Date: 2017–04–24
  15. By: Elena Afanasyeva; Jochen Guntner
    Abstract: This paper investigates the risk channel of monetary policy through banks' lending standards. We modify the classic costly state verification (CSV) problem by introducing a risk-neutral monopolistic bank, which maximizes profits subject to borrower participation. While the bank can diversify idiosyncratic default risk, it bears the aggregate risk. We show that, in partial equilibrium, the bank prefers a higher leverage ratio of borrowers, when the profitability of lending increases, e.g. after a monetary expansion. This risk channel persists when we embed our contract in a standard New Keynesian DSGE model. Using a factor-augmented vector autoregression (FAVAR) approach, we find that the model-implied impulse responses to a monetary policy shock replicate their empirical counterparts.
    Keywords: Lending standards ; Credit supply ; Costly state verification ; Risk channel ; Monetary policy
    JEL: D53 E44 E52
    Date: 2018–01–19
  16. By: Jinyong Kim (Secretariat, The Bank of Korea); Junecheol Kim (Reserve Management Group, The Bank of Korea); Hyung Joon Lim (Gangneung Branch, The Bank of Korea)
    Abstract: This article is an empirical study on the effect of changes in oil prices on break-even inflation rates (BEIs) of Treasury Inflation Protected Securities (TIPS) of the United States. The results of this analysis show that oil prices make a statistically significant effect on the BEIs with maturities of 2 year, 5 year, and 10 year. These sensitivities are salient in the BEIs with shorter maturities. These implies that the changes in oil prices can affect inflation expectations in the short term but this effect gets diminished to the extinction because inflation expectations depend on the inflation target of a monetary policy. Notably, the 5Y5Y BEI has a statistically significant relation with the changes in oil prices only when the slope of oil futures curve flattens and oil prices are falling. This observation reveals that financial market participants adjust their inflation expectations with confidence only in case of the simultaneous drop of the slope of oil futures curve and oil prices. Assuming the BEI is a reasonable estimator of inflation expectations extracted from financial market, oil prices make a limited impact on medium and long term inflation expectations (5Y5Y BEI). From these results we can make an inference that current movements of oil prices and financial market participants’expectation of oil price path make joint contribution to the formation of medium and long term inflation expectations.
    Keywords: Treasury inflation protected securities (TIPS), Break-even inflation rate, Inflation expectations, Oil prices
    JEL: E31 E43 E44 Q43
    Date: 2017–03–20
  17. By: Volckart, Oliver
    Abstract: The article uses new sources to review the hypotheses that Charles V’s currency bill of 1551 failed because of the electoral-Saxon resistance against the undervaluation of the taler that it stipulated, or because the emperor was too weak to overcome the estates’ resistance to collective action in monetary policies. The study shows that these issues were overshadowed by the dispute about whether a bimetallic currency should be established. Charles V’s currency bill failed because the Diet of Augsburg (1550-51) asked the emperor to publish it before all open issues had been resolved. This request placed the emperor in a dilemma where he had to make a decision but could not do so without antagonising important parties. It was the result of a coordination failure at the level of the Empire; this, in turn, was a consequence of a lack of continuity among the personnel involved in shaping monetary policies.
    Keywords: monetary policies; constitutional history; public debts; bimetallism; 16th century
    JEL: N13 N23 N43
    Date: 2017–12
  18. By: Stefano Fasani (University of Milan Bicocca); Lorenza Rossi (Department of Economics and Management, University of Pavia)
    Abstract: This note considers the Leduc and Liu (JME, 2016) model and studies the effects of their uncertainty shock under different Taylor-types rules. It shows that both the responses of real and nominal variables highly depend on the Taylor rule considered. Remarkably,in?flation reacts positively so that uncertainty shocks look more like supply shocks, once an empirically plausible degree of interest rate smoothness is taken into account. This result is reinforced with less reactive monetary rules. Overall, these rules bring about a less severe recession.
    Keywords: Uncertainty Shocks, DSGE Model, Search and Matching frictions, Taylor rules, In?flation Dynamics
    JEL: E12 E21 E22 E24 E31 C32
    Date: 2018–01
  19. By: Molteni, Francesco; Pappa, Evi
    Abstract: We analyze the joint effects of monetary and fiscal policy shocks in the U.S. economy using a factor augmented vector autoregressive model with drifting coefficients and stochastic volatility. The time varying structure of the model allows us to assess whether the transmission of monetary policy shocks differ when combined with exogenous expansionary and contractionary fiscal shocks, identified with the narrative approach. Government spending and temporary fiscal transfers weaken the effects of monetary policy shocks; permanent transfers are less effective to counteract the demand effects of monetary policy changes; while tax shocks do not alter the propagation of monetary policy shocks.
    Keywords: fiscal policy shocks; monetary policy shocks; narrative evidence; TVP-FAVAR
    JEL: C32 E52 E62 E63 E65
    Date: 2017–12
  20. By: Byrne, David (Central Bank of Ireland); Kelly, Robert (Central Bank of Ireland)
    Abstract: The funding mix of European firms is heavily weighted towards bank credit, underscoring the importance of efficient pass-through of monetary policy actions to lending rates faced by firms. Euro area pass-through has shifted from being relatively homogenous to fragmented and incomplete since the financial crisis. Distressed loan books are a crisis hangover with direct implications for profitability, hampering banks ability to supply credit and lower loan pricing in response to reductions in the policy rate. This paper presents a parsimonious model to decompose the cost of lending and highlight the role of asset quality in diminishing pass-through. Using bank level data over the period 2008-2014, we empirically test the implications of the model, with results showing that asset quality, measured through a one percentage point increase in the impairment ratio have a significant negative impact, lowering immediate pass-through by 3 per cent. For impairment rates greater than 17 per cent, we find that pass-though is not significantly different from zero. We derive a measure of the hidden bad loan problem, the NPL gap, which we define as the excess of NPLs over impaired loans. We show it played a significant role in the fragmentation of euro area pass-through post-crisis.
    Keywords: Monetary Policy Pass-through, Impaired Loans, Non-Performing Loans, Interest Rates
    JEL: D43 E51 E52 E58 G21
    Date: 2017–12
  21. By: Volker Hahn (Department of Economics, University of Konstanz); Michal Marencak (Department of Economics, Graduate School of Decision Science, University of Konstanz)
    Abstract: This paper proposes a macroeconomic model with positive trend inflation that involves an important role for price points as well as sticky information. We argue that, in particular, a variant of our model that allows for a general distribution of price points is more successful in explaining several stylized facts of individual price setting than a benchmark model that is based on Calvo price-setting. More specifically, it makes empirically reasonable predictions with regard to the duration of price spells, the sizes of price increases and decreases, the shape of the hazard function, the fraction of price changes that are price increases, and the relationship between price changes and inflation. Moreover, our model implies plausible aggregate effects of monetary policy in contrast with a model with a prominent role for price points but no information rigidities.
    Keywords: price stickiness; price point; sticky information
    JEL: E31 E37
    Date: 2018–01–23
  22. By: Michael D. Bordo; Robert N. McCauley
    Abstract: Triffin gained enormous influence by reviving the interwar story that gold scarcity threatened deflation. In particular, he held that central banks needed to accumulate claims on the United States to back money growth. But the claims would eventually surpass the US gold stock and then central banks would inevitably stage a run on it. He feared that the resulting high US interest rates would cause global deflation. However, we show that the US gold position after WWII was no worse than the UK position in 1900. Yet it took WWI to break sterling’s gold link. And better and feasible US policies could have kept Bretton Woods going. This history serves as a backdrop to our critical review of two later extensions of Triffin. One holds that the dollar’s reserve role required US current account deficits. This current account Triffin is popular, but anachronistic, and flawed in logic and fact. Nevertheless, it pops up in debates over the euro’s and the renminbi’s reserve roles. A fiscal Triffin holds that global demand for safe assets will either remain dangerously unsatisfied, or force excessive US fiscal debt. Less flawed, this story posits implausibly inflexible demand for and supply of safe assets. Thus, these stories do not convince in their own terms. Moreover, each lacks Triffin’s clear cross-over point from a stable system to an unstable one. Triffin’s seeming predictive success leads economists to wrap his brand around dissimilar stories. Yet Triffin’s dilemma in its most general form correctly points to the conflicts and difficulties that arise when a national currency plays a role as an international public good.
    JEL: F32 F33 F34 F41 H63
    Date: 2018–01
  23. By: Sebastian Di Tella
    Abstract: This paper provides an equilibrium theory of liquidity traps and the real effects of money. Money provides a safe store of value that prevents interest rates from falling enough during downturns, and the economy enters a persistent slump with depressed investment. This is an equilibrium outcome—prices are flexible, markets clear, and inflation is on target—but it’s not efficient. Investment is too high during booms and too low during liquidity traps. Although money has large real effects, monetary policy is ineffective—the zero lower bound is not binding, money is superneutral, and Ricardian equivalence holds. The optimal allocation requires the Friedman rule and a tax/subsidy on capital.
    JEL: E3 E4 E5
    Date: 2018–01
  24. By: Bofinger, Peter; Maas, Daniel; Ries, Mathias
    Abstract: Since the financial crisis there exists a widespread discussion about the role of banking in a monetary economy. We contribute to this discussion by presenting a basic model of the banking sector which models banks as originators of credit without owning pre-collected savings or reserves beforehand. Additionally, we estimate an empirical model of the German credit market for non-financial corporations in a disequilibrium framework. Empirically, we detect a significant role for the variables that are chosen on the basis of our price-theoretic model.
    Keywords: Credit,Money Supply,Money Multiplier
    JEL: E51
    Date: 2017
  25. By: Łukasz Goczek (University of Warsaw); Dagmara Mycielska (University of Warsaw)
    Abstract: According to theory of monetary integration, lower exchange rate variability is believed to be the main positive effect of a common currency. However, empirical studies do not confirm this negative and significant impact of exchange rate volatility on trade. In this report, we analyze the relationship between the exchange rate volatility and the export performance of Central and Eastern European non-euro EU countries: Poland, Czechia, Hungary, and Romania. We use monthly frequency data on export flows to the euro area and the European Union. The sample covers the period from 2000M1 till 2015M6 and we control for the financial crisis of 2008-2009 when exchange rate variability increased considerably. We measure exchange rate volatility using traditional standard deviation approach and GARCH models. The main hypothesis is verified using both aggregated data and sectoral trade data. The effects of euro exchange rate volatility on Polish trade are explored with more focus by estimating a series of vector error correction models and by assessing impulse-response functions. For the panel data estimation, we employ second generation dynamic panel cointegration model with PMG estimator. The results suggest that the elimination of the exchange rate volatility through euro adoption will not necessarily increase the export performance of the countries integrating with the euro area.
    Keywords: exchange rate volatility, exports, EMU, GARCH, cointegration, PMG estimator
    JEL: F14 F15
    Date: 2017
  26. By: Aytul Ganioglu
    Abstract: In this paper, using the recent recursive unit root tests proposed by Phillips et al. (2015), we identify and date-stamp the periods where processed food and energy prices deviate explosively from core inflation and analyze its implications in terms of anchoring inflation expectations. During the period of January 2003-March 2017, we identify existence of three such episodes. Identifying these explosive periods is particularly important, since the evidence reveals that consumers change, i.e., revise their inflation expectations during periods when processed food and energy prices deviate explosively from core inflation. Results indicate that when forming inflation expectations, consumers rely on macroeconomic variables as well as past inflation both in normal and explosive periods. A particularly important policy implication of these findings is that periods of explosive deviations of processed food and energy prices from core inflation should be monitored while designing policies to anchor inflation expectations.
    Keywords: Explosive behavior, Food prices, Inflation expectations, Generalized sup ADF test, Inflation, Core inflation
    JEL: C5 E31
    Date: 2017
  27. By: Nakatani, Ryota
    Abstract: This paper studies output declines during currency crises based on the theoretical model by Nakatani (2016, 2017a), highlighting the role of shocks that trigger crises. Using panel data on 49 developing countries, we find that both productivity shocks in the real sector and shocks to the country’s risk premium in financial markets affect the output costs of currency crises, which are 4% of GDP on average and 8% for severe crises. During severe currency crises in Asian and Latin-American countries, both productivity shocks and exchange rate overvaluation were found to be important factors in explaining large output losses.
    Keywords: Growth; Currency Crisis; Productivity; Risk Premium; Exchange Rate Overvaluation; Developing Countries
    JEL: E32 F41 F43 G15 O47
    Date: 2018–01–01
  28. By: Renata Karkowska (University of Warsaw); Małgorzata Pawłowska (Warsaw School of Economics; Narodowy Bank Polski;)
    Abstract: The aim of this paper is to discuss changes in the banking sectors in Central and Eastern European countries, with particular emphasis on the change in market structure, the concentration and the share of foreign capital, in an attempt to determine the relationship between market structure and stability in the period 1999-2015. Using the methodology of panel regression, GMM estimator, we examine the implications of banks’ concentration that manifest themselves as spreading and growing instability. The study contributes to the literature by focusing on a group of countries from Central and Eastern Europe, which are not explain in previous research and they are playing the role of a host country for banks from a number of countries in Europe. Finally, our results reveal that the persistence of risk is affected by the level of bank concentration and this effect is exacerbated during the downturn.
    Keywords: banking, concentration, foreign ownership, stability, CEE countries
    JEL: F36 G2 G21 G34 L1
    Date: 2017
  29. By: Hegadekatti, Kartik
    Abstract: Cryptocurrency networks and Blockchains are decentralized systems, functioning on distributed consensus. Fiat currencies on the other hand are issued, maintained and supervised by a sovereign central authority. RSBCs are Regulated And Sovereign Backed Cryptocurrencies (based on the K-Y Protocol) i.e. they are essentially decentralized cryptocurrencies floated by a central (sovereign) authority; it presents a paradox; known as the K-Y paradox. This paper explores the various dimensions of the K-Y paradox and its resolution.
    Keywords: K-Y Protocol, blockchain, cryptocurrency, bitcoin
    JEL: C88 D02 E42 E51 E52
    Date: 2017–03–29
  30. By: Kaplan, Robert S. (Federal Reserve Bank of Dallas)
    Abstract: An essay by Dallas Fed President Robert S. Kaplan from November 27, 2017.
    Date: 2017–11–27
  31. By: Hegadekatti, Kartik
    Abstract: The concept of political and economic integration has not progressed beyond the concept of a Nation-state. The primary reason is the trust deficit among citizens in a supra-national entity. We can use Blockchain systems-which are trustless networks-to resolve this issue. We can float a Regional Cryptocurrency (RCC) which can bring about a successful Regional Monetary Unions (RMU) amongst a group of nations in a transparent manner. This paper deals with the idea of realizing a monetary union through Blockchain networks. Firstly I describe the basics of cryptocurrencies and RSBCs. Then we shall evaluate how RMUs have failed due trust deficit among citizens of members of RMU. We then analyse as to how Blockchain networks can be a solution to these problems. The paper concludes by summarizing the difficulties and solutions regarding successful formation of Regional Monetary Unions.
    Keywords: Monetary Union, Common Currency, Trade Agreement, Euro
    JEL: E42 E51 E58 F02 F15 F33 F36 N15 N16 N17
    Date: 2017–04–01
  32. By: DiGabriele, Jim; Ojo, Marianne
    Abstract: It is argued that “ the ascendency of the emerging economies changed the relative returns to labor and capital – and that because these economies’ global integration has made labor more abundant, workers in developed countries have lost some of their bargaining power – thus putting downward pressure on real wages.” Central bankers’ misunderstanding of certain monetary implications have also been highlighted in that by keeping interest rates too low, they allowed a build up of excess liquidity which flowed into the prices of assets such as homes – contributing to the build up leading to the 2007-2009 global Financial Crisis. The introduction of the 2010 Basel III leverage ratios was intended not only to address shortcomings of the previous Basel capital framework, but also intended to serve as a complement to the risk based capital adequacy framework. However, as with many implementation challenges, other issues which involve calibration between the risk based and leverage based frameworks continue to constitute areas of concern for regulators – and supervisors. So also matters relating to disclosures – as evidenced by ongoing initiatives in respect of Pillar 3. This paper aims to highlight progress and developments being made since 2010 – as well as accentuate challenges still being encountered by the leverage based framework. Herein lies the importance of continued collaborative efforts aimed at facilitating comparability, consistency, understanding and communication between national and federal regulators and supervisors from different jurisdictions – in efforts aimed at realizing Basel III initiatives and objectives.
    Keywords: monetary policy; leverage ratios; risk based capital adequacy measures; disclosures; Efficiency wage Hypothesis
    JEL: E3 E5 E58 G3 G38 K2 M4
    Date: 2017–11

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