nep-mon New Economics Papers
on Monetary Economics
Issue of 2018‒05‒28
twenty-six papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Central Bank information and the effects of monetary shocks By Paul Hubert
  2. Broadening narrow money: monetary policy with a central bank digital currency By Meaning, Jack; Dyson, Ben; Barker, James; Clayton, Emily
  3. Interest Rate Rules, Forward Guidance Rules and the Zero Lower Bound on Nominal Interest Rates in a Cost Channel Economy By Lasitha R.C. Pathberiya
  4. Jobless Recovery, Liquidity Trap, Tight Monetary Policy and the Cost Channel By Lasitha R.C. Pathberiya
  5. ‘New Normal’ or ‘New Orthodoxy’? Elements of a Central Banking Framework for the After-Crisis By Christian Pfister, Natacha Valla
  6. A time series model of interest rates with the effective lower bound By Benjamin K Johannsen; Elmar Mertens
  7. Natural interest rates in the U.S., Canada and Mexico By Kan Chen; Nathaniel Karp
  8. The enduring link between demography and inflation By Mikael Juselius; Előd Takáts
  9. Community currency, local currency, negotiable voucher and others: a theoretical attempt to classify money substitutes into a system By József Varga; Gábor Sárdi; Tamás Kovács
  10. ECB monetary policy and the euro exchange rate By Martina Cecioni
  11. Financial and price stability in emerging markets: the role of the interest rate By Lorenzo Menna; Martin Tobal
  12. Channels of US monetary policy spillovers to international bond markets By Elias Albagli; Luis Ceballos; Sebastián Claro; Damian Romero
  13. Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed: Re-evaluating the Role of Monetary Policy in Economic Fluctuations By Baumeister, Christiane; Hamilton, James
  14. Central bank digital currencies - design principles and balance sheet implications By Kumhof, Michael; Noone, Clare
  15. The global component of inflation volatility By Andrea Carriero; Francesco Corsello; Massimiliano Marcellino
  16. Could a higher inflation target enhance macroeconomic stability? By José Dorich; Nicholas Labelle St-Pierre; Vadym Lepetyuk; Rhys Mendes
  17. Do we really know that US monetary policy was destabilizing in the 1970s? By Qazi Haque; Nicolas Groshenny; Mark Weder
  18. A Dynamic Analysis of Nash Equilibria in Search Models with Fiat Money By Federico Bonetto; Maurizio Iacopetta
  19. The (Un)Demand for Money in Canada By Geoffrey Dunbar; Casey Jones
  20. Money growth targeting and indeterminacy in small open economies By Kevin x.d. Huang; Qinglai Meng; Jianpo Xue
  21. Breaking the trilemma: the effects of financial regulations on foreign assets By David Perez-Reyna; Mauricio Villamizar-Villegas
  22. Some Empirical Evidence on Models of the Fisher Relation: Post-Data Comparison By KIM, Jae-Young; PARK, Woong Yong
  23. Procyclical Finance: The Money View By Li, Ye
  24. Identifying the Main Determinants of Consumer Price Growth in the Russian Economy Under the Inflation Targeting Policy By Korishchenko, Konstantin; Pilnik, Nikolay; Ivanova, Maria
  25. Effects of asset purchases and financial stability measures on term premia in the euro area By Richhild Moessner
  26. he Natural Rate of Interest: Information Derived from a Shadow Rate Model By Viktors Ajevskis

  1. By: Paul Hubert (Observatoire français des conjonctures économiques)
    Abstract: Does the effect of monetary policy depend on the macroeconomic information released by the central bank? Because differences between central bank’s and private agents’ information sets affect private agents’ interpretation of policy decisions, this paper aims to investigate whether the publication of macroeconomic information by the central bank modifies private responses to monetary policy. We assess the non-linear effects of monetary shocks conditional on the Bank of England’s macroeconomic projections on UK private inflation expectations. We find that inflation projections modify the impact of monetary shocks. When contractionary monetary shocks are interacted with positive (negative) projections, the negative effect of policy on inflation expectations is amplified (reduced). This suggests that providing guidance about central bank future expected inflation helps private agents’ information processing, and therefore changes their response to policy decisions.
    Keywords: Monetary policy; Information processing; Signal extraction; Market based inflation expectations; Central bank projections; Real time forecasts
    JEL: E52 E58
    Date: 2017–08
  2. By: Meaning, Jack (Bank of England); Dyson, Ben (Bank of England); Barker, James (University of Exeter); Clayton, Emily (Bank of England)
    Abstract: This paper discusses central bank digital currency (CBDC) and its potential impact on the monetary transmission mechanism. We first offer a general definition of CBDC which should make the concept accessible to a wide range of economists and policy practitioners. We then investigate how CBDC could affect the various stages of transmission, from markets for central bank money to the real economy. We conclude that monetary policy would be able to operate much as it does now, by varying the price or quantity of central bank money, and that transmission may even strengthen for a given change in policy instruments.
    Keywords: Central bank digital currency; money; monetary policy; cryptocurrency
    JEL: E42 E52 E58
    Date: 2018–05–18
  3. By: Lasitha R.C. Pathberiya (Central Bank of Sri Lanka; School of Economics, The University of Queensland)
    Abstract: The main aim of this study is to examine the behaviour of main macroeconomic variables under some interest rate rules and a forward guidance rule in a cost channel economy1 in the presence of the ZLB. The ZLB is considered as an occasionally binding constraint. Interest rate rules are represented by Taylor-type truncated rules (TTR) while the forward guidance (FG) rule is an endogenous threshold-based rule. Under TTRs, first, the cost channel economy is more likely to fall into a liquidity trap and remain longer compared to the no-cost channel economy. Second, the risky steady state of a cost channel economy has more deflation bias than a no-cost channel economy. Third, the welfare loss is higher when uncertainty is high and it is appreciably higher in cost channel economies. Under the FG rule, compared to the TTR, the following results hold, irrespective of the cost channel: First, an appropriate FG rule can avoid deflation bias while strict FG leads to an inflation bias. Second, the FG rule reduces the frequency of liquidity-trapped recessions. Third, the depth of the recession under the FG rule is lower. The existence of the cost channel amplifies the inflation bias under the FG rule. The findings of this study suggest that if a cost channel was present in an economy, the transmission of monetary policy may be different from that in a no-cost channel economy in the presence of the ZLB. Additionally, if agents expect future recessions, achieving the inflation target is more challenging in cost channel economies. Therefore, central banks should pay careful attention to the cost channel of monetary policy when they set policies under such economic conditions. Further, this study finds that the endogenous FG rule improves welfare compared to the interest rules considered.
    Keywords: cost channel of monetary policy, zero rates on interest rates, interest rate rules, forward guidance rules, inflation bias, deflation bias
    JEL: E31 E32 E43 E52 E58
  4. By: Lasitha R.C. Pathberiya (Central Bank of Sri Lanka; School of Economics, The University of Queensland)
    Abstract: In this study, I examine the robustness of an unconventional monetary policy in a cost channel economy. The unconventional monetary policy proposed by Schmitt-Grohé and Uribe (2017, American Economic Journal: Macroeconomics, SGU henceforth), recommends a tight monetary policy during a liquidity-trapped recession to stimulate the economy and to avoid jobless recovery. The results of my study show that the existence of the cost channel implies that the SGU policy induces sharp initial contractions in the employment rate and the growth rate, and a sharp increase in inflation following a negative confidence shock. Welfare is lower in cost channel economies compared to no-cost channel economies due to the SGU policy recommendation. Two alternative interest rate-based exit policies are also examined. The Overshoot interest rate policy, irrespective of the presence of the cost channel, is superior to the SGU policy with regard to welfare. The Staggered policy has lower immediate pain in the cost channel economy compared to the SGU policy or the Overshoot policy. However, welfare-wise, the Staggered policy is inferior to the other two policies examined in both economies considered.
    Keywords: cost channel of monetary policy, zero rates on interest rates, liquidity trap, jobless recovery, downward nominal wage rigidity, Taylor rule
    JEL: E31 E32 E52 E58
    Date: 2018–05–14
  5. By: Christian Pfister, Natacha Valla
    Abstract: Two different approaches to central banking in the aftermath of the crisis are contrasted. In the first one, labelled ‘New Normal’, the monetary policy strategy is broadened to encompass such objectives as financial stability or full employment. Furthermore, the inflation target is raised and large scale asset purchases (LSAPs) are retained as a standard instrument for implementing monetary policy. In the second approach, which we label ‘New Orthodoxy’, central banks keep the same objectives but interest rates can be brought to unprecedented negative levels, thus making LSAPs possibly unnecessary. The role of central banks in preserving financial stability is also explicitly recognized, both by themselves and by society, making their contribution to this task more effective and transparent.
    Keywords: Central banks, Monetary policy, Financial stability
    JEL: E42 E43 E50 E52 E58
    Date: 2018
  6. By: Benjamin K Johannsen; Elmar Mertens
    Abstract: Modeling nominal interest rates requires their effective lower bound (ELB) to be taken into account. We propose a flexible time series approach that includes a "shadow rate" - a notional rate identical to the actual nominal rate except when the ELB binds. We apply this approach to a trend-cycle decomposition of interest rates and macroeconomic variables that generates competitive interest-rate forecasts. Our estimates of the real-rate trend have edged down somewhat in recent decades, but not significantly so. We identify monetary policy shocks from shadow-rate surprises and find that they were particularly effective at stimulating economic activity during the ELB period.
    Keywords: shadow rate, effective lower bound, trend real rate, monetary policy shocks, bayesian time series
    JEL: C32 C34 C53 E43 E47
    Date: 2018–04
  7. By: Kan Chen; Nathaniel Karp
    Abstract: The natural interest rate, or r-star, has been a critical determinant of monetary policy normalization in the U.S. and other countries. With the U.S. Federal Reserve expected to continue raising interest rates, central banks in other countries will have to balance the spillover effects with their own internal dynamics.
    Keywords: Working Paper , Global Economy , USA , Global , Mexico
    JEL: E42 E60 G15
    Date: 2018–05
  8. By: Mikael Juselius; Előd Takáts
    Abstract: Demographic shifts, such as population ageing, have been suggested as possible explanations for the past decade's low inflation. We exploit cross-country variation in a long panel to identify age structure effects in inflation, controlling for standard monetary factors. A robust relationship emerges that accords with the lifecycle hypothesis. That is, inflationary pressure rises when the share of dependants increases and, conversely, subsides when the share of working age population increases. This relationship accounts for the bulk of trend inflation, for instance, about 7 percentage points of US disinflation since the 1980s. It predicts rising inflation over the coming decades.
    Keywords: demography, ageing, inflation, monetary policy
    JEL: E31 E52 J11
    Date: 2018–05
  9. By: József Varga (Kaposvár University, Faculty of Economics); Gábor Sárdi (Kaposvár University, Faculty of Economics); Tamás Kovács (University of Sopron Alexandre Lamfalussy Faculty of Economics)
    Abstract: In our study we tried to group money substitutes including complementary currencies known as "community currencies? in particular pursuing a new kind of approach. This objective was supported by the question whether there is a structuring principle according to which we can make groups of the different types of currencies and money substitutes in a structured manner. We have substantial and continuously developing literature of community currencies. However, as we know there are not many publications and studies about their classification. It is true that several authors and organizations have tried to make categories of currencies that exist besides legal currencies or that can be operated (e.g. Lietaer, Kennedy, Regiogelde. V Cooperation, Utterguggenberger Institution, Blanc, Bode, Boonstra and his colleagues, Greco, Mertignoni), but our opinion is that they are incomplete.On the one hand the aspects of classification developed in literature do not put the criteria of the classification into the whole monetary system and the currency system, on the other hand the main goal of certain criteria was not to create a structured system but to classify and to categorise the unique trials of money substitutes on the basis of some criteria. In our study we try to fill the two gaps above placing the certain types of money substitutes into a single system and a conceptual scheme.
    Keywords: community currency, money substitutes, classification
    JEL: E40 E42 R51
    Date: 2018–04
  10. By: Martina Cecioni (Bank of Italy)
    Abstract: The paper provides empirical evidence on the effects of ECB conventional and unconventional monetary policy on the euro exchange rate, focusing on the period from January 2013 to September 2017. Innovations to conventional and unconventional monetary policies are identified through changes in, respectively, short- and long-term interest rates immediately after Governing Council meetings. Both types of measures contributed to the depreciation of the euro from mid-2014; surprises associated with conventional measures had a stronger and more persistent effect than those associated with unconventional ones. Time-varying estimates of the effects of conventional surprises since 1999 show that the responsiveness of exchange rates to monetary news increased markedly from 2013. State-dependence analysis finds that the exchange rate became more sensitive to monetary policy when the ECB adopted a policy of negative interest rates and when conventional and unconventional monetary surprises moved in the same direction.
    Keywords: unconventional monetary policy, exchange rates, European Central Bank
    JEL: E52 E58 F31
    Date: 2018–04
  11. By: Lorenzo Menna; Martin Tobal
    Abstract: The Global Financial Crisis opened a heated debate on whether inflation target regimes must be relaxed and allow for monetary policy to address financial stability concerns. Nonetheless, this debate has focused on the ability of the interest rate to "lean against the wind" and, more generally, on the accumulation of systemic risk arising from the macro-financial challenges faced by advanced economies. This paper extends the debate to emerging markets by developing micro-foundations that allow extending a simplified version of the New-Keynesian credit augmented model of Curdia and Woodford (2016) to a small-open economy scenario, and by subsequently using the same empirical strategy as Ajello et al. (2015) to calibrate the model for Mexico. The results suggest that openness in the capital account, and in particular a strong dependence of domestic financial conditions on capital flows, diminishes the effectiveness of monetary policy to lean against the wind. Indeed, in the open-economy with endogenous financial crises, the optimal policy rate is even below the level that would prevail in the absence of endogenous financial crisis and systemic risk.
    Keywords: leaning against the wind, global financial cycle, monetary policy, financial stability
    JEL: E52 F32
    Date: 2018–05
  12. By: Elias Albagli; Luis Ceballos; Sebastián Claro; Damian Romero
    Abstract: We document significant US monetary policy (MP) spillovers to international bond markets. Our methodology identifies US MP shocks as the change in short-term treasury yields within a narrow window around FOMC meetings, and traces their effects on international bond yields using panel regressions. We emphasize three main results. First, US MP spillovers to long-term yields have increased substantially after the global financial crisis. Second, spillovers are large compared to the effects of other events, and at least as large as the effects of domestic MP after 2008. Third, spillovers work through different channels, concentrated in risk neutral rates (expectations of future MP rates) for developed countries, but predominantly on term premia in emerging markets. In interpreting these findings, we provide evidence consistent with an exchange rate channel, according to which foreign central banks face a tradeoff between narrowing MP rate differentials, or experiencing currency movements against the US dollar. Developed countries adjust in a manner consistent with freely floating regimes, responding partially with risk neutral rates, and partially through currency adjustments. Emerging countries display patterns consistent with FX interventions, which cushion the response of exchange rates but reinforce capital flows and their effects in bond yields through movements in term premia. Our results suggest that the endogenous effects of FXI on long-term yields should be added into the standard cost-benefit analysis of such policies.
    Keywords: monetary policy spillovers, risk neutral rates, term premia
    JEL: E43 G12 G15
    Date: 2018–05
  13. By: Baumeister, Christiane; Hamilton, James
    Abstract: Reporting point estimates and error bands for structural vector autoregressions that are only set identified is a very common practice. However, unless the researcher is persuaded on the basis of prior information that some parameter values are more plausible than others, this common practice has no formal justification. When the role and reliability of prior information is defended, Bayesian posterior probabilities can be used to form an inference that incorporates doubts about the identifying assumptions. We illustrate how prior information can be used about both structural coefficients and the impacts of shocks, and propose a new distribution, which we call the asymmetric t distribution, for incorporating prior beliefs about the signs of equilibrium impacts in a nondogmatic way. We apply these methods to a three-variable macroeconomic model and conclude that monetary policy shocks were not the major driver of output, inflation, or interest rates during the Great Moderation.
    Keywords: historical decompositions; impulse-response functions; informative priors; Model uncertainty; monetary policy; set identification; structural vector autoregressions
    JEL: C11 C32 E52
    Date: 2018–05
  14. By: Kumhof, Michael (Bank of England); Noone, Clare (Reserve Bank of Australia)
    Abstract: This paper sets out three models of central bank digital currency (CBDC) that differ in the sectors that have access to CBDC. It studies sectoral balance sheet dynamics at the point of an initial CBDC introduction, and of an attempted large-scale run out of bank deposits into CBDC. We find that if the introduction of CBDC follows a set of core principles, bank funding is not necessarily reduced, credit and liquidity provision to the private sector need not contract, and the risk of a system-wide run from bank deposits to CBDC is addressed. The core principles are: (i) CBDC pays an adjustable interest rate. (ii) CBDC and reserves are distinct, and not convertible into each other. (iii) No guaranteed, on-demand convertibility of bank deposits into CBDC at commercial banks (and therefore by implication at the central bank). (iv) The central bank issues CBDC only against eligible securities (principally government securities). The final two principles imply that households and firms can freely trade bank deposits against CBDC in a private market, and that the private market can freely obtain additional CBDC from the central bank, at the posted CBDC interest rate and against eligible securities.
    Keywords: Central bank digital currencies; sectorial balance sheets; monetary systems; financial stability; bank runs
    JEL: E42 E44 E52 E58
    Date: 2018–05–18
  15. By: Andrea Carriero (Queen Mary, University of London); Francesco Corsello (Bank of Italy); Massimiliano Marcellino (Bank of Italy)
    Abstract: Global developments play an important role in domestic inflation rates. Previous literature has found that a substantial amount of the variation in a large set of national inflation rates can be explained by a single global factor. However, inflation volatility has been typically neglected, while it is clearly relevant both from a policy point of view and for structural analysis and forecasting purposes. We study the evolution of inflation rates in several countries, using a novel model that allows for commonality in both levels and volatilities, in addition to country-specific components. We find that inflation stochastic volatility is indeed important, and a substantial share of it can be attributed to a global factor that also drives the levels and persistence of inflation. While various phenomena may contribute to global inflation dynamics, it turns out that since the early 1990s, the estimated global factor is correlated with China’s PPI and with oil inflation levels and volatilities. The extent of commonality among core inflation rates and volatilities is substantially smaller than for overall inflation, which leaves scope for national monetary policies.
    Keywords: inflation, volatility, global factors, large datasets, multivariate autoregressive index models, reduced rank regressions, forecasting
    JEL: E31 C32 E37 C53
    Date: 2018–04
  16. By: José Dorich; Nicholas Labelle St-Pierre; Vadym Lepetyuk; Rhys Mendes
    Abstract: Recent international experience with the effective lower bound on nominal interest rates has rekindled interest in the benefits of inflation targets above 2 per cent. We evaluate whether an increase in the inflation target to 3 or 4 per cent could improve macroeconomic stability in the Canadian economy. We find that the magnitude of the benefits hinges critically on two elements: (i) the availability and effectiveness of unconventional monetary policy (UMP) tools at the effective lower bound, and, (ii) the level of the real neutral interest rate. In particular, we show that when the real neutral rate is in line with the central tendency of estimates, raising the inflation target yields some improvement in macroeconomic outcomes. There are only modest gains if effective UMP tools are available. In contrast, with a deeply negative real neutral rate, a higher inflation target substantially improves macroeconomic stability regardless of UMP.
    Keywords: inflation target, effective lower bound, unconventional monetary policy, quantitative easing, forward guidance
    JEL: E32 E37 E43 E52
    Date: 2018–05
  17. By: Qazi Haque; Nicolas Groshenny; Mark Weder
    Abstract: In this paper we examine whether or not monetary policy was a source of instability during the Great Inflation. We focus on a number of attributes that we see relevant for any analysis of the 1970s: cost-push or oil price shocks, positive trend inflation as well as real wage rigidity. We turn our artificial sticky-price economy into a Bayesian model and find that the U.S. economy during the 1970s is best characterized by a high degree of real wage rigidity. Oil price shocks thus created a trade-off between inflation and output-gap stabilization. Faced with this dilemma, the Federal Reserve reacted aggressively to inflation but hardly at all to the output gap, thereby inducing stability, i.e. determinacy.
    Keywords: Monetary policy, Great Inflation, Cost-push shocks, Trend inflation, Sequential Monte Carlo algorithm
    JEL: E32 E52 E58
    Date: 2018–05
  18. By: Federico Bonetto; Maurizio Iacopetta
    Abstract: We study the rise in the acceptability fiat money in a Kiyotaki-Wright economy by developing a method that can determine dynamic Nash equilibria for a class of search models with genuine heterogenous agents. We also address open issues regarding the stability properties of pure strategies equilibria and the presence of multiple equilibria. Experiments illustrate the liquidity conditions that favor the transition from partial to full acceptance of fiat money, and the effects of inflationary shocks on production, liquidity, and trade.
    Date: 2018–05
  19. By: Geoffrey Dunbar; Casey Jones
    Abstract: A novel dataset from the Bank of Canada is used to estimate the deposit functions for banknotes in Canada for three denominations: $1,000, $100 and $50. The broad flavour of the empirical findings is that denominations are different monies, and the structural estimates identify the underlying sources of the non-neutrality. There is evidence of large and significant deposit costs for the highest-value denomination, the $1,000 banknote, but insignificant costs for the $100 and $50 denominations. The results imply that the interest rate elasticity of deposit is positive for the $1,000 but negative for the $100 and the $50. Third, 5 percent of the $1,000, 30 percent of the $100 and 22 percent of the $50 banknotes ever issued by the Bank of Canada do not circulate through financial institutions (in Canada). Finally, we find evidence that the Lehman Brothers crisis increased the deposit probability by a factor of 2–3 for the $1,000 banknote for a majority of the population in Canada.
    Keywords: Bank notes, Econometric and statistical methods
    JEL: E41 C31 C36
    Date: 2018
  20. By: Kevin x.d. Huang (Vanderbilt University); Qinglai Meng (Oregon State University); Jianpo Xue (Renmin University of China)
    Abstract: In a closed economy setting a cash-in-advance monetary economy under money growth targeting is prone to self-fulfilling expectations and beliefs-driven fluctuations. This paper shows that such extrinsic instability is less of a problem in a small open economy integrated in the world goods and financial markets. This is because endogenous terms-of-trade movements associated with global goods trade and cross-border capital flows and endogenous international asset price adjustments associated with global financial transaction serve as an endogenous stabilizer to reduce the likelihood of sunspot equilibria. We find that for empirically reasonable parametrization of the small open economy sunspot beliefs are unlikely to become self-fulfilled.
    Keywords: self-fulfilling expectations; indeterminacy; saddle-path stability; money growth targeting; small open economy
    JEL: E3 F4
    Date: 2018–05–19
  21. By: David Perez-Reyna; Mauricio Villamizar-Villegas
    Abstract: In this paper we analyze the effects of financial constraints on the exchange rate through the portfolio balance channel. Our contribution is twofold: First, we construct a tractable two-period general equilibrium model in which financial constraints inhibit capital flows. Hence, departures from the uncovered interest rate parity condition are used to explain the effects of sterilized foreign exchange intervention. Second, using high frequency data during 2004-2015, we use a sharp policy discontinuity within Colombian regulatory banking limits to empirically test for the portfolio balance channel. Consistent with our model's postulations, our findings suggest that the effects on the exchange rate are short-lived, and significant only when banking constraints are binding.
    Keywords: liquidity dependence, macro-financial linkages, Smooth Transition Bayesian VAR
    JEL: G2 O16 C32
    Date: 2018–05
  22. By: KIM, Jae-Young; PARK, Woong Yong
    Abstract: The Fisher relation, describing a one-for-one relation between the nominal interest rate and the expected inflation, underlies many important results in economics and finance. Although it is a conceptually simple relation, the Fisher relation has more or less complicated with mixed results. There are several alternative models proposed in the empirical literature for the Fisher relation that have different implications. We evaluate those alternative models for the Fisher relation based on a post-data model determination method. Our results for data from the U.S. Japan and Korea show that models with both regimes/periods, a regime with nonstationary fluctuations and the other with stationary fluctuations, fit data best for the Fisher relation.
    Keywords: Fisher relation, nonlinear behavior, post-data model determination
    JEL: C1 C22 C5
    Date: 2018–04
  23. By: Li, Ye (Ohio State University)
    Abstract: Banks are important because firms hold their debt ("inside money") as liquidity buffer. Banking crises are costly because the contraction of inside money supply compromises firms' liquidity management and hurts investment. By highlighting the interaction between banks and firms in the money market, this paper offers a theory of procyclical inside money creation and the resulting instability. It sheds light on the cyclicality of bank leverage, and how it affects the frequency and duration of banking crises. Introducing outside money (government debt) to alleviate liquidity shortage can be counterproductive, because its competition with inside money destabilizes the banking sector.
    JEL: E02 E22 E32 E41 E43 E44 E51 E58 E61 E62 G01 G12 G18 G20 G30
    Date: 2017–11
  24. By: Korishchenko, Konstantin (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Pilnik, Nikolay (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Ivanova, Maria (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The econometric model of inflation formation depending on the dynamics of the main factors is used as a research tool. According to the presented model, the main generators of volatility are the volatility of oil prices and the policy regime of course management.
    Keywords: consumer inflation, inflation targeting, volatility, currency corridor, gold reserves
    Date: 2018–04
  25. By: Richhild Moessner
    Abstract: We study the effects of the announcements of ECB asset purchases and of financial stability measures in the euro area on ten-year government bond term premia in eleven euro area countries in the wake of the global financial crisis and the euro area sovereign debt crisis. We find that the term premia of euro area countries with higher sovereign risk, as measured by sovereign CDS spreads, decreased more in response to the announcements of asset purchases and financial stability measures. Term premia of countries with the lowest sovereign risk either increased as in Germany, or were not significantly affected or fell slightly, as in the Netherlands and Finland.
    Keywords: monetary policy, asset purchases, financial stability, term premia
    JEL: E58 G15
    Date: 2018–05
  26. By: Viktors Ajevskis (Bank of Latvia)
    Abstract: The study proposes an estimation method of the natural rate of interest based on the shadow rate term structure of interest rates model and using information from nominal yields data. For the purpose of comparison and robustness check, different samples for the estimation of the natural rate of interest – three for the euro area and two for the US – are considered. The estimates based on all considered samples show a downturn trend in the estimated natural rates of interest for the euro area. However, since the beginning of 2013, this downward trend has levelled off. Compared to the results obtained by affine models, the shadow rate model produces lower estimates of natural rates of interest. From the beginning of 2013, the dynamics of estimated series of the US natural rate of interest closely follows the series produced by Laubach–Williams. However, before that the series are more divergent. In order to demonstrate the use of the natural rate of interest, we employ the estimated series of the natural rate of interest in the balance-approach version of the Taylor rule. The results imply that, at the end of the sample in July 2017, Taylor rule-suggested policy rates were in line with the actual ECB policy rates.
    Keywords: natural rate of interest, term structure of interest rates, lower bound, non-linear Kalman filter
    JEL: C24 C32 E43 E58 G12
    Date: 2018–04–20

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