nep-mon New Economics Papers
on Monetary Economics
Issue of 2018‒07‒23
thirty-two papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The Impact of Monetary Policy on the Balance of Payments and Macroeconomic Indicators By Korishchenko, Konstantin; Morozov, Stepan; Bryanov, G
  2. Assessing monetary policy targeting regimes for small open economies By Harsha Paranavithana; Leandro Magnusson; Rod Tyers
  3. A Survey-based Shadow Rate and Unconventional Monetary Policy Effects By Hibiki Ichiue; Yoichi Ueno
  4. Self-confirming Price Dispersion in Monetary Economies By Garth Baughman; Stanislav Rabinovich
  5. Evaluating Inflation Targeting Regime - Case Study: Georgia By Nodar Kiladze
  6. Implications of EMU for the European Community By Chris Kirrane
  7. The Competition Between Cash and Mobile Payments in Markets with Mobile Partnerships A Monetary Search Model Point of View By Françoise Vasselin
  8. The Good, the Bad, and the Ugly: Impact of Negative Interest Rates and QE on the Profitability and Risk-Taking of 1600 German Banks By Urbschat, Florian
  9. Financial Heterogeneity and Monetary Union By Simon Gilchrist; Raphael Schoenle; Jae W. Sim; Egon Zakrajsek
  10. Institutional Setups of Monetary Policy and Banking Regulation and Supervision - A Survey By Diana Lima
  11. Positive Trend In ation and Determinacy in a Medium-Sized New Keynesian Model By Jonas E. Arias; Guido Ascari; Nicola Branzoli; Efrem Castelnuovo
  12. Uncertainty and Hyperinflation: European Inflation Dynamics after World War I By Lopez, Jose A.; Mitchener, Kris James
  13. Lender of Last Resort versus Buyer of Last Resort – Evidence from the European Sovereign Debt Crisis By Viral V. Acharya; Diane Pierret; Sascha Steffen
  14. Japan: Evaluating Aggressive Monetary Easing and Economic Performance By Ramana
  15. Speed Limit Policy and Liquidity Traps By Taisuke Nakata; Sebastian Schmidt; Paul Yoo
  16. Revisiting effectiveness of interest rate as a tool to control inflation: evidence from Malaysia based on ARDL and NARDL By Hamzah, Nurrawaida Husna; Masih, Mansur
  17. Lessons from the History of European EMU By Chris Kirrane
  18. Exchange Rate Pass-through to Consumer prices: Nigerian experience from 1986-2013 By Musti, Babagana Mala; Siddiki, Jalal Uddin
  19. Benefits and costs of liquidity regulation By Hoerova, Marie; Mendicino, Caterina; Nikolov, Kalin; Schepens, Glenn; Heuvel, Skander Van den
  20. Market disequilibrium, monetary policy, and financial markets: insights from new tools By Jean-Luc Gaffard; Mauro Napoletano
  21. Hopf Bifurcation from New-Keynesian Taylor Rule to Ramsey Optimal Policy By Jean-Bernard Chatelain; Kirsten Ralf
  22. Impact of the Proposed GST on the Consumer Price Index in India By Morris, Sebastian; Pandey, Ajay; Agarwalla, Sobhesh Kumar; Agarwalla, Astha
  23. Time-Dependency in Producers’ Price Adjustments: Evidence from Micro Panel Data. By Nilsen, Øivind A.; Pettersen, Per Marius; Bratlie, Joakim
  24. A Physical Review on Currency By Ran Huang
  25. Exchange rates, sunspots and cycles By Mauro Bambi; Sara Eugeni
  26. Monetary Policy in a Schumpeterian Growth Model with Two R&D Sectors By Huang, Chien-Yu; Yang, Yibai; Zheng, Zhijie
  27. The Digital World: I - Bitcoin: from history to real live By Dominique Guégan
  28. Information Transmission Between Cryptocurrencies: Does Bitcoin Rule the Cryptocurrency World? By Pedro Bação; António Portugal Duarte; Hélder Sebastião; Srdjan Redzepagic
  29. The natural rate of interest and the financial cycle By Krustev, Georgi
  30. Money Function and Money Banking by Ibnu Taimiyah By Khalamillah, Fahmi
  31. Is the Bitcoin Rush Over? By Dominique Guegan; Marius Frunza
  32. The Money View Versus the Credit View By Sarah S. Baker; J. David Lopez-Salido; Edward Nelson

  1. By: Korishchenko, Konstantin (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Morozov, Stepan (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Bryanov, G (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The paper studies the implementation of the monetary policy of the Central Bank of the Russian Federation, namely, the transition from the exchange rate policy to the inflation targeting policy conducted since November 2014, and illuminates the issues of the world experience in the conduct of monetary policy by the example of central banks of foreign countries and discloses such methods of implementing monetary policy as (1) inflation targeting,(2) exchange rate regulation and (3) the targeting of money supply.
    Date: 2018–06
  2. By: Harsha Paranavithana; Leandro Magnusson; Rod Tyers
    Abstract: This paper quantifies the performance of five monetary policy regimes in controlling macroeconomic volatility triggered by a variety of supply, demand and external shocks in small open economies. While the proposed macroeconomic model is generic, the application is to the case of Sri Lanka. The investigated regimes separately target the exchange rate, a monetary aggregate, nominal GDP, the CPI inflation rate and a Taylor composite of output gaps and inflation. The results suggest that inflation targeting offers the least macro-economic volatility overall. Consistent with earlier research and Mundell’s financial trilemma, its stabilising power is greatest under demand and external shocks, which have grown more prominent as product and financial markets have opened.
    Keywords: Macroeconomic volatility, Monetary policy, Mundell’s trilemma, Sri Lanka
    JEL: E47 E52 N15
    Date: 2018–07
  3. By: Hibiki Ichiue (Head of Economic Research Division, Research and Statistics Department, Bank of Japan (E-mail:; Yoichi Ueno (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: Many studies estimate a shadow interest rate, which can be negative when the short-term rate is at the effective lower bound, and use it as the monetary policy indicator. This study proposes a novel method to estimate the shadow rate using survey forecasts of macroeconomic variables and allowing the shadow rate to be negative even when the short-term rate is positive. The estimated U.S. shadow rate remained negative in 2015-17, when the Federal Reserve continued to hike its policy rate but kept its holdings of assets at sizable levels. The shadow spread, which is defined as the shadow rate minus the short-term rate, is negatively correlated with the Federal Reserve fs holdings of assets, particularly mortgage-backed securities. The impact of the unconventional monetary policy on inflation was 0.5 percentage points at its peak.
    Keywords: Monetary Policy, Effective Lower Bound, Zero Lower Bound, Shadow Rate, Survey Forecasts
    JEL: E52
    Date: 2018–06
  4. By: Garth Baughman; Stanislav Rabinovich
    Abstract: In a monetary economy, we show that price dispersion arises as an equilibrium outcome without the need for costly simultaneous search or any heterogeneity in preferences, production costs, or search technologies. A distribution of money holdings among buyers makes sellers indifferent across a set of posted prices, leading to a non-degenerate price distribution. This price distribution, in turn, makes buyers indifferent across a range of money balances, rationalizing the non-degenerate distribution of money holdings. We completely characterize the distribution of posted prices and money holdings in any equilibrium. Equilibria with price dispersion admit higher maximum prices than observed in any single-price equilibrium. Also, price dispersion reduces welfare by creating mismatch between posted prices and money balances. Inflation exacerbates this welfare loss by shifting the distribution towards higher prices.
    Keywords: Inflation ; Money ; Price dispersion ; Search
    JEL: D43 E31 E40
    Date: 2018–07–10
  5. By: Nodar Kiladze (Ivane Javakhishvili Tbilisi State University)
    Abstract: Inflation is an indicator used by economists to assess the economic performance of the country as it shows percentage growth of price level. High inflation means higher growth rate of prices which is bad for the economy and for the country mainly because of the reduction of average labor purchasing power, caused by stickiness of wages, which decreases economic welfare. Another important factor is divergence between the price levels of different goods and services. Zero lower bound inflation (or deflation) can also cause serious negative results such as output collapse in response to various shocks leading to economic stagnation and high rate of unemployment. Both too high and too low inflation are problem that should be solved by policymakers to achieve sustainable economic growth and long-run development of the country. Because of the above-mentioned reasons low and stable rate of inflation is to be considered the most efficient for reaching high rate of economic growth and development. This paper reviews mentioned problems and outlines why it is so crucial to have inflation rate at low level and why is it vital to keep it stable. Most of the countries desire to have their inflation rate at 2%. Inflation targets mostly vary from 2 to 5% depending on the central bank and economic development of the country but with a long run inflation target of maximum 2-3%.The National Bank of Georgia adopted Inflation Targeting regime in 2009 while some economists had misconceptions and debates about this decision and some papers were criticizing Georgia for not being ready for this change yet mostly because of its institutional setup and imperfect monetary transmission mechanism (Billmeier & Bakradze, 2007). The results of this adoption are reviewed in this paper by assessing economic performance during Monetary Targeting regime and comparing it to the period after Inflation Targeting regime. This paper uses price level stability comparison between these two periods as well as relative price variability among different commodity groups. The model investigates the relationship between inflation rate and the relative price variability and shows that adopting Inflation Targeting regime significantly improved economic performance of the country.
    Keywords: Inflation Targeting Regime, Monetary Targeting Regime, Monetary Policy, Central Banks
    JEL: E42 E31 E50
    Date: 2017–07
  6. By: Chris Kirrane
    Abstract: Monetary integration has both costs and benefits. Europeans have a strong aversion to exchange rate instability. From this perspective, the EMS has shown its limits and full monetary union involving a single currency appears to be a necessity. This is the goal of the EMU project contained in the Maastricht Treaty. This paper examines the pertinent choices: independence of the Central Bank, budgetary discipline and economic policy coordination. Therefore, the implications of EMU for the economic policy of France will be examined. If the external force disappears, the public sector still cannot circumvent its solvency constraint. The instrument of national monetary policy will not be available so the absorption of asymmetric shocks will require greater wage flexibility and fiscal policy will play a greater role. The paper includes three parts. The first concerns the economic foundations of monetary union and the costs it entails. The second is devoted to the institutional arrangements under the Treaty of Maastricht. The third examines the consequences of monetary union for the economy and the economic policy of France.
    Date: 2018–05
  7. By: Françoise Vasselin (MATISSE - Modélisation Appliquée, Trajectoires Institutionnelles et Stratégies Socio-Économiques - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: A payment platform provides mobile money (M-money) to buyers who can also use cash to transact. An exogenous fraction of " traditional sellers " only accepts cash and creates no partnership with buyers while the remainder fraction consists of " mobile sellers " who accept M-money only and create partnerships with buyers to reduce search frictions. So, buyers without a partner must use cash and buyers with a partner must use M-money to trade. Buyers without a partner may hold cash, M-money, both monies or none while buyers with a partner always choose to hold M-money only or both monies. Hence, we obtain different equilibria where M-money always circulates, alone or in addition to cash. So, the partnership is a valuable coordination mechanism that makes M-money circulation permanent. Our model can explain why it may be useful to implement prescribed usages to trigger the adoption of a new payment instrument that aims to replace cash and why retailers implement partnerships through loyalty programs before the launching of their own M-money application. However, cash disappears only if traditional sellers have almost all disappeared.
    Keywords: cash,mobile payments,search theory,partnerships,investment cost,mobile money
    Date: 2018–03–03
  8. By: Urbschat, Florian
    Abstract: The recent negative interest rate policy (NIRP) and quantitative easing (QE) programme by the ECB have raised concerns about the pass-through of monetary policy. On the one hand, negative rates could lead to declining bank profitability making an expansionary monetary policy contractionary. Also, if interest rates are too low for too long banks could be induced to take too much risky credit. On the other hand, several economists argue that there is nothing special about negative interest rates per se. This paper uses a large micro level data set of the German bank universe to examine how banks behave in this uncharted territory. The evidence found suggests that bank’s business model, i.e. the share of overnight deposits, plays a crucial role. While some banks may benefit in the short run via for instance reduced refinancing costs or lower loan loss provisions, many banks with high deposit ratios face lower net interest income and lower credit growth rates. If continued for too long QE and NIRP erode bank profits for most banks eventually.
    Keywords: Negative Interest Rate Policy; Banks' Profitability; Net Interest Rate Margin; Risk-Taking Channel
    JEL: C53 E43 E52 G11 G21
    Date: 2018–07–09
  9. By: Simon Gilchrist; Raphael Schoenle; Jae W. Sim; Egon Zakrajsek
    Abstract: We analyze the economic consequences of forming a monetary union among countries with varying degrees of financial distortions, which interact with the firms' pricing decisions because of customer-market considerations. In response to a financial shock, firms in financially weak countries (the periphery) maintain{{p}}cashflows by raising markups--in both domestic and export markets--while firms in financially strong countries (the core) reduce markups, undercutting their financially constrained competitors to gain market share. When the two regions are experiencing different shocks, common monetary policy results in a substantially higher macroeconomic volatility in the periphery, compared with a flexible exchange rate regime; this translates into a welfare loss for the union as a whole, with the loss borne entirely by the periphery. By helping firms from the core internalize the pecuniary externality engendered by the interaction of financial frictions and customer markets, a unilateral fiscal devaluation by the periphery can improve the union's overall welfare.
    Keywords: Eurozone ; Financial crisis ; Fiscal devaluation ; Inflation dynamics ; Markups ; Monetary union
    JEL: E31 E32 F44
    Date: 2018–06–26
  10. By: Diana Lima (Bank of Portugal)
    Abstract: Worldwide reforms to the institutional setup of banking supervision in the af- termath of the global nancial crisis aimed not only at revising improving the of banking supervision, but also at introducing a macroprudential oversight of the - nancial system, empowering central banks with new nancial stability objectives and instruments. This survey investigates the interaction of monetary policy and banking regulation and supervision in the light of these new developments and what it may imply for the design of their institutional setup. The survey nds a con- sensus around an institutional framework where central banks are entrusted with nancial stability and macroprudential policy mandate, since this setup would take the most of the similarities between macroprudential and monetary policies. In such an institutional set up, the microprudential dimension of banking regulation and su- pervision should be assigned to an independent authority. Finally, the literature review highlights the need for empirical evidence and theoretical analysis, regarding the impact of di erent nancial supervisory architectures on social welfare, speci - cally the assessment of the bene ts and costs associated to each type of institutional arrangement.
    JEL: E52 E58 E61 G21
    Date: 2018–07
  11. By: Jonas E. Arias (FRB Philadelphia); Guido Ascari (University of Oxford); Nicola Branzoli (Bank of Italy); Efrem Castelnuovo (University of Padova)
    Abstract: This paper studies the challenge that increasing the inflation target poses to equilibrium determinacy in a medium-sized New Keynesian model without indexation ï¬ tted to the Great Moderation era. For moderate targets of the inflation rate, such as 2 or 4 percent, the probability of determinacy is near one conditional on the monetary policy rule of the estimated model. However, this probability drops signiï¬ cantly conditional on model-free estimates of the monetary policy rule based on real-time data. The difference is driven by the larger response of the federal funds rate to the output gap associated with the latter estimates.
    Keywords: trend inflation, determinacy, monetary policy
    JEL: E52 E3 C22
    Date: 2018–06
  12. By: Lopez, Jose A. (Federal Reserve Bank of San Francisco); Mitchener, Kris James (Santa Clara University)
    Abstract: Fiscal deficits, elevated debt-to-GDP ratios, and high inflation rates suggest hyperinflation could have potentially emerged in many European countries after World War I. We demonstrate that economic policy uncertainty was instrumental in pushing a subset of European countries into hyperinflation shortly after the end of the war. Germany, Austria, Poland, and Hungary (GAPH) suffered from frequent uncertainty shocks – and correspondingly high levels of uncertainty – caused by protracted political negotiations over reparations payments, the apportionment of the Austro-Hungarian debt, and border disputes. In contrast, other European countries exhibited lower levels of measured uncertainty between 1919 and 1925, allowing them more capacity with which to implement credible commitments to their fiscal and monetary policies. Impulse response functions show that increased uncertainty caused a rise in inflation contemporaneously and for a few months afterward in GAPH, but this effect was absent or much more limited for the other European countries in our sample. Our results suggest that elevated economic uncertainty directly affected inflation dynamics and the incidence of hyperinflation during the interwar period.
    JEL: E31 E63 F31 F33 F41 F51 G15 N14
    Date: 2018–05–09
  13. By: Viral V. Acharya (New York University, Centre for Economic Policy Research (CEPR), and National Bureau of Economic Research (NBER)); Diane Pierret (University of Lausanne and Swiss Finance Institute); Sascha Steffen (Frankfurt School of Finance & Management)
    Abstract: We document channels of monetary policy transmission to banks following two interventions of the European Central Bank (ECB). As a lender of last resort via the long-term refinancing operations (LTROs), the ECB improved the collateral value of sovereign bonds of peripheral countries. This resulted in an elevated concentration of these bonds in the portfolios of domestic banks, increasing fire-sale risk and making both banks and sovereign bonds riskier. In contrast, the ECB’s announcement of being a potential buyer of last resort via the Outright Monetary Transaction (OMT) program attracted new investors and reduced fire-sale risk in the sovereign bond market.
    Keywords: Bank-sovereign nexus, ECB, fire sales, unconventional monetary policy
    JEL: G01 G21 G28
    Date: 2018–05
  14. By: Ramana
    Abstract: Japan has had an outsized influence on global monetary policy. Avoiding becoming Japan has been a powerful force for Quantitative Easing. This paper argues, that despite popular perceptions, Japanese economic performance has not been a calamity; living standards have risen consistently over time and a full-fledged deflationary spiral avoided. These outcomes render making judgements about the Bank of Japan’s (BOJ) track record challenging despite the failure to meet the inflation target. The BOJ’s conceptual evolution on monetary policy and the various measures adopted over time are analysed for a fuller assessment of the effectiveness of monetary policy in Japan. The paper discusses the nascent, but increasingly influential academic research on the limitations of QE and its collateral effects on the economy, and what that portends for future BOJ policy.
    Keywords: Quantitative Easing, Bank of Japan, deflation
    JEL: E4 E5 F3
    Date: 2018–06–20
  15. By: Taisuke Nakata (Board of Governors of the Federal Reserve System (E-mail:; Sebastian Schmidt (European Central Bank (E-mail:; Paul Yoo (UNC Kenan-Flagler Business School (E-mail:
    Abstract: The zero lower bound (ZLB) constraint on interest rates makes speed limit policies (SLPs) |policies aimed at stabilizing the output growth |less effective. Away from the ZLB, the history dependence induced by a concern for output growth stabilization improves the inflation- output tradeoff for a discretionary central bank. However, in the aftermath of a deep recession with a binding ZLB, a central bank with an objective for output growth stabilization aims to engineer a more gradual increase in output than under the standard discretionary policy. The anticipation of a more restrained recovery exacerbates the declines in inflation and output when the lower bound is binding.
    Keywords: Liquidity Traps, Markov-Perfect Equilibrium, Speed Limit Policy, Zero Lower Bound
    JEL: E52 E61
    Date: 2018–06
  16. By: Hamzah, Nurrawaida Husna; Masih, Mansur
    Abstract: Public policy remains a paradox and a challenging pursuit in finding a delicate balance between conflicting economic goals and outcomes. Nevertheless, interest rate is a commonly used monetary policy tool to maintain a low and stable inflation. However, the effectiveness of interest rate in controlling inflation remains unanswered conclusively. Undertaking a wrong policy stance will lead to huge costs to the economy and society as a whole. Therefore, the purpose of this study is to investigate the lead-lag relationship between inflation and interest rate, and whether the relationship between the two variables is linear. These will determine whether interest rate is an effective tool in the context of Malaysia. This study extends prior literature by using a more recent monthly time series data and advanced techniques known as NARDL and ARDL. Based on this study, it is found that inflation rate is the most exogenous variable while interest rate is the most endogenous variable, hence policy makers have no influence over inflation. A crucial policy implication is policy makers should not use interest rate to control inflation but instead, they should focus on supply side policies to manage inflation.
    Keywords: Monetary policy, NARDL, ARDL, Inflation, Interest rate
    JEL: C22 C58 E4
    Date: 2018–06–15
  17. By: Chris Kirrane
    Abstract: This paper examines the history of previous examples of EMU from the viewpoint that state actors make decisions about whether to participate in a monetary union based on rational self-interest concerning costs and benefits to their national economies. Illustrative examples are taken from nineteenth century German, Italian and Japanese attempts at monetary integration with early twentieth century ones from the Latin Monetary Union and the Scandinavian Monetary Union and contemporary ones from the West African Monetary Union and the European Monetary System. Lessons learned from the historical examples will be used to identify issues that could arise with the move towards closer EMU in Europe.
    Date: 2018–05
  18. By: Musti, Babagana Mala (Kingston University London); Siddiki, Jalal Uddin (Kingston University London)
    Abstract: This paper examines the level and speed of exchange rate pass-through (ERPT) to consumer prices in Nigeria using a partial equilibrium microeconomic mark-up model with quarterly time series data from 1986 to 2013 applying the vector error correction model (VECM) incorporating structural breaks in exchange rates. It assesses the level of long-run ERPT, the speed of adjustments to the long-run equilibrium and the level of short-run ERPT. The results show high and statistically significant ERPT in the long-run in Nigeria. However, the short-run results show slow and insignificant adjustments of prices to its long-run equilibrium trend. The impulse response analyses also support the cointegration results showing the near zero response of consumer prices to exchange rate shocks. The variance decomposition results demonstrate the contribution of external shocks whereby the exchange rate shocks made some modest contribution to the domestic prices. The strong policy implication of these empirical results is that exchange rate stability plays a crucial role in controlling domestic consumer price inflation in Nigeria and comprable economies.
    Keywords: Exchange rate pass-through; Consumer prices; Nigeria.
    JEL: F30 F40
    Date: 2018–07–05
  19. By: Hoerova, Marie; Mendicino, Caterina; Nikolov, Kalin; Schepens, Glenn; Heuvel, Skander Van den
    Abstract: This paper investigates the costs and benefits of liquidity regulation. We find that liquidity tools are beneficial but cannot completely remove the need for Lender of Last Resort (LOLR) interventions by the central bank. Full compliance with current Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) rules would have reduced banks’ reliance on publicly provided liquidity during the global financial crisis without removing such assistance altogether. The paper also investigates the output costs of introducing the LCR and NSFR using two macro-financial models. We find these costs to be modest. JEL Classification: E44, E58, G21, G28
    Keywords: banking, capital requirements, Central bank, Lender of Last Resort, liquidity regulation
    Date: 2018–07
  20. By: Jean-Luc Gaffard; Mauro Napoletano
    Abstract: We revisit the main building blocks of the theoretical models underlying the monetary policy consensus before the Great Recession. We highlight how the failure of these models to prevent the crisis and to provide guidance during the recession were due to the excessive confidence in the ability of markets to coordinate demand and supply, and to the neglect of the role of finance. Furthermore, we outline the main elements of an alternative approach to monetary policy that put emphasis on the processes driving coordination in markets, and on the externalities transmitted by financial inter-linkages. Many elements of this new approach are captured by new classes of models, namely, agent-based and financial network models. We discuss some insights from these models for the conduct of monetary policy, and for its interactions with fiscal and macro- prudential policies.
    Keywords: output-inflation dynamics, new-keynesian models, disequilibrium analysis, agent-based models, fiscal-monetary policy interactions, quantitative easing policies
    Date: 2018–06–20
  21. By: Jean-Bernard Chatelain (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: This paper compares different implementations of monetary policy in a new- Keynesian setting. We can show that a shift from Ramsey optimal policy under short term commitment (based on a negative-feed back mechanism) to a Taylor rule (based on a positive-feed back mechanism) corresponds to a Hopfbifurcation with opposite policy advice and a change of the dynamic properties. This bifurcation occurs because of the ad hoc assumption that interest rate is a forward-looking variable when policy targets (inflation and out put gap) a reforward-looking variables in the new-Keynesian theory.
    Keywords: Bifurcations,Taylor rule,Taylor principle,new-Keynesian model,Ramsey optimal policy,Finite horizon commitment
    Date: 2018–04
  22. By: Morris, Sebastian; Pandey, Ajay; Agarwalla, Sobhesh Kumar; Agarwalla, Astha
    Abstract: Fears that the movement to GST would add to inflation have been unfounded. In this study we ex-ante estimate the impact the movement to GST would have on inflation and show that it would be very marginal at best. The inflation argument to have multiple rates is therefore weak. The impact on the CPI is worked out by considering each item that goes into the CPI with the weights as in the CPI (drawn from NSS 2011-12). The problem in computation is that for some items there are multiple rates of overall tax (either Sales or Excise or both) within the same item as in the CPI. This issue has been handled by working with alternative of minimum existing rate, maximum and simple average to show that even when the minimum rate is used the impact on inflation in a shift to GST is minimal. However the difficulties and issues with GST may lie elsewhere as in the proposed double till, the destination basis which would have to be studied for their differential impact across industries and states.
    Date: 2018–07–16
  23. By: Nilsen, Øivind A. (Dept. of Economics, Norwegian School of Economics and Business Administration); Pettersen, Per Marius (Dept. of Economics, Norwegian School of Economics and Business Administration); Bratlie, Joakim (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Existing micro evidence of firms’ price changes tends to show a downward sloping hazard rate – the longer the price of a product has remained the same, the less likely it is that the price will change. Using a panel of Norwegian plant- and product-specific prices, we also find a downward sloping hazard when applying a Kaplan–Meier model. After having controlled for both observed and unobserved characteristics, we find flat hazards with spikes in the first and twelfth months. This suggests time-dependent price-setting by at least some of the producers. The spike after 12 months might be explained by seasonal demand effects, but also by the pricing season effect related to information acquisition and processing, negotiation and signing of price contracts. The revealed price adjustment pattern is at odds with the predictions of the Calvo model, a central element in many dynamic stochastic general equilibrium models, as this assumes constant frequencies of price adjustments over time. Our empirical findings instead point to a modified Calvo model where firms in some periods experience lower menu costs. Finally, the empirical findings may have implications for the effectiveness of monetary policy interventions.
    Keywords: Price-Setting; Micro Data
    JEL: C41 D22 E31
    Date: 2018–06–20
  24. By: Ran Huang
    Abstract: A theoretical self-sustainable economic model is established based on the fundamental factors of production, consumption, reservation and reinvestment, where currency is set as a unconditional credit symbol serving as transaction equivalent and stock means. Principle properties of currency are explored in this ideal economic system. Physical analysis reveals some facts that were not addressed by traditional monetary theory, and several basic principles of ideal currency are concluded: 1. The saving-replacement is a more primary function of currency than the transaction equivalents; 2. The ideal efficiency of currency corresponds to the least practical value; 3. The contradiction between constant face value of currency and depreciable goods leads to intrinsic inflation.
    Date: 2018–04
  25. By: Mauro Bambi (University of York); Sara Eugeni (Durham University Business School)
    Abstract: OThe empirical evidence on nominal exchange rate dynamics shows a long-run relationship of this variable with the fundamentals of the economy, although such relationship disappears at shorter horizons ("exchange rate disconnect" puzzle). This apparently contrasting behaviour of the nominal exchange rate can be explained in an overlapping-generations model where the two currencies are not perfect substitutes. In this framework, we show that the nominal exchange rate is pinned down by the fundamentals of the economy at the monetary steady state. However, uctuations of the nominal exchange rate around its long-run value, which are not driven by shocks to fundamentals, can emerge. Firstly, we prove the existence of endogenous (deterministic) business cycles in the nominal exchange rate. Secondly, we construct stationary sunspot equilibria where random uctuations of the nominal exchange rate arise as a result of self-ful lling beliefs.
    Date: 2018–05
  26. By: Huang, Chien-Yu; Yang, Yibai; Zheng, Zhijie
    Abstract: This study investigates the effects of monetary policy on economic growth and social welfare in a Schumpeterian economy with an upstream and a downstream sector in which the R&D investment of these sectors is subject to a cash-in-advance (CIA) constraint. We show that a higher nominal interest rate reallocates labor from a more cash-constrained R&D sector to a less one, which could generate an inverted-U effect on economic growth. In addition, we examine the necessary and sufficient conditions for the (sub)optimality of the Friedman rule by relating the underinvestment and overinvestment of R&D in the decentralized economy, and find that this relationship is crucially determined by the presence of CIA constraints, the relative productivity between upstream R&D and downstream R&D, and the strength of markup.
    Keywords: CIA constraint; Endogenous growth; Monetary policy; Two R&D sectors
    JEL: E41 O30 O40
    Date: 2018–06–18
  27. By: Dominique Guégan (Université Paris1 Panthéon-Sorbonne, Centre d'Economie de la Sorbonne, LabEx ReFi and Ca' Foscari University of Venezia)
    Abstract: Bitcoin can be considered as a medium exchange restricted to online markets, but it is not a unit of account and a store of value, and thus cannot be considered as a money. Bitcoin value is very volatile and traded for different prices in different exchanges platforms, and thus can be used for arbitrage purpose. His behavior can be associated with a high volatile stock, and most transactions in Bitcoin are aimed to speculative instruments. The high volatility in Bitcoin and the occurrence of speculative bubble depend on positive sentiment and confidence about Bitcoin market: several variables may be considered as indicators (volume of transactions, number of transactions, number of Google research, wikipedia requests). The star of the crypto-currencies has attained the 19 716 dollars in December 2017 and decreased to 6 707 dollars March 29, 2018. In capitalization it is at this time the 30th mondial currency. We explain some limits and interests of the Bitcoin system and why the central bankers and regulators need to take some decision on its existence, and what could be the possible evolution of the Bitcoin Blockchain
    Keywords: Bitcoin; Blockchain
    JEL: C10 E4 E5
    Date: 2018–03
  28. By: Pedro Bação (CeBER - Centre for Business and Economics Research); António Portugal Duarte (CeBER - Centre for Business and Economics Research); Hélder Sebastião (CeBER - Centre for Business and Economics Research); Srdjan Redzepagic (University Nice Sophia Antipolis)
    Abstract: This paper investigates the information transmission between the most important cryptocurrencies - Bitcoin, Litecoin, Ripple, Ethereum and Bitcoin Cash. We use a VAR modelling approach, upon which the Geweke’s feedback measures and generalized impulse response functions are computed. This methodology allows us to fully characterize the direction, intensity and persistence of information flows between cryptocurrencies. At this data granularity, most of information transmission is contemporaneous. However it seems that there are some lagged feedback effects, mainly from other cryptocurrencies to Bitcoin. The generalized impulse-response functions confirm that there is a strong contemporaneous correlation and that there is not much evidence of lagged effects. The exception appears to be related to the overreaction of Bitcoin returns to contemporaneous shocks.
    Keywords: bitcoin, cryptocurrencies, causality, Geweke feedback measures, generalized impulse response
    JEL: G12 G14 G15
  29. By: Krustev, Georgi
    Abstract: I extend the model of Laubach and Williams (2003) by introducing an explicit role for the financial cycle in the joint estimation of the natural rates of interest, unemployment and output, and the sustainable growth rate of the US economy. By incorporating the financial cycle – arguably an omitted variable from the system – the model is able to deliver more plausible estimates of business cycle dynamics. The sustained decline in the natural rate of interest in recent decades is confirmed, but I estimate that strong and persistent headwinds due to financial deleveraging have lowered temporarily the natural rate on average by around 1 p.p. below its long-run trend over 2008-14. This may have impaired the effectiveness of interest rate cuts to stimulate the economy and lift inflation back to target in the immediate aftermath of the GFC. JEL Classification: C32, E43, E44, E52
    Keywords: financial cycle, Kalman filter, monetary policy, natural rate of interest, output gap
    Date: 2018–07
  30. By: Khalamillah, Fahmi
    Abstract: Ibn Taimiyah Is an Islamic thinker and scholar of Harran, Turkey, According to Ibn Taimiyah in terms of money, he said that the main function is as means demand value and as a medium to facilitate the exchange of an item. The method of research in this article using a descriptive method that aims to discuss the function of money and money trading according to Ibn Taimiyah. The results of this study show that Islam has its own concept of the main function of money only as a means of exchange in transactions.
    Keywords: Ibn Taimiyah, Money, Trade
    JEL: B20 E40 E51
    Date: 2018–03–23
  31. By: Dominique Guegan (UP1 - Université Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - UP1 - Université Panthéon-Sorbonne, IPAG BUSINESS SCHOOL - IPAG BUSINESS SCHOOL PARIS, University of Ca’ Foscari [Venice, Italy]); Marius Frunza (Schwarzthal Kapital, Labex ReFi - UP1 - Université Panthéon-Sorbonne)
    Abstract: The aim of this research is to explore the econometric features of Bitcoin-USD rates. Various non-Gaussian models are fitted to daily returns in order to underline the unique characteristics of Bitcoin when compared to other more traditional currencies. Market efficiency hypothesis is tested further, and the main reasons for breaches in efficiency are discussed. The main goal of the paper is to assess the presence of bubble effects in this market with customized tests able to detect the timing of various bubbles. The results show that the Bitcoin prices had two episodes of rapid inflation in 2014 and 2017.
    Keywords: timeseries modeling,market efficiency,bubbles,Bitcoin,crypto-currencies
    Date: 2018–04
  32. By: Sarah S. Baker; J. David Lopez-Salido; Edward Nelson
    Abstract: We argue that Schularick and Taylor’s (2012) comparison of credit growth and monetary growth as financial-crisis predictors does not necessarily provide a valid basis for achieving one of their stated intentions: evaluating the relative merits of the “money view” and “credit view” as accounts of macroeconomic outcomes. Our own analysis of the postwar evidence suggests that money outperforms credit in predicting economic downturns in the 14 countries in Schularick and Taylor’s dataset. This contrasts with Schularick and Taylor’s (2012) highly negative verdict on the money view. In accounting for the difference in findings, we first explain that Schularick and Taylor’s characterization of the money view is defective, both because their criterion for its validity (that rapid monetary growth predicts financial crises) is misplaced, and because they incorrectly take the money view’s proponents as relying on the notion that monetary aggregates are a good proxy for credit aggregates. In fact, the money view of Friedman and Schwartz does not predict an automatic relationship between rapid monetary growth and (financial or economic) downturns, nor does it rest on money being a good proxy for credit. We further show that Schularick and Taylor’s data on money have systematic faults. For our reexamination of the evidence, we have constructed new, and more reliable, annual data on money for the countries studied by Schularick and Taylor.
    Keywords: Credit view ; Money view ; Recessions ; Financial crises
    JEL: E32 E51
    Date: 2018–06–25

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