|
on Monetary Economics |
| By: | Hartmann, Philipp; Smets, Frank |
| Abstract: | On 1 June 2018 the ECB celebrated its 20th anniversary. This paper provides a comprehensive view of the ECB's monetary policy over these two decades. The first section provides a chronological account of the macroeconomic and monetary policy developments in the euro area since the adoption of the euro in 1999, going through four cyclical phases "conditioning" ECB monetary policy. We describe the monetary policy decisions from the ECB's perspective and against the background of its evolving monetary policy strategy and framework. We also highlight a number of the key critical issues that were the subject of debate. The second section contains a partial assessment. We first analyze the achievement of the price stability mandate and developments in the ECB's credibility. Next, we investigate the ECB's interest rate decisions through the lens of a simple empirical interest rate reaction function. This is appropriate until the ECB hits the zero-lower bound in 2013. Finally, we present the ECB's framework for thinking about non-standard monetary policy measures and review the evidence on their effectiveness. One of the main themes of the paper is how ECB monetary policy responded to the challenges posed by the European twin crises and the subsequent slow economic recovery, making use of its relatively wide range of instruments, defining new ones where necessary and developing the strategic underpinnings of its policy framework. |
| Keywords: | crisis; euro area economy; European Central Bank; European Economic and Monetary Union; inflation; monetary policy; non-standard measures; zero-lower bound |
| JEL: | E31 E32 E42 E52 G01 N14 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13411&r=all |
| By: | Saroj Bhattarai (University of Texas at Austin); Arpita Chatterjee (UNSW Business School, UNSW); Woong Yong Park (Seoul National University) |
| Abstract: | Spillover effects of US uncertainty shocks are studied in a panel VAR of fifteen emerging market economies (EMEs). A US uncertainty shock negatively affects EME stock prices and exchange rates, raises EME country spreads, and decreases capital inflows into them. It decreases EME output and consumer prices while increasing net exports. Negative effects on output and asset prices are weaker, but effects on external balance stronger, for Latin American EMEs. We attribute such heterogeneity to differential EME monetary policy response to US uncertainty shocks. Analysis of central bank minutes shows Latin American EMEs pay less attention to smoothing capital flows. |
| Keywords: | US Uncertainty; Panel VAR; Emerging Market Economies; Monetary Policy Response; Emerging Market Monetary Policy Minutes |
| JEL: | C11 C33 E44 E52 E58 F32 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2017-17a&r=all |
| By: | Kerssenfischer, Mark |
| Abstract: | Central bank announcements move financial markets. The response of inflation and growth expectations, on the other hand, is often small or even counterintuitive. Based on tick-by-tick futures prices on bonds and stock prices, I confirm these seemingly puzzling results for the euro area and provide evidence that they are due to central bank information effects. That is, ECB announcements convey information not only about monetary policy, but also about economic fundamentals. I separate these "information shocks" from "pure policy shocks" via sign restrictions and find intuitive effects of both shocks on a wide set of financial market prices and survey measures of economic expectations. |
| Keywords: | Monetary Policy,High-Frequency Identification,Central Bank Information |
| JEL: | E52 E44 E32 C32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:072019&r=all |
| By: | William John Tayler; Roy Zilberman |
| Abstract: | We characterize the joint optimal implementation of macroprudential and monetary policies in a New Keynesian model where endogenous supply-side financial frictions generate inflationary credit spreads. State-contingent macroprudential interventions help to stabilize volatile spreads, and substantially alter the transmission of optimal monetary policy under both discretion and commitment. In 'normal times', macroprudential policies replicate the first-best allocation. In liquidity traps, financial interventions remove the zero lower bound restriction on the nominal policy rate, thus minimizing output costs following both deflationary (inflationary) demand (financial) shocks. Discretionary and commitment policies with macroprudential taxes deliver equivalent welfare gains. |
| Keywords: | financial taxation, monetary policy, optimal policy, credit cost channel, credit spreads, zero lower bound |
| JEL: | E32 E44 E52 E58 E63 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:257107351&r=all |
| By: | Ferrero, Andrea; Harrison, Richard; Nelson, Benjamin |
| Abstract: | The inception of macro-prudential policy frameworks in the wake of the global financial crisis raises questions about the effects of the newly available policy tools and their interaction with the existing ones. We study the optimal setting of a loan-to-value (LTV) limit, and its implications for optimal monetary policy, in a model with nominal rigidities and financial frictions. The welfare-based loss function implies a role for macro-prudential policy to enhance risk-sharing. Following a house price boom-bust episode, macro-prudential policy alleviates debt-deleveraging dynamics and prevents the economy from falling into a liquidity trap. In this scenario, optimal policy always entails countercyclical LTV limits, while the response of the nominal interest rate depends on the nature of the underlying shock driving house prices. |
| Keywords: | financial crisis; monetary and macro-prudential policy; zero lower bound |
| JEL: | E52 E58 G01 G28 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13400&r=all |
| By: | Gomis-Porqueras, Pedro (Deakin University); Sanches, Daniel R. (Federal Reserve Bank of Philadelphia) |
| Abstract: | We construct a model of consumer credit with payment frictions, such as spatial separation and unsynchronized trading patterns, to study optimal monetary policy across different interbank market structures. In our framework, intermediaries play an essential role in the functioning of the payment system, and monetary policy influences the equilibrium allocation through the interest rate on reserves. If interbank credit markets are incomplete, then monetary policy plays a crucial role in the smooth operation of the payment system. Specifically, an equilibrium in which privately issued debt claims are not discounted is shown to exist provided the initial wealth in the intermediary sector is sufficiently large relative to the size of the retail sector. Such an equilibrium with an efficient payment system requires setting the interest rate on reserves sufficiently close to the rate of time preference. |
| Keywords: | Intermediation; liquidity; payments system; rediscounting |
| JEL: | E42 E58 G21 |
| Date: | 2019–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:19-12&r=all |
| By: | Choi, Woon Gyu (International Monetary Fund); Kang, Taesu (Bank of Korea); Kim, Geun-Young (Bank of Korea); Lee, Byongju (Bank of Korea) |
| Abstract: | We assess the effect of the United States (US) and domestic monetary policies on emerging market economies (EMEs) using a panel factor-augmented vector autoregressive model. We find a US policy rate hike outstrips a tantamount hike in EME policy rates in its impacts on EMEs and discover that bond flows are more sensitive to interest rate differentials than are equity flows. Tighter global or EME-specific policy entails divergent responses of growth and inflation in EMEs: in particular, the output loss is greater in those EMEs with higher inflation. When US monetary policy tightens, bond and equity markets in EMEs are prone to outflows. Domestic policy alone is not enough to counteract the effects of global policy shocks on capital flows in EMEs. |
| Keywords: | divergent responses; global liquidity; monetary transmission; panel factor-augmented VAR |
| JEL: | F32 F42 |
| Date: | 2017–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0532&r=all |
| By: | Hiermeyer, Martin |
| Abstract: | The paper combines the IS-LM model with a Tobin-style analysis of the banking system. As suggested by Krugman, the resulting model has great predictive power. It can explain quantitative easing and its effect on the economy, helicopter money and money creation by banks. Also, it is free of the normal shortcomings of the IS-LM model. |
| Keywords: | Monetary Policy, Money Supply |
| JEL: | E5 |
| Date: | 2019–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92394&r=all |
| By: | Fiedler, Salomon; Gern, Klaus-Jürgen; Jannsen, Nils; Wolters, Maik H. |
| Abstract: | The recovery from the Global Financial Crisis was characterized by sluggish output growth and by inflation remaining persistently below the inflation targets of central banks in many advanced economies despite an unprecedented monetary expansion. Ten years after the Global Financial Crisis, GDP remains below its pre-crisis trend in many economies and interest rates continue to be very low. This raises the question of whether low GDP growth and low interest rates are a temporary phenomenon or are due to a decline in long-run growth prospects (potential output growth) and equilibrium real interest rates (natural interest rate). Addressing this question is important for central banks for conducting monetary policy and adjusting their strategy. In this paper, the authors address this question based on a review of the literature and an evaluation of the most recent data and discuss implications for monetary policy. |
| Keywords: | natural interest rate,potential output,output gap,monetary policy |
| JEL: | E31 E32 E43 E52 E58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201917&r=all |
| By: | Hideo Fujiwara (Graduate School of Economics, Kobe University/ Faculty of Commerce, Doshisha University) |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1905&r=all |
| By: | Trunin, Pavel (Трунин, Павел) (The Russian Presidential Academy of National Economy and Public Administration, Gaidar Institute for Economic Policy); Bozhechkova, Alexandra (Божечкова, Александра) (The Russian Presidential Academy of National Economy and Public Administration, Gaidar Institute for Economic Policy); Goryunov, Eugene (Горюнов, Евгений) (Gaidar Institute for Economic Policy); Kiyutsevskaya, Anna (Киюцевская, Анна) (The Russian Presidential Academy of National Economy and Public Administration); Sinelnikova-Muryleva, Elena (Синельникова-Мурылева, Елена) (The Russian Presidential Academy of National Economy and Public Administration) |
| Abstract: | The scientific report presents an assessment of the benefits and costs of the Russian economy as a result of the transition to the inflation targeting regime, analyzes its theoretical aspects, identifies the main characteristics, considers the transmission mechanism of monetary policy in the conditions of the inflation targeting regime. The authors analyzed the international experience of the functioning of economies under conditions of inflation targeting, on the basis of which the key prerequisites, conditions and consequences of the transition to this monetary policy regime were identified. The report presents the results of an analysis of the benefits and costs of the Bank of Russia transition to inflation targeting, as well as its correlation with the floating exchange rate regime. The success of the Russian experience of the transition to the inflation targeting regime lies in achieving inflation target, close to 4%. Nevertheless, the positive effects of lowering inflation will fully manifest themselves as inflationary expectations decrease and stabilize around the target level. |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:ppaper:021914&r=all |
| By: | George Selgin |
| Abstract: | Depending on how one interprets the question that forms the topic of my talk, one can argue that the answer is obvious, or one can argue just the opposite. In one sense of course, it’s obvious that non-state money is possible. That’s the sense in which we ask only whether some kinds of non-state money are possible. And of course, the answer is yes. The vast majority of payments today, in Poland as elsewhere, are made with privately produced forms of money – that is, with bank deposits of various kinds – transferable by cheque or using debit cards. And there is nothing surprising about that. But of course, my assigned question can also be understood in a different and more interesting way. The interesting question is not whether some kinds of non-state- supplied money are possible. It is a different question, or rather two different questions. One of these is whether non-state circulating monies, or currencies, are possible. Can we rely on the private sector to supply hand-to-hand circulating means of payment? The other even more fundamental question is whether we can have a complete monetary system in which all forms of money supplied privately, and the state plays no substantial regulatory role. |
| Keywords: | commodity money, coinage, banknotes, free banking, fiat money, non-state money, cryptocurriences, monetary history, monetary systems |
| JEL: | E52 B16 G23 |
| Date: | 2019–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:sec:mbanks:0158&r=all |
| By: | Luis Araujo (Michigan State University and Sao Paulo School of Economics-FGV); Leo Ferraris (DEF & CEIS,University of Rome "Tor Vergata") |
| Abstract: | A long standing issue in monetary theory is whether money and interest bearing debt may both play a beneficial role in facilitating transactions. This paper identifies in the misallocation of liquidity a key element to provide an answer. In a search model of money, we show that there exists an equilibrium which resembles a liquidity trap, in which debt and money are used interchangeably to trade goods and debt carries no interest, and a Pareto superior equilibrium in which money is used to trade goods and interest bearing debt to reshuffle misallocated liquidity. Monetary policy has no effect in the liquidity trap, and a liquidity e¤ect in the Pareto superior equilibrium. |
| Keywords: | Money,Debt,Bonds,Monetary Policy |
| JEL: | E40 |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:453&r=all |
| By: | NYONI, THABANI |
| Abstract: | This study uses annual time series data on CPI in Panama from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the P series is I (1). The study presents the ARIMA (1, 1, 0) model for predicting CPI in Panama. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable for forecasting CPI in Panama. The results of the study apparently show that CPI in Panama is likely to continue on an upwards trajectory in the next 10 years. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to deal with inflation in Panama. |
| Keywords: | Forecasting; Inflation; Panama |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92419&r=all |
| By: | Singh, Aarti; Tornielli di Crestvolant, Stefano |
| Abstract: | We examine whether input-output interactions among industries impact the transmission of monetary policy shocks through the economy. Using Vector Autoregressive (VAR) methods we find evidence of heterogeneity in the output response to a monetary policy shock in both finished goods industries and intermediate goods industries. While output responses in finished goods industries can be related to heterogeneity in industry characteristics, this relationship is not so obvious for intermediate goods industries. For the intermediate goods industries in our sample we find new evidence of demand-spillover effects that impact the transmission of monetary policy via input-output linkages. |
| Keywords: | Monetary policy transmission; input-output; VAR; intermediate goods. |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2018-12&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in the UK from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the K series is I (2). The study presents the ARIMA (1, 2, 1) model for predicting CPI in the UK. The diagnostic tests further indicate that the presented optimal model is actually stable and acceptable. The results of the study apparently show that CPI in the UK is likely to continue on a sharp upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in the UK. |
| Keywords: | Forecasting; Inflation; UK |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92410&r=all |
| By: | Asongu, Simplice; Folarin, Oludele; Biekpe, Nicholas |
| Abstract: | This study examines the stability of money demand in the proposed West African Monetary Union (WAMU). The study uses annual data for the period 1981 to 2015 from thirteen of the fifteen countries making-up the Economic Community of West African States (ECOWAS). A standard money demand function is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across ECOWAS member states in the stability of money demand. This divergence is informed by differences in cointegration, stability, short run and long term determinants, and error correction in event of a shock. |
| Keywords: | Stable; demand for money; bounds test |
| JEL: | C22 E41 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92343&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Sweden from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the W series is I (1). The study presents the ARIMA (1, 1, 0) model for predicting CPI in Sweden. The diagnostic tests further imply that the presented optimal model is stable as expected. The results of the study apparently show that CPI in Sweden is likely to continue on an upwards trajectory in the next ten years. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Sweden. |
| Keywords: | Forecasting; Inflation; Sweden |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92418&r=all |
| By: | Engel, Charles M; Wu, Steve Pak Yeung |
| Abstract: | We find strong empirical evidence that economic fundamentals can well account for nominal exchange rate movements. The important innovation is that we include the liquidity yield on government bonds as an explanatory variable. We find impressive evidence that changes in the liquidity yield are significant in explaining exchange rate changes for all of the G10 countries. Moreover, after controlling for liquidity yields, traditional determinants of exchange rates - adjustment toward purchasing power parity and monetary shocks - are also found to be economically and statistically significant. We show how these relationships arise out of a canonical two-country New Keynesian model with liquidity returns. Additionally, we find a role for sovereign default risk and currency swap market frictions. |
| JEL: | F31 F41 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13401&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Australia from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the A series is I (1). The study presents the ARIMA (1, 1, 0) model for predicting CPI in Australia. The diagnostic tests further imply that the presented optimal model is stable and acceptable. The results of the study apparently show that CPI in Australia is likely to continue on an upwards trend in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Australia. |
| Keywords: | Forecasting; Inflation; Australia |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92412&r=all |
| By: | Sudipto Karmakar; Abhinav Narayanan |
| Abstract: | The recent demonetization exercise in India is a unique monetary experiment that made 86 percent of the total currency in circulation invalid. In a country where currency in circulation constitutes 12 percent of GDP, the policy turned out to be a purely exogenous macroeconomic shock that affected all agents of the economy. This paper documents the impact of this macroeconomic shock on one such systematically important agent of the economy: the household. By construction, the policy helped households with bank accounts in disposing of the demonetized cash. We use a new household-level data set to tease out the effects of this policy on households with no bank accounts. Our results show that the impact of demonetization on household income and expenditure has been transient with the major impact being seen in December-2016. There is significant heterogeneity in the impact across households in different asset classes. We also show evidence of recovery of household finances whereby households were able to smooth out consumption during the post-demonetization period. However, this recovery phase is associated with an increase in household borrowing from different sources, primarily for the purpose of consumption. In particular, informal borrowing (money lenders, shops) increased substantially during this period. Thus, the policy although transient in nature, contributed to the unintended consequence of increased leverge for households. |
| Keywords: | Demonetization, Household finance, Leverage |
| JEL: | E21 E51 G28 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0732019&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Belgium from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the B series is I (2). The study presents the ARIMA (0, 2, 1) model for predicting CPI in Belgium. The diagnostic tests further imply that the presented optimal model is apparently stable and acceptable. The results of the study apparently show that CPI in Belgium is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Belgium. |
| Keywords: | Belgium; Forecasting; Inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92414&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in France from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the F series is I (2). The study presents the ARIMA (1, 2, 0) model for predicting CPI in France. The diagnostic tests further imply that the presented model is stable and acceptable for predicting CPI in France. The results of the study apparently show that CPI in France is likely to continue on an upwards trajectory in the next ten years. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in France. |
| Keywords: | France; Forecasting; Inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92416&r=all |
| By: | Maggiori, Matteo; Neiman, Brent; Schreger, Jesse |
| Abstract: | The modern notion of an international currency involves use in areas of international finance and trade that extend well beyond central banks' coffers. In addition to their important roles as foreign exchange reserves, international currencies are most frequently used to denominate corporate and government bonds, bank loans, and import and export invoices. These currencies offer unrivaled liquidity, constituting large shares of the volume on global foreign exchange markets, and are commonly chosen as the anchors targeted by countries with pegged or managed exchange rate regimes. In this short article, we provide evidence suggesting a recent rise in the use of the dollar, and fall of the use in the euro, with similar patterns manifesting across all these aspects of international currency use. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13410&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Canada from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the C series is I (1). The study presents the ARIMA (1, 1, 1) model for predicting CPI in Canada. The diagnostic tests further show that the presented parsimonious model is stable. The results of the study apparently show that CPI in Canada is likely to continue on a sharp upwards trajectory in the next decade. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Canada. |
| Keywords: | Forecasting; Inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92415&r=all |
| By: | Cerutti, Eugenio (International Monetary Fund); Claessens, Stijn (Bank for International Settlements); Puy, Damien (International Monetary Fund) |
| Abstract: | This paper analyzes the behavior of gross capital inflows across 34 emerging markets (EMs), including eight Asian economies. We first confirm that aggregate inflows to EMs comove considerably. Three findings are reported: (i) the aggregate comovement conceals significant heterogeneity across asset types as only bank-related and portfolio bond and equity inflows comove; (ii) while global push factors in advanced economies mostly explain the common dynamics, their relative importance varies by type of flow; and (iii) the sensitivity to common dynamics varies significantly across borrower countries, with market structure characteristics (especially the composition of the foreign investor base and the level of liquidity) rather than a borrower country’s institutional fundamentals strongly affecting sensitivities. Countries relying more on international funds and global banks are found to be more sensitive to push factors. Our findings suggest that EMs need to closely monitor their lenders and investors to assess their inflow exposures to global push factors. |
| Keywords: | capital flows; emerging markets; global banks; mutual funds; push factors |
| JEL: | F32 F36 G11 G15 G23 |
| Date: | 2017–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0528&r=all |
| By: | Lauren Kuhn; Franz Ruch; Rudi Steinbach |
| Abstract: | The global financial crisis (GFC) saw real interest rates fall to all-time lows as central banks aimed to stimulate economic activity. The effectiveness of such low real rates depends, to a large extent, on the neutral real interest rate — popularly referred to as r-star. Monetary policy is considered expansionary when real interest rates are below r-star, and vice versa. However, the challenge arises from the fact that r-star is unobservable. This paper estimates r-star in the spirit of the popular Laubach-Williams (LW) methodology, but adapts their approach to capture the dynamics of a small open economy. This is achieved by incorporating additional drivers of the neutral rate, such as domestic net savings and investment, South Africa’s country risk premium, and the potential growth rate of our trading partners. In addition, foreign linkages like the exchange rate and international commodity prices are included to capture the impact of developments in the rest of the world on South African growth and inflation. The results suggest that South Africa’s r-star has fallen less than in advanced economies — from an average of 4.4 per cent from 2000 to 2006 to 1.9 per cent in 2017Q4. |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:rbz:wpaper:9097&r=all |
| By: | Hui, Cho-Hoi (Hong Kong Monetary Authority); Lo, Chi-Fai (Department of Physics, Chinese University of Hong Kong); Chau, Po-Hon (Department of Physics, Chinese University of Hong Kong) |
| Abstract: | The study conducts an empirical test on dollar-denominated sovereign credit spreads in emerging markets, including Brazil, Colombia, Mexico, the Philippines, the Russian Federation, and Turkey to examine their relationship with each country’s exchange rate and the United States (US) Treasury yields. The relationship between each country’s exchange rate and the pricing of each country’s US-dollar denominated sovereign bonds was particularly strong after the global financial crisis of 2008–2009. A two-factor pricing model is developed with closed-form solutions for the sovereign bonds. The correlated factors in the model are foreign exchange rates and US risk-free interest rates that follow a double square-root process relevant in a low interest rate environment. The numerical results and associated error analysis show that the model credit spreads can broadly track market credit spreads. |
| Keywords: | bond pricing model; emerging markets; exchange rates; sovereign risk |
| JEL: | G13 G21 G28 |
| Date: | 2017–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0530&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Singapore from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the S series is I (1). The study presents the ARIMA (1, 1, 2) model for predicting CPI in Singapore. The diagnostic tests further show that the presented optimal model is actually stable and acceptable. The results of the study apparently show that CPI in Singapore is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Singapore. |
| Keywords: | Forecasting; Inflation; Singapore |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92413&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Japan from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the X series is I (1). The study presents the ARIMA (1, 1, 0) model for predicting CPI in Japan. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable. The results of the study apparently show that CPI in Japan is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Japan. |
| Keywords: | Forecasting; inflation; Japan |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92409&r=all |
| By: | Faia, Ester; Pezone, Vincenzo |
| Abstract: | Using a unique confidential contract level dataset merged with firm-level asset price data, we find robust evidence that firms' stock market valuations and employment levels respond more to monetary policy announcements the higher the degree of wage rigidity. Data on the renegotiations of collective bargaining agreements allow us to construct an exogenous measure of wage rigidity. We also find that the amplification induced by wage rigidity is stronger for firms with high labor intensity and low profitability, providing evidence of distributional consequences of monetary policy. We rationalize the evidence through a model in which firms in different sectors feature different degrees of wage rigidity due to staggered renegotiations vis-a-vis unions. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13407&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Norway from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the N series is I (2). The study presents the ARIMA (2, 2, 2) model for predicting CPI in Norway. The diagnostic tests further imply that the presented optimal model is actually stable. The results of the study apparently show that CPI in Norway is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Norway. |
| Keywords: | Forecasting; Inflation, Norway |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92411&r=all |
| By: | Roth, Felix; Jonung, Lars |
| Abstract: | This paper examines the evolution of public support for the euro since its introduction as a virtual currency in 1999, using a unique set of data not available for any other currency. We focus on the role of economic factors in determining the popularity of the euro. We find that a majority of citizens support the euro in each individual member country of the euro area (EA). The economic crisis in the EA following the Great Recession led to a slight decline in public support, but the recent economic recovery has strengthened that support, which is now approaching historically high levels after two decades of its existence. We detect a similar, but less pronounced upturn in trust in the ECB during the recovery. Our econometric work demonstrates that unemployment is a key driver of support behind the euro. Given these developments, we discuss whether the large and persistent majority support enjoyed by the euro equips the currency to weather populist challenges during its third decade. |
| Keywords: | Euro,public support,trust,unemployment,optimum currency area,monetary union,ECB |
| JEL: | E42 E52 E58 F33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:uhhhdp:2&r=all |
| By: | Ahmed, Syed Shujaat |
| Abstract: | This study explains the relationship between oil prices and exchange rate of Pakistan in the time when Pakistan didn’t adopt for dollar and when Pakistan adopted for dollar as standard currency. By following the approach used by (Meese and Rogoff, 1988) and (Throop,1993) Interest Rate Parity has been used to construct a model by using exchange rate of Pakistan, Dubai crude oil price and interest rate differential from period of 1970m-1 to 2017m05. Results of the analysis shows that all variable are found to be integrated at level after application of Bealieu and Miron Seasonal Unit Root test. Results of the relationship between oil prices and exchange rate show that oil price is impacting exchange rate positively, while interest rate differential is negatively influencing the exchange rate. While examining the results for impact of change in regime on exchange rate, structural shifts were prominent during managed floating regime and floating regime which were causing Changes in the exchange rate policies. |
| Keywords: | Interest rate parity, exchange rate regime, regime switching, structural shift , Dubai crude oil price. |
| JEL: | E43 F0 Z0 |
| Date: | 2019–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92313&r=all |
| By: | Ehnts, Dirk H. |
| Abstract: | In 1905, Georg Friedrich Knapp published The State Theory of Money in his native German, claiming that money is a "creature of law" and not connected to metals via some intrinsic value. When the English translation appeared in 1924, apparently at the wishes of John Maynard Keynes, the German version had run through four editions, upon which the last the translation builds. There also had been considerable debate about "Chartalism" - the idea that money derived its acceptance by legal means - in the German academic literature. Among others, Knut Wicksell and Georg Simmel commented on it. Since so far there has not been any English-language publication on this issue, it is deemed worthwhile to provide such. After presenting the main arguments that Knapp makes in his book, the academic reviews that followed are presented and evaluated. |
| Keywords: | chartalism,Modern Monetary Theory,monetary theory,public finance,deficit spending,taxation,value of money,metallism |
| JEL: | E40 E42 E51 F31 H20 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1152019&r=all |
| By: | Michael Patrick Curran (Department of Economics, Villanova School of Business, Villanova University); Scott J. Dressler (Department of Economics, Villanova School of Business, Villanova University) |
| Abstract: | This paper assesses the welfare implications of long-run inflation in an environment with essential money, a competing illiquid asset, and potential ex-ante heterogeneity of households with respect to their behavioral measures of risk aversion and elasticity of intertemporal substitution. The results show that the relative liquidity position of households’ portfolio as well as potential inter-cohort transfers of resources can deliver fewer welfare costs to inflation than has been previously reported, and in some instances net welfare benefits to low levels of positive inflation. These results hold in versions of the model calibrated to both US and euro area data. |
| Keywords: | Inflation; Welfare; Recursive Preferences |
| JEL: | E21 E41 E50 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:vil:papers:40&r=all |
| By: | Giulietti, Monica (Loughborough University); Otero,Jesus (Universidad del Rosario); Waterson, Michael (University of Warwick) |
| Abstract: | We assess the extent of inertia in grocery retail prices using data on prices and costs from a large supermarket chain in Colombia. Relative to previous work our analysis benefits from the daily frequency of the data and the availability of reliable replacement cost data. We uncover evidence supporting the existence of significant nominal rigidities in reference prices (three months) and even more so in reference costs (about five months). There is evidence that the price and cost rigidities differ depending on the type of product, being on average smaller in the case of perishable goods. Using an Error Correction Model framework, we examine the path of prices relative to costs, to determine the speed of adjustment of prices to shocks. |
| Keywords: | nominal rigidities ; prices ; costs ; grocery trade ; error correction |
| JEL: | C32 E31 L11 L81 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1187&r=all |
| By: | Costain, James; Nakov, Anton; Petit, Borja |
| Abstract: | This paper studies the dynamic general equilibrium effects of monetary shocks in a "control cost" model of state-dependent retail price adjustment and state-dependent wage adjustment. Suppliers of retail goods and of labor are both monopolistic competitors that face idiosyncratic productivity shocks and nominal rigidities. Stickiness arises because precise choice is costly: decision-makers tolerate errors both in the timing of adjustments, and in the new level at which the price or wage is set, because making these choices with perfect precision would be excessively costly. The model is calibrated to microdata on the size and frequency of price and wage changes. We find that the impact multiplier of a money growth shock on consumption and labor in our calibrated state-dependent model is similar to that in a Calvo model with the same adjustment frequencies, though the response is less persistent than it would be under the Calvo mechanism. Wage rigidity accounts for most of the nonneutrality that occurs in a model where both prices and wages are sticky; hence, a model with both rigidities produces substantially larger real effects of monetary shocks than does a model with sticky prices only. We find that the state-dependence of nominal rigidity strongly decreases the slope of the Phillips curve as trend inflation declines. This result is not driven by downward wage rigidity; adjustment costs are symmetric in our model. Here, instead, price- and wage-setters prefer to adjust less frequently when trend inflation is low, making short-run inflation less reactive to shocks. |
| Keywords: | control costs; logit equilibrium; near rationality; state-dependent adjustment; sticky prices; sticky wages |
| JEL: | C73 D81 E31 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13398&r=all |
| By: | Chiara Lattanzi; Manuele Leonelli |
| Abstract: | Inference over tails is usually performed by fitting an appropriate limiting distribution over observations that exceed a fixed threshold. However, the choice of such threshold is critical and can affect the inferential results. Extreme value mixture models have been defined to estimate the threshold using the full dataset and to give accurate tail estimates. Such models assume that the tail behavior is constant for all observations. However, the extreme behavior of financial returns often changes considerably in time and such changes occur by sudden shocks of the market. Here we extend the extreme value mixture model class to formally take into account distributional extreme changepoints, by allowing for the presence of regime-dependent parameters modelling the tail of the distribution. This extension formally uses the full dataset to both estimate the thresholds and the extreme changepoint locations, giving uncertainty measures for both quantities. Estimation of functions of interest in extreme value analyses is performed via MCMC algorithms. Our approach is evaluated through a series of simulations, applied to real data sets and assessed against competing approaches. Evidence demonstrates that the inclusion of different extreme regimes outperforms both static and dynamic competing approaches in financial applications. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1902.09205&r=all |
| By: | Drobyshevsky, Sergey (Дробышевский, Сергей) (The Russian Presidential Academy of National Economy and Public Administration, Gaidar Institute for Economic Policy); Koval, Alexandra (Коваль, Александра) (The Russian Presidential Academy of National Economy and Public Administration); Levashenko, Antonina (Левашенко, Антонина) (The Russian Presidential Academy of National Economy and Public Administration); Trunin, Pavel (Трунин, Павел) (The Russian Presidential Academy of National Economy and Public Administration, Gaidar Institute for Economic Policy); Sinelnikov-Murylev, Sergey (Синельников-Мурылев, Сергей) (The Russian Presidential Academy of National Economy and Public Administration, Russian Foreign Trade Academy, Gaidar Institute for Economic Policy) |
| Abstract: | In Russia today, currency restrictions remain that do not correspond to the realities of a market economy and create obstacles for Russian business and citizens: the requirement of repatriation and restrictions on the use of foreign accounts. The main argument in favor of maintaining currency control is its need for macroeconomic stability, tax administration and anti-money laundering. But currency control is not the determining factor for capital outflow, and in a crisis situation restrictions on cross-border financial transactions can be introduced in the absence of currency control. This report contains a set of measures to abolish currency restrictions and improve the system of tax administration and control over money laundering. For tax control purposes, it is advisable to use tax legislation and tools for the international exchange of information. In order to combat money laundering, it is necessary to improve the risk management system and develop international cooperation among regulatory bodies. |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:ppaper:021910&r=all |
| By: | Tetsuya Takaishi; Takanori Adachi |
| Abstract: | This letter investigates the dynamic relationship between market efficiency, liquidity, and multifractality of Bitcoin. We find that before 2013 liquidity is low and the Hurst exponent is less than 0.5, indicating that the Bitcoin time series is anti-persistent. After 2013, as liquidity increased, the Hurst exponent rose to approximately 0.5, improving market efficiency. For several periods, however, the Hurst exponent was found to be significantly less than 0.5, making the time series anti-persistent during those periods. We also investigate the multifractal degree of the Bitcoin time series using the generalized Hurst exponent and find that the multifractal degree is related to market efficiency in a non-linear manner. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1902.09253&r=all |
| By: | Yasuo Hirose; Takeki Sunakawa |
| Abstract: | This paper investigates how and to what extent nonlinearities, including the zero lower bound on the nominal interest rate, affect the estimate of the natural rate of interest in a dynamic stochastic general equilibrium model with sticky prices and wages. The estimated natural rate of interest in a nonlinear model is substantially different from that in its linear counterpart because of a contractionary effect of the zero lower bound. Price and wage dispersion, from which a linear model abstracts, play a minor role in identifying the natural rate. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:tcr:wpaper:e128&r=all |
| By: | Acharya, Sushant; Bengui, Julien; Dogra, Keshav; Wee, Shu Lin |
| Abstract: | We analyze monetary policy in a model where temporary shocks can permanently scar the economy's productive capacity. Unemployed workers' skill losses generate multiple steady-state unemployment rates. When monetary policy is constrained by the zero bound, large shocks reduce hiring to a point where the economy recovers slowly at best â?? at worst, it falls into a permanent unemployment trap. Since monetary policy is powerless to escape such traps ex-post, it must avoid them ex-ante. The model quantitatively accounts for the slow U.S. recovery following the Great Recession, and suggests that lack of swift monetary accommodation helps explain the European periphery's stagnation. |
| Keywords: | hysteresis; monetary policy; multiple steady states; path dependence; skill depreciation |
| JEL: | E24 E3 E5 J23 J64 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13409&r=all |