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on Monetary Economics |
| By: | Michael T. Belongia (University of Mississippi); Peter N. Ireland (Boston College) |
| Abstract: | A New Keynesian model, estimated using Bayesian methods over a sample period that includes the recent episode of zero nominal interest rates, illustrates the effects of replacing the Federal Reserve's historical policy of interest rate management with one targeting money growth instead. Counterfactual simulations show that a rule for adjusting the money growth rate, modestly and gradually, in response to changes in the output gap delivers performance comparable to the estimated interest rate rule in stabilizing output and inflation. The simulations also reveal that, under the same money growth rule, the US economy would have recovered more quickly from the 2007-09 recession, with a much shorter period of exceptionally low interest rates. These results suggest that money growth rules can serve as a simple and effective alternative guide for monetary policy in the current low interest rate environment. |
| Keywords: | Divisia monetary aggregates, Monetary policy rules, New Keynesian models, Zero lower bound |
| JEL: | E31 E32 E41 E47 E51 E52 |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:976&r=all |
| By: | Cars Hommes; Joep Lustenhouwer |
| Abstract: | Policy implications are derived for an inflation-targeting central bank, whose credibility is endogenous and depends on its past ability to achieve its targets. This is done in a New Keynesian framework with heterogeneous and boundedly rational expectations. We find that the region of allowed policy parameters is strictly larger than under rational expectations. However, when the zero lower bound on the nominal interest rate is accounted for, self-fulfilling deflationary spirals can occur, depending on the credibility of the central bank. Deflationary spirals can be prevented with a high inflation target and aggressive monetary easing. |
| Keywords: | Business fluctuations and cycles; Credibility; Monetary policy |
| JEL: | E52 E32 C62 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-9&r=all |
| By: | Ljungberg, Jonas (Department of Economic History, Lund University); Ögren, Anders (Department of Economic History, Lund University) |
| Abstract: | While there is a huge literature on exchange rate systems since the classical gold standard, less research has been devoted to comparisons of the different arguments that guided the choices. While the origin of the international gold standard in the 1870s was a result of silver coins disappearing from circulation due to rising silver prices, the gold standard has later been interpreted as a quest for monetary discipline. This discipline argument was introduced by the end of WWI as a support for a restoration of the gold standard. Its failure led to an emphasis on the need to avoid external imbalances, which came to the fore in the preparations of the Bretton Woods system. The balance argument was also central in the early discussions of a monetary union in Europe, but with the critique of Keynesianism it was superseded by the disciplinary argument which became determinant for the design of EMU. |
| Keywords: | exhange rates; Europe; gold standard; EMU |
| JEL: | F31 N13 N14 |
| Date: | 2019–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:luekhi:0190&r=all |
| By: | Valentin Jouvanceau (Univ Lyon, Université Lyon 2, GATE UMR 5824, F-69130 Ecully, France) |
| Abstract: | What are the impacts of a flush of interest-bearing excess reserves to the real economy? Surprisingly, the theoretical literature remains silent about this question. We address this issue in a new Keynesian model with various financial frictions and reserve requirements in the balance sheet of bankers. Modeling QE by the supply of excess reserves, allow for endogenous changes in the relative supply of financial assets. We find that this mechanism is crucial to identify and disentangle between the portfolio balance, the credit and the asset prices channels of QE. Further, we demonstrate that the macroeconomic effects of QE are rather weak and mainly transmitted through the asset prices channel. |
| Keywords: | Quantitative Easing, Excess Reserves, Transmission Channels, Securitization Crisis |
| JEL: | E32 E44 E52 E58 G01 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1910&r=all |
| By: | Nobuhiro Abe (Bank of Japan); Takuji Fueki (Bank of Japan); Sohei Kaihatsu (Strategy, Policy, and Review Department, International Monetary Fund) |
| Abstract: | This paper estimates a Markov switching dynamic stochastic general equilibrium model (MS-DSGE) allowing for changes in monetary/fiscal policy interaction. The key feature of the model is that it seeks to quantitatively examine the impact of changes in monetary/fiscal policy interaction on economic outcomes even during a period when the ZLB is binding and unconventional monetary policy is implemented. To this end, we estimate our model using the shadow interest rate, which can be interpreted as an aggregate that captures the overall effect of unconventional monetary policies as well as conventional monetary policy. Applying our model to Japan, we identify changes in monetary/fiscal policy interaction even during the period when unconventional monetary policy has been implemented. We find that the introduction of Qualitative and Quantitative Easing (QQE) enables the Bank of Japan to actively respond to the inflation rate, which has helped to push up inflation. |
| Keywords: | Monetary policy; Inflation; Markov-switching DSGE |
| JEL: | E52 E62 C32 |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp19e03&r=all |
| By: | Jongrim Ha (World Bank, Development Prospects Group); M. Ayhan Kose (World Bank, Development Prospects Group; Brookings Institution; CEPR, and CAMA); Franziska L. Ohnsorge (World Bank, Development Prospects Group; CAMA) |
| Abstract: | Emerging market and developing economies (EMDEs) have experienced an extraordinary decline in inflation since the early 1970s. After peaking in 1974 at 17.3 percent, inflation in these economies declined to 3.5 percent in 2017. Despite a checkered history of managing inflation among many EMDEs, disinflation occurred across all regions. This paper presents a summary of our recent book, “Inflation in Emerging and Developing Economies: Evolution, Drivers, and Policies,” that analyzes this remarkable achievement. Our findings suggest that many EMDEs enjoy the benefits of stability-oriented and resilient monetary policy frameworks, including central bank transparency and independence. Such policy frameworks need to be complemented by strong macroeconomic and institutional arrangements. Inflation expectations are more weakly anchored in EMDEs than in advanced economies. In EMDEs that do not operate inflation targeting frameworks, exchange rate movements tend to have larger and more persistent effects on inflation. |
| Keywords: | Prices; Inflation; Monetary Systems; Monetary Policy; Globalization. |
| JEL: | E31 E42 E52 E58 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1902&r=all |
| By: | Suwareh Darbo (African Development Bank); Amandine Nakumuryango (African Development Bank) |
| Abstract: | The objective of this working paper is to investigate the factors contributing to inflation in Sudan in the wake of South Sudan’s secession, which resulted in the loss of 75% of the country’s oil exports. The paper uses a single equation model in a Vector Error Correction Model (VECM) to investigate the determinants of inflation. The independent variables included in the model are money supply, the nominal effective exchange rate based on the parallel rate, credit to the private sector as a percentage of GDP, and crude oil prices. The results indicate that, in the long run, oil prices have a negative effect on inflation while money supply, credit to private sector, and nominal effective exchange rate have positive effects. This underscores the need to manage money supply, the exchange rate, and credit to the private sector, all of which can be influenced by the monetary authorities—that is, the Central Bank of Sudan.JEL classification: E310 E520 E58Keywords: Inflation, money supply, exchange rate, credit, oil prices Sudan, long-run, VECM. |
| Date: | 2018–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:2432&r=all |
| By: | Paolo Cavallino; Damiano Sandri |
| Abstract: | We provide a theory of the limits to monetary policy independence in open economies arising from the interaction between capital flows and domestic collateral constraints. The key feature is the existence of an "Expansionary Lower Bound" (ELB), defined as an interest rate threshold below which monetary easing becomes contractionary. The ELB can be positive, thus binding before the ZLB. Furthermore, the ELB is affected by global monetary and financial conditions, leading to novel international spillovers and crucial departures from Mundell's trilemma. We present two models in which the ELB may arise due to either carry-trade capital flows or currency mismatches. |
| Keywords: | monetary policy, collateral constraints, currency mismatches, carry trade, spillovers |
| JEL: | E5 F3 F42 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:770&r=all |
| By: | Sokic, Alexandre |
| Abstract: | This paper is deeply motivated by the need to explore the impressive Bitcoin price development by addressing Bitcoin as money in its essential attribute as a medium of exchange. We adopt a monetary economics viewpoint and resort to a representative agent modelling strategy within a money-in-the-utility function (MIUF) framework. First, we show that the impressive Bitcoin price development observed since its inception can be interpreted as a hyperdeflation when we focus on Bitcoin role as a medium of exchange. Second, we show that specific monetary features of Bitcoin, its asymptotical fixed nominal stock and divisibility down to eight decimal places, account for a strong possibility of speculative hyperdeflationary paths. It is shown that those paths are fully consistent with the medium of exchange monetary role of Bitcoin and the representative agent optimizing behavior. |
| Keywords: | Cryptocurrencies, Bitcoin, hyperdeflation, medium of exchange |
| JEL: | E31 E41 E42 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90603&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Burundi from 1966 to 2017, to model and forecast inflation using ARIMA models. Diagnostic tests indicate that B is I(1). The study presents the ARIMA (0, 1, 1). The diagnostic tests further imply that the presented optimal ARIMA (0, 1, 1) model is stable and acceptable for predicting inflation in Burundi. The results of the study apparently show that B will be approximately 9.4% by 2020. Policy makers, particulary, monetary authorities in Burundi are expected to tighten Burundi’s monetary policy in order to restore price stability. |
| Keywords: | Burundi; forecasting; inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92444&r=all |
| By: | CHAFIK, Omar |
| Abstract: | Nominal interest rate is generally assumed to follow an UIP condition when the exchange rate is fixed, and the capital account is opened. Consequently, domestic interest rate is determined by foreign rates and the risk premium. This paper shows that for an oil exporting country like UAE, adjusting nominal interest rate only to foreign rate could be economically inconsistent. In fact, what really matters with exchange rate is expectations, and for an oil exporter country like UAE these expectations are significantly impacted by oil prices. By incorporating a market-expected exchange rate mechanism in a semi-structural New Keynesian Model, this paper highlights the importance of this mechanism and provides a consistent analytical framework. |
| Keywords: | Monetary policy, exchange rate, New Keynesian Model, UIP condition, Bayesian estimation |
| JEL: | C11 E3 E5 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92558&r=all |
| By: | NYONI, THABANI |
| Abstract: | This paper uses annual time series data on inflation rates in the USA from 1960 to 2016, to model and forecast inflation using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the US inflation series is I (1). The study presents the ARIMA (2, 1, 1) model for predicting inflation in the US. The diagnostic tests further show that the presented parsimonious model is stable and acceptable for predicting annual inflation rates in the US. The results of the study apparently show that inflation in the US is likely to be less than 2% over the out-of-sample forecast period (i.e 10 years). The study encourages policy makers to make use of tight monetary policy measures in order to maintain price stability in the US. |
| Keywords: | Forecasting; inflation, USA |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92460&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Algeria from 1970 to 2017, to model and forecast inflation using ARIMA models. Diagnostic tests indicate that A is I(1). The study presents the ARIMA (1, 1, 1). The diagnostic tests further imply that the presented optimal ARIMA (1, 1, 1) model is stable and acceptable for predicting inflation in Algeria. The results of the study apparently show that A will ranging between 4.9% and 5.2% over the out-of-sample period. Monetary authorities in Algeria are expected to tighten Algeria’s monetary policy in order to maintain price stability. |
| Keywords: | Forecasting; Inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92426&r=all |
| By: | Cantore, Cristiano; Ferroni, Filippo; León-Ledesma, Miguel |
| Abstract: | The textbook New-Keynesian (NK) model implies that the labor share is pro-cyclical conditional on a monetary policy shock. We present evidence that a monetary policy tightening robustly increased the labor share and decreased real wages and labor productivity during the Great Moderation period in the US, the Euro Area, the UK, Australia, and Canada. We show that this is inconsistent not only with the basic NK model, but with a wide variety of NK models commonly used for monetary policy analysis and where the direct link between the labor share and the markup can be broken. |
| Keywords: | Labor Share; monetary policy shocks |
| JEL: | C52 E23 E32 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13551&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Myanmar from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the M series is I (2). The study presents the ARIMA (2, 2, 1) model for predicting CPI in Myanmar. The diagnostic tests further imply that the presented optimal model is stable and acceptable in modeling CPI in Myanmar. The results of the study apparently show that CPI in Myanmar is likely to continue on an upwards trajectory in the next decade. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to deal with inflation in Myanmar. |
| Keywords: | Forecasting; Inflation; Myanmar |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92420&r=all |
| By: | Hardik A. Marfatia (Department of Economics, Northeastern Illinois University, BBH 344G, 5500 N. St. Louis Ave., Chicago, IL 60625, USA); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Esin Cakan (Department of Economics, University of New Haven, 300 Boston Post Road, West Haven, CT 06516, USA) |
| Abstract: | In this paper, we assess the dynamic impact of the U.S. monetary policy announcements on oil market futures returns and volatility. We use intra-day data together with a time-varying modeling approach to study the nature of this dynamic impact. In addition, we also control for macroeconomic news shocks and separately study the response of good and bad realized volatility. Evidence suggests that there is a significant time variation in the response of oil returns as well as its volatility to the Federal Reserve policy announcements. Furthermore, we find that higher (lower) uncertainty about Federal Reserve policy actions weakens (strengthens) the impact of the announcements on oil returns and volatility. |
| Keywords: | Monetary Policy, Macroeconomic Surprises, Oil Returns and Volatility, Time-Varying Model |
| JEL: | C32 E44 E52 G14 Q43 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201916&r=all |
| By: | NYONI, THABANI |
| Abstract: | This paper uses annual time series data on CPI in Mauritius from 1963 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the Z series is I (2). The study presents the ARIMA (0, 2, 3) model for predicting CPI in Mauritius. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable for predicting CPI in Mauritius. The results of the study apparently show that CPI in Mauritius is likely to continue on a very 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 Mauritius. |
| Keywords: | Forecasting; Inflation; Mauritius |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92423&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Italy from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the T series is I (2). The study presents the ARIMA (0, 2, 1) model for predicting CPI in Italy. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable for predicting CPI in Italy over the period under study. The results of the study apparently show that CPI in Italy 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 Italy. |
| Keywords: | Forecasting; Italy; Inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92421&r=all |
| By: | Boneva, Lena (Bank of England); Elliott, David (Bank of England); Kaminska, Iryna (Bank of England); Linton, Oliver (University of Cambridge); McLaren, Nick (Bank of England); Morley, Ben (Bank of England) |
| Abstract: | In August 2016, the Bank of England (BoE) announced a Corporate Bond Purchase Scheme (CBPS) to purchase up to £10 billion of sterling corporate bonds. To investigate the impact of these purchases on liquidity, we create a novel dataset that combines transaction-level data from the secondary corporate bond market with proprietary offer-level data from the BoE’s CBPS auctions. Identifying the impact of central bank asset purchases on liquidity is potentially impacted by reverse causality, because liquidity considerations might impact purchases. But the offer-level data allow us to construct proxy measures for the BoE’s demand for bonds and auction participants’ supply of bonds, meaning that we can control for the impact of liquidity on purchases. Across a range of liquidity measures, we find that CBPS purchases improved the liquidity of purchased bonds. |
| Keywords: | Quantitative easing; market liquidity; market-making; corporate bonds |
| JEL: | E52 E58 G12 G23 |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0782&r=all |
| By: | Francesco Luna |
| Abstract: | Many observers argue that the world has changed after the latest financial crisis. If that is the case, monetary policy and the process informing it will have to be reconsidered and “learned” anew by all stakeholders. Perhaps, a new Taylor rule will emerge. A “Taylor rule” is predicated upon two successful inference exercises: one by the researcher who is interested in identifying the Central Bank’s behavior and one by the Central Bank, which tries to infer how the economy works and interacts with its monetary policy interventions. Because of certain granularities imposed by institutional arrangements and the need for transparent communication in policy making, this paper proposes an analytical framework based on computability theory to model these inference exercises and to assess their general possibility of success. So, is it possible to infer/learn the central bank’s policy rule? The answer is a qualified positive and depends on the “complexity” of the economy and on the quality of information. As for policy implications, the results show that transparency and understandable “reaction functions” will go a long way in fostering learnability. |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/33&r=all |
| By: | NYONI, THABANI |
| Abstract: | This paper uses annual time series data on CPI in Iran from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the I series is I (2). The study presents the ARIMA (1, 2, 1) model for predicting CPI in Iran. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable for predicting CPI in Iran. The results of the study apparently show that CPI in Iran is likely to continue on an upwards trajectory in the next ten years. The study basically encourages Iranian policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Iran. |
| Keywords: | Forecasting; Iran; inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92454&r=all |
| By: | Troug, Haytem |
| Abstract: | To show how fiscal policy affects the transmission mechanism of monetary policy, we extend a standard new Keynesian model for a small open economy to allow for the presence of non-separable government consumption in the utility function. We show how monetary policy should optimally respond to demand and supply shocks when the government sector is incorporated into the model. The introduction of government consumption affects the transmission of monetary policy. When government consumption has a crowding in effect on private consumption, it will dampen the transmission mechanism of monetary policy, and vice versa. Nevertheless, the degree of openness will minimise the effect of the introduction of government consumption in a non-separable form. Data for 35 OECD countries empirically support these findings, and the empirical results are robust to the zero lower bound period. The theoretical model also shows that, once we model the rest of the world economy, domestic government consumption and foreign government consumption will have opposing effects on private consumption, which contradicts with the existing literature. |
| Keywords: | New Keynesian models, Business Cycle, Monetary Policy, Open Economy Macroeconomics, Joint Analysis of Fiscal and Monetary Policy. |
| JEL: | E12 E32 E52 E63 F41 |
| Date: | 2019–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92511&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Lesotho from 1974 to 2017, to model and forecast inflation using ARIMA models. Diagnostic tests indicate that L is I(1). The study presents the ARIMA (0, 1, 2). The diagnostic tests further imply that the presented optimal ARIMA (0, 1, 2) model is stable and acceptable for predicting inflation in Lesotho. The results of the study apparently show that L will be approximately 5.2% over the out-of-sample forecast period. The CBL is expected to tighten Lesotho’s monetary policy in order to maintain price stability. |
| Keywords: | Forecasting; Inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92428&r=all |
| By: | Johannes Wiegand |
| Abstract: | In 1871-73, newly unified Germany adopted the gold standard, replacing the silver-based currencies that had been prevalent in most German states until then. The reform sparked a series of steps in other countries that ultimately ended global bimetallism, i.e., a near-universal fixed exchange rate system in which (mostly) France stabilized the exchange value between gold and silver currencies. As a result, silver currencies depreciated sharply, and severe deflation ensued in the gold block. Why did Germany switch to gold and set the train of destructive events in motion? Both a review of the contemporaneous debate and statistical evidence suggest that it acted preemptively: the Australian and Californian gold discoveries of around 1850 had greatly increased the global supply of gold. By the mid-1860s, gold threatened to crowd out silver money in France, which would have severed the link between gold and silver currencies. Without reform, Germany would thus have risked exclusion from the fixed exchange rate system that tied together the major industrial economies. Reform required French accommodation, however. Victory in the Franco-Prussian war of 1870/71 allowed Germany to force accommodation, but only until France settled the war indemnity and regained sovereignty in late 1873. In this situation, switching to gold was superior to adopting bimetallism, as it prevented France from derailing Germany’s reform ex-post. |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/32&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Tanzania from 1966 to 2017, to model and forecast inflation using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the T series is I (1). The study presents the ARIMA (1, 1, 2) model for predicting inflation in Tanzania. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable for predicting inflation in Tanzania. The results of the study apparently show that inflation in Tanzania 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 Tanzania. |
| Keywords: | Forecasting; inflation; Tanzania |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92458&r=all |
| By: | ITO Hiroyuki; Phuong TRAN |
| Abstract: | It has been increasingly argued that highly globalized financial markets have been playing a bigger role in determining domestic asset prices and long-term interest rates. Rey (2013) argues that global financial cycles essentially dictate the movements of domestic financial markets to such an extent that policy makers have to decide between either retaining monetary autonomy by imposing capital controls, or retaining free capital mobility but relinquishing monetary independence. In such a world, managing long-term interest rates through manipulating short-term interest rates can be difficult. In this paper, we empirically examine whether net capital inflows contribute to weakening the link between short-term and long-term interest rates. We find that economies open to cross-border capital flows or with more developed financial markets tend to have a greater negative relationship between net capital inflows and interest rate pass-through. We also examine whether macroprudential policies can affect the extent of interest rate pass-through and find that broad-based capital macroprudential tools are effective in retaining control of short- to long-term interest rate pass-through. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:19012&r=all |
| By: | Shy, Oz (Federal Reserve Bank of Atlanta) |
| Abstract: | Cash users withdraw money from automated teller machines (ATMs) to finance cash payments. However, most ATMs in the United States dispense only multiples of $20 bills. The paper first constructs a consumer's optimization model showing how the precise denomination of dollar bills available from ATMs affects consumers' decision whether to pay with cash or with (plastic) cards. Then, the paper uses various statistical techniques to conduct empirical analyses of consumers who choose to pay cash for transactions below a certain threshold payment amount and pay with cards for transactions exceeding that threshold. |
| Keywords: | currency denomination; automated teller machines; ATM; consumer payment choice; payment methods; point of sale |
| JEL: | D9 E42 |
| Date: | 2019–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2019-02&r=all |
| By: | NYONI, THABANI |
| Abstract: | This paper uses annual time series data on CPI in Japan from 1963 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the Y series is I (2). The study presents the ARIMA (0, 2, 1) model for predicting CPI in Saudi Arabia. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable for predicting CPI in Saudi Arabia. The results of the study apparently show that CPI in Saudi Arabia is likely to be relatively high in the next decade. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to deal with inflation in Saudi Arabia. |
| Keywords: | Forecasting; Inflation; Saudi Arabia |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92422&r=all |
| By: | NYONI, THABANI |
| Abstract: | This paper uses annual time series data on inflation in Israel from 1960 to 2017, to model and forecast inflation using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that Q is I (1). The study presents the ARIMA (1, 1, 2) model for predicting inflation in Israel. The diagnostic tests further show that the presented parsimonious model is stable and acceptable for predicting inflation in Israel. The results of the study apparently show that inflation in Israel is likely to be hovering around 1.6% over the next decade. Basically, the study encourages the Bank of Israel to continue being transparent and independent in order to retain credibility and boost its ability to engineer successful macroeconomic policy actions. |
| Keywords: | Forecasting; Inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92427&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Niger from 1964 to 2017, to model and forecast inflation using ARMA models. Diagnostic tests indicate that N is I(0). The study presents the ARMA (1, 0, 0) model, which is simply an AR (1) model. The diagnostic tests further imply that the presented optimal ARMA (1, 0, 0) model is stable. The results of the study apparently show that N will be approximately 4.3% by 2020. Policy makers and the business community in Niger are expected to take advantage of the anticipated stable inflation rates over the next decade. |
| Keywords: | Forecasting; inflation; Niger |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92450&r=all |
| By: | Joao F. Caldeira (Department of Economics, Universidade Federal do Rio Grande do Sul and CNPq, Brazil); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Tahir Suleman (School of Economics and Finance, Victoria University of Wellington & School of Business, Wellington Institute of Technology, New Zealand); Hudson S. Torrent (Department of Statistics, Universidade Federal do Rio Grande do Sul, Brazil) |
| Abstract: | In this paper, we develop a non-parametric functional data analysis (NP-FDA) model to forecast the term-structure of Brazil, Russia, India, China and South Africa (BRICS). We use daily data over the period of January 1, 2010 to December 31, 2016. We find that, while it is in general difficult to beat the random-walk model in the shorter-horizons, at longer-runs our proposed NP-FDA approach outperforms not only the random-walk model, but also other popular competitors used in term-structure forecasting literature. Our results have important implications for both policymakers aiming to stabilize the economy, and for optimal portfolio allocation decisions of financial market agents. |
| Keywords: | Functional data analysis, yield curve forecasting, performance evaluation, BRICS |
| JEL: | C53 E43 G17 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201911&r=all |
| By: | Zhou, Siwen |
| Abstract: | This paper examines the macroeconomic impact of the Asset Purchase Programme (APP) in the euro area on the basis of a set of macro-finance variables included in a Dynamic Nelson–Siegel modelling framework. The empirical results emphasise the role of the APP’s portfolio balance channel in stimulating economic growth and inflation, both at the aggregate euro area level and at the disaggregated country-specific level. The portfolio balance channel works at the aggregated level through greater international price competitiveness, easier conditions on capital markets, and higher asset prices. Moreover, the results suggest that the initial APP announcement has increased the annual real GDP growth rates and HICP inflation in the euro area by up to 0.7% and 0.8%, respectively. At the disaggregated level, there is evidence for the stimulation of bank lending through the portfolio balance channel in the core countries. Moreover, the stronger rise in stock prices in the core countries shows that the wealth effect triggered by portfolio rebalancing is mainly concentrated in the richer member countries. A comparison of the country-specific macroeconomic impact of APP shows that while overall GDP responses are broadly comparable across countries, the peripheral countries that have implemented effective labour market reforms have benefited significantly from bond purchases in stimulating inflation. This points to the need for further labour market reforms in Italy. A reform package of labour and product market reforms can help to reduce the resulting transition costs. |
| Keywords: | Quantitative Easing, Asset Purchase Programme, European Central Bank, Term Structure Model, Portfolio Balance Channel |
| JEL: | E43 E44 E52 F31 F42 |
| Date: | 2019–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92530&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Morocco from 1960 to 2017, to model and forecast inflation using ARIMA models. Diagnostic tests indicate that M is I(1). The study presents the ARIMA (0, 1, 1) model. The diagnostic tests further imply that the presented optimal ARIMA (0, 1, 1) model is stable and acceptable in forecasting inflation in Morocco. The results of the study apparently show that M will be hovering somewhere around 1.1% over the next decade. Policy makers and the business community in Morocco are expected to take advantage of the anticipated stable inflation rates over the next decade. |
| Keywords: | Forecasting; inflation; Morocco |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92455&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Senegal from 1968 to 2017, to model and forecast inflation using ARMA models. Diagnostic tests indicate that the inflation rate series is I(0). The study presents the ARMA (1, 0, 0) model, which is equivalent to an AR (1) model. The diagnostic tests further imply that the presented optimal ARMA (1, 0, 0) model is stable and acceptable for forecasting inflation rates in Senegal. The results of the study apparently show that inflation will be approximately 4.7% by 2020. Policy makers and the business community in Senegal are expected to take advantage of the anticipated stable inflation rates over the next decade. |
| Keywords: | Forecasting; Inflation; Senegal |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92431&r=all |
| By: | Bergant, Katharina; Fidora, Michael; Schmitz, Martin |
| Abstract: | The paper analyses euro area investors’ portfolio rebalancing during the ECB’s Asset Purchase Programme (APP) at the security level. Based on net transactions of domestic and foreign securities, the authors observe euro area sectors’ capital flows into individual securities, cleaned from valuation effects. Their empirical analysis – which accounts for security-level characteristics – shows that euro area investors (in particular investment funds and households) actively rebalanced away from securities targeted under the Public Sector Purchase Programme (PSPP) and other euro-denominated debt securities, towards foreign debt instruments, including ‘closest substitutes’, i.e. certain sovereign debt securities issued by non-euro area advanced countries. This rebalancing was particularly strong during the first six quarters of the programme. The analysis also reveals marked differences across sectors as well as country groups within the euro area, suggesting that quantitative easing has induced heterogeneous portfolio shifts. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:eps:ecmiwp:13926&r=all |
| By: | Alain Alcouffe (LIRHE - Laboratoire Interdisciplinaire de recherche sur les Ressources Humaines et l'Emploi - UT1 - Université Toulouse 1 Capitole - CNRS - Centre National de la Recherche Scientifique); Fanny Coulomb (CESICE - Centre d'études sur la sécurité internationale et les coopérations européennes - UPMF - Université Pierre Mendès France - Grenoble 2 - UGA - Université Grenoble Alpes) |
| Date: | 2018–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02022182&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Finland from 1960 to 2017, to model and forecast inflation using ARIMA models. Diagnostic tests indicate that F is I(1). The study presents the ARIMA (1, 1, 3) model. The diagnostic tests further imply that the presented optimal ARIMA (1, 1, 3) model is stable and acceptable in predicting Finnish inflation. The results of the study apparently show that F will be hovering around 1% over the next 10 years. Policy makers and the business community in Finland are expected to take advantage of the anticipated stable inflation rates over the next decade. |
| Keywords: | Forecasting; inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92448&r=all |
| By: | Asgharian, Hossein (Department of Economics, Lund University); Krygier, Dominika (Department of Economics, Lund University); Vilhelmsson, Anders (Department of Economics, Lund University) |
| Abstract: | We suggest that banks contribute extensively to systemic risk only if they are both "risky" and centrally placed in the financial network. To calculate systemic risk we apply the CoVaR measure of Adrian and Brunnermeier (2016) and measure centrality using detailed US loan syndication data. In agreement with our conjecture our main finding is that centrality is an important determinant of systemic risk but primarily not by its direct effect. Rather, its main influence is to make other firm specific risk measures more important for highly connected banks. A bank's contribution to systemic risk from a fixed level of Value-at-Risk is about four times higher for a bank with two standard deviations above average centrality compared to a bank with average network centrality. Neglecting this indirect moderation effect of centrality severely underestimates the importance of centrality for "risky" banks and overestimates the effect for "safer" banks. |
| Keywords: | systemic risk; network centrality; loan syndication; CoVaR |
| JEL: | G18 G21 |
| Date: | 2019–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2019_004&r=all |
| By: | Rasmus Fatum (Alberta School of Business, University of Alberta (E-mail: rasmus.fatum@ualberta.ca)); Naoko Hara (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: naoko.hara@boj.or.jp)); Yohei Yamamoto (Department of Economics, Hitotsubashi University (E-mail: yohei.yamamoto@econ.hit-u.ac.jp)) |
| Abstract: | We consider the influence of domestic and US macroeconomic news surprises on daily bond yields over the January 1999 to January 2018 period for four advanced Negative Interest Rate Policy (NIRP) economies - Germany, Japan, Sweden, and Switzerland. Our results suggest that the influence of macroeconomic news surprises is for all four countries under study during the NIRP period non-existent or noticeably weaker than during the preceding Zero Interest Rate Policy (ZIRP) period. Our results are consistent with the suggestion that NIRP is characterized by a lower bound that is no less constraining than the zero lower bound that characterizes ZIRP. |
| Keywords: | NIRP, Bond Yields, Macroeconomic News |
| JEL: | E43 E52 E58 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:19-e-02&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in the Philippines from 1960 to 2017, to model and forecast inflation using ARIMA models. Diagnostic tests indicate that P is I(1). The study presents the ARIMA (1, 1, 3). The diagnostic tests further imply that the presented optimal ARIMA (1, 1, 3) model is stable and acceptable for predicting inflation in the Philippines. The results of the study apparently show that P will fall down from 5.6% in 2018 to approximately 0.3% in 2027. The Bangko Sentral ng Pilipinas is expected to continue implementing it inflation targeting policy framework since it proves to work well for the economy. |
| Keywords: | Forecasting; Inflation; Philippines |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92429&r=all |
| By: | Jongrim Ha (World Bank, Development Prospects Group); M. Ayhan Kose (World Bank, Development Prospects Group; Brookings Institution; CEPR, and CAMA); Franziska L. Ohnsorge (World Bank, Development Prospects Group; CAMA) |
| Abstract: | We study the extent of global inflation synchronization using a dynamic factor model in a large set of countries over a half century. Our methodology allows us to account for differences across groups of countries (advanced economies and emerging market and developing economies) and to analyze commonalities in inflation synchronization across a wide range of inflation measures. We report three major results. First, inflation movements have become increasingly synchronized internationally over time: a common global factor has accounted for about 22 percent of variation in national inflation rates since 2001. Second, inflation synchronization has also become more broad-based: while it was previously much more pronounced among advanced economies than among emerging market and developing economies, it has become substantial in both groups over the past two decades. In addition, inflation synchronization has become significant across all inflation measures since 2001, whereas it was previously prominent only for inflation measures that included mostly tradable goods. |
| Keywords: | Global inflation, synchronization, dynamic factor model, advanced economies, emerging markets, developing economies. |
| JEL: | E31 E32 F42 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1903&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Jamaica from 1968 to 2017, to model and forecast inflation using ARMA models. Diagnostic tests indicate that JINF is I(0). The study presents the ARMA (1, 0, 0) model, which is the same as an AR (1) process. The diagnostic tests further imply that the presented optimal ARMA (1, 0, 0) model is stable and acceptable for forecasting inflation rates in Jamaica. The results of the study apparently show that JINF will be approximately 11.42% by 2020. Policy makers in Jamaica are expected to the take the necessary action with regards to maintaining a low and stable inflation rate over the next decade and even beyond. |
| Keywords: | Forecasting; inflation; Jamaica |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92449&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Burkina Faso from 1960 to 2017, to model and forecast inflation using ARMA models. Diagnostic tests indicate that B is I(0). The study presents the ARMA (2, 0, 0) model, which is nothing but an AR (2) model. The diagnostic tests further imply that the presented optimal ARMA (2, 0, 0) model is stable and acceptable. The results of the study apparently show that W will be approximately 4% by 2020. Policy makers and the business community in Burkina Faso are expected to take advantage of the anticipated stable inflation rates over the next decade. |
| Keywords: | Burkina Faso; forecasting; inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92443&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Thailand from 1960 to 2017, to model and forecast inflation using ARMA models. Diagnostic tests indicate that T is I(0). The study presents the ARMA (0, 0, 1) model, which is nothing but an MA (1) process. The diagnostic tests further imply that the presented optimal ARMA (0, 0, 1) model is stable and acceptable. The results of the study apparently show that T will be approximately 4.2% by 2020. Policy makers and the business community in Thailand are expected to take advantage of the anticipated stable inflation rates over the next decade. |
| Keywords: | Forecasting, inflation, Thailand |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92451&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in Sri Lanka from 1960 to 2017, to model and forecast inflation using ARMA models. Diagnostic tests indicate that S is I(0). The study presents the ARMA model (1, 0, 0) [or simply AR (1) process] for forecasting inflation rates in Sri Lanka. The diagnostic tests further imply that the presented optimal ARMA (1, 0, 0) model is not only stable but also suitable. The results of the study apparently show that S will be approximately 8.17% by 2020. Policy makers and the business community in Sri Lanka are expected to take advantage of the anticipated stable inflation rates over the next decade. |
| Keywords: | Forecasting; Inflation; Sri Lanka |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92432&r=all |
| By: | Fei Han |
| Abstract: | Japan’s aging and shrinking population could lower the natural rate of interest and, together with low inflation expectations, challenge the Bank of Japan’s efforts to reflate the economy. This paper uses a semi-structural model to estimate the impact of demographics on the natural rate in Japan. We find that demographic change has a significantly negative impact on the natural rate by lowering trend potential growth. We also find that the negative impact has been increasing over time amid stronger demographic headwinds. These findings highlight the importance of boosting potential growth to offset the negative demographic impact and lift the natural rate in Japan. |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/31&r=all |
| By: | NYONI, THABANI |
| Abstract: | This paper uses annual time series data on CPI in Germany from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the GC series is I (1). The study presents the ARIMA (1, 1, 1) model for predicting CPI in Germany. The diagnostic tests further show that the presented parsimonious model is stable and acceptable for predicting CPI in Germany. The results of the study apparently show that CPI in Germany is likely to continue on an upwards trajectory in the next decade. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to deal with inflation in Germany. |
| Keywords: | Forecasting; inflation, Germany |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92442&r=all |
| By: | Sinha, Pankaj; Grover, Naina |
| Abstract: | Risk transformation and liquidity creation are the two key functions of a bank. Liquidity Creation plays a very important role in the economy, but there is no comprehensive measure of liquidity creation that exists in our country. This study estimates the notional value of liquidity created by Scheduled commercial banks in India during the period 2005 to 2018. We have developed four measures of liquidity creation by Indian Banks,following Berger and Bouwman (2009). We have estimated Liquidity created by Banks in India is Rs.41524096 million in FY 17-18, which is 27.2 percent of total assets of all Scheduled Commercial Banks (excluding Regional Rural Banks),as per broad measure. We found off-balance sheet activities play a significant role in liquidity creation, 25 percent of the total liquidity creation as per broad measure is found to be determined by the off-balance sheet activities. Recently, there have been discussions to privatize the nationalized banks, but our study found that for FY17-18, nationalized banks contributed around 68.2 percent of total liquidity creation whereas private banks and foreign banks contributed 29.7 percentand 2.0 percent, respectively. Nationalized banks are performing quite well in liquidity creation. Though the total number of foreign banks has increased from 31 in 2005 to 45 in 2018, we found a declining trend in creating liquidity by the foreign banks. We have also estimated liquidity creation based on size. The study finds that large banks are contributing significantly towards the liquidity creation, which constitutes 94% of total liquidity creation as per broad measure. |
| Keywords: | Risk transformation, liquidity creation, Scheduled commercial banks, Off-balance sheet activities |
| JEL: | G20 G21 G28 |
| Date: | 2019–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92563&r=all |
| By: | Miguel Casares Polo (Departamento de Economía-UPNA); Alba Del Villar (Departamento de Economía-UPNA) |
| Abstract: | We calibrate a two-country New Keynesian model with endogenous portfolio choice and valuation effects to discuss the determinants of the increase in Canadian Net Foreign Assets with the US observed after 2012. Furthermore, we discuss the shocks that may explain the “reversed two-way” capital flows pattern recently characterizing the Canada-US asset trading: Canada has a negative position on bond holdings owned by US investors while a positive balance emerges on its equity holdings from US firms. The combination of a global technology shock, the US fiscal contraction, an adverse wage-push shock in the US and the greater monetary stimulus in the US than in Canada (QE) provide insights to describe the recent capital flows between Canada and the US. Both the QE and the negative wage-push shock in the US play a crucial role as explanatory factors through substantial valuation effects. |
| Keywords: | US-Canada capital flows, portfolio choice model, business cycles |
| JEL: | E44 F41 F44 E12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nav:ecupna:1901&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on inflation rates in the Kingdom of Bahrain from 1966 to 2017, to model and forecast inflation using ARIMA models. Diagnostic tests indicate that Bahrain inflation series is I(1). The study presents the ARIMA (0, 1, 1). The diagnostic tests further imply that the presented optimal ARIMA (0, 1, 1) model is stable and acceptable for predicting inflation in the Kingdom of Bahrain. The results of the study apparently show that predicted inflation will be approximately 1.5% by 2020. Policy makers and the business community in the Kingdom of Bahrain are expected to take advantage of the anticipated stable inflation rates over the next decade. |
| Keywords: | Bahrain; forecasting; inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92452&r=all |
| By: | NYONI, THABANI |
| Abstract: | Employing annual time series data on total population in Brazil from 1960 to 2017, we model and forecast total population over the next 3 decades using the Box – Jenkins ARIMA technique. Diagnostic tests such as the ADF tests show that Brazil annual total population is non-stationary in all levels; for simplicity purposes, the study has assumed that the POP series is I (2). Based on the AIC, the study presents the ARIMA (6, 2, 0) model as the optimal model. The diagnostic tests further indicate that the presented model is stable and that its residuals are stationary. The results of the study reveal that total population in Brazil will continue to rise in the next three decades and in 2050 Brazil’s total population will be approximately 256 million people. Four policy prescriptions have been suggested for consideration by the government of Brazil. |
| Keywords: | Brazil; forecasting; population |
| JEL: | C53 Q56 R23 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92437&r=all |