nep-mon New Economics Papers
on Monetary Economics
Issue of 2019‒04‒01
twenty-six papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The Limits of Forward Guidance By Campbell, Jeffrey R; Ferroni, Filippo; Fisher, Jonas; Melosi, Leonardo
  2. International Spillovers of U.S. Monetary Policy By Demir, Ishak
  3. Exchange Rate Undershooting: Evidence and Theory By Hettig, Thomas; Müller, Gernot; Wolf, Martin
  4. Understanding Inflation in Emerging and Developing Economies By Ha, Jongrim; Kose, Ayhan; Ohnsorge, Franziska
  5. Dirty float or clean intervention? The Bank of England in the foreign exchange market By Naef, Alain
  6. Changes in the inflation target and the comovement between inflation and the nominal interest rate By Yunjong Eo; Denny Lie
  7. FX intervention and domestic credit: Evidence from high-frequency micro data By Boris Hofmann; Hyun Song Shin
  8. State-dependent Monetary Policy Regimes By Shayan Zakipour-Saber
  9. Exchange Rate Pass-Through to Consumer Prices: The Increasing Role of Energy Prices By Hyeongwoo Kim; Ying Lin; Henry Thompson
  10. New Financial Stability Governance Structures and Central Banks By Rochelle M. Edge; J. Nellie Liang
  11. Inflation Expectations: Review and Evidence By Kose, Ayhan; Matsuoka, Hideaki; Panizza, Ugo; Vorisek, Dana
  12. Inflation expectations: Review and evidence By M. Ayhan Kose; Hideaki Matsuoka; Ugo Panizza; Dana Vorisek
  13. Whatever it takes: what’s the impact of a major nonconventional monetary policy intervention? By Alcaraz, Carlo; Claessens, Stijn; Cuadra, Gabriel; Marqués-Ibáñez, David; Sapriza, Horacio
  14. Macroprudential Policy in the New Keynesian World By Hans Gersbach; Volker Hahn; Yulin Liu
  15. Monetary Policy and Financial System Resilience By Bruni, Franco; Lopez, Claude
  16. Government ideology and monetary policy in OECD countries By Doge Cahan; Luisa Dörr; Niklas Potrafke
  17. Central Bank Intervention, Bubbles and Risk in Walrasian Financial Markets By Chang, C-L.; Ilomäki, J.; Laurila, H.; McAleer, M.J.
  18. Optimal Monetary Policy for the Masses By Bullard, James B.; DiCecio, Riccardo
  19. Foreign Exchange Reserves as a Tool for Capital Account Management By Davis, J. Scott; Fujiwara, Ippei; Huang, Kevin X. D.; Wang, Jiao
  20. The Rationality Bias By Hagenhoff, Tim; Lustenhouwer, Joep
  21. Independent Monetary Policy Versus a Common Currency: A Macroeconomic Analysis for the Czech Republic Through the Lens of an Applied DSGE Model By Jan Bruha; Jaromir Tonner
  22. Global Inflation Synchronization By Ha, Jongrim; Kose, Ayhan; Ohnsorge, Franziska
  23. The Re-emergence of the Federal Reserve Funds Market in the 1950s By Sriya Anbil; Mark A. Carlson
  24. Duration Dependence, Monetary Policy Asymmetries, and the Business Cycle By Travis J. Berge; Damjan Pfajfar
  25. Baltic Integration and the Euro By Ljungberg, Jonas
  26. New Evidence on the Effects of Quantitative Easing By Valentin Jouvanceau

  1. By: Campbell, Jeffrey R; Ferroni, Filippo; Fisher, Jonas; Melosi, Leonardo
    Abstract: The viability of forward guidance as a monetary policy tool depends on the horizon over which it can be communicated and its influence on expectations over that horizon. We develop and estimate a model of imperfect central bank communications and use it to measure how effectively the Fed has managed expectations about future interest rates and the influence of its communications on macroeconomic outcomes. Standard models assume central banks have perfect control over expectations about the policy rate up to an arbitrarily long horizon and this is the source of the so-called "forward guidance puzzle.'' Our estimated model suggests that the Fed's ability to affect expectations at horizons that are sufficiently long to give rise to the forward guidance puzzle is substantially limited. We also find that imperfect communication has a significant impact on the propagation of forward guidance. Finally, we develop a novel decomposition of the response of the economy to forward guidance and use it to show that empirically plausible imperfect forward guidance has a quantitatively important role bringing forward the effects of future rate changes and that poor communications have been a source of macroeconomic volatility.
    Keywords: business cycles; central bank communication; forward guidance puzzle; monetary policy; Risk management
    JEL: E0
    Date: 2019–03
  2. By: Demir, Ishak
    Abstract: We estimate a structural dynamic factor model on large panel quarterly data to analyse the spillovers of U.S. monetary policy to the advanced economies and emerging and frontier market economies. The estimated model suggests that monetary contraction in U.S. leads to a significant decrease in real GDP with typical inverted hump-shape almost for all countries. It reduces permanently aggregate price level, increases interest rate and leads appreciation of U.S. dollar. However, contagion of U.S. monetary policy to the individual countries shows heterogeneity. For instance, its impact is larger in developing countries. We also find that global financial crisis has amplified the impact of U.S monetary policy on the rest of world in particular on developing countries. Lastly, the empirical results suggest that the cross-country heterogeneity in responses may be consequence of difference in country-specific characteristics such as exchange rate regimes, currency of price settings of firms, central bank independence and geographical distance from Unites States.
    Keywords: cross-country heterogeneity,country-specific characteristic,international monetary spillovers,structural factor model,monetary policy
    JEL: C38 E43 E52 E58 F42 G12
    Date: 2019
  3. By: Hettig, Thomas; Müller, Gernot; Wolf, Martin
    Abstract: We run local projections to estimate the effect of US monetary policy shocks on the dollar. We find that monetary contractions appreciate the dollar and establish two results. First, the spot exchange rate undershoots: the appreciation is smaller on impact than in the longer run. Second, forward exchange rates also appreciate on impact, but their response is flat across tenors. Next, we develop and estimate a New Keynesian model with information frictions. In the model, investors do not observe the natural rate of interest directly. As a result, they learn only over time whether an interest rate surprise represents a monetary contraction. The model accurately predicts the joint dynamics of spot and forward exchange rates following a monetary contraction.
    Keywords: Forward Exchange Rate; Forward premium puzzle; information effect; Information Frictions; monetary policy; Spot Exchange Rate; UIP puzzle
    JEL: E43 F31
    Date: 2019–03
  4. By: Ha, Jongrim; Kose, Ayhan; Ohnsorge, Franziska
    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: Globalization; inflation; monetary policy; Monetary Systems; prices
    JEL: E31 E42 E52 E58
    Date: 2019–03
  5. By: Naef, Alain (University of Cambridge)
    Abstract: The effectiveness of central bank intervention is debated and despite literature showing mixed results, central banks regularly intervene in the foreign exchange market, both in developing and developed economies. Does foreign exchange intervention work? Using over 60,000 new daily observations on intervention and exchange rates, this paper is the first study of the Bank of England’s foreign exchange intervention between 1952 and 1972. The main finding is that the Bank of England was unsuccessful in managing a credible exchange rate over that period. Running an event study, I demonstrate that betting systematically against the Bank of England would have been a profitable trading strategy. The Bank of England failed to maintain credibility in offshore markets and eventually manipulated the publication of its reserve figures to avoid a run on sterling.
    Keywords: intervention; foreign exchange; central bank; Bank of England; Bretton Woods
    JEL: E50 F31 N14 N24
    Date: 2019–03–20
  6. By: Yunjong Eo; Denny Lie
    Abstract: Does raising an inflation target require increasing the nominal interest rate in the short run? We answer this question using a standard New Keynesian model with rich backward-looking elements. We first analytically show that the short-run comovement between inflation and the nominal interest rate is less likely to be positive, all else equal, as the monetary authority reacts more aggressively to the deviation of inflation from its target or as more backward-looking elements are incorporated into the model. Meanwhile, features of the model that enhance forward-looking behavior, such as partial price indexation to the inflation target or a lower degree of price rigidity, are shown to help increase the likelihood of positive comovement. However, we find that this so called Neo-Fisherism is most likely to hold even with a significant degree of backward-lookingness in the model, unless the monetary authority reacts to inflation in an extremely aggressive manner, close to strict inflation targeting. In addition, we estimate New Keynesian models of the U.S. economy and confirm our results that the U.S. economy exhibits Neo-Fisherism: raising the inflation target necessitates a short-run increase in the nominal interest rate. This finding is robust to empirically-plausible parameterizations of the model and to the specification of price indexation to the inflation target in firms’ price-setting process.
    Keywords: Neo-Fisherism, inflation expectations, a Taylor-type rule, strict inflation targeting, hybrid NKPC
    JEL: E12 E32 E58 E61
    Date: 2019–03
  7. By: Boris Hofmann; Hyun Song Shin
    Abstract: We employ a rarely available high-frequency micro data set to study the impact of foreign exchange intervention on domestic credit growth. We find that sterilised purchases of dollars by the central bank dampens the flow of new domestic corporate loans in Colombia. Slowing the pace of currency appreciation plays a key role in dampening credit expansion. Our analysis sheds light on the role of FX intervention as part of the financial stability-oriented policy response to credit booms associated with capital inflow surges.
    Keywords: FX intervention, credit registry, emerging markets, financial channel of exchange rates
    JEL: E58 F31 F33 F41 G20
    Date: 2019–03
  8. By: Shayan Zakipour-Saber (Queen Mary University of London)
    Abstract: Are monetary policy regimes state-dependent? To answer the question this paper estimates New Keynesian general equilibrium models that allow the state of the economy to influence the monetary authority's stance on inflation. I take advantage of recent developments in solving rational expectations models with state-dependent parameter drift to estimate three models on U.S. data between 1965-2009. In these models, the probability of remaining in a monetary policy regime that is relatively accommodative towards inflation, varies over time and depends on endogenous model variables; in particular, either deviations of inflation or output from their respective targets or a monetary policy shock. The main contribution of this paper is that it finds evidence of state-dependent monetary policy regimes. The model that allows inflation to influence the monetary policy regime in place, fits the data better than an alternative model with regime changes that are not state-dependent. This finding points towards reconsidering how changes in monetary policy are modelled.
    Keywords: Markov-Switching DSGE, State-dependence, Bayesian Estimation
    JEL: C13 C32 E42 E43
    Date: 2019–02–14
  9. By: Hyeongwoo Kim; Ying Lin; Henry Thompson
    Abstract: A group of researchers has asserted that the rate of exchange rate pass-through (ERPT) to domestic prices has declined substantially over the last few decades. We revisit this claim of a downward trend in ERPT to the Consumer Price Index (CPI) in a vector autoregressive (VAR) model for US macroeconomic data under the current floating exchange rate regime. Our VAR approach nests the conventional single equation method, revealing very weak evidence of ERPT during the pre-1990 era, but statistically significant evidence of ERPT during the post-1990 era, sharply contrasting with previous findings. After statistically confirming a structural break in ERPT to total CPI via Hansen's (2001) test procedure, we seek the source of the structural break with disaggregated level CPIs, pinning down a key role of energy prices in the break. The dependency of US energy consumption on imports increased since the 1990s until the recent recession. This change magnifies effects of the exchange rate shocks on domestic energy prices, resulting in greater responses of the total CPI via this energy price channel.
    Keywords: Exchange Rate Pass Through; Disaggregated CPI; Structural Break; Oil Price Shock
    JEL: E31 F31 F41
    Date: 2019–03
  10. By: Rochelle M. Edge; J. Nellie Liang
    Abstract: We evaluate the institutional frameworks developed to implement time-varying macroprudential policies in 58 countries. We focus on new financial stability committees (FSCs) that have grown dramatically in number since the global financial crisis, and their interaction with central banks, and infer countries’ revealed preferences for effectiveness versus political economy considerations. Using cluster analysis, we find that only one-quarter of FSCs have both good processes and good tools to implement macroprudential actions, and that instead most FSCs have been designed to improve communication and coordination among existing regulators. We also find that central banks are not especially able to take macroprudential actions when FSCs are not set up to do so. We conclude that about one-half of the countries do not have structures to take or direct actions and avoid risks of policy inertia. Rather countries’ decisions appear to be consistent with strengthening the political legitimacy of macroprudential policies with prominent roles for the ministry of finance and avoiding placing additional powers in central banks that already are strong in microprudential supervision and have high political independence for monetary policy. The evidence suggests that countries are placing a relatively low weight on the ability of policy institutions to take action and a high weight on political economy considerations in developing their financial stability governance structures.
    Keywords: Central bank independence ; Countercyclical capital buffer ; Financial stability committees ; Macroprudential policy
    JEL: G18 E58 H19 G28
    Date: 2019–03–25
  11. By: Kose, Ayhan; Matsuoka, Hideaki; Panizza, Ugo; Vorisek, Dana
    Abstract: This paper presents a comprehensive examination of the determination and evolution of inflation expectations, with a focus on emerging market and developing economies (EMDEs). The results suggest that long-term inflation expectations in EMDEs are not as well anchored as those in advanced economies, despite notable improvements over the past two decades. Indeed, in EMDEs, long-term inflation expectations are more sensitive to both domestic and global inflation shocks. However, EMDEs tend to be more successful in anchoring inflation expectations in the presence of an inflation targeting regime, high central bank transparency, strong trade integration, and a low level of public debt.
    Keywords: developing economies; emerging markets; inflation; Inflation expectations; monetary policy
    JEL: E31 E37 E40 E50
    Date: 2019–03
  12. By: M. Ayhan Kose; Hideaki Matsuoka; Ugo Panizza; Dana Vorisek
    Abstract: This paper presents a comprehensive examination of the determination and evolution of inflation expectations, with a focus on emerging market and developing economies (EMDEs). The results suggest that long-term inflation expectations in EMDEs are not as well anchored as those in advanced economies, despite notable improvements over the past two decades. Indeed, in EMDEs, long-term inflation expectations are more sensitive to both domestic and global inflation shocks. However, EMDEs tend to be more successful in anchoring inflation expectations in the presence of an inflation targeting regime, high central bank transparency, strong trade integration, and a low level of public debt.
    Keywords: inflation, inflation expectations, monetary policy, emerging markets, developing economies
    JEL: E31 E37 E40 E50
    Date: 2019–03
  13. By: Alcaraz, Carlo; Claessens, Stijn; Cuadra, Gabriel; Marqués-Ibáñez, David; Sapriza, Horacio
    Abstract: We assess how a major, unconventional central bank intervention, Draghi’s “whatever it takes” speech, affected lending conditions. Similar to other large interventions, it responded to adverse financial and macroeconomic developments that also influenced the supply and demand for credit. We avoid such endogeneity concerns by focusing on a third country and comparing lending conditions by euro area and other banks to the same borrower. We show that the intervention reversed prior risk-taking – in volume, price, and loan credit ratings – by subsidiaries of euro area banks relative to local and other foreign banks. Our results document a new effect of large central banks’ interventions and are robust along many dimensions. JEL Classification: E51, G21, F34
    Keywords: credit conditions, spillovers, unconventional monetary policy
    Date: 2019–03
  14. By: Hans Gersbach (ETH Zurich, Switzerland); Volker Hahn (University of Konstanz, Germany); Yulin Liu (ETH Zurich, Switzerland)
    Abstract: We integrate banks and the coexistence of bank and bond financing into an otherwise standard New Keynesian framework. There are two policy-makers: a central banker, who can decide on short-term nominal interest rates, and a macroprudential policy-maker, who can vary aggregate capital requirements. The two policy instruments can be used to stabilize shocks, to moderate bank credit cycles, and to induce a more efficient allocation of resources across sectors. Moreover, we investigate the optimal combination of simple policy rules for interest rates and capital requirements. The optimal policy rules imply that the central bank should focus exclusively on price stability and the macroprudential policy-maker should react exclusively to changes in loan rate premia.
    Keywords: central banks, banking regulation, capital requirements, optimal monetary policy
    JEL: E52 E58 G28
    Date: 2018–08
  15. By: Bruni, Franco; Lopez, Claude
    Abstract: In a time of global crisis, international policy coordination is quite natural. Yet, in normal times such coordination becomes a challenge. This is an issue especially when it comes to monetary and macroprudential policy of globally influential countries. This is especially relevant now with the trend of monetary normalisation in many of these countries. In this brief, we propose four necessary steps to help addressing these challenges: (i) Monetary policy should take into account its spillovers on financial stability, (ii) Systemic central banks need to account for the global impact of their policy, (iii) Multilateral consultations may provide a useful platform to assess these impacts, (iv) The analysis that helps designing monetary and macroprudential policy should include global aggregates to capture the global economic and financial context.
    Keywords: Financial system resilience,
    JEL: E5 E6 F4 F5
    Date: 2019
  16. By: Doge Cahan; Luisa Dörr; Niklas Potrafke
    Abstract: We examine the extent to which government ideology has influenced monetary policy in OECD countries since the 1970s. In line with important changes in the global economy and differences across countries, regression results yield heterogeneous inferences depending on the time period and the exchange rate regime/central bank dependence of the countries in the sample. Over the 1972-2010 period, Taylor rule specifications do not suggest a relationship between government ideology and monetary policy as measured by the short-term nominal interest rate or the rate of monetary expansion minus GDP trend growth. Monetary policy was, however, associated with government ideology in the 1990s: short-term nominal interest rates were lower under leftwing than rightwing governments when central banks depended on the directives of the government and exchange rates were flexible. Very independent central banks, however, raised interest rates when leftwing governments were in office. We describe the historical evidence for several individual countries.
    Keywords: government ideology, monetary policy, partisan politics, panel data
    JEL: D72 E52 E58 C23
    Date: 2019
  17. By: Chang, C-L.; Ilomäki, J.; Laurila, H.; McAleer, M.J.
    Abstract: The paper investigates the effects of central bank interventions in financial markets, composed of asymmetrically-informed rational investors and noise traders. If the central bank suspects a bubble, it should lift the real risk-free rate to deflate the bubble in “leaning against the wind”. A rise in the real risk-free rate reduces the risk of rational informed investors, and increases the risk of rational uninformed investors. If the central bank intervenes through the nominal risk-free rate and the Fisher arbitrage condition holds, an increase in the nominal rate is transferred to inflation, thereby dampening the policy effect. Conversely, this implies that the central bank can also deflate the bubble by inducing a reduction in inflationary expectations. The effect on the informed investor risk remains ambiguous, while the risk of he uninformed investor grows, but only if they suffer from money illusion.
    Keywords: Central bank intervention, asymmetric information, rational investors, noise traders, bubbles, risk-free rate, Fisherian arbitrage, inflation, expectations, money illusion
    JEL: D82 E58 G11 G14 G32
    Date: 2019–02–01
  18. By: Bullard, James B. (Federal Reserve Bank of St. Louis); DiCecio, Riccardo (Federal Reserve Bank of St. Louis)
    Abstract: We study nominal GDP targeting as optimal monetary policy in a simple and stylized model with a credit market friction. The macroeconomy we study has considerable income inequality, which gives rise to a large private sector credit market. There is an important credit market friction because households participating in the credit market use non-state contingent nominal contracts (NSCNC). We extend previous results in this model by allowing for substantial intra-cohort heterogeneity. The heterogeneity is substantial enough that we can approach measured Gini coefficients for income, financial wealth, and consumption in the U.S. data. We show that nominal GDP targeting continues to characterize optimal monetary policy in this setting. Optimal monetary policy repairs the distortion caused by the credit market friction and so leaves heterogeneous households supplying their desired amount of labor, a type of "divine coincidence" result. We also further characterize monetary policy in terms of nominal interest rate adjustment.
    Keywords: Optimal monetary policy; life cycle economies; heterogeneous households; credit market participation; nominal GDP targeting; non-state contingent nominal contracting; inequality; Gini coefficients
    JEL: E4 E5
    Date: 2019–03–22
  19. By: Davis, J. Scott (Federal Reserve Bank of Dallas); Fujiwara, Ippei (Keio University); Huang, Kevin X. D. (Vanderbilt University); Wang, Jiao (University of Melbourne)
    Abstract: Many recent theoretical papers have argued that countries can insulate themselves from volatile world capital flows by using a variable tax on foreign capital as an instrument of monetary policy. But at the same time many empirical papers have argued that only rarely do we observe these cyclical capital taxes used in practice. In this paper we construct a small open economy model where the central bank can engage in sterilized foreign exchange intervention. When private agents can freely buy and sell foreign bonds, sterilized foreign exchange intervention has no effect. But we analytically prove that when private agents cannot freely buy and sell foreign bonds, that is, under acyclical capital controls, optimal sterilized foreign exchange intervention is equivalent to an optimally chosen tax on foreign capital. Numerical simulations of the model show that a variable capital tax is a reasonable approximation for sterilized foreign exchange intervention under the levels of capital controls observed in many emerging markets.
    Keywords: Central bank; small open economy; foreign exchange reserves; capital controls
    JEL: E30 E50 F40
    Date: 2019–02–05
  20. By: Hagenhoff, Tim; Lustenhouwer, Joep
    Abstract: We analyze differences in consumption and wealth that arise because of different degrees of rationality of households. In particular, we use a standard New Keynesian model and let a certain fraction of households be fully rational while the other fraction possesses less cognitive ability. We identify the rationality bias of boundedly rational agents, defined as a deviation from the fully rational benchmark, as the driver of consumption and wealth heterogeneity. It turns out that the rationality bias can be decomposed into three individual components: the consumption expectation bias, the real interest rate bias and the preference shock expectation bias. We show that for certain specifications of monetary policy the rationality bias can be eliminated because its individual components exactly offset each other although they are individually non-zero. However, it might not be desirable from a welfare perspective to eliminate the rationality bias as this comes along with high inflation volatility.
    Keywords: heterogeneous expectations,bounded rationality,consumption and wealth heterogeneity,monetary policy
    JEL: E32 E52 D84
    Date: 2019
  21. By: Jan Bruha; Jaromir Tonner
    Abstract: The goal of this paper is to contribute to the understanding of the macroeconomic costs and benefits of euro adoption by the Czech economy through the lens of the CNB's official structural macroeconomic model - called g3. To do so, we perform simulations using the g3 model and a modification thereof with a fixed nominal exchange rate and with the policy rate given by the ECB. First, we compare the unconditional volatilities of selected macro variables implied by the two models. Second, we use the g3 model to filter the historical data to identify the structural shocks that affected the Czech economy in the past ten years, and we then use the modified model to simulate the counterfactual outcome of what would have happened to the Czech economy if the euro had been adopted in the past. Our results indicate that euro adoption would have had positive effects on the levels of macroeconomic variables at the cost of an increase in nominal volatility.
    Keywords: DSGE model, euro, monetary policy
    JEL: E47 E52 F47
    Date: 2018–12
  22. By: Ha, Jongrim; Kose, Ayhan; Ohnsorge, Franziska
    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: Advanced economies; developing economies; Dynamic factor model; emerging markets; Global inflation; Synchronization
    JEL: E31 E32 F42
    Date: 2019–03
  23. By: Sriya Anbil; Mark A. Carlson
    Abstract: In this note, we highlight the re-emergence of the federal funds market in the 1950s.
    Date: 2019–03–22
  24. By: Travis J. Berge; Damjan Pfajfar
    Abstract: We produce business cycle chronologies for U.S. states and evaluate the factors that change the probability of moving from one phase to another. We find strong evidence for positive duration dependence in all business cycle phases but find that the effect is modest relative to other state- and national-level factors. Monetary policy shocks also have a strong influence on the transition probabilities in a highly asymmetric way. The effect of policy shocks depends on the current state of the cycle as well as the sign and size of the shock.
    Keywords: Duration analysis ; Business cycles ; Hazard rates ; Monetary policy asymmetries
    JEL: E32 C23 C25 E52
    Date: 2019–03–25
  25. By: Ljungberg, Jonas (Department of Economic History, Lund University)
    Abstract: Which have been the consequences of the euro for integration and economic performance in the Baltic Sea region? After the collapse of the Soviet Union, the three Baltic states and Poland have been rapidly catching-up with Western Europe. The Great Recession became a great setback for the former, while less so for Poland. A difference is the monetary policy: the Polish zloty depreciated in the critical moment of the crisis, while currency boards with the aim of joining the euro bestowed appreciation for the Baltics and Finland. Contrary to the purpose, monetary integration has not fostered integration in trade, and the share of the Eurozone in Baltic trade has stagnated. A comparison with other countries in the Baltic Sea region suggests that the euro provides “the golden fetters” of our time. Emigration, also a kind of integration, has become a safety valve with severe social and economic consequences for the Baltic states.
    Keywords: economic growth; integration; exports; EMU; Baltic Sea region; exchange rates
    JEL: E39 E42 F14 F15 F43 N14
    Date: 2019–03–20
  26. By: Valentin Jouvanceau (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Have the macroeconomic effects of QE programs been overestimated empirically? Using a large set of model specifications that differ in the degree of time-variation in parameters, the answer is yes. Our forecasting exercise suggests that it is crucial to allow for time-variation in parameters, but not for stochastic volatility to improve the fit with data. Having a more reliable specification, we find that the portfolio balance and signaling channels had sizable contributions to the transmission of QE programs. Finally, our identified structural shocks show that QE1 had larger macroeconomic effects than QE2 and QE3, but much smaller than usually found in the literature.
    Keywords: Transmission channels,TVP-FAVAR,Model specification,Quantitative Easing
    Date: 2019

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