nep-mon New Economics Papers
on Monetary Economics
Issue of 2019‒09‒16
25 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. US monetary policy since the 1950s and the changing content of FOMC minutes By Pierre L Siklos
  2. Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions By Jean-Bernard Chatelain; Kirsten Ralf
  3. Does my model predict a forward guidance puzzle? By Gibbs, Christopher G.; McClung, Nigel
  4. From Cash to Central Bank Digital Currencies and Cryptocurrencies: a balancing act between modernity and monetary stability By Ansgar Belke; Edoardo Beretta
  5. State dependence of monetary policy across business, credit and interest rate cycles By Alpanda, Sami; Granziera, Eleonora; Zubairy, Sarah
  6. A Comprehensive Evaluation of Measures of Core Inflation in Canada: An Update By Helen Lao; Ceciline Steyn
  7. On the Markov Switching Welfare Cost of Inflation By Apostolos Serletis; Wei Dai
  8. ECB corporate QE and the loan supply to bank-dependent firms By Betz, Frank; De Santis, Roberto A.
  9. Interest Rate Bands of Inaction and Play-Hysteresis in Domestic Investment - Evidence for the Euro Area By Ansgar Belke; Coletta Frenzel Baudisch
  10. Inflation expectations anchoring: new insights from micro evidence of a survey at high-frequency and of distributions By Nikos Apokoritis; Gabriele Galati; Richhild Moessner; Federica Teppa
  11. An Examination of Cryptocurrency from Inception to Future State By Mitch Kramer
  12. Illiquid Financial Markets and Monetary Policy By Athanasios Geromichalos; Juan M. Licari; Jose Suarez-Lledo
  13. Did interest rates at the zero lower bound affect lending of com-mercial banks? Evidence for the Euro area By Ansgar Belke; Christian Dreger
  14. Inflation expectations anchoring: new insights from micro evidence of a survey at high-frequency and of distributions By Nikos Apokoritis; Gabriele Galati; Richhild Moessner; Federica Teppa
  15. A Crash Course on the Euro Crisis By Markus K. Brunnermeier; Ricardo Reis
  16. Exposure to Daily Price Changes and Inflation Expectations By Francesco D’Acunto; Ulrike Malmendier; Juan Ospina; Michael Weber
  17. Macroeconomic Dynamics at the Cowles Commission from the 1930s to the 1950s By Robert W. Dimand; Harald Hagemann
  18. Financial structure, institutional quality and monetary policy transmission: A Meta-Analysis. By Bhattacharya, Rudrani; Tripathi, Shruti; Chowdhury, Sahana Roy
  19. Optimal Inflation Targeting in a Dual-Exchange Rate Oil Economy By Hossein Tavakolian; Hamed Ghiaie
  20. Fundamental uncertainty about the natural rate of interest: Info-gap as guide for monetary policy By Yakov Ben-Haim; Jan Willem van den End
  21. Macroprudencial and Monetary Policies : The Need to Dance the Tango in Harmony By Jose David GARCIA REVELO; Yannick LUCOTTE; Florian PRADINES-JOBET
  22. The Relationship between Financial Inclusion and Monetary Policy Transmission: The Case of Egypt By Marwa Elsherif
  23. Forecasting ECB Policy Rates with Different Monetary Policy Rules By Ansgar Belke; Jens Klose
  24. Monetary Policy Expectations and Money Market in Japan : Analysis of Non-traditional Monetary Policy Regimes By Takayasu Ito
  25. Oil price shocks, monetary policy and current account imbalances within a currency union By Ansgar Belke; Timo Baas

  1. By: Pierre L Siklos
    Abstract: Content analysis is used to analyze 60 years of FOMC minutes. Since there is no unique algorithm to quantify content two different algorithms are applied. Wordscores compares content relative to a chosen benchmark while DICTION is an alternative algorithm that is specifically designed to capture various elements that capture the sentiment or tone conveyed in a text. The resulting indicators are then incorporated into a VAR. The content of FOMC minutes is found to be significantly related to the state of the economy, notably real GDP growth and changes in the fed funds rate. However, the relationship between content and macroeconomic conditions changes after 1993 when minutes are made public with a lag. Both content indicators also suggest substantive changes in the content of FOMC minutes since the 1950s in terms of the FOMC’s dovishness or hawkishness.
    Keywords: FOMC minutes, Wordscores, DICTION, monetary policy stance, vector autoregression
    JEL: E58 E52 E31 E37
    Date: 2019–09
  2. By: Jean-Bernard Chatelain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: The reference model of frictionless endowment economies includes a Fisher relation for the real interest rate and government intertemporal budget constraint. For this model, Ramsey optimal policy mix is a unique equilibrium with an interest rate peg and a "passive" fiscal rule with a negative-feedback value of its parameter stabilizing public debt. This is a third equilibrium with respect to the two usual equilibria with ad hoc policy rules. The first one has passive fiscal policy and an active monetary policy rule parameter destabilizing in.ation. The second one has an active fiscal policy rule parameter destabilizing public debt and a passive monetary policy which includes the case of an interest rate peg. :
    Keywords: Frictionless endowment economy,Fiscal theory of the Price Level,Ramsey optimal policy,Interest Rate Rule,Fiscal Rule Keywords: Frictionless endowment economy,Fiscal Rule
    Date: 2019–09
  3. By: Gibbs, Christopher G.; McClung, Nigel
    Abstract: We provide suffcient conditions for when a rational expectations structural model predicts bounded responses of endogenous variables to forward guidance announcements. The conditions coincide with a special case of the well-known (E)xpectation-stability conditions that govern when agents can learn a Rational Expectations Equilibrium. Importantly, we show that the conditions are distinct from the determinacy conditions. We show how the conditions are useful for diagnosing the features of a model that contribute to the Forward Guidance Puzzle and reveal how to construct well-behaved forward guidance predictions in standard medium-scale DSGE models.
    JEL: E31 E32 E52 D84 D83
    Date: 2019–09–10
  4. By: Ansgar Belke; Edoardo Beretta
    Abstract: The paper explores the precarious balance between modernizing monetary systems by means of digital currencies (either issued by the central bank itself or independently) and safeguarding financial stability as also ensured by tangible payment (and saving) instruments like paper money. Which aspects of modern payments systems could contribute to improve the way of functioning of today’s globalized economy? And, which might even threaten the above mentioned instable equilibrium? This survey-paper aims, precisely, at giving some preliminary answers to a complex – therefore, ongoing – debate at scientific as well as banking and political level.
    Keywords: cash, central banks, cryptocurrencies, digital currencies, monetary systems
    JEL: E4 E5 G21 G23
    Date: 2019–09
  5. By: Alpanda, Sami; Granziera, Eleonora; Zubairy, Sarah
    Abstract: We investigate how the business, credit and interest rate cycles affect the monetary transmission mechanism, using state-dependent local projection methods and data from 18 advanced economies. We exploit the time-series variation within countries, as well as cross-sectional variation across countries, to investigate this issue. We find that the impact of monetary policy shocks on output and most other macroeconomic and financial variables is smaller during periods of economic downturns, high household debt, and high interest rates. We then build a small-scale theoretical model to rationalize these facts. The model highlights the presence of collateral and debt-service constraints on household borrowing and refinancing as a potential cause for state dependence in monetary policy with respect to the business, credit, and interest rate cycles.
    JEL: E21 E32 E52
    Date: 2019–09–06
  6. By: Helen Lao; Ceciline Steyn
    Abstract: We provide an updated evaluation of the value of various measures of core inflation that could be used in the conduct of monetary policy. We find that the Bank of Canada’s current preferred measures of core inflation—CPI-trim, CPI-median and CPI-common—continue to outperform alternative core measures across a range of criteria. These measures remain less biased, less volatile and much more persistent relative to alternative core measures and CPI inflation. They are also still moving with the economic cycle. Our analysis shows that historical revisions have been relatively small among these three core inflation measures since their inception and that CPI-common seems less prone to revisions and sector-specific shocks than CPI-trim and CPI-median.
    Keywords: Inflation and prices; Monetary policy framework
    JEL: E31 E52
    Date: 2019–09
  7. By: Apostolos Serletis (University of Calgary); Wei Dai (University of Calgary)
    Abstract: This paper uses the Markov switching approach to account for instabilities in the long- run money demand function and compute the welfare cost of inflation in the United States. In doing so, it circumvents the problem of data-mining of some earlier seminal contributions on these issues, allowing for complicated nonlinear dynamics and sudden changes in the parameters of the money demand function. Moreover, it extends the sample period, and investigates the robustness of results to alternative money demand specifications, monetary aggregation procedures, and assumptions regarding dynamics aspects of the money demand specification.
    Keywords: Welfare cost of inflation, Markov regime switching, Divisia money
    JEL: C22 E41 E52
    Date: 2019–08–30
  8. By: Betz, Frank; De Santis, Roberto A.
    Abstract: Using a representative sample of businesses in the euro area, we show that Eurosystempurchases of corporate bonds under the Corporate Sector Purchase programme (CSPP)increased the net issuance of debt securities, triggering a shift in bank loan supply infavour of firms that do not have access to bond-based financing. Identification comes frommatching bank-dependent firms to their lenders and accounting for the effect of CSPPon banks’ activity in the syndicated loan market. In a difference-in-differences setting,we show that credit access improved relatively more for firms borrowing from banksrelatively more exposed to CSPP-eligible firms. Unlike in previous studies, this resultapplies regardless of bank balance sheet quality as measured by Tier 1 and NPL ratios. JEL Classification: E52, E58, G01, G21, G28
    Keywords: corporate sector purchase programme, ECB, loan supply, Unconventional monetary policy
    Date: 2019–09
  9. By: Ansgar Belke; Coletta Frenzel Baudisch
    Abstract: The interest rate represents an important monetary policy tool to steer investment in order to reach price stability. Therefore, implications of the exact form and magnitude of the interest rate-investment nexus for the European Central Bank’s effectiveness in a low interest rate environment gain center stage. We first present a theoretical framework of the hysteretic impact of changes in the interest rate on macroeconomic investment under certainty and under uncertainty to investigate whether uncertainty over future interest rates in the Euro area hampers monetary policy transmission. In this non-linear model, strong reactions in investment activity occur as soon as changes of the interest rate exceed a zone of inaction, that we call ’play’ area. Second, we apply an algorithm describing path-dependent play-hysteresis to estimate investment hysteresis using data on domestic investment and interest rates on corporate loans for 5 countries of the Euro area in the period ranging from 2001Q1 to 2018Q1. We find hysteretic effects of interest rate changes on investment in most countries. However, their shape and magnitude differ widely across countries which poses a challenge for a unified monetary policy. By introducing uncertainty into the regressions, the results do not change much which may be due to the interest rate implicitly incorporating uncertainty effects in investment decisions, e.g. by risk premia.
    Keywords: European Central Bank, interest rate, investment, monetary policy, non-ideal relay, path-dependence, play-hysteresis, uncertainty
    JEL: C32 E44 E49 E52 F21
    Date: 2019–10
  10. By: Nikos Apokoritis; Gabriele Galati; Richhild Moessner; Federica Teppa
    Abstract: We shed new light on the anchoring of long-term euro area inflation expectations since the crisis by using micro evidence from a new survey at high (weekly) frequency. We find that long-term inflation expectations remained well anchored to the ECB's inflation aim, which has acted as a focal point. By contrast, we find no evidence that professional forecasts (reported by Consensus Economics) acted as focal points. But there are subtle signs of long-term inflation expectations not being perfectly well-anchored. Using measures based on the distribution of inflation expectations from a quarterly survey, namely uncertainty based on the full distribution, the probability of expected long-term inflation lying between 1.5% and 2.5%, and the effect of short-term on long-term deflation risk, we find that long-term euro area inflation expectations have remained well-anchored, and have become better-anchored between 2011 and 2018.
    Keywords: inflation expectations
    JEL: E31 E58
    Date: 2019–09
  11. By: Mitch Kramer (Independent Researcher, Tampa, USA)
    Abstract: Cryptocurrency, is it just a trend or is it the future of assets? It is a hot topic of conversation among individuals, as well as within companies. This paper will provide an overview of Cryptocurrency as well as discuss its inception, the current state, and the future outlook. As well, the paper will look at negative, neutral, and positive perceptions of Cryptocurrency from the perspective of individuals and organizations. The discussion will also look into Bitcoin, Ethereum, and Ripple, revealing how they differ from each other, even though all three are based on Blockchain Technology. Another section of the paper examines the comparison of Cryptocurrency to other assets. It will examine whether Cryptocurrency is similar to a monetary currency, such as the US Dollar, similar to common stock, such as shares in a public company or similar to money metals, such as Gold and Silver. These assets are all subject to market fluctuations, just like Cryptocurrency.
    Keywords: Cryptocurrency, Bitcoin, Ethereum, Ripple, Blockchain Technology, Satoshi Nakamoto
    Date: 2019–07
  12. By: Athanasios Geromichalos; Juan M. Licari; Jose Suarez-Lledo
    Abstract: This paper analyzes the role of money in asset markets characterized by search frictions. We develop a dynamic framework that brings together a model for illiquid financial assets `a la Duffie, Garleanu, and Pedersen, and a search-theoretic model of monetary exchange `a la Lagos and Wright. The presence of decentralized financial markets generates an essential role for money, which helps investors re-balance their portfolios. We provide conditions that guarantee the existence of a monetary equilibrium. In this case, asset prices are always above their fundamental value, and this differential represents a liquidity premium. We are able to derive an asset pricing theory that delivers an explicit connection between monetary policy, asset prices, and welfare. We obtain a negative relationship between inflation and equilibrium asset prices. This key result stems from the complementarity between money and assets in our framework.
    Date: 2019–09
  13. By: Ansgar Belke; Christian Dreger
    Abstract: The paper examines the bank lending activities of banks in a low interest rate environ-ment. External financing of small- and medium-sized enterprises in the euro area primari-ly takes place via bank loans and not through capital markets. Based on the Bankscope database, bank balance sheet data is utilized. Control variables are included, such as for the system of banking regulation. The panel estimation includes 706 banks from 15 Euro area member states and is conducted for the period 2000 to 2015. All models show a significant positive impact of lower interest rates on net lending. In particular, the results do not indicate that credit is restricted if interest rates move towards the zero-lower bound.
    Keywords: Bank lending, banking regulation, monetary transmission mechanisms, low interest rate environment
    JEL: E44 E51 E52
    Date: 2019–07
  14. By: Nikos Apokoritis; Gabriele Galati; Richhild Moessner; Federica Teppa
    Abstract: We shed new light on the anchoring of long-term euro area inflation expectations since the crisis by using micro evidence from a new survey at high (weekly) frequency. We find that long-term inflation expectations remained well anchored to the ECB's inflation aim, which has acted as a focal point. By contrast, we find no evidence that professional forecasts (reported by Consensus Economics) acted as focal points. But there are subtle signs of long-term inflation expectations not being perfectly well-anchored. Using measures based on the distribution of inflation expectations from a quarterly survey, namely uncertainty based on the full distribution, the probability of expected long-term inflation lying between 1.5% and 2.5%, and the effect of short-term on long-term deflation risk, we find that long-term euro area inflation expectations have remained well-anchored, and have become better-anchored between 2011 and 2018.
    Keywords: Inflation expectations
    JEL: E31 E58
    Date: 2019–08
  15. By: Markus K. Brunnermeier; Ricardo Reis
    Abstract: The financial crises of the last twenty years brought new economic concepts into classrooms discussions. This article introduces undergraduate students and teachers to seven of these models: (i) misallocation of capital inflows, (ii) modern and shadow banks, (iii) strategic complementarities and amplification, (iv) debt contracts and the distinction between solvency and liquidity, (v) the diabolic loop, (vi) regional flights to safety, and (vii) unconventional monetary policy. We apply each of them to provide a full account of the euro crisis of 2010-12.
    JEL: A22 E44 E5 F3 G01
    Date: 2019–09
  16. By: Francesco D’Acunto; Ulrike Malmendier; Juan Ospina; Michael Weber
    Abstract: We show that, to form aggregate inflation expectations, consumers rely on the price changes they face in their daily lives while grocery shopping. Specifically, the frequency and size of price changes, rather than their expenditure share, matter for individuals' inflation expectations. To document these facts, we collect novel micro data for a representative US sample that uniquely match individual expectations, detailed information about consumption bundles, and item-level prices. Our results suggest that the frequency and size of grocery-price changes to which consumers are personally exposed should be incorporated in models of expectations formation. Central banks' focus on core inflation---which excludes grocery prices---to design expectations-based policies might lead to systematic mistakes.
    JEL: C83 D14 D84 D9 E31 E52 G11
    Date: 2019–09
  17. By: Robert W. Dimand (Department of Economics, Brock University); Harald Hagemann (University of Hohenheim)
    Abstract: Jacob Marschak shaped the emergence of monetary theory and portfolio choice at the Cowles Commission (which he directed from 1943 to 1948, but with which he was involved already from 1937) at the University of Chicago, where he was the doctoral teacher of Leonid Hurwicz, Harry Markowitz and Don Patinkin, and then from 1955 at the Cowles Foundation at Yale University, where he was a senior colleague of James Tobin until moving to UCLA in 1960. Marschak’s later attempts to clarify the concept of liquidity and to emphasize the role of new information for economic behavior date back as far as to his early experiences with hyperinflationary processes in the Northern Caucasus during the Russian Revolution. Marschak came to monetary theory with his 1922 Heidelberg doctoral dissertation on the quantity theory equation of exchange (published in 1924 as “Die Verkehrsgleichung”), and embedded monetary theory in a wider theory of asset market equilibrium in studies of “Money and the Theory of Assets” (1938), “Assets, Prices, and Monetary Theory” (with Helen Makower, 1938), “Role of Liquidity under Complete and Incomplete Information” (1949), “The Rationale of the Demand for Money and of ‘Money Illusion’” (1950), and “Monnaie et liquidité dans les modèles macroéconomiques et microéconomiques” (1955), as well as in Income, Employment and the Price Level (lectures Marschak gave at Chicago, edited by Fand and Markowitz, 1951). We examine Marschak’s analysis of money within a broader theory of asset market equilibrium and explore the relation of his work to the monetary and portfolio theories of his doctoral students Markowitz and Patinkin and his colleague Tobin and to the revival of the quantity theory of money by Milton Friedman, a University of Chicago colleague unsympathetic to the methodology of the Cowles Commission.
    Keywords: Jacob Marschak, Money in a theory of assets, Cowles Commission, Harry Markowitz, James Tobin
    JEL: B22 B31
    Date: 2019–09
  18. By: Bhattacharya, Rudrani (National Institute of Public Finance and Policy); Tripathi, Shruti (National Institute of Public Finance and Policy); Chowdhury, Sahana Roy (International Management Institute, Kolkata)
    Abstract: The long-standing empirical literature of monetary policy transmission acknowledges weak transmission of monetary policy shock to real activities and inflation in emerging economies. Fragile financial system, low level of financial integration and weak institutions are often cited as the reasons for lack of monetary policy transmission in these economy. This paper investigates to what extent these factors explain the variation in the extent of monetary policy transmission in a comprehensive set of developed and developing economies using meta-analysis framework. We find that the degree of financial development captured by various financial indicators explain cross-country variations in the magnitude and time lag of monetary policy transmission. We also find the role of financial accelerator in transmission magnitude to output growth.
    Keywords: Financial developmen ; Institutions ; Monetary Policy Transmission ; Meta-Analysis
    JEL: C51 E52 E58
    Date: 2019–07
  19. By: Hossein Tavakolian; Hamed Ghiaie (Université de Cergy-Pontoise, THEMA)
    Abstract: This paper develops a DSGE model for a small open oil economy which has two rates at official and free (unofficial) markets for foreign currency. In this model, government has access to foreign currency by supplying oil in international markets. Using the oil revenue, the government provides the Central Bank and essential imported goods with foreign currency at the official rate; Other goods are imported at the unofficial rate. The CB’s objective is to minimize the difference between nominal free and official exchange rates. To do so, the CB uses three policy instruments: i) either holds foreign currency as financial assets or sells it to the free market at the unofficial rate, ii) nominal monetary base growth rate and iii) nominal depreciation of official exchange rate. These instruments are applied in this paper in four scenarios of CPI targeting and PPI targeting in both dual and unified exchange rate regimes. Through a welfare analysis, this paper indicates that PPI targeting works better than CPI targeting in this economy. As well, this paper illustrates that PPI targeting under unified system considerably increases welfare. In addition, the interaction between fiscal and monetary policy is assessed. The results show that monetary and exchange rate policies are also more effective when fiscal authority follows a procyclical fiscal rule.
    Keywords: DSGE model, Dual-Exchange Rate System, PPI Inflation Targeting.
    JEL: E52 E58 F41
    Date: 2019
  20. By: Yakov Ben-Haim; Jan Willem van den End
    Abstract: In this paper we assume that the natural rate of interest is fundamentally uncertain. Based on a small scale macroeconomic model, info-gap theory is used to rank different monetary policy strategies in terms of their robustness against this uncertainty. Applied to the euro area, we find that a strategy that is responsive to deviations from the policy targets is more robust against natural rate uncertainty than the historical response of the ECB as reflected in an estimated Taylor rule. An inert or passive monetary strategy is least robust. Our analysis presents a methodology that is applicable in a wide range of policy analyses under deep uncertainty.
    Keywords: Monetary Policy; Monetary Strategy; Knightian uncertainty; info-gaps; satisficing
    JEL: E42 E47 E52
    Date: 2019–08
  21. By: Jose David GARCIA REVELO; Yannick LUCOTTE; Florian PRADINES-JOBET
    Keywords: , Macroprudential policy, Monetary policy, Financial stability, Excessive credit growth, Policy synchronisation.
    Date: 2019
  22. By: Marwa Elsherif (Helwan University and Arab Academy for Science, Technology and Maritime Transport)
    Abstract: Financial Inclusion is critical for the competitiveness, employment creation, and for raising incomes and reducing poverty. There is limited literature investigating the specific relationship between financial inclusion and monetary policy transmission. Central bank of Egypt (CBE) has launched three initiatives to support development and achievement of financial inclusion. They include an initiative to support financing small- and medium-sized enterprises (SMEs), another to support the tourism sector, in addition to a real estate financing initiative for medium- and low-income individuals. To explore the relationship between financial inclusion and monetary policy transmission in Egypt for the period of 2000 to 2017, it is proposed to use the principal component analysis (PCA) method to assign the weight of factors in financial inclusion index (by comprising selected indicators of financial development in a single index). And VECM approach to examine financial inclusion and monetary policy transmission, Granger Causality tests, and basic trend analyses, to explore empirically the relationship between financial inclusion indicators and monetary policy. The paper is arranged in sections. After the introduction, section II presents literature survey on links between financial inclusion and the goals of monetary policy, and presents stylized facts about financial inclusion in Egypt. Section III discusses the methodology of analysis. In section IV, results of econometric estimations are presented. Section V summarizes the paper with policy implications.
    Keywords: Financial Inclusion, Monetary Policy, VECM, Granger Causality Test
    JEL: E52 G18 C32
    Date: 2019–06
  23. By: Ansgar Belke; Jens Klose
    Abstract: This article compares two types of monetary policy rules – the Taylor-Rule and the Orphanides-Rule – with respect to their forecasting properties for the European Central Bank. In this respect the basic rules, results from estimates models and augmented rules are compared. Using quarterly real-time data from 1999 to the beginning of 2019, we find that an estimated Orphanides-Rule performs best in nowcasts, while it is outperformed by an augmented Taylor-Rule when it comes to forecasts. However, also a no-change rule delivers good results for forecasts, which is hard to beat for most policy rules.
    Keywords: Taylor-Rule, Orphanides-Rule, Monetary Policy Rates, Forecasting, European Central Bank
    JEL: E43 E52 E58 C53
    Date: 2019–06
  24. By: Takayasu Ito (Meiji University, Scool of Commerce)
    Abstract: When the Bank of Japan (BOJ) adopts interest rate targeting under a comprehensive easing policy, the yield curve up to 12 months in the Japanese money market is driven by a single trend. It is caused by monetary policy expectations. The regime of interest rate targeting gives a sense of comfort to market participants that the regular transmission mechanism works in the yield curve of the money market. Thus, monetary policy expectations are fully transmitted to the yield curve end. On the other hand, monetary policy expectations are not fully transmitted to the yield curve end under either the quantitative and qualitative easing policy or the negative easing policy. The quantitative and qualitative easing policy and the negative interest rate policy paralyze the market function in the short-term money market. Central bankers should always keep it in mind that the transmission of interest rates along the yield curve is an integral part of the mechanism through which monetary policy affects the economy.
    Keywords: Monetary Policy Expectations, Money Market, Non-traditional Monetary Policy
    JEL: E40 E58 G10
    Date: 2019–07
  25. By: Ansgar Belke; Timo Baas
    Abstract: For more than two decades now, current-account imbalances are a crucial issue in the international policy debate as they threaten the stability of the world economy. More recently, the government debt crisis of the European Union shows that internal current account imbalances inside a currency union may also add to these risks. Oil price fluctuations and a contracting monetary policy that reacts on oil prices, previously discussed to affect the current account may also be a threat to the currency union by changing internal imbalances. Therefore, in this paper, we analyze the impact of oil price shocks on current account imbalances within a currency union. Differences in institutions, especially labor market institutions and trade result in an asymmetric reaction to an otherwise symmetric shock. In this context, we show that oil price shocks can have a long-lasting impact on internal balances, as the exchange rate adjustment mechanism is not available. The common monetary policy authority, however, can reduce such effects by specifying an optimum monetary policy target. Nevertheless, we also show that there is no single best solution. CPI, core CPI or an asymmetric CPI target all come at a cost either regarding an increase in unemployment or increasing imbalances.
    Keywords: Current account deficit, Oil price shocks, DSGE models, Search and matching labor market, Monetary policy
    JEL: E32 F32 Q43
    Date: 2019–03

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