nep-mon New Economics Papers
on Monetary Economics
Issue of 2019‒11‒04
thirty papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Stable Money and Central Bank Independence: Implementing Monetary Institutions in Postwar Germany By Carsten Hefeker
  2. Monetary policy in Japan: A review of the Heisei Period (Japanese) By TAKAHASHI Wataru
  3. Narrative monetary policy surprises and the media By Saskia ter Ellen; Vegard H. Larsen; Leif Anders Thorsrud
  4. The Contemporary Role of Gold in Central Banks' Balance Sheets By Iveta Polaskova; Lubos Komarek; Michal Skoda
  5. Modeling the Dynamics of Inflation in India By Pulapre Balakrishnan; M. Parameswaran
  6. Efficiency of Monetary Exchange with Divisible Fiat Money: An Experimental Approach By Kazuya Kamiya; Hajime Kobayashi; Tatsuhiro Shichijo; Takashi Shimizu
  7. Changes in the Global Financial Environment Surrounding Japan in the 21st Century: Foreign Exchange Policy and International Financial Coordination (Japanese) By IDO Kiyoto
  8. Should Monetary Policy Take Inequality and Climate Change into Account? By Patrick Honohan
  9. The Stability of Demand for Money in the Proposed Southern African Monetary Union By Simplice A. Asongu; Oludele E. Folarin; Nicholas Biekpe
  10. Stock Market's Assessment of Monetary Policy Transmission: The Cash Flow Effect By Refet S. Gürkaynak; Hatice Gökce Karasoy-Can; Sang Seok Lee
  11. US Monetary Policy and the Stability of Currency Pegs By Rövekamp, Ingmar
  12. A New Economic Framework: A DSGE Model with Cryptocurrency By Stylianos Asimakopoulos; Marco Lorusso; Francesco Ravazzolo
  13. Evaluation of the Survey of Professional Forecasters in the Greenbook’s Loss Function By Tae-Hwy Lee; Yiyao Wang
  14. Inflation and Deflationary Biases in Inflation Expectations By Lamla, Michael; Pfajfar, Damjan; Rendell, Lea
  15. Quantitative Easing and Equity Prices: Evidence from the ETF Program of the Bank of Japan By Andrea Barbon; Virginia Gianinazzi
  16. Partisan Bias in Inflation Expectations By Oliver Bachmann; Klaus Gründler; Niklas Potrafke; Ruben Seiberlich
  17. Spillovers of asset purchases within the real sector: Win-win or joy and sorrow? By Sondershaus, Talina
  19. Information Effects of Euro Area Monetary Policy By Kerssenfischer, Mark
  20. Endogenous forward guidance By Vogel, Lukas
  21. Austrian School of Economics? Prescriptions for Monetary Reforms will cause complete Chaos in the Economy and Ruin the Economic System By Naba Kumar Adak
  22. Reforming the Euro Pragmatically: Towards Sustainable Fiscal Policy and a Revamped Eurosystem By Heikki Oksanen
  23. Predicting Monetary Policy Using Artificial Neural Networks By Hinterlang, Natascha
  24. Price Trends Over the Product Life Cycle and the Optimal Inflation Target By Klaus Adam; Henning Weber
  25. Measuring Redenomination Risks in the Euro Area - New Evidence from Survey Data By Klose, Jens
  26. The Aging-Inflation Puzzle: on the Interplay between Aging, Inflation and Pension Systems By Semedo Leite, Duarte Nuno; Härtl, Klaus
  27. Forecasting Annual Inflation in Suriname By Ooft, G.; Bhaghoe, S.; Franses, Ph.H.B.F.
  28. Modern Money Theory is a hoax as its arguments are contradictory, based on irrational propositions, and impractical By Naba Kumar Adak
  29. ECB Announcements and Stock Market Volatility By Neugebauer, Frederik
  30. Interest Rate Spillovers from the United States: Expectations, Term Premia and Macro-Financial Vulnerabilities By Aaron Mehrotra; Richhild Moessner; Chang Shu

  1. By: Carsten Hefeker
    Abstract: Germany prides itself in having one of the most successful central banks and currencies with respect to independence and stability. I show that not only were both imposed on the country after 1945 but that there was also initial resistance to both among German experts and officials. This is a rare case of the successful imposition of institutions from abroad. Events are discussed in light of Peter Bernholz’s requirements for stable money and a successful central bank.
    Keywords: currency reform, Bundesbank, central bank independence, institutional reform
    JEL: E42 E58 N14 N24
    Date: 2019
  2. By: TAKAHASHI Wataru
    Abstract: This paper discusses Japan's monetary policy during the Heisei Period (1989–2019), an era of roughly 30 years that included the boost and bursting of the bubble economy and the subsequent deflationary period. In doing so, in addition to focusing on points of dispute regarding the individual unconventional monetary policies that began about 20 years ago and continue today, it also will discuss monetary discipline, inflation targeting, and their relationship to fiscal policy. Lastly, it will discuss the role that should be taken by the Bank of Japan as an independent central bank in changing environments. Monetary discipline means making the best use of market mechanisms to manage monetary policy. It has the features of adopting competitive bidding, limiting the purchase of assets for market operation to short- term government debt, and minimizing the size of central bank assets. Although central banks have traditionally emphasized this type of discipline, unconventional monetary policy is the process of loosening the constraints of monetary policy. Japan is typical. The current monetary policy, Quantitative and Qualitative Monetary Easing (QQE), has not achieved its targets after six years of operation. This is mainly due to the stagnant growth potential of the economy. The former discussion of central bank independence in controlling inflation in the 1990s no longer makes sense in the current environment. As an independent agency, the central bank is expected to check government economic policies from a non-political and longer-term standpoint than government agencies.
    Date: 2019–10
  3. By: Saskia ter Ellen; Vegard H. Larsen; Leif Anders Thorsrud
    Abstract: We propose a method to quantify narratives from textual data in a structured manner, and identify what we label "narrative monetary policy surprises" as the change in economic media coverage explained by central bank communication accompanying interest rate meetings. Our proposed method is fast and simple, and relies on a Singular Value Decomposition of the different texts and articles coupled with a unit rotation identifi cation scheme. Identifying narrative surprises in central bank communication using this type of data and identifi cation provides surprise measures that are uncorrelated with conventional monetary policy surprises, and, in contrast to such surprises, have a signifi cant effect on subsequent media coverage. In turn, narrative monetary policy surprises lead to macroeconomic responses similar to what recent monetary policy literature associates with the information component of monetary policy communication. Our study highlights the importance of written central bank communication and the role of the media as information intermediaries.
    Keywords: communication, monetary policy, factor identification, textual data
  4. By: Iveta Polaskova; Lubos Komarek; Michal Skoda
    Abstract: This paper is devoted to the monetary policy context of gold in central banks' reserves. It examines the correlation between the nominal and real price of gold and selected macroeconomic variables and financial assets over the financial and business cycles. In this context, it analyses the investment diversification opportunity that gold offers central banks and other investors. The paper also highlights differences in gold holdings between the central banks of advanced economies (including those with reserve currencies) and those of emerging market and developing economies. It goes on to outline the history of gold holdings from the establishment of the independent Czechoslovakia at the end of 1918 to the present day. It concludes by presenting the rationale for the position of the CNB, which ranks among the modern central banks holding minimal amounts of reserve gold.
    Keywords: Central bank, gold, international monetary system, international reserves
    JEL: E42 E58 F33 Q31
    Date: 2019–10
  5. By: Pulapre Balakrishnan (Ashoka University, Sonipat); M. Parameswaran (Centre for Development Studies, Thiruvananthapuram)
    Abstract: In mainstream macroeconomics today inflation is related to the ‘output gap’, defined as the deviation of output from its ‘natural’ level. This view of inflation has been adopted by the leading central banks, including India’s, underpinning the move to ‘inflation targeting’ as the sole objective of monetary policy. We present an alternative model of inflation based on features that would be considered typical of the Indian economy and a specific understanding of what drives the inflationary process here. We then test both the models across data from India over different periods and at differing frequencies. The exercise is conclusive, and bears significance for what will constitute an appropriate antiinflationary policy.
    Keywords: Inflation in India, New Keynesian Phillips Curve, Structuralist macroeconomics
    Date: 2019–08
  6. By: Kazuya Kamiya (Research Institute for Economics and Business Administration, Kobe University, Japan); Hajime Kobayashi (Faculty of Economics, Kansai University); Tatsuhiro Shichijo (School of Economics, Osaka Prefecture University); Takashi Shimizu (Graduate School of Economics, Kobe University)
    Abstract: In this paper, we investigate a search model with divisible fiat money in a laboratory setting where transaction prices are endogenously determined. In the model, there exist welfare-ranked multiple stationary monetary equilibria and gift-giving equilibria. We find that endogenizing transaction prices enhanced the coordination of subjects through monetary exchange and deteriorated it through gift-giving. In other words, the subjects endogenously reduced the trade friction of monetary exchanges. We also compare our experimental results with those in search models with exogenously given transaction prices.
  7. By: IDO Kiyoto
    Abstract: The twenty years from 1990 marked a momentous turning point for the economic and financial system of Japan. This transition is attributable to three shocks. The first shock was the bubble economy triggered by the measures taken in response to the appreciation of the yen triggered by the Plaza Accord, and the burst of the bubble. The second shock was Japan's financial deregulation and the financial crisis which resulted from the collapse of the bubble economy. And the third shock was the Asian currency crisis. This paper focuses particularly on the changes in the international financial environment surrounding Japan and discusses with a historical approach the structural changes consequently demanded of Japan as well as its increased international responsibilities. Section 2 covers the changes in the post-Plaza Accord foreign exchange policy and recent discussions; Section 3 discusses the role played by Japan as well as the collaboration that developed among East Asian economies in overcoming the Asian currency crisis; and Section 4 explains the regional financial coordination in East Asia and the international financial coordination framework that has expanded from the G7 to the G20. And finally, the observations of the current status and challenges are included in conclusion. The dawn of the 21st century was also a significant turning point for international finance. In 1999, the euro was introduced and the global economic leadership expanded from the G7 into the G20 with the development of emerging economies. The Asian currency crisis gave momentum for Asian economies, which had previously been destinations of Japan's exports, to become partners in supply chains and in the global financial system, changing the Japanese economy drastically. The G20, which initially began to address the international financial crisis and foreign exchange policies, is now discussing a wide range of subjects such as sustainable growth of the global economy and structural changes including aging, so Japan should play an increasingly important role.
    Date: 2019–10
  8. By: Patrick Honohan (Peterson Institute for International Economics)
    Abstract: Should central banks take more account of ethical distributional and environmental concerns in the design and implementation of the wider monetary policy toolkit they have been using in the past decade? Although the scope to influence a range of objectives is more limited than is often supposed, and while it is vital to not derail monetary policy from its core purposes, central bank mandates justify paying more attention to such broad issues, especially if policy choices have a significant potential impact. Carefully managed steps in this direction could actually strengthen central bank independence while making some contribution to improving the effectiveness of public policy on these matters.
    Keywords: Monetary Policy, Central Banking
    JEL: E42 E52 E58
    Date: 2019–10
  9. By: Simplice A. Asongu (Yaoundé/Cameroon); Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria); Nicholas Biekpe (Cape Town, South Africa)
    Abstract: This study investigates the stability of demand for money in the proposed Southern African Monetary Union (SAMU). The study uses annual data for the period 1981 to 2015 from ten countries making-up the Southern African Development Community (SADC). A standard function of demand for money is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across countries in the stability of money. This divergence is articulated in terms of differences in cointegration, CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long-term determinants and error correction in event of a shock. Policy implications are discussed in the light of the convergence needed for the feasibility of the proposed SAMU. This study extends the debate in scholarly and policy circles on the feasibility of proposed African monetary unions.
    Keywords: Stable; demand for money; bounds test
    JEL: E41 C22
    Date: 2019–01
  10. By: Refet S. Gürkaynak; Hatice Gökce Karasoy-Can; Sang Seok Lee
    Abstract: We show that firm liability structure and associated cash flow matter for firm behavior, and that financial market participants price stocks accordingly. Looking at firm level stock price changes around monetary policy announcements, we find that firms that have more cash flow exposure see their stock prices affected more. The stock price reaction depends on the maturity and type of debt issued by the firm, and the forward guidance provided by the Fed. This effect has remained intact during the ZLB period. Importantly, we show that the effect is not a rule of thumb behavior outcome and that the marginal stock market participant actually studies and reacts to the liability structure of firm balance sheets. The cash flow exposure at the time of monetary policy actions predicts future net worth, investment, and assets, verifying the stock pricing decision and also providing evidence of cash flow effects on firms’ real behavior. The results hold for S&P500 firms that are usually thought of not being subject to tight financial constraints.
    Keywords: cash flow effect of monetary policy, investor sophistication, financial frictions, stock pricing
    JEL: E43 E44 E52 E58 G14
    Date: 2019
  11. By: Rövekamp, Ingmar
    JEL: E52
    Date: 2019
  12. By: Stylianos Asimakopoulos; Marco Lorusso; Francesco Ravazzolo
    Abstract: This paper develops a Dynamic Stochastic General Equilibrium (DSGE) model to evaluate the economic repercussions of cryptocurrency. We assume that cryptocurrency offers an alternative currency option to government currency for households and we have an endogenous supply and demand for cryptocurrency. We estimate our model with Bayesian techniques using monthly data for the period 2013:M6-2019:M3. Our results indicate a substitution effect between the real balances of government currency and cryptocurrency in response to technology, preferences and monetary policy shocks. In addition, real balances of cryptocurrency exhibit a countercyclical reaction to these shocks. Moreover, we find that government currency demand shocks have larger effects on the economy than shocks to cryptocurrency demand. Our results also show that cryptocurrency productivity shocks have negative effects on output and on the exchange rate between government currency and cryptocurrency, with a more pronounced negative reaction to output if the central bank increases its weight to government currency growth. Overall, our results provide novel insights on the underlying mechanisms of cryptocurrency and spillover effects to the economy.
    Keywords: DSGE Model, Government Currency, Cryptocurrency, Bayesian Estimation
  13. By: Tae-Hwy Lee (Department of Economics, University of California Riverside); Yiyao Wang
    Abstract: We aim to find a forecast in the Survey of Professional Forecasters (SPF) that is closest to the Greenbook forecast of the Federal Reserve Board. To do it, we look for an SPF cross-sectional percentile that is not encompassed by the Greenbook forecast under the Greenbook's estimated asymmetric quadratic loss function with allowing asymmetry to be time-varying. To evaluate each SPF percentile in terms of the Greenbook's asymmetric quadratic loss function, we introduce the encompassing test for the asymmetric least square regression (Newey and Powell 1987). From the analysis of the U.S. quarterly real output and inflation forecasts over the past four decades, we find that almost all SPF percentiles are encompassed by the Greenbook forecast in full data period. However there is evidence in sub-periods that many SPF percentiles are not encompassed by Greenbook. Among them, the best SPF percentile that is not encompassed by Greenbook and is closest to Greenbook for real output growth forecast is near the median of the SPF percentiles, while the best SPF percentile for inflation forecast is far below the median in the left tail of the SPF cross-sectional distribution. It indicates that the common practice of using the SPF median can be misleading.
    Keywords: Asymmetric least squares, Encompassing test, Estimating asymmetric quadratic loss function, Forecast averaging, Model averaging.
    JEL: C1 C2 C3 C4 C5
    Date: 2018–08
  14. By: Lamla, Michael; Pfajfar, Damjan; Rendell, Lea
    JEL: E31 E37 E58 D84
    Date: 2019
  15. By: Andrea Barbon (Università della Svizzera italiana (USI), Lugano; Swiss Finance Institute, Students); Virginia Gianinazzi (Università della Svizzera italiana (USI), Lugano; Swiss Finance Institute)
    Abstract: Since the introduction of its Quantitative and Qualitative Easing program in 2013, the Bank of Japan has been increasing its holdings of Japanese equity through large scale purchases of index-linked ETFs with the intention of lowering assets' risk premia. We exploit the cross-sectional heterogeneity of the shock to supply induced by the policy to identify a positive, sizeable and persistent impact on stock prices consistent with a portfolio balance channel. The evidence suggests that demand curves for stocks are downward sloping in the long-run. We estimate an increase of 22 basis points in aggregate market valuation per trillion Yen invested into the program, corresponding to a price elasticity of 1. We show that the purchases of ETFs tracking the price-weighted Nikkei 225 index generate significant pricing distortions relative to a value-weighted benchmark. Finally, we provide a rigorous framework to discuss the consequences of a potential exit strategy from QE.
    Keywords: ETFs, quantitative easing, portfolio balance channel, unconventional monetary policy, Bank of Japan
    JEL: E52 E58 B26
    Date: 2019–04
  16. By: Oliver Bachmann; Klaus Gründler; Niklas Potrafke; Ruben Seiberlich
    Abstract: We examine partisan bias in inflation expectations. Our dataset includes inflation expectations of the New York Fed’s Survey of Consumer Expectations over the period June 2013 to June 2018. The results show that inflation expectations were 0.46 per centage points higher in Republican-dominated than in Democratic-dominated US states when Barack Obama was US president. Compared to inflation expectations in Democratic-dominated states, inflation expectations in Republican-dominated states declined by 0.73 percentage points when Donald Trump became president. We employ the Blinder-Oaxaca decomposition method to disentangle the extent to which political ideology and other individual characteristics predict inflation expectations: around 25% of the total difference between inflation expectations in Democratic-dominated versus Republican-dominated states is based on how partisans respond to changes in the White House’s occupant (partisan bias). The results also corroborate the belief that voters’ misperceptions of economic conditions decline when the president belongs to the party that voters support.
    JEL: C13 D72 E31 P44
    Date: 2019
  17. By: Sondershaus, Talina
    Abstract: Events which have an adverse or positive effect on some firms can disseminate through the economy to firms which are not directly affected. By exploiting the first large sovereign bond purchase programme of the ECB, this paper investigates whether more lending to some firms spill over to firms in the surroundings of direct beneficiaries. Firms operating in the same industry and region invest less and reduce employment. The paper shows the importance to consider spillover effects when assessing unconventional monetary policies: Differences between treatment and control groups can be entirely attributed to negative effects on the control group.
    Keywords: asset purchase programmes,small and medium enterprises,investments
    JEL: D22 E58 G21 G28
    Date: 2019
  18. By: Gülçin Tap??n (?stanbul Ticaret Üniversitesi)
    Abstract: Central Banks use monetary policy tools in order to reach such ultimate aims as enabling price stability, stabilizing output gap and increasing employment. The effects of monetary policies applied in accordance with the business cycles on the mentioned macroeconomic variables are realized by means of monetary transmission channels. The analysis of monetary transmission mechanisms indicating the macroeconomic outcomes of the change in the monetary policy tools is of high importance in terms of these policies? efficiency. This study examines the efficiency of monetary transmission mechanism in Turkey for the years between 1995:01-2018:11 by using the Toda-Yamamoto causality test.
    Keywords: Monetary Policy, Monetary Transmission Mechanism, Toda-Yamamoto causality test
    JEL: E52 E40 E50
    Date: 2019–07
  19. By: Kerssenfischer, Mark
    JEL: E52 E44 E32 C32
    Date: 2019
  20. By: Vogel, Lukas
    JEL: E31 E52 E58 E62 C11
    Date: 2019
  21. By: Naba Kumar Adak (Sabang Sajanikanta Mahavidyalaya)
    Abstract: The purpose of this paper is to show how the Austrian School of Economics? suggestions and prescriptions can cause complete chaos and anarchy in the economic system. The Austrian School of Economics? diagnosis of the defects in the functioning and practice of economics are more or less as the following. It thinks that the creation of money out of thin air and lowering interest rate for lending that money are the primary causes of inflation and boom-bust cycle, both of which are detrimental to the economy. Besides, this School?s opinion is that the government in connivance with the central bank adopts such policies like bailing out and spending excessively. It increases the government debt unnecessarily. To repay this debt, the government increases tax which in turn reduces the spending capacity of the tax-payers. Thus, according to this School, both the monetary policy of the central bank and the fiscal policy of the government (government intervention in the economics and financial system) cause unnatural and harmful effects on the overall economic condition of a nation.To ameliorate these defects, the Austrian School of Economics prescribes the following remedies. This School thinks, as money is not anchored to any commodity, so the central bank and government are in a position to increase the money supply without limit; this increase in money supply causes inflation which in turn leads to more demand for money supply. To meet this new demand for money the central bank creates and supplies more amount of money and lower the interest rate than the natural rate of interest. This increase in money-supply, again, causes inflation and renewed demand for extra money; again extra supply of money, again inflation increases. Thus the vicious circle of money supply and inflation leads to boom and bust. Therefore, this School suggests that money-creation should be anchored to some commodity so that creation of money cannot be unlimited. This School thinks that if money-creation is based on the standard of gold and silver then there will be no fiat money or easy money and inflation will be controlled and there will be little chance of occurring boom-bust cycle. There other suggestion is that the central bank should be dissolved or abolished and there should not be any central authority to impose any uniform monetary policy on the economy. In every area there will be banks independent of any superior authority; the monetary policy and the interest rates will be formulated by the market forces of the concerned area where the authority of a bank will be operative. This School prescribes unfettered market system. This School also suggests that government should not interfere into the economic and financial activities neither in the positive way like bailing out any falling bank or corporate nor by enforcing any law that may control the economy in any way. This School also suggests that government should minimize its expenditure even by curtailing its spending for what is considered as public works. This School is also of the opinion that government should lower its tax-rate or abolish tax altogether.According to the Austrian School of Economics, in the present economics system, the central bank creates fiat money or debt money to give loans and thus increases the supply of money. The Austrian School suggests that if money creation is followed strictly with the commodity (gold) standard then loan can be given only by using the savings and there will be no possibility of increase in the money-supply as existing money that is saved will be used for lending purposes. Therefore, no question of inflation due to increase in money-supply (fiat money that is created out of nothing) will arise.It will be simply impossible to deal with all the prescriptions and suggestions of the Austrian School in this paper and to suggest how those prescriptions may be developed further so as to make them function flawless or more correctly. It also becomes imperative to explain in which way the diagnosis and prescriptions of other Schools are wrong. It seems me that the differences of opinion among these Schools are mostly due to the absence of any universally accepted definition and function of money and how money should be oriented to suit our purpose of achieving a sustainable economic growth unhampered by occasional visit of boom-bust cycles. Therefore, the purpose of this paper is to suggest that while it is correct that money should be anchored to commodity, yet more thoughts are necessary as to how the growing demand for money with the expanding monetary activities could be met. If we can arrive at a correct definition of money and how we can orient the money to function in the way to eliminate those harmful effects that, the Austrian School of Economics has shown, occur in the present economic system. Therefore, primary aim of this paper is to examine how far the assertion that money must be any commodity is workable in the economic and financial systems of a country.
    Keywords: Natural rate of interest, commodity money, fiat money, boom-bust cycle, government intervention in financial matters, inflation, free market
    Date: 2019–07
  22. By: Heikki Oksanen
    Abstract: The conflicting standpoints on reforming the euro are creating more controversies than practical results. Mistrust between the participants led to short-sighted fiscal discipline that has amplified the economic disturbances. Expert analysis on the proposed reforms is often deficient as the potential of conducting policies under the existing institutional features is not adequately analysed. This shortcoming notably concerns the functions of the Eurosystem. In the present article, reforming the euro successfully calls for a convincing high-level commitment to preserve the euro also in unexpected circumstances and pragmatic improvements in its key functions. In fiscal policy the focus should be shifted to long-term sustainability. The tasks of the Eurosystem to promote the smooth operation of the payment systems at all times and to function as the lender of last resort to solvent governments should be confirmed. Adequate smoothing of short-term asymmetric shocks can be based on the automatic stabilisers in national budgets, possibly accompanied by a specific mechanism with a clause to strictly prevent permanent transfers. Public finances should be directed to mitigating climate change and saving energy. The EU should take a leading role globally in meeting these long-term challenges.
    Keywords: euro reform, fiscal policy, monetary policy
    JEL: E42 E62 E63 H10
    Date: 2019
  23. By: Hinterlang, Natascha
    JEL: C45 C53 E47
    Date: 2019
  24. By: Klaus Adam; Henning Weber
    Abstract: We document a new stylized fact for the life-cycle behavior of consumer prices: relative to a narrowly defined set of competing products, the price of individual products tends to fall over the product lifetime. This holds true for more than 90% of the expenditure items underlying the U.K. consumer price index and has important normative implications. Constructing a sticky price model featuring a product life cycle and rich amounts of heterogeneity, we explain how the optimal inflation target can be estimated from the observed trends in relative prices. The optimal inflation target for the U.K. is found to range between 2.6% and 3.2% and to have steadily increased over the period 1996 to 2016. We show how changes in relative price trends contributed to this development.
    Keywords: optimal inflation rate, product life cycle, U.K. micro price data
    JEL: E31
    Date: 2019
  25. By: Klose, Jens
    JEL: E43 F45 G01
    Date: 2019
  26. By: Semedo Leite, Duarte Nuno; Härtl, Klaus
    JEL: C68 E27 E31 J11
    Date: 2019
  27. By: Ooft, G.; Bhaghoe, S.; Franses, Ph.H.B.F.
    Abstract: For many countries, statistical information on macroeconomic variables is not abundant and hence creating forecasts can be cumbersome. This paper addresses the creation of current year forecasts from a MIDAS regression for annual inflation rates where monthly inflation rates are the explanatory variables, and where the latter are only available for the last one and a half decade. The model can be viewed as a hybrid New-Keynesian Philips curve (NKPC). Specific focus is given to the forecast accuracy concerning the high inflation period in 2016-2017.
    Keywords: Inflation, New Keynesian Phillips curve, Rational Expectations, MIDAS Regression, Forecasting
    JEL: E12 E17
    Date: 2019–09–01
  28. By: Naba Kumar Adak (Sabang Sajanikanta Mahavidyalaya)
    Abstract: The purpose of this paper is to apprise the readers of the MMT?s misconception misrepresentation relating origin and character of money, monetary policy, fiscal policy and to explain that these concepts and theories of MMT are hypothetical and have no connection with how present economy is functioning and that if the suggestion of MMT for increasing budget-deficit without provisioning how that deficit will be redeemed then this policy of increasing deficit heedlessly will lead the economy as a whole to a catastrophe and collapse. This is a conceptual/ theoretical paper that addresses various definitions, concepts, theories and practices that the MMT believes to be prevalent in the present economics studies and economic activities are unrealistic and their suggestions are unhelpful for smooth function of the economy. Based scholarship, I make an argument that these need to be corrected or re-addressed. Bolstered by published research in this domain, I further argue that this exercise is necessary in order to eliminate the negative effects of the MMT theories on the economy at large. The other purpose of this paper is to make suggestions about how and why money originated and how the present monetary and fiscal policies are being framed and followed and how those policies can be corrected to facilitate smooth functioning of the economy and to achieve sustainable economic growth. To make economy function properly and to make sure that the economy does not face any austerity or unemployment or ineffective production and distribution system, the faults or defects with the MMT that is gaining ground among economists should be explained clearly and conclusively so that economists do not fall in the trap of MMT?s imaginary and hypothetical theory of ?functional finance? and ?a government that issues its sovereign currency can never go default?. And finally, grounded in scholarly literature, I also argue that other notions relating to monetary, fiscal and financial policies also need to be clearly understood to make those policies viable and efficient for the economy to have a balance between production and distribution.
    Keywords: functional finance, hierarchy of money, Modern Money Theory, credit theory of money, state theory of money, printing money, theory of consolidation between government and central bank, full employment, High powered money
    Date: 2019–07
  29. By: Neugebauer, Frederik
    JEL: E52 E58 G12 G14
    Date: 2019
  30. By: Aaron Mehrotra; Richhild Moessner; Chang Shu
    Abstract: We analyse how movements in the components of sovereign bond yields in the United States affect long-term rates in 10 advanced and 21 emerging economies. The paper documents significant global spillovers from both the expectations and term premia components of long-term rates in the United States. We find that spillovers to domestic long-term rates in emerging economies from the US expectations components tend to be more sizeable than those from the US term premia. Finally, spillovers from US term premia are larger when an emerging economy displays greater macro-financial vulnerabilities.
    Keywords: interest rate spillovers, term premia, emerging economies
    JEL: E52 E43 F42 F65
    Date: 2019

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