Home  About us  Contact
 

Interest Rate Policy (interest + rate_policy)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Monetary Policy, Agency Costs and Output Dynamics

GERMAN ECONOMIC REVIEW, Issue 3 2003
Ludger Linnemann
Interest rate policy; financial accelerator; sticky prices and wages Abstract. This paper examines the role of financial market imperfections for output reactions to nominal interest rate shocks. Empirical evidence shows a hump-shaped impulse response function of output and suggests that credit supply co-moves with output. A monetary business cycle model with staggered price setting is presented where the firms' outlays for capital and labor must be covered by the sum of net worth of entrepreneurs and loans in the form of debt contracts. These properties are shown to generate a hump-shaped impulse response of output, which takes on the smooth and persistent appearance of the empirical output response when nominal wages are set in a staggered way, too. [source]

Effectiveness of monetary policy and limited asset market participation: Neoclassical versus Keynesian effects

INTERNATIONAL JOURNAL OF ECONOMIC THEORY, Issue 3 2007
Giovanni Di Bartolomeo
E61; E63 This paper investigates the effects of limited asset market participation on the effectiveness of monetary policy in a New Keynesian Dynamic Stochastic General Equilibrium model. Although an increase in consumers who cannot access financial markets reduces the effects of interest rate policies through consumption inter-temporal allocation (neoclassical or permanent income effect), we find an opposite result: monetary policy becomes more effective as the degree of financial market participation falls. The reason has a very Keynesian flavor. [source]

Monetary Policy and the Taylor Principle in Open Economies

INTERNATIONAL FINANCE, Issue 3 2006
Ludger Linnemann
Nowadays, central banks mostly conduct monetary policy by setting nominal interest rates. A widely held view is that central banks can stabilize inflation if they follow the Taylor principle, which requires raising the nominal interest rate more than one-for-one in response to higher inflation. Is this also correct in an economy open to international trade? Exchange rate changes triggered by interest rate policy might interfere with inflation stabilization if they alter import prices. The paper shows that this destabilizing effect can prevail if (a) the central bank uses consumer (rather than producer) prices as its inflation indicator or directly reacts to currency depreciation, and (b) if it bases interest rate decisions on expected future inflation. Thus, if the central bank looks at current inflation rates and ignores exchange rate changes, Taylor-style interest rate setting policies are advisable in open economies as well. [source]

Credit Spreads and Monetary Policy

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 2010
VASCO CÚRDIA
credit frictions; interest rate rules; Taylor rules We consider the desirability of modifying a standard Taylor rule for interest rate policy to incorporate adjustments for measures of financial conditions. We consider the consequences of such adjustments for the way policy would respond to a variety of disturbances, using the dynamic stochastic general equilibrium model with credit frictions developed in Cúrdia and Woodford (2009a). According to our model, an adjustment for variations in credit spreads can improve upon the standard Taylor rule, but the optimal size of adjustment depends on the source of the variation in credit spreads. A response to the quantity of credit is less likely to be helpful. [source]

Monetary Policy and the Lost Decade: Lessons from Japan

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 5 2010
DANIEL LEIGH
liquidity trap; deflation; monetary policy; Bayesian econometrics I investigate how monetary policy can avoid a deflationary slump when policy rates are near zero by studying interest rate policy during Japan's "Lost Decade." Estimation results suggest that the Bank of Japan's interest rate policy fits a conventional reaction function with an inflation target near 1%. The disapointing economic performance thus seems primarily due to adverse economic shocks rather than extraordinary policy errors. Also, counterfactual policy simulations suggest that simply raising the inflation target would not have substantially improved performance. However, price-level targeting or combining a higher inflation target with an aggressive output response would have achieved superior stabilization results. [source]

Monetary Policy and Stock Prices in an Open Economy

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 8 2007
GIORGIO DI GIORGIO
monetary policy; stock prices; Taylor Rule; open-economy DSGE models; wealth effects This paper studies monetary policy in a two-country model where agents can invest their wealth in both stock and bond markets. In our economy the foreign country hosts the only active equity market where also residents of the home country can trade stocks of listed foreign firms. We show that, in order to achieve price stability, the Central Banks in both countries should grant a dedicated response to movements in stock prices driven by relative productivity shocks. Determinacy of rational expectations equilibria and approximation of the Wicksellian interest rate policy by simple monetary policy rules are also investigated. [source]

PERFORMANCE ANALYSIS FOR A SAMPLE OF MICROFINANCE INSTITUTIONS IN INDIA

ANNALS OF PUBLIC AND COOPERATIVE ECONOMICS, Issue 2 2008
Alain De CROMBRUGGHE
ABSTRACT,:,We use regression analysis to study the determinants of self-sustainability of a sample of microfinance institutions in India. These institutions stand out by their ability and willingness to report financial and operational data to Sa Dhan, a know-how sharing organization. We investigate particularly three aspects of sustainability: cost coverage by revenue, repayment of loans and cost-control. Our results suggest that the challenge of covering costs on small and partly unsecured loans can indeed be met, without necessarily increasing the size of the loans or raising the monitoring cost. The analysis suggests other ways to improve the financial results, like a better targeting of the interest rate policy or increasing the number of borrowers per field officer especially in collective delivery models. [source]

MODELLING DEMAND FOR BROAD MONEY IN AUSTRALIA,

AUSTRALIAN ECONOMIC PAPERS, Issue 1 2005
ABBAS VALADKHANIArticle first published online: 21 FEB 200
The existence of a valid long-run money demand function is still important for the conduct of monetary policy. It is argued that previous work on the demand for money in Australia has not been very satisfactory in a number of ways. This paper examines the long- and short-run determinants of the demand for broad money employing the Johansen cointegration technique. Using quarterly data for the period 1976:3,2002:2, this paper finds, inter alia, that the demand for broad money is cointegrated with real income, the rate of return on 10-year Treasury bonds, the cash rate and inflation. It appears that a disequilibrium in the demand for money can affect the efficacy of interest rate policy in the long run via its impact on future output growth and output gap. [source]