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Monetary Aggregates (monetary + aggregate)
Selected AbstractsThe Taylor Rule and Dynamic Stability in a Small Macroeconomic ModelECONOMIC NOTES, Issue 3 2003David Chappell In this paper, we embed the Taylor interest rate rule in a simple macroeconomic model with Calvo contracts. We contrast this with the case in which the interest rate is determined by the conventional LM curve along with a fixed value for the monetary aggregate. We derive conditions under which the adjustment of the economy is characterized by a unique saddle,path and show that the conditions required for this to be the case are more stringent when the authorities adopt the Taylor rule. In both cases, the possible failure of the saddle,path condition arises when there are debt,deflation effects in the IS curve. If interest rates are set according to the Taylor rule, then debt,deflation is always enough to cause the failure of the saddle,path condition. However, when interest rates are determined by the LM curve then it is possible that the real balance effect from the LM curve may offset the debt,deflation effect and produce a saddle,path. (J.E.L. E4, E5). [source] A new empirical weighted monetary aggregate for the UKINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2001Leigh Drake E41; E52; E58 Abstract This paper utilizes an approach to long-run modelling proposed by Pesaran et al. (1996. Testing for the existence of a long run relationship. Mimeo, University of Cambridge) to develop an empirical weighted broad monetary aggregate for the UK. The properties of this new aggregate are contrasted with those of the corresponding simple sum and Divisia aggregates. The new weighted monetary aggregate is found to be highly stable and conforms well with standard money demand properties. The aggregate also displays sensible impulse response and persistence profiles to monetary shocks in the context of a VECM framework. Finally, the empirical weighted aggregate displays superior information content in respect of nominal income when contrasted with simple sum and Divisia aggregates using a series of St. Louis equations. Copyright © 2001 John Wiley & Sons, Ltd. [source] Forecasting the Direction of Policy Rate Changes: The Importance of ECB WordsECONOMIC NOTES, Issue 1-2 2009Carlo Rosa This paper evaluates the predictive power of different information sets for the European Central Bank (ECB) interest-rate-setting behaviour. We employ an ordered probit model, i.e. a limited dependent variable framework, to take into account the discreteness displayed by policy rate changes. The results show that the forecasting ability of standard Taylor-type variables, such as inflation and output gap, is fairly low both in-sample and out-of-sample, and is comparable to the performance of the random walk model. Instead by using broader information sets that include measures of core inflation, exchange rates, monetary aggregates and financial conditions, the accuracy of the forecasts about ECB future actions substantially improves. Moreover, ECB rhetoric considerably contributes to a better understanding of its policy reaction function. Finally, we find that that the ECB has been fairly successful in educating the public to anticipate the overall future direction of its monetary policy, but has been less successful in signalling the exact timing of rate changes. [source] Has the ECB increased interest rates too soon?ECONOMIC OUTLOOK, Issue 1 2006Article first published online: 26 JAN 200 Even though the Eurozone recovery is far from entrenched, the ECB decided to raise interest rates towards the end of 2005 and another hike is expected soon. Those in the ECB who have been looking for a reason to start tightening for some time can point to an inflation rate that remains stubbornly above target as a justification. In this article we find that the price rises of non-energy industrial goods - particularly those for clothing and footwear - have remained very sticky when compared to the deflation seen in countries like the UK. A lack of competitive forces may be an issue - the impact of China and India on goods prices does not seem to be fully feeding through to consumers. And weak productivity in the distribution sector may have prevented retailers from driving down prices to the same extent as in the UK. Does the current ECB action form the start of a prolonged tightening cycle as seen in the US? Despite worries over asset price and credit growth - and here we argue that the ECB's reliance on monetary aggregates as a signal of impending inflation is misguided - there is a possibility that the ECB has acted at the same time that inflation is finally set to subside. Consequently, we expect a "wait and see" approach to further moves, and unless growth comes in much stronger than the 2.2% we expect in 2006, rates should end the year at around 2½%. [source] The two pillars of the European Central BankECONOMIC POLICY, Issue 40 2004Stefan Gerlach SUMMARY The Pillars of The ECB I interpret the European Central Bank's two-pillar strategy by proposing an empirical model for inflation that distinguishes between the short- and long-run components of inflation. The latter component depends on an exponentially weighted moving average of past monetary growth and the former on the output gap. Estimates for the 1971,2003 period suggest that money can be combined with other indicators to form the ,broadly based assessment of the outlook for future price developments' that constitutes the ECB's second pillar. However, the analysis does not suggest that money should be treated differently from other indicators. While money is a useful policy indicator, all relevant indicators should be assessed in an integrated manner, and a separate pillar focused on monetary aggregates does not appear necessary. ,Stefan Gerlach [source] Structural Changes in Expected Stock Returns Relationships: Evidence from ASEJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 9-10 2006Evangelos Karanikas Abstract:, This paper suggests a recursive application of Fama and MacBeth's (1973) testing procedure to assess the significance of macroeconomic factors and firm-specific effects priced in explaining the cross-sectional variation of expected stock returns over time. The paper applies the suggested testing procedure to investigate the source of risks of the Athens Stock Exchange (ASE). Among the variables examined, it finds out that the changes in the short term interest rates and firm size can explain a significant proportion of the variation of the ASE individual returns. The paper argues that the significance of interest rate changes can be associated with monetary policy changes introduced by the Greek authorities after the mid-nineties. These changes were focused on targeting interest rates, instead of monetary aggregates. [source] How Important Is Money in the Conduct of Monetary Policy?JOURNAL OF MONEY, CREDIT AND BANKING, Issue 8 2008MICHAEL WOODFORD monetarism; two-pillar strategy; cashless economy I consider some of the leading arguments for assigning an important role to tracking the growth of monetary aggregates when making decisions about monetary policy. First, I consider whether ignoring money means returning to the conceptual framework that allowed the high inflation of the 1970s. Second, I consider whether models of inflation determination with no role for money are incomplete, or inconsistent with elementary economic principles. Third, I consider the implications for monetary policy strategy of the empirical evidence for a long-run relationship between money growth and inflation. And fourth, I consider reasons why a monetary policy strategy based solely on short-run inflation forecasts derived from a Phillips curve may not be a reliable way of controlling inflation. I argue that none of these considerations provides a compelling reason to assign a prominent role to monetary aggregates in the conduct of monetary policy. [source] A Comparison of the Statistical Properties of Financial Variables in the USA, UK and Germany over the Business CycleTHE MANCHESTER SCHOOL, Issue 4 2000Elena Andreou This paper presents business cycle stylized facts for the US, UK and German economies. We examine whether financial variables (interest rates, stock market price indices, dividend yields and monetary aggregates) predict economic activity over the business cycle, and we investigate the nature of any non-linearities in these variables. Leading indicator properties are examined using cross-correlations for both the values of the variables and their volatilities. Our results imply that the most reliable leading indicator across the three countries is the interest rate term structure, although other variables also appear to be useful for specific countries. The volatilities of financial variables may also contain predictive information for production growth as well as production volatility. Non-linearities are uncovered for all financial series, especially in terms of autoregressive conditional heteroscedasticity effects. Strong evidence of mean non-linearity is also found for many financial series and this can be associated with business cycle asymmetries in the mean. This is the case for a number of American and British financial variables, especially interest rates, but the corresponding evidence for Germany is confined largely to the real long-term rate of interest. [source] The Stability of Emu-wide Money Demand Functions and the Monetary Policy Strategy of the European Central BankTHE MANCHESTER SCHOOL, Issue 2 2000Annick Bruggeman In this paper we investigate whether monetary aggregates could play a role as either intermediate targets or indicators of the single monetary policy of the European Central Bank (ECB). To this end we estimate money demand functions for the European Economic and Monetary Union and test for their stability. Our estimations suggest that M3H in particular can play a role in both a monetary and an inflation targeting strategy. If the ECB chooses to opt for an inflation targeting strategy MR and even M1, in addition to M3H, may well serve as important indicators, alongside a number of other financial and real variables. [source] | ||||||||||