Home About us Contact
|
Home About us Contact | ||
|
|
||
Monetary Policy (monetary + policy)
Kinds of Monetary Policy Terms modified by Monetary Policy Selected AbstractsOPTIMAL MONETARY POLICY: WHAT WE KNOW AND WHAT WE DON'T KNOW*INTERNATIONAL ECONOMIC REVIEW, Issue 2 2005Narayana R. KocherlakotaArticle first published online: 5 MAY 200 In this article, I examine the current state of knowledge about optimal monetary policy. I distinguish between two literatures, basic and applied. The basic literature is explicit about the frictions that generate a positive value for money and make it socially beneficial. The applied literature is not. I describe the recent lessons about monetary policy that we have learned from each literature and discuss how the two distinct approaches may be usefully combined. [source] MONETARY POLICY AND BEHAVIOURAL FINANCEJOURNAL OF ECONOMIC SURVEYS, Issue 5 2007K. Cuthbertson Abstract There have been major advances in both theory and econometric techniques in mainstream macro-models and parallel advances in knowledge of the monetary transmission mechanism acting via asset prices. At the same time, behavioural finance has provided evidence that not all actors in the economy are ,fully rational' and this has influenced models of asset pricing on which part of the monetary policy transmission mechanism depends. Such uncertainty about the behaviour of asset prices has in part stimulated a move towards ,robustness', as an important criterion for guiding monetary policy. We argue that although we have discovered much, including ,what not to do', nevertheless our knowledge of the transmission mechanism is very incomplete. This is because, in spite of all the theoretical advances that have been made, there is still considerable uncertainty over the behaviour of agents, which has been reinforced by insights from behavioural finance. [source] MONETARY POLICY WITH INVESTMENT,SAVING IMBALANCESMETROECONOMICA, Issue 3 2010Article first published online: 10 NOV 200, Roberto Tamborini ABSTRACT Financial instability is the new challenge for monetary policy. Most studies indicate that financial crises follow prolonged unwinding of investment,saving imbalances (ISI). These phenomena are not contemplated by the standard theoretical framework of continuous intertemporal equilibrium. This paper's aim is to take a first step into the analysis of monetary policy in the context of ISI. First, a dynamic model of a flex-price, competitive economy is presented where ISI are allowed to develop. Second, upon introducing different types of Taylor rules, some indications for the conduct of monetary policy emerge, which are at variance with the standard view. [source] ARE LONG-RUN PRICE STABILITY AND SHORT-RUN OUTPUT STABILIZATION ALL THAT MONETARY POLICY CAN AIM FOR?METROECONOMICA, Issue 2 2007Giuseppe Fontana ABSTRACT A central tenet of the so-called new consensus view in macroeconomics is that there is no long-run trade-off between inflation and unemployment. The main policy implication of this principle is that all monetary policy can aim for is (modest) short-run output stabilization and long-run price stability, i.e. monetary policy is neutral with respect to output and employment in the long run. However, research on the different sources of path dependency in the economy suggests that persistent but nevertheless transitory changes in aggregate demand may have a permanent effect on output and employment. If this is the case, then, the way monetary policy is run does have long-run effects on real variables. This paper provides an overview of this research and explores conceptually how monetary policy should be implemented once these long-run effects are acknowledged. [source] A POST-KEYNESIAN AMENDMENT TO THE NEW CONSENSUS ON MONETARY POLICYMETROECONOMICA, Issue 2 2006Article first published online: 24 APR 200, Marc Lavoie ABSTRACT A common view is now pervasive in policy research at universities and central banks, which one could call the New Keynesian consensus, based on an endogenous money supply. This new consensus reproduces received wisdom: in the long run, expansionary fiscal policy leads to higher inflation rates and real interest rates, while more restrictive monetary policy only leads to lower inflation rates. The paper provides a simple four-quadrant apparatus to represent the above, and it shows that simple modifications to the new consensus model are enough to radically modify received doctrine as to the likely effects of fiscal and monetary policies. [source] MONETARY POLICY IN A SMALL OPEN ECONOMY: THE CASE OF MALAYSIATHE DEVELOPING ECONOMIES, Issue 4 2007So UMEZAKI E42; E58; F41 This paper provides a case study to characterize the monetary policy regime in Malaysia, from a medium- and long-term perspective. Specifically, we ask how the Central Bank of Malaysia, Bank Negara Malaysia (BNM), has structured its monetary policy regime, and how it has conducted monetary and exchange rate policy under the regime. By conducting three empirical analyses, we characterize the monetary and exchange rate policy regime in Malaysia by three intermediate solutions on three vectors: the degree of autonomy in monetary policy, the degree of variability of the exchange rate, and the degree of capital mobility. [source] PRICE-LEVEL DETERMINATION UNDER DISPERSED INFORMATION AND MONETARY POLICY,THE JAPANESE ECONOMIC REVIEW, Issue 3 2006KOSUKE AOKI This paper considers the determination of aggregate price level under dispersed information. A Central Bank sets policy in response to its noisy measure of the price level, and each agent makes its decisions by observing a subset of data. Information revealed to the agents and the bank is determined endogenously. It is shown that the aggregate state of the economy is not revealed perfectly to anybody but this economy behaves as if it is a representative-agent economy in which the representative agent has perfect information while the Bank has partial information. The Bank's information set affects fluctuations in the price level through its effect on policy. [source] MONETARY POLICY DURING JAPAN'S LOST DECADE,THE JAPANESE ECONOMIC REVIEW, Issue 2 2006R. ANTON BRAUN We develop a quantitative costly price adjustment model with capital formation for the Japanese economy. The model respects the zero interest rate bound and is calibrated to reproduce the nominal and real facts from the 1990s. We use the model to investigate the properties of alternative monetary policies during this period. The setting of the long-run nominal interest rate in a Taylor rule is much more important for avoiding the zero bound than the setting of the reaction coefficients. A long-run interest rate target of 2.3% during the 1990s avoids the zero bound and enhances welfare. [source] USE OF THE MONEY SUPPLY IN THE CONDUCT OF JAPAN'S MONETARY POLICY: RE-EXAMINING THE TIME-SERIES EVIDENCE,THE JAPANESE ECONOMIC REVIEW, Issue 2 2005RYUZO MIYAO This paper re-examines whether the money supply (M2 + CDs) can predict future economic activity in Japan, using recent data to the end of 2003. I find that the linkage between M2 and income or prices has largely disappeared since the late 1990s. Evidence suggests that (i) time deposit behaviour is primarily responsible for the breakdown in the M2,income relationship; (ii) bank loans also lost their predictive content in the late 1990s; and (iii) there has been a close link between time deposits and bank loans. Non-performing loans problems and ongoing restructuring may be root causes of these findings. [source] COPING WITH UNCERTAINTY: HISTORICAL AND REAL-TIME ESTIMATES OF THE NATURAL UNEMPLOYMENT RATE AND THE UK MONETARY POLICY*THE MANCHESTER SCHOOL, Issue 4 2009GEORGE CHOULIARAKIS The paper derives and compares historical and real-time estimates of the UK natural unemployment rate and shows that real-time estimates are fraught with noise and should be treated with scepticism. A counterfactual exercise shows that, for most of the 1990s, the Bank of England tracked changes in the natural rate relatively successfully, albeit with some recognition lag which, at times, might have led to excessively cautious policy. A careful scrutiny of the minutes of the monetary policy committee meetings reveals that such ,cautiousness' should be taken as evidence of awareness of the real-time informational limitations that monetary policy is facing. [source] MEASURING MONETARY POLICY IN THE UK: A FACTOR-AUGMENTED VECTOR AUTOREGRESSION MODEL APPROACHTHE MANCHESTER SCHOOL, Issue 2005GIANLUCA LAGANÀ This paper investigates the determinants of UK interest rates using a factor-augmented vector autoregression model (VAR), similar to the one suggested by Bernanke, Boivin and Eliasz (Quarterly Journal of Economics, Vol. 120 (2005), No. 1, pp. 387,422). The method allows impulse response functions to be generated for all the variables in the data set and so is able to provide a more complete description of UK monetary policy than is possible using standard VARs. The results show that the addition of factors to a benchmark VAR generates a more reasonable characterization of the effects of unexpected increases in the interest rate and, in particular, gets rid of a ,price puzzle' response present in the benchmark VAR. The extra information generated by this method, however, also brings to light other identification issues, notably house price and stock market ,puzzles'. Importantly the out-of-sample prediction performance of the factor-augmented VARs is also very good and strongly superior to those of the benchmark VAR and simple autoregression models. [source] Monetary Policies in the Presence of AsymmetriesJCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 4 2000Paul De Grauwe In this article we study the theory of monetary policy when the monetary authority faces asymmetries in the countries constituting the monetary union. We identify two asymmetries (shocks and transmission) in the context of a two-country model. A general finding is that, as the degree of asymmetries increases, the effectiveness of stabilization of output and unemployment is reduced. As a result, when asymmetries increase, the stabilization effort of the central bank declines for given preferences about stabilization. We also find that the central bank can improve the efficiency of its monetary policies when asymmetries in the transmission exist, by using national information in the setting of optimal policies. The declared strategy of the ECB conflicts with this prescription. However, in practice the ECB is likely to follow this prescription. [source] Stabilising Properties of Discretionary Monetary Policies in a Small Open Economy,THE ECONOMIC JOURNAL, Issue 508 2006Alfred V. Guender This article sets out a simple New Keynesian open-economy model and shows that the conduct of discretionary monetary policy in an open economy differs substantially from the closed-economy framework. The article shows analytically that the existence of the direct exchange rate channel in the open economy Phillips Curve impairs the perfect stabilising property of monetary policy in the face of demand-side disturbances under domestic inflation targeting. If CPI inflation is instead the target, then the perfect stabilising property of monetary policy breaks down even in the absence of the direct exchange rate channel in the Phillips Curve. [source] The Gold Battles within the Cold War: American Monetary Policy and the Defense of Europe, 1960,1963DIPLOMATIC HISTORY, Issue 1 2002Francis J. Gavin First page of article [source] The Optimal Degree of Discretion in Monetary PolicyECONOMETRICA, Issue 5 2005Susan Athey How much discretion should the monetary authority have in setting its policy? This question is analyzed in an economy with an agreed-upon social welfare function that depends on the economy's randomly fluctuating state. The monetary authority has private information about that state. Well designed rules trade off society's desire to give the monetary authority discretion to react to its private information against society's need to prevent that authority from giving in to the temptation to stimulate the economy with unexpected inflation, the time inconsistency problem. Although this dynamic mechanism design problem seems complex, its solution is simple: legislate an inflation cap. The optimal degree of monetary policy discretion turns out to shrink as the severity of the time inconsistency problem increases relative to the importance of private information. In an economy with a severe time inconsistency problem and unimportant private information, the optimal degree of discretion is none. [source] What Do Data Say About Monetary Policy, Bank Liquidity and Bank Risk Taking?ECONOMIC NOTES, Issue 2 2007Marcella Lucchetta This paper tests empirically the linkage between banks' investment and interbank lending decisions in response to interest rate changes. We draw conclusions for the monetary policy, which uses the interest rate as its main tool. Across European countries we find that the risk-free (i.e. monetary policy) interest rate negatively affects the liquidity retained by banks and the decision of a bank to be a lender in the interbank market. Instead, the interbank interest rate has a positive impact on these decisions. We also find that banks who lend show less risk-taking behaviour and tend to be smaller than those who are borrowers. Most importantly, the risk-free interest rate is positively correlated with loans investment and bank risk-taking behaviour. [source] Optimal Monetary Policy with Price and Wage RigiditiesECONOMIC NOTES, Issue 1 2006Massimiliano Marzo In this paper, I search for an optimal configuration of parameters for variants of the Taylor rule by using an accurate second-order welfare-based method within a fully microfounded dynamic stochastic model, with price and wage rigidities, without capital accumulation. A version of the model with distortionary taxation is also explicitly tested. The model is solved up to second-order solution. Optimal rules are obtained by maximizing a conditional welfare measure, differently from what has been done in the current literature. Optimal monetary policy functions turn out to be characterized by inflation targeting parameter lower than in empirical studies. In general, the optimal values for monetary policy parameters depend on the degree of nominal rigidities and on the role of fiscal policy. When nominal rigidities are higher, optimal monetary policy becomes more aggressive to inflation. With a tighter fiscal policy, optimal monetary policy turns out to be less aggressive to inflation. Impulse-response functions based on second-order model solution show a non-affine pattern when the economy is hit by shocks of different magnitude. [source] Monetary Policy, Credit and Aggregate Supply: The Evidence from ItalyECONOMIC NOTES, Issue 3 2002Riccardo Fiorentini This paper concerns theory and evidence of the monetary transmission mechanisms. Current research has deeply investigated factors, such as dependence of firms on bank credit, that amplify the impact of monetary policy impulses on aggregate demand exerting strong but temporary effects on output and employment. We present an intertemporal macroeconomic equilibrium model of a competitive economy where current production is financed by bank credit, and then we use it to identify supply,side effects of the credit transmission mechanism in data drawn from the Italian economy. We find evidence that the ,credit variables' identified by the model , the overnight rate as a proxy of monetary policy and a measure of credit risk , have permanent effects on employment and output by altering credit supply conditions to firms. To save on space, mathematical proofs, statistical tests and data sources have been gathered in two separate appendices that can be examined on request. (J.E.L.: E2, E5). [source] Volatility, Stabilization and Union Wage-setting: The Effects of Monetary Policy on the ,Natural' Unemployment RateECONOMIC NOTES, Issue 1 2002Luigi Bonatti In a unionized economy with nominal-wage contracts, the ,natural' (rational-expectations equilibrium) employment level is not invariant with respect to the stabilization rule followed by the monetary authority. This is because alternative monetary policies change the variance of the inflation rate (price level) relatively to the variance of some measure of economic activity (employment level), thereby influencing the trade-off desired by union members between the real wage and the probability of employment. Indeed, a more volatile employment level induces the (risk-neutral) union members to prefer a higher expected real wage. (J.E.L: E5, J5). [source] Measuring the Time Inconsistency of US Monetary PolicyECONOMICA, Issue 297 2008PAOLO SURICO This paper offers an alternative explanation for the great inflation of the 1970s by measuring a novel source of monetary policy time inconsistency. In the presence of asymmetric preferences, the monetary authorities generate a systematic inflation bias through the private-sector expectations of a larger policy response in recessions than in booms. The estimated Fed's implicit target for inflation has declined from the pre- to the post-Volcker regime. The average inflation bias was about 1% before 1979, but this has disappeared over the last two decades, because the preferences on output stabilization were large and asymmetric only in the former period. [source] Modelling Monetary Policy: Inflation Targeting in PracticeECONOMICA, Issue 282 2004Christopher Martin This paper estimates a simple structural model of monetary policy in the UK focusing on the policy of inflation targeting introduced in 1992. We find that: (i) the adoption of inflation targeting led to significant changes in monetary policy; (ii) post-1992 monetary policy is asymmetric as policy-makers respond more to upward deviation of inflation away from the target; (iii) post-1992 policy-makers may be attempting to keep inflation within the 1.4%,2.6% range rather than pursuing a point target of 2.5% and (iv) the response of monetary policy to inflation is nonlinear as interest rates respond more when inflation is further from the target. [source] U.S. Monetary Policy Surprises and Currency Futures Markets: A New LookFINANCIAL REVIEW, Issue 4 2008Tao Wang G14 Abstract Intraday currency futures prices react to both surprises in the federal funds target rate (the target factor) and surprises in the anticipated future direction of Federal Reserve monetary policy (the path factor) in similar magnitude, and the reaction is short-lived. Dollar-denominated currency futures prices drop significantly in response to positive surprises (i.e., unexpected increases) in the target and path factors, but have generally little response to negative surprises. A monetary policy tightening during expansionary periods leads to an appreciation of the domestic currency, while a monetary policy loosening during recessionary periods tends to have no significant impact. [source] Using Taylor Rules to Understand European Central Bank Monetary PolicyGERMAN ECONOMIC REVIEW, Issue 3 2007Stephan Sauer Taylor rule; European Central Bank; real-time data Abstract. Over the last decade, the simple instrument policy rule developed by Taylor has become a popular tool for evaluating the monetary policy of central banks. As an extensive empirical analysis of the European Central Bank's (ECB) past behaviour still seems to be in its infancy, we estimate several instrument policy reaction functions for the ECB to shed some light on actual monetary policy in the euro area under the presidency of Wim Duisenberg and answer questions like whether the ECB has actually followed a stabilizing or a destabilizing rule so far. Looking at contemporaneous Taylor rules, the evidence presented suggests that the ECB is accommodating changes in inflation and hence follows a destabilizing policy. However, this impression seems to be largely due to the lack of a forward-looking perspective in such specifications. Either assuming rational expectations and using a forward-looking specification, or using expectations as derived from surveys result in Taylor rules that do imply a stabilizing role of the ECB. The use of real-time industrial production data does not seem to play such a significant role as in the case of the United States. [source] Firm Size, Industry Mix and the Regional Transmission of Monetary Policy in GermanyGERMAN ECONOMIC REVIEW, Issue 1 2004Ivo J. M. Arnold Monetary transmission; regional effects; industry effects; firm size Abstract. This paper estimates the impact of interest rate shocks on regional output in Germany over the period from 1970 to 2000. We use a vector autoregression (VAR) model to obtain impulse responses, which reveal differences in the output responses to monetary policy shocks across ten German provinces. Next, we investigate whether these differences can be related to structural features of the regional economies, such as industry mix, firm size, bank size and openness. An additional analysis of the volatility of real GDP growth for the period 1992,2000 includes the Eastern provinces. We also present evidence on the interrelationship between firm size and industry, and compare our measure of firm size with those used in previous studies. We conclude that the differential regional effects of monetary policy are related to industrial composition, but not to firm size or bank size. [source] Measuring Monetary Policy in Germany: A Structural Vector Error Correction ApproachGERMAN ECONOMIC REVIEW, Issue 3 2003Imke Brüggemann Monetary policy; cointegration; structural VAR analysis Abstract. A structural vector error correction (SVEC) model is used to investigate several monetary policy issues. While being data-oriented the SVEC framework allows structural modeling of the short-run and long-run properties of the data. The statistical model is estimated with monthly German data for 1975,98 where a structural break is detected in 1984. After splitting the sample, three stable long-run relations are found in each subsample which can be interpreted in terms of a money-demand equation, a policy rule and a relation for real output, respectively. Since the cointegration restrictions imply a particular shape of the long-run covariance matrix this information can be used to distinguish between permanent and transitory innovations in the estimated system. Additional restrictions are introduced to identify a monetary policy shock. [source] Monetary Policy, Agency Costs and Output DynamicsGERMAN ECONOMIC REVIEW, Issue 3 2003Ludger 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] Monetary Policy and Forecasts for Real GDP Growth: An Empirical Investigation for the Federal Republic of GermanyGERMAN ECONOMIC REVIEW, Issue 4 2001Gebhardt Kirschgässner Using quarterly data for the Federal Republic of Germany, we generate four-quarter-ahead forecasts for real GDP growth. Throughout the 1970s and 1980s, other monetary indicators like real M1 or short-run interest rates clearly outperform forecasts which are based on interest rate spreads. This holds for within as well as for ex-post predictions. The same holds for the development after 1992. Moreover, it is shown that simple forecasts based on M1 or on short-run interest rates outperform the common biannual GNP forecasts of the group of German economic research institutes. [source] News Management in Monetary Policy: When Central Banks Should Talk to the GovernmentGERMAN ECONOMIC REVIEW, Issue 4 2000Helge Berger Central banks are often considered to be better informed about the present or future state of the economy than the government. A conservative central bank has an incentive to exploit this asymmetry by strategically managing its information policy. Strategic news management will keep the government uncertain about the state of the economy and increase the central bank's leeway for conducting a conservative monetary policy. We show that withholding information from the government is an equilibrium. However, there are also well-defined limits to strategic information policy as the central bank has to distort monetary policy to be in line with its news management. A simple extension of our findings is that, if the government on occasion learns about the bank's true information, it will then overrule the central bank's decision on monetary policy. [source] Transparency and Credibility: Monetary Policy With Unobservable GoalsINTERNATIONAL ECONOMIC REVIEW, Issue 2 2001Jon Faust We define and study transparency, credibility, and reputation in a model where the central bank's characteristics are unobservable to the private sector and inferred from the policy outcome. Increased transparency makes the bank's reputation and credibility more sensitive to its actions. This moderates the bank's policy and induces the bank to follow a policy closer to the socially optimal one. Full transparency of the central bank's intentions is generally socially beneficial but frequently worse for the bank. Somewhat paradoxically, direct observability of idiosyncratic central bank goals removes the moderating influence on the bank and leads to the worst equilibrium. [source] Interdependencies between Monetary Policy and Foreign Exchange Interventions under Inflation Targeting: The Case of Brazil and the Czech RepublicINTERNATIONAL FINANCE, Issue 2 2010Jean-Yves Gnabo Inflation-targeting central banks often explicitly reserve the right to intervene in foreign exchange markets when the exchange rate ,deviates from fundamentals' and/or ,displays excessive volatility'. In the case of emerging markets, central banks can often ill afford to neglect exchange rate developments when setting monetary policy because of a high pass-through of nominal exchange rate changes to domestic prices. As a result, interventions and monetary policy are interrelated, a hypothesis that has been overlooked in the literature. To bridge this gap, this paper includes monetary policy indicators in the estimation of intervention reaction functions for Brazil and the Czech Republic since the adoption of inflation targeting. Our main finding is that interventions take place independently of the contemporaneous monetary policy setting in Brazil, but not in the Czech Republic, where both policies appear to be coordinated. [source] | ||||||||||||||||||||||||||||