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Policy Shocks (policy + shock)
Kinds of Policy Shocks Selected AbstractsA POST-KEYNESIAN STOCK-FLOW CONSISTENT MODEL FOR DYNAMIC ANALYSIS OF MONETARY POLICY SHOCK ON BANKING BEHAVIOURMETROECONOMICA, Issue 3 2008Edwin Le Heron ABSTRACT We try to make Keynes' approach compatible with an endogenous theory of the money supply. For that purpose, the principle of liquidity preference is generalized within a competitive banking framework. Private banks can impose a monetary rationing independently of the central bank. Then, we analyse the consequences of a monetary policy shock on the financial behaviour of banks. We clarify the dynamic process between the monetary policy and net investment within a Minskyan approach. First, we build a Post-Keynesian stock-flow consistent model with a private-bank sector introducing more realistic features. Second, we perform some simulations. [source] AN ANALYSIS OF MONETARY POLICY SHOCKS IN JAPAN: A FACTOR AUGMENTED VECTOR AUTOREGRESSIVE APPROACH,THE JAPANESE ECONOMIC REVIEW, Issue 4 2007MASAHIKO SHIBAMOTO This paper analyses monetary policy shocks in Japan using a factor augmented vector autoregressive approach. There are three main findings. First, the time lags with which the monetary policy shocks are transmitted vary between the various macroeconomic time series. These include several series that have not been included thus far in standard vector autoregressive analysis, including housing starts and employment indices. Second, a coherent picture of monetary policy effects on the economy is obtained. Third, it is found that monetary policy shocks have a stronger impact on real variables, such as employment and housing starts, than industrial production. [source] Measuring Monetary Policy Shocks in a Small Open EconomyECONOMIC NOTES, Issue 1 2001Giuseppe De Arcangelis This paper presents different specifications of a structural VAR model which are useful to identify monetary policy shocks and their macroeconomic effects for the Italian economy in the 1990s. The analysis is based on a detailed institutional description of the functioning of the domestic market for bank reserves. In this setting, we try to establish if monetary policy shocks are better identified using exchange rates or foreign exchange reserves as a conditioning variable for the small open economy framework. Our analysis confirms the view that the Bank of Italy has been targeting the rate on overnight interbank loans in the 1990s. This is coherent with either proposed modelling choices. Therefore, we interpret shocks to the overnight rate as purely exogenous monetary policy shocks and study how they impact the economy. (J.E.L.: E52, F41, F47). [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] A POST-KEYNESIAN STOCK-FLOW CONSISTENT MODEL FOR DYNAMIC ANALYSIS OF MONETARY POLICY SHOCK ON BANKING BEHAVIOURMETROECONOMICA, Issue 3 2008Edwin Le Heron ABSTRACT We try to make Keynes' approach compatible with an endogenous theory of the money supply. For that purpose, the principle of liquidity preference is generalized within a competitive banking framework. Private banks can impose a monetary rationing independently of the central bank. Then, we analyse the consequences of a monetary policy shock on the financial behaviour of banks. We clarify the dynamic process between the monetary policy and net investment within a Minskyan approach. First, we build a Post-Keynesian stock-flow consistent model with a private-bank sector introducing more realistic features. Second, we perform some simulations. [source] DOES THE DEVELOPMENT OF NON-CASH PAYMENTS AFFECT BANK LENDING?THE MANCHESTER SCHOOL, Issue 5 2010SANTIAGO CARBÓ VALVERDE Previous studies show that the impact of an exogenous monetary policy shock on bank lending is different across bank sizes and across various levels of capitalization and liquidity. However, there is little evidence on the impact of other exogenous influences such as the shift from cash to non-cash payment instruments on bank lending. In this paper we explore the effects of the increasing use of non-cash payment instruments on bank lending in Spain during 1992,2000. The results show that banks appear to have taken advantage of the non-cash instruments to adjust their loan supply when interest rates increase. [source] Measuring Monetary Policy Shocks in a Small Open EconomyECONOMIC NOTES, Issue 1 2001Giuseppe De Arcangelis This paper presents different specifications of a structural VAR model which are useful to identify monetary policy shocks and their macroeconomic effects for the Italian economy in the 1990s. The analysis is based on a detailed institutional description of the functioning of the domestic market for bank reserves. In this setting, we try to establish if monetary policy shocks are better identified using exchange rates or foreign exchange reserves as a conditioning variable for the small open economy framework. Our analysis confirms the view that the Bank of Italy has been targeting the rate on overnight interbank loans in the 1990s. This is coherent with either proposed modelling choices. Therefore, we interpret shocks to the overnight rate as purely exogenous monetary policy shocks and study how they impact the economy. (J.E.L.: E52, F41, F47). [source] Twin deficits: squaring theory, evidence and common senseECONOMIC POLICY, Issue 48 2006Giancarlo Corsetti SUMMARY Budget deficits and current accounts OPENNESS AND FISCAL PERSISTENCE Simple accounting suggests that shocks to the government budget move the current account in the same direction, and this ,twin deficits' intuition leads many observers to call for fiscal consolidation in the US as a necessary measure to reduce the large external imbalance of this country. The response of other macroeconomic variables to budget developments, however, has important implications for ,twin deficits' and for this policy prescription. Focusing on the international transmission of fiscal policy shocks via terms of trade changes, we show that the likelihood and magnitude of twin deficits increases with the degree of openness of an economy, and decreases with the persistence of fiscal shocks. We take this insight to the data and investigate the transmission of fiscal shocks in a vector autoregression (VAR) model estimated for Australia, Canada, the UK and the US. We find that in less open countries the external impact of shocks to either government spending or budget deficits is limited, while private investment responds in line with our theoretical prediction. These results suggest that a fiscal retrenchment in the US may have a limited impact on its current external deficit. , Giancarlo Corsetti and Gernot J. Müller [source] Trade spill-overs of fiscal policy in the European Union: a panel analysisECONOMIC POLICY, Issue 48 2006Roel Beetsma SUMMARY Spill-overs in the EU We explore international spill-overs from fiscal policy shocks via trade in Europe. To assess and quantify the channels through which a fiscal expansion stimulates domestic activity, foreign exports, and foreign output, we estimate a dynamic empirical model of government spending, net taxes, and output, and combine its estimates with a panel model of trade linkages across European countries. The baseline estimates of both models are quite robust and statistically significant. Our results indicate that trade spill-overs of fiscal shocks should be taken into account when assessing the character and intensity of economic integration in the European Union. , Roel Beetsma, Massimo Giuliodori and Franc Klaassen [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] European monetary policy surprises: the aggregate and sectoral stock market responseINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2009Don Bredin Abstract In this paper we investigate the stock market response to international monetary policy changes in the UK and Germany. Specifically, we analyse the impact of (un)expected changes in the UK and German/Euro area policy rates on the UK and German aggregate and sectoral equity returns in an event study. The decomposition of (un)expected changes in policy rates is based on futures markets. Overall, our results suggest that, the UK monetary policy surprises have a significant negative influence on both aggregate and industry level returns in both countries. The influence of German/Euro area monetary policy shocks appears insignificant for both Germany and the UK. Copyright © 2007 John Wiley & Sons, Ltd. [source] New Keynesian Macroeconomics and the Term StructureJOURNAL OF MONEY, CREDIT AND BANKING, Issue 1 2010GEERT BEKAERT monetary policy; inflation target; term structure of interest rates; Phillips curve This article complements the structural New Keynesian macro framework with a no-arbitrage affine term structure model. Whereas our methodology is general, we focus on an extended macro model with unobservable processes for the inflation target and the natural rate of output that are filtered from macro and term structure data. We find that term structure information helps generate large and significant parameters governing the monetary policy transmission mechanism. Our model also delivers strong contemporaneous responses of the entire term structure to various macroeconomic shocks. The inflation target shock dominates the variation in the "level factor" whereas monetary policy shocks dominate the variation in the "slope and curvature factors." [source] Monetary and Fiscal Policy SwitchingJOURNAL OF MONEY, CREDIT AND BANKING, Issue 4 2007HESS CHUNG regime change; policy interactions; Taylor rule; fiscal theory of the price level A growing body of evidence finds that policy reaction functions vary substantially over different periods in the United States. This paper explores how moving to an environment in which monetary and fiscal regimes evolve according to a Markov process can change the impacts of policy shocks. In one regime monetary policy follows the Taylor principle and taxes rise strongly with debt; in another regime the Taylor principle fails to hold and taxes are exogenous. An example shows that a unique bounded non-Ricardian equilibrium exists in this environment. A computational model illustrates that because agents' decision rules embed the probability that policies will change in the future, monetary and tax shocks always produce wealth effects. When it is possible that fiscal policy will be unresponsive to debt at times, active monetary policy (like a Taylor rule) in one regime is not sufficient to insulate the economy against tax shocks in that regime and it can have the unintended consequence of amplifying and propagating the aggregate demand effects of tax shocks. The paper also considers the implications of policy switching for two empirical issues. [source] Leaning into the Wind: A Structural VAR Investigation of UK Monetary Policy,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 5 2005Andrew Mountford Abstract This paper adapts Uhlig's [Journal of Monetary Economics (2005) forthcoming] sign restriction identification methodology to investigate the effects of UK monetary policy using a structural vector autoregression (VAR). It shows that shocks which can reasonably be described as monetary policy shocks have played only a small role in the total variation of UK monetary and macroeconomic variables. Most of the variation in UK monetary variables has been due to their systematic reaction to other macroeconomic shocks, namely non-monetary aggregate demand, aggregate supply, and oil price shocks. We also find, without imposing any long run identifying restrictions, that aggregate supply shocks have permanent effects on output. [source] Real Effects of Monetary Policy in New ZealandTHE AUSTRALIAN ECONOMIC REVIEW, Issue 4 2007Shahnawaz Karim This article analyses the dynamic effects of unexpected domestic and foreign monetary policy shocks on industrial output in New Zealand based on a new open economy macroeconomic model. Empirical analyses are performed using unrestricted recursive open economy vector autoregressive models involving policy and non-policy variables for New Zealand and four of its most important trading partners (that is, Australia, Japan, the United Kingdom and the United States). The empirical findings are in accord with the qualitative predictions of the conventional monetary transmission mechanism applicable to a small open economy. Consequently, no empirical anomalies are observed in the dynamic behaviour of New Zealand industrial output in response to restrictive monetary innovations of domestic and foreign origin. [source] AN ANALYSIS OF MONETARY POLICY SHOCKS IN JAPAN: A FACTOR AUGMENTED VECTOR AUTOREGRESSIVE APPROACH,THE JAPANESE ECONOMIC REVIEW, Issue 4 2007MASAHIKO SHIBAMOTO This paper analyses monetary policy shocks in Japan using a factor augmented vector autoregressive approach. There are three main findings. First, the time lags with which the monetary policy shocks are transmitted vary between the various macroeconomic time series. These include several series that have not been included thus far in standard vector autoregressive analysis, including housing starts and employment indices. Second, a coherent picture of monetary policy effects on the economy is obtained. Third, it is found that monetary policy shocks have a stronger impact on real variables, such as employment and housing starts, than industrial production. [source] Financial Liberalization And The Sensitivity Of House Prices To Monetary Policy: Theory And EvidenceTHE MANCHESTER SCHOOL, Issue 1 2003Matteo Iacoviello We analyse the impact of financial liberalization on the link between monetary policy and house prices. We present a simple model of a small open economy subjectto credit constraints. The model shows that the higher the degree of financial liberalizationis, the stronger is the impact of interest rate shocks on house prices. We then usevector autoregressions to study the role of monetary policy shocks in house price fluctuations in Finland, Sweden and the UK, characterized by financial liberalizationepisodes over the last 20 years. We find that the response of house prices to interestrate surprises is bigger and more persistent in periods characterized by more liberalized financial markets. [source] Sectoral Effects of Monetary Policy: Evidence from MalaysiaASIAN ECONOMIC JOURNAL, Issue 1 2005Mansor H. Ibrahim E40; E52 The present paper analyzes the effects of monetary policy shocks on aggregate and eight sectoral outputs for Malaysia using vector autoregressive models. In line with many existing studies on Malaysia, the results are supportive of the real effects of monetary policy shocks. More importantly, we find evidence suggesting sector-specific responses to innovations in monetary policy. In response to positive interest rate shocks, we note that the manufacturing, construction, finance, insurance, real estate and business services sectors seem to decline more than aggregate production. By contrast, we observe the relative insensitivities of agriculture, forestry and fishing, mining and quarrying, electricity, gas and water to interest rate changes. The results, therefore, seem to confirm potential disparities in the effect of monetary policy on real sectoral activities. [source] Real and nominal effects of monetary policy shocksCANADIAN JOURNAL OF ECONOMICS, Issue 2 2007Rokon Bhuiyan Abstract., We employ the identification scheme of Kahn, Kandel and Sarig (2002) to analyse the impact of Canadian monetary policy on ex ante real interest rates and inflationary expectations. First, we decompose nominal interest rates into ex ante real rates and inflationary expectations using the methodology of Blanchard and Quah (1989). Then we estimate a recursive VAR model with innovations in a monetary aggregate and the overnight target interest rate as alternative measures of monetary policy shocks. We find that a negative policy shock raises both nominal and ex ante real interest rates, lowers inflationary expectations and real industrial output, and appreciates the Canadian dollar. Les auteurs utilisent le schème d'identification de Kahn, Kandel et Sarif (2002) pour analyser les impacts de la politique monétaire canadienne sur les taux d'intérêt réels ex ante et sur les anticipations d'inflation. D'abord, ils décomposent les taux d'intérêt nominaux entre taux d'intérêt réel ex ante et anticipation d'inflation en utilisant la méthodologie de Blanchard et Quah (1989). Ensuite, ils calibrent un modèle VAR récursif avec des innovations dans l'agrégat monétaire et le taux directeur en tant que mesures alternatives des chocs dans la politique monétaire. On découvre qu'un choc monétaire négatif tend à accroître et le taux d'intérêt nominal et le taux réel ex ante, à réduire les anticipations d'inflation et le produit industriel réel, et à faire s'apprécier le dollar. [source] Forecast-Based Monetary Policy: The Case of SwedenINTERNATIONAL FINANCE, Issue 3 2003Per Jansson Central banks are dominant players in financial markets and economic policy. For both democratic and efficiency reasons, it is important that central banks' actions can be understood, predicted, and evaluated. Inflation-targeting central banks that publish their forecasts provide unique opportunities for detailed studies of monetary policy based on real-time data. This paper demonstrates how a central bank's forecasts can be used to identify two different forms of discretionary monetary policy: ,policy shocks' (deviations from systematic policy) and ,judgements' in forecasting. [source] | ||||||||||