Selected Reference and Reading Materials compiled by Dan Villanueva


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Record ID

227     [ Page 16 of 23, No. 1 ]

Date

2012-05

Author

Richard P.C. Brown and Fabrizio Carmignani

Affiliation

School of Economics, The University of Queensland

Title

Revisiting the effects of remittances on bank credit: a macro perspective

Summary /
Abstract

We investigate the effect of remittances on bank credit in developing countries. Understanding this link is important in view of the growing relevance of remittances as a source of external finance and of the beneficial impact that financial intermediation is likely to have on economic growth. Using a simple theoretical formalization, we predict the relationship to be U-shaped. We test this prediction using panel data for a large group of developing and emerging economies over the period 1960-2009. The empirical results suggest that at initially low levels of remittances, an increase in remittances reduces the volume of credit extended by banks. However, at sufficiently high levels of remittances, the effect becomes positive. The turning point of the relationship occurs at a level of remittances of about 2.5% of GDP.

Keywords

Bank credit, remittances, panel data, financial development

URL

http://d.repec.org/n?u=RePEc:qld:uq2004:461&r=cba



Record ID

226     [ Page 16 of 23, No. 2 ]

Date

2012-04

Author

Luis Fernando Melo and Rubén Albeiro Loaiza Maya

Affiliation

Bank of the Republic of Colombia

Title

Bayesian Forecast Combination for Inflation Using Rolling Windows: An Emerging Country Case

Summary /
Abstract

Typically, when forecasting inflation rates, there are a variety of individual models and a combination of several of these models. We implement a Bayesian shrinkage combination methodology to include information that is not captured by the individual models using expert forecasts as prior information. To take into account two common characteristics in emerging countries’ economies, possible parameter instabilities and non-stationary dynamics, we use a rolling estimation windows technique for series integrated of order one. The empirical results of Colombian inflation show that the Bayesian forecast combination model outperforms the individual models and the random walk predictions for every evaluated forecast horizon. Moreover, these results outperform shrinkage forecasts that consider other priors as equal or zero weights.

Keywords

Forecast combination, shrinkage, expert forecasts, rolling window estimation, inflation forecasts.

URL

http://d.repec.org/n?u=RePEc:col:000094:009511&r=cba



Record ID

225     [ Page 16 of 23, No. 3 ]

Date

2012-05

Author

Opoku-Afari, Maxwell and Dixit, Shiv

Affiliation

African Department, IMF

Title

Tracking Short-Term Dynamics of Economic Activity in Low-Income Countries in the Absence of High-Frequency GDP Data

Summary /
Abstract

This paper uses a set of routinely collected high-frequency data in low-income countries (LICs) to construct an aggregate and a comprehensive index of economic activity which could serve (i) as a measure of the direction of economic activity; and (ii) as a useful input in analyzing contemporaneous real sector performance in LICs in the absence of high-frequency, and often outdated, GDP data. It could also serve as a useful tool for policymakers to gauge short-term dynamics of economic activity and shape appropriate and timely policy responses.

Keywords

Short-Term Dynamics, Economic Activity, GDP

URL

http://www.imf.org/external/pubs/ft/wp/2012/wp12119.pdf



Record ID

224     [ Page 16 of 23, No. 4 ]

Date

2012-04

Author

Caglayan, Mustafa; Jehan, Zainab; and Mouratidis, Kostas

Affiliation

University of Sheffield

Title

Asymmetric monetary policy rules for open economies: Evidence from four countries

Summary /
Abstract

This study presents an analytical framework to examine the policy reaction function of a central bank in an open economy context while allowing for asymmetric preferences. The paper then empirically examines the policy rule obtained from this framework using quarterly data for the US, Canada, Japan, and the UK. The results, based on GMM approach, provide evidence that domestic policy is affected by changes in the foreign interest rate and exchange rate. We also provide evidence of the presence of asymmetries in response to the inflation rate and output gap for all the sample countries.

Keywords

Monetary policy rule; asymmetric preferences; open economy

URL

http://mpra.ub.uni-muenchen.de/37401/1/MPRA_paper_37401.pdf



Record ID

223     [ Page 16 of 23, No. 5 ]

Date

2012-02

Author

In Choi and Seong Jin Hwang

Affiliation

Department of Economics, Sogang University, Seoul

Title

Forecasting Korean inflation

Summary /
Abstract

This paper studies the performance of various forecasting models for Ko- rean inflation rates. The models studied in this paper are the AR(p) model, the dynamic predictive regression model with such exogenous variables as the unemployment rate and the term spread, the inflation target model, the random walk model, and the dynamic predictive regression model using estimated factors along with the unemployment rate and the term spread. The sampling period studied in this paper is 2000M11-2011M06. Among the studied models, the dynamic predictive regression model using estimated factors along with the unemployment rate and the term spread tends to perform best at the 6-month horizon when the factors are extracted from I(0) series and the variables for the factor extraction are selected by the criterion of the correlation of each variable with the inflation rate. The dynamic predictive regression models with the unemployment rate and the term spread also work well at shorter horizons.

Keywords

Inflation forecasting, Phillips curve, term spread, factor model, principal-component estimation, generalized principal-component estimation

URL

http://d.repec.org/n?u=RePEc:sgo:wpaper:1202&r=mon



Record ID

222     [ Page 16 of 23, No. 6 ]

Date

2012-04

Author

Chen, Jiaqian and Imam, Patrick A.

Affiliation

Money and Capital Markets Department, IMF

Title

Consequences of Asset Shortages in Emerging Markets

Summary /
Abstract

We assess econometrically the impact of asset shortages on economic growth, asset bubbles, the probability of a crisis, and the current account for a group of 41 Emerging markets for 1995-2008. The econometric estimations confirm that asset shortages pose a serious danger to EMs in terms of reducing economic growth, raising the probability of a crisis, and leading to asset price bubbles. Moreover, asset shortages can also explain the current account positions of EMs. The findings suggest that the consequences of asset shortages for macroeconomic stability are significant, and must be tackled urgently. We conclude with policy implications.

Keywords

Asset Shortage, Emerging Market, Crisis, Current Account, Asset Bubble

URL

http://www.imf.org/external/pubs/ft/wp/2012/wp12102.pdf



Record ID

221     [ Page 16 of 23, No. 7 ]

Date

2011-09

Author

Jurgen von Hagen and Haiping Zhang

Affiliation

University of Bonn, Indiana University and CEPR, and School of Economics, Singapore Management University

Title

International Capital Flows with Limited Commitment and Incomplete Markets

Summary /
Abstract

Recent literature has proposed two alternative types of financial frictions, i.e., limited commitment and incomplete markets, to explain the patterns of international capital flows between developed and developing countries observed in the past two decades. This paper integrates both types of frictions into a two-country overlapping-generations framework to facilitate a direct comparison of their effects. In our model, limited commitment distorts the investment made by agents with different productivity, which creates a wedge between the interest rates on equity capital vs. credit capital; while incomplete markets distort the investment among projects with different riskiness, which creates a wedge between the risk-free rate and the mean rate of return to risky capital. We show that the two approaches are observationally equivalent with respect to their implications for international capital flows, production efficiency, and aggregate output.

Keywords

Financial development, financial frictions, foreign direct investment, incomplete markets, limited commitment, international capital flows

URL

http://d.repec.org/n?u=RePEc:siu:wpaper:10-2012&r=cba



Record ID

220     [ Page 16 of 23, No. 8 ]

Date

2012-02

Author

Frédérique Bec and Songlin Zeng

Affiliation

THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise

Title

Are Southeast Asian Real Exchange Rates Mean Reverting?

Summary /
Abstract

Since the late nineties, both theoretical and empirical analysis devoted to the real exchange rate suggest that their dynamics might be well approximated by nonlinear models. This paper examines this possibility for post-1970 monthly ASEAN-5 data, extending the existing research in two directions. First, we use recently developed unit root tests which allow for more flexible nonlinear stationary models under the alternative than the commonly used Self-Exciting Threshold or Exponantial Smooth Transition AutoRegressions. Second, while different nonlinear models survive the mis-specification tests, a Monte Carlo experiment from generalized impulse response functions is used to compare their relative relevance. Our results i) support the nonlinear mean-reverting hypothesis, and hence the Purchasing Power Parity, in most of the ASEAN-5 countries and ii) point to the Multiple Regime-Logistic Smooth Transition and the Exponantial Smooth Transition AutoRegression models as the most likely data generating processes of these real exchange rates.

Keywords

Purchasing Power Parity; Nonlinear ThresholdModels; Southeast Asian Real Exchange Rates

URL

http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00685812&r=cba



Record ID

219     [ Page 16 of 23, No. 9 ]

Date

2012-04

Author

Glocker, Ch. and Towbin P.

Affiliation

Austrian Institute of Economic Research and Banque de France

Title

The Macroeconomic Effects of Reserve Requirements

Summary /
Abstract

Monetary authorities in emerging markets are often reluctant to raise interest rates when dealing with credit booms driven by capital inflows, as they fear that an increase attracts even more capital and appreciates the currency. A number of countries therefore use reserve requirements as an additional policy instrument. The present study provides evidence on their macroeconomic effects. We estimate a vector autoregressive (VAR) model for the Brazilian economy and identify interest rate and reserve requirement shocks. For both instruments a discretionary tightening leads to a decline in domestic credit. We find, however, very different effects for other macroeconomic aggregates. In contrast to interest rate policy, a positive reserve requirement shock leads to an exchange rate depreciation and an improvement in the current account, but also to an increase in prices. The results suggest that reserve requirement policy can complement interest rate policy in pursuing a financial stability objective, but cannot be its substitute with regards to a price stability objective.






Keywords

Reserve Requirements, Capital flows, Monetary Policy, Business Cycle

URL

http://d.repec.org/n?u=RePEc:bfr:banfra:374&r=cba



Record ID

218     [ Page 16 of 23, No. 10 ]

Date

2012-03

Author

Goodhart, Ch. A. E., Kashyap, A. K., Tsomocos, D. P., and Vardoulakis, A. P.

Affiliation

London School of Economics, Federal Reserve Bank of Chicago, Oxford University, and Banque de France

Title

Financial Regulation in General Equilibrium

Summary /
Abstract

This paper explores how different types of financial regulation could combat many of the phenomena that were observed in the financial crisis of 2007 to 2009. The primary contribution is the introduction of a model that includes both a banking system and a “shadow banking system” that each help households finance their expenditures. Households sometimes choose to default on their loans, and when they do this triggers forced selling by the shadow banks. Because the forced selling comes when net worth of potential buyers is low, the ensuing price dynamics can be described as a fire sale. The proposed framework can assess five different policy options that officials have advocated for combating defaults, credit crunches and fire sales, namely: limits on loan to value ratios, capital requirements for banks, liquidity coverage ratios for banks, dynamic loan loss provisioning for banks, and margin requirements on repurchase agreements used by shadow banks. The paper aims to develop some general intuition about the interactions between the tools and to determine whether they act as complements and substitutes.

Keywords

Price setting, changeover, euro, inflation

URL

http://d.repec.org/n?u=RePEc:bfr:banfra:372&r=cba



Record ID

217     [ Page 16 of 23, No. 11 ]

Date

2012-02

Author

Günes Kamber and Christoph Thoenissen

Affiliation

Reserve Bank of New Zealand

Title

The financial accelerator and monetary policy rules

Summary /
Abstract

The ability of financial frictions to amplify the output response of monetary policy, as in the financial accelerator model of Bernanke et al (1999), is analysed for a wider class of policy rules where the policy interest rate responds to both inflation and the output gap. When policy makers respond to the output gap as well as inflation, the standard financial accelerator model reacts less to an interest rate shock than does a comparable model without an operational financial accelerator mechanism. In recessions, when firm-specific volatility rises, financial acceleration due to financial frictions is further reduced, even under pure inflation targeting.

Keywords

Financial accelerator, Inflation targeting

URL

http://d.repec.org/n?u=RePEc:nzb:nzbdps:2012/01&r=cba



Record ID

216     [ Page 16 of 23, No. 12 ]

Date

2012-01

Author

Robert G. King and Mark W. Watson

Affiliation

Boston University and Princeton University)

Title

Inflation and Unit Labor Cost

Summary /
Abstract

We study two decompositions of inflation, , motivated by a New Keynesian Pricing Equation. The first uses four components: lagged , expected future , real unit labor cost ( ), and a residual. The second uses two components: fundamental inflation (discounted expected future ) and a residual. We find large low-frequency differences between actual and fundamental inflation. From 1999-2011 fundamental inflation fell by more than 15 percentage points, while actual inflation changed little. We discuss this discrepancy in terms of the data (a large drop in labor's share of income) and through the lens of a canonical structural model (Smets-Wouters (2007)).

Keywords

Inflation targeting, inflation forecasts, inflation forecasts targeting, inflation expectations, labor cost, DSGE models

URL

http://d.repec.org/n?u=RePEc:bos:wpaper:wp2012-005&r=cba



Record ID

215     [ Page 16 of 23, No. 13 ]

Date

2012-02

Author

Adam, Klaus and Woodford, Michael

Affiliation

Center for Economic Policy Research

Title

Robustly Optimal Monetary Policy in a Microfounded New Keynesian Model

Summary /
Abstract

We consider optimal monetary stabilization policy in a New Keynesian model with explicit microfoundations, when the central bank recognizes that private-sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs close enough to model-consistency. We show how to characterize robustly optimal policy without restricting consideration a priori to a particular parametric family of candidate policy rules. We show that robustly optimal policy can be implemented through commitment to a target criterion involving only the paths of inflation and a suitably defined output gap, but that a concern for robustness requires greater resistance to surprise increases in inflation than would be considered optimal if one could count on the private sector to have 'rational expectations'.

Keywords

Belief distortions; near-rational expectations; robust control; target criterion

URL

http://d.repec.org/n?u=RePEc:cpr:ceprdp:8826&r=mon

Remarks

This paper is available for purchase at http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=8826.asp



Record ID

214     [ Page 16 of 23, No. 14 ]

Date

2012-02

Author

Svensson, Lars E O

Affiliation

Deputy Governor, Sveriges Riksbank

Title

Central-banking challenges for the Riksbank: Monetary policy, financial-stability policy and asset management

Summary /
Abstract

The Riksbank faces challenges with regard to each of its three core functions, conducting monetary policy with the objective of stabilising inflation around the inflation target and resource utilisation around a sustainable level, promoting a safe and efficient payment system and thereby conducting a policy for financial stability, and managing its financial assets to attain a good risk-adjusted rate of return without prejudice to the first two core functions. I conclude that the challenges are best met by focusing monetary policy exclusively on stabilising inflation around the inflation target and resource utilisation around a sustainable level and not treating the policy rate, housing prices or household debt as separate explicit or implicit target variables, by not confusing monetary policy with financial-stability policy but treating them as separate policies, and by eliminating the large unnecessary currency risk in the Riksbank’s balance sheet.

Keywords

Central bank asset management; macroprudential policy; monetary policy

URL

http://d.repec.org/n?u=RePEc:cpr:ceprdp:8789&r=mon



Record ID

213     [ Page 16 of 23, No. 15 ]

Date

2012-02

Author

Kurmas Akdogan, Selen Baser, Meltem Gulenay Chadwick, Dilara Ertug, Timur Hulagu, Sevim Kosem, and Fethi Ogunc M. Utku Ozmen, Necati Tekatli

Affiliation

Central Bank of Turkey

Title

Short-Term Inflation Forecasting Models For Turkey and a Forecast Combination Analysis

Summary /
Abstract

In this paper, we produce short term forecasts for the inflation in Turkey, using a large number of econometric models. In particular, we employ univariate models, decomposition based approaches (both in frequency and time domain), a Phillips curve motivated time varying parameter model, a suite of VAR and Bayesian VAR models and dynamic factor models. Our findings suggest that the models which incorporate more economic information outperform the benchmark random walk, and the relative performance of forecasts are on average 30 percent better for the first two quarters ahead. We further combine our forecasts by means of several weighting schemes. Results reveal that, the forecast combination leads to a reduction in forecast error compared to most of the models, although some of the individual models perform alike in certain horizons.

Keywords

Short-term Forecasting, Forecast Combination

URL

http://www.tcmb.gov.tr/research/discus/2012/WP1209.php



Record ID

212     [ Page 16 of 23, No. 16 ]

Date

2012-03

Author

Le Leslé, Vanessa and Avramova, Sofiya

Affiliation

Money and Capital Markets Dept., IMF

Title

Revisiting Risk-Weighted Assets (RWAs): Why Do RWAs Differ Across Countries and What Can Be Done About It?

Summary /
Abstract

In this paper, we provide an overview of the concerns surrounding the variations in the calculation of risk-weighted assets (RWAs) across banks and jurisdictions and how this might undermine the Basel III capital adequacy framework. We discuss the key drivers behind the differences in these calculations, drawing upon a sample of systemically important banks from Europe, North America, and Asia Pacific. We then discuss a range of policy options that could be explored to fix the actual and perceived problems with RWAs, and improve the use of risk-sensitive capital ratios.

Keywords

Banks, regulation, risk-weighted assets, Basel I, II, III, Capital

URL

http://www.imf.org/external/pubs/ft/wp/2012/wp1290.pdf



Record ID

211     [ Page 16 of 23, No. 17 ]

Date

2012-02

Author

Brahima Coulibaly

Affiliation

Board of Governors, Federal Reserve System

Title

Monetary policy in emerging market economies: what lessons from the global financial crisis?

Summary /
Abstract

During the 2008-2009 global financial crisis, emerging market economies (EMEs) loosened monetary policy considerably to cushion the shock. In previous crises episodes, by contrast, EMEs generally had to tighten monetary policy to defend the value of their currencies, to contain capital flight, and to bolster policy credibility. Our study aims to understand the factors that enabled this remarkable shift in monetary policy, and also to assess whether this marks a new era in which EMEs can now conduct countercyclical policy, more in line with advanced economies. The results indicate statistically significant linkages between some characteristics of the economies and their ability to conduct countercyclical monetary policy. We find that macroeconomic fundamentals and lower vulnerabilities, openness to trade, and international capital flows, financial reforms, and the adoption of inflation targeting all facilitated the conduct of countercyclical policy. Of these factors, the most important have been the financial reforms achieved over the past decades and the adoption of inflation targeting. As long as EMEs maintain these strong economic fundamentals, continue to reform their financial sector, and adopt credible and transparent monetary policy frameworks such as inflation targeting, the conduct of countercyclical monetary policy will likely be sustainable.

Keywords

Monetary policy, crises, macroeconomic stabilization

URL

http://www.federalreserve.gov/pubs/ifdp/2012/1042/ifdp1042.pdf



Record ID

210     [ Page 16 of 23, No. 18 ]

Date

2012-03

Author

Khramov, Vadim

Affiliation

OEDRU, IMF

Title

Assessing DSGE Models with Capital Accumulation and Indeterminacy

Summary /
Abstract

The simulated results of this paper show that New Keynesian DSGE models with capital accumulation can generate substantial persistencies in the dynamics of the main economic variables, due to the stock nature of capital. Empirical estimates on U.S. data from 1960:I to 2008:I show the response of monetary policy to inflation was almost twice lower than traditionally considered, as capital accumulation creates an additional channel of influence through real interest rates in the production sector. Versions of the model with indeterminacy empirically outperform determinate versions. This paper allows for the reconsideration of previous findings and has significant monetary policy implications.

Keywords

Monetary DSGE Models, Indeterminacy, Capital Accumulation

URL

http://www.imf.org/external/pubs/ft/wp/2012/wp1283.pdf



Record ID

209     [ Page 16 of 23, No. 19 ]

Date

2011-12-01

Author

Jakub Ryšánek, Jaromír Tonner, Osvald Vašíček

Affiliation

Czech National Bank and Institute of Economic Studies, Charles University

Title

Monetary Policy Implications of Financial Frictions in the Czech Republic

Summary /
Abstract

As the global economy seems to be recovering from the 2009 financial crisis, we find it desirable to look back and analyze the Czech economy ex post. We work with a Swedish New Keynesian model of a small open economy which embeds financial frictions in light of the financial accelerator literature. Without explicitly modeling the banking sector, this model serves as a tool for understanding how a negative financial shock may spread to the real economy and how monetary policy may react. We use Bayesian techniques to estimate the model parameters to adjust the model structure closer to the evidence stemming from Czech data. Our attention focuses on a set of experiments in which we generate ex post forecasts of the economy prior to the 2009 crisis and illustrate that the monetary policy response to an upcoming crisis implied by the model with financial frictions is stronger on account of an increasing interest rate spread.

Keywords

Bayesian methods, financial frictions

URL

http://www.cnb.cz/en/research/research_publications/cnb_wp/2011/cnbwp_2011_12.html



Record ID

208     [ Page 16 of 23, No. 20 ]

Date

2012-02

Author

Miao, Yanliang and Pant, Malika

Affiliation

Strategy, Policy, and Review Department, IMF

Title

Coincident Indicators of Capital Flows

Summary /
Abstract

Capital flows data from Balance of Payments statistics often lag 3-6 months, which renders timely surveillance and policy deliberation difficult. To address the tension, we propose two coincident composite indicators for capital flows that improve upon existing proxies. We find that the most widely used proxy, the capital tracker, often overpredicts net flows by 30 percent. We augment the tracker into a composite indicator by assigning to it a lesser but optimally estimated weight while incorporating other regional and global coincident correlates of capital flows. The proposed composite indicator of net flows outperforms the capital tracker in its original format. To complement the indicator with an even timelier variant, we also utilize the EPFR high frequency coverage of gross bond and equity flows as an indicator on foreign investors’ sentiment.

Keywords

Capital Flows; Coincident Indicators; Capital Tracker

URL

http://www.imf.org/external/pubs/ft/wp/2012/wp1255.pdf



Record ID

207     [ Page 16 of 23, No. 21 ]

Date

2012-02

Author

René Tapsoba

Affiliation

Clermont Université, Université d’Auvergne, CNRS, UMR 6587, Centre d’Etudes et de Recherches sur le Développement International (CERDI), F-63009 Clermont-Ferrand, France

Title

Does Inflation Targeting Matter for Attracting Foreign Direct Investment into Developing Countries?

Summary /
Abstract

This paper investigates the effect of Inflation Targeting (IT) on Foreign Direct Investment (FDI). Based on panel data of 53 developing countries over the period 1980-2007, this study is the first, to the best of the author's knowledge, to evaluate directly the effect of IT on FDI. Using a variety of propensity scores-matching methods which allow controlling for self-selection in policy adoption, it finds that the treatment effect of IT on FDI is positive, statistically significant and robust to a set of alternative specifications. In terms of policy recommendations, this finding therefore suggests that if well implemented, IT adoption can be a legitimate part of the policy toolkit available to policymakers in developing countries in their competition to attract more FDI.

Keywords

Inflation targeting, foreign direct investment, propensity scores-matching, developing countries.

URL

http://d.repec.org/n?u=RePEc:cdi:wpaper:1322&r=mon



Record ID

206     [ Page 16 of 23, No. 22 ]

Date

2011

Author

Magdalena Szyszko

Affiliation

National Bank of Poland

Title

The interdependences of central bank’s forecasts and economic agents inflation expectations: Empirical study

Summary /
Abstract

This paper focuses on the associations between the inflation forecasts of the central bank and inflation expectations of the households. The first part is of a descriptive nature. It gives the theoretical background of modern monetary policy focusing on the role of expectations. It also presents the idea of inflation forecast targeting. Then the framework of the inflation forecast targeting in four countries, the Czech Republic, Hungary, Poland and Romania, is presented. The empirical part of the study is an attempt to find associations between the inflation forecasts results and inflation expectations of consumers derived on the basis of surveys. The theory gives sound background for the existence of such relationships.The interdependences are tested in several ways. The last part of the paper focuses on the results and conclusions.

Keywords

Inflation forecasts, inflation forecasts targeting, inflation expectations

URL

http://d.repec.org/n?u=RePEc:nbp:nbpmis:105&r=mon



Record ID

205     [ Page 16 of 23, No. 23 ]

Date

2010-12

Author

Hernando Vargas Herrera, Yanneth R Betancourt, Carlos Varela and Norberto Rodríguez

Affiliation

Respectively, Deputy Governor and staff members of the Economic Studies Subdirectorate at the Banco de la República, Colombia

Title

Effects of reserve requirements in an inflation targeting regime: the case of Colombia

Summary /
Abstract

RRs have been used in Colombia under an IT regime with different objectives. In 2007, RR increases were aimed at speeding up monetary policy transmission and curbing excessive credit growth. In 2008, RRs were again raised to sterilise part of the monetary expansion resulting from international reserve purchases. Later that year, they were reduced to ensure the provision of adequate liquidity in the context of heightened uncertainty brought about by the Lehman Brothers crisis.

The effects of RRs on interest rate and interest rate pass-through in an IT regime are not as straightforward as those under a monetary targeting regime. Conceptually, those effects depend on the degree of substitution between deposits and central bank credit as sources of bank funding and on the extent to which RR changes affect the risks facing banks. The empirical results for Colombia suggest that RRs are important long-term determinants of business loan interest rates and have been effective in strengthening the pass-through from policy to deposit and lending interest rates.

These findings support the use of RRs as a policy instrument in an IT regime in terms of their effectiveness in reinforcing monetary policy transmission. These benefits must be contrasted with the fact that RRs are costly taxes on financial intermediation and may be too blunt a tool to fine-tune the adjustment of credit markets or aggregate demand. Hence, their use is justified when policymakers perceive that standard, less costly policy instruments are deemed insufficient to maintain price or financial stability.

The empirical models used to assess the impact of RRs on interest rates were also exploited to characterise other features of the dynamics of interest rate pass-through. For Colombia, policy rate transmission seems to be asymmetric, with rate drops generating larger responses of market rates than policy rate increases. Moreover, a low NCP of the central bank with the financial system appears to weaken the transmission of policy rates to CD and short-term lending interest rates.

Keywords

Reserve requirements, inflation targeting

URL

http://www.bis.org/publ/bppdf/bispap54i.pdf



Record ID

204     [ Page 16 of 23, No. 24 ]

Date

2011-05

Author

Stefan Ingves

Affiliation

Governor, Sveriges Bank

Title

Flexible inflation targeting in theory and practice

Summary /
Abstract

Let me round off. I would guess that many of you here today are used to seeing monetary policy through an academic’s eyes. When you hear the term monetary policy you may first and foremost associate it with the theoretical framework – the way that monetary policy is often portrayed in textbooks and scientific articles. Others of you may think instead of the more conventional, day-to-day image of monetary policy given in the media, with a focus on the Riksbank’s interest rate changes and possible disagreement among the Executive Board.

One might say that these two images in some way represent the start and finish of the monetary policy process. When an interest rate decision is to be made, the process starts in one way or another with the simple theoretical framework. As I noted earlier, this captures fairly well the intuition behind flexible inflation targeting – that a well-balanced monetary policy concerns finding a suitable balance between stabilising inflation and stabilising the real economy. Each of us involved in making the policy rate decision has some version of the theoretical framework in our head, even if it is probably often fairly implicit. At the other end of the process is the media image, with concrete repo rate decisions.
The basic question is how we can best go from the simple theoretical analysis into actual policy. There is a balancing act to achieve here: On the one hand, one wants to retain sufficient clarity and structure in the process as given by the theoretical framework. But on the other hand, one does not want to provide an overly simple and thereby perhaps misleading picture of monetary policy and the deliberations that we have to make in practice.

What I have talked about here today concerns the link between theory and practice, and more specifically why the connections between them are not so simple. The interesting but difficult challenges faced when going from theoretical analysis to practical policy are something the Riksbank – and presumably also other central banks – spends a lot of time and energy managing. These challenges may not be so well-known outside of the central bank world and I hope that I have now been able to provide some insight into them.

Keywords

Inflation targeting, theory and policy

URL

http://www.bis.org/review/r110517c.pdf?frames=0



Record ID

203     [ Page 16 of 23, No. 25 ]

Date

1998-10

Author

Athanasios Orphanides

Affiliation

Board of Governors of the Federal Reserve System

Title

Monetary Policy Evaluation With Noisy Information

Summary /
Abstract

This paper investigates the implications of noisy information regarding the measurement of economic activity for the evaluation of monetary policy. A common implicit assumption in such evaluations is that policymakers observe the current state of the economy promptly and accurately and can therefore adjust policy based on this information. However, in reality, decisions are made in real time when there is considerable uncertainty about the true state of a airs in the economy. Policy must be made with partial information. Using a simple model of the U.S. economy, I show that failing to account for the actual level of information noise in the historical data provides a seriously distorted picture of feasible macroeconomic outcomes and produces inecient policy rules. Naive adoption of policies identi ed as ecient when such information noise is ignored results in macroeconomic performance worse than actual experience. When the noise content of the data is properly taken into account, policy reactions are cautious and less sensitive to the apparent imbalances in the un ltered data. The resulting policy prescriptions reflect the recognition that excessively activist policy can increase rather than decrease economic instability.

Keywords

Policy evaluation, interest rate rules, data revisions, real-time data, optimal control, observation noise, inflation targeting.

URL

http://www.federalreserve.gov/pubs/feds/1998/199850/199850pap.pdf

Remarks

The author is currently Governor, Central Bank of Cyprus.



Record ID

202     [ Page 16 of 23, No. 26 ]

Date

2011-12

Author

Jon Christensson, Kenneth Spong, and Jim Wilkinson

Affiliation

Federal Reserve Bank of Kansas City

Title

What can financial stability reports tell us about macroprudential supervision?

Summary /
Abstract

Many countries have suggested macroprudential supervision as a means for earlier identification and better control of the risks that might lead to a financial crisis. Since macroprudential supervision would focus on the financial system in its entirety and on major risks that could threaten financial stability, it shares many of the same goals as the financial stability reports written by most central banks. This article examines the financial stability reports of five central banks to assess how effective they were in identifying the problems that led to the recent financial crisis and what implications they might have for macroprudential supervision. ; The financial stability reports in these five countries were generally successful in foreseeing the risks that contributed to the crisis, but the reports underestimated the severity of the crisis and did not fully anticipate the timing and pattern of important events. While the stress tests in these reports provided insights into the resiliency and capital needs of the banks in these countries, the stresses and scenarios tested often differed from what actually occurred and some of the reports did not consider them to be likely events. One other major challenge for the central banks was in taking the concerns expressed in financial stability reports and linking them to effective and timely supervisory policy. Overall, the reports were a worthwhile exercise in identifying and monitoring key financial trends and emerging risks, but they also indicate the significant challenges macroprudential supervision will have in anticipating and addressing financial market disruptions

Keywords

Macroprudential supervision, financial stability reports, financial crisis, banks

URL

http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp11-15&r=ban



Record ID

201     [ Page 16 of 23, No. 27 ]

Date

2011-12

Author

Tobias Adrian, Paolo Colla, and Hyun Song Shin

Affiliation

Federal Reserve Bank of New York

Title

Which financial frictions? parsing the evidence from the financial crisis of 2007-09

Summary /
Abstract

We provide an overview of data requirements necessary to monitor repurchase agreements (repos) and securities lending (sec lending) markets for the purposes of informing policymakers and researchers about firm-level and systemic risk. We start by explaining the functioning of these markets, and argue that it is crucial to understand the institutional arrangements. Data collection is currently incomplete. A comprehensive collection should include six characteristics of repo and sec lending trades at the firm level: principal amount, interest rate, collateral type, haircut, tenor, and counterparty.

Keywords

Financial intermediation, credit supply

URL

http://d.repec.org/n?s=http://www.newyorkfed.org/research/staff_reports/sr528.pdf



Record ID

200     [ Page 16 of 23, No. 28 ]

Date

2012-01

Author

František Brázdik, Michal Hlaváček, and Aleš Maršál

Affiliation

Czech National Bank

Title

Survey of Research on Financial Sector Modeling within DSGE Models: What Central Banks Can Learn from It

Summary /
Abstract

This survey gives insight into the ongoing research in financial frictions modeling. The recent financial turmoil has fueled interest in operationalizing financial frictions concepts and introducing them into tools for policy makers. The rapid growth of the literature on these issues is the motivation for our review of the presented approaches. The empirical facts that motivate the inclusion of financial frictions are surveyed. This survey provides a description of the basic approaches for introducing financial frictions into dynamic stochastic general equilibrium models. The significance and empirical identification of the financial accelerator effect is then discussed. The role of financial frictions models in CNB monetary and macroprudential policy is also described. It is concluded that given the heterogeneity of the approaches to financial frictions it is beneficial for the conduct of monetary policy to focus on the development of satellite approaches. The role of financial frictions in DSGE models for macroprudential policy is also discussed, as these models can be used to generate stress-testing scenarios. It can be concluded that DSGE models with financial frictions could complement current stress-testing practice, but are not able to replace stress tests.

Keywords

DSGE models, financial accelerator, financial frictions.

URL

http://www.cnb.cz/en/research/research_publications/irpn/download/rpn_3_2011.pdf



Record ID

199     [ Page 16 of 23, No. 29 ]

Date

2012-01

Author

Sami Ben Mim and Mohamed Sami Ben Ali

Affiliation

University of Monastir and IHEC Business School of Sousse, University of Sousse

Title

Through Which Channels Can Remittances Spur Economic Growth in MENA Countries?

Summary /
Abstract

This paper studies the remittances’ effect on economic growth. Using panel data techniques, the authors estimate several specifications to provide support of such relationship for MENA countries over the period 1980–2009. The findings provide new robust evidence on how remittances are used in MENA countries and show the main channels which may interfere in this process. Estimation outcomes show that the most important part of remittances is consumed and that remittances stimulate growth only when they are invested. Moreover, empirical results suggest that remittances can enhance growth by encouraging human capital accumulation. Human capital is therefore an effective channel through which remittances stimulate growth in MENA countries.

Keywords

Workers' remittances, economic growth, panel data, MENA zone

URL

https://docs.google.com/viewer?a=v&pid=gmail&attid=0.1&thid=135184af44f5cede&mt=application/pdf&url=https://mail.google.com/mail/?ui%3D2%26ik%3Deef2a3d00e%26view%3Datt%26th%3D135184af44f5cede%26attid%3D0.1%26disp%3Dsafe%26zw&sig=AHIEtbRLr3fn43phz_r52DF29I



Record ID

198     [ Page 16 of 23, No. 30 ]

Date

2012-01

Author

Roger, Scott and Vlcek, Jan

Affiliation

International Monetary Fund

Title

Macrofinancial Modeling at Central Banks: Recent Developments and Future Directions

Summary /
Abstract

This paper surveys dynamic stochastic general equilibrium models with financial frictions in use by central banks and discusses priorities for future development of such models for the purpose of monetary and financial stability analysis. It highlights the need to develop macrofinancial models which allow analysis of the macroeconomic effects of macroprudential policy tools and to evaluate elements of the Basel III reforms as a priority. The paper also reviews the main approaches to introducing financial frictions into general equilibrium models.

Keywords

Monetary policy analysis, financial frictions, macroeconomic modeling

URL

http://www.imf.org/external/pubs/ft/wp/2012/wp1221.pdf



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