Selected Reference and Reading Materials compiled by Dan Villanueva


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Record ID

498     [ Page 20 of 68, No. 1 ]

Date

2014-04

Author

Huw Dixon, Jeremy Franklin, and Stephen Millard

Affiliation

Cardiff Business School and Bank of England

Title

Sectoral shocks and monetary policy in the United Kingdom

Summary /
Abstract

In this paper, we use an open economy model of the United Kingdom to examine the extent to which monetary policy should respond to movements in sectoral inflation rates. To do this we construct a Generalised Taylor model that takes specific account of the sectoral make up of the consumer price index (CPI), where the sectors are based on the COICOP classification the UK CPI microdata. We calibrate the model for each sector using the UK CPI microdata and model the sectoral shocks that drive sectoral inflation rates as white noise processes, as in the UK data. We find that a policy rule that allows for different responses to inflation in different sectors outperforms a rule which just targets aggregate CPI. However, the gain is small and comes from partially looking through movements in aggregate inflation driven by movements in petrol price inflation, which is volatile and tends not to reflect underlying inflationary pressure.

Keywords

CPI inflation; Sectoral inflation rates; Generalised Taylor economy

URL

http://www.bankofengland.co.uk/research/Documents/workingpapers/2014/wp499.pdf



Record ID

497     [ Page 20 of 68, No. 2 ]

Date

2014-03

Author

Thomas Barnebeck Andersen, Nikolaj Malchow-Møller, and Jens Nordvig

Affiliation

CEPS

Title

Inflation-Targeting, Flexible Exchange Rates and Macroeconomic Performance since the Great Recession

Summary /
Abstract

Has inflation targeting (IT) conferred benefits in terms of economic growth on countries that followed this particular monetary policy strategy during the crisis period 2007-12? This paper answers this question in the affirmative. Countries with an IT monetary regime with flexible exchange rates weathered the crisis much better than countries with other monetary regimes, predominantly countries with fixed exchange rates. Part of this difference in growth performance reflects differences in export performance during the initial years of the crisis, which in turn can be explained by real exchange rate depreciations. However, IT seems also to confer other benefits on the countries above and beyond the effects from currency depreciation.

Keywords

Inflation targeting, flexible exchange rates, economic growth, Great Recession

URL

http://d.repec.org/n?u=RePEc:eps:cepswp:9116&r=cba



Record ID

496     [ Page 20 of 68, No. 3 ]

Date

2013-06

Author

Nidia Ruth Reyes, José Eduardo Gómez G. and Jair Ojeda Joya

Affiliation

Banco de la Republica Colombia

Title

Bank Lending, Risk Taking, and the Transmission of Monetary Policy: New Evidence for Colombia

Summary /
Abstract

We study the existence of a monetary policy transmission mechanism through banks in Colombia, using monthly banks’ balance sheet data for the period 1996:4 – 2012:12. We obtain results which are consistent with the basic postulates of the bank lending channel (and the risk-taking channel) literature. The impact of short-term interest rates on the growth rate of loans is negative, indicating that increases in these rates lead to reductions in the growth rate of loans. This impact is stronger for consumer loans than for commercial loans. We find important heterogeneity in the monetary policy transmission across banks depending on banks-specific characteristics.

Keywords

Monetary policy transmission, Bank lending channel, Risk taking channel, Colombia

URL

http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_772.pdf?__utma=1.1731840165.1386797159.1397161236.1398087920.16&__utmb=1.7.10.1398087920&__utmc=1&__utmx=-&__utmz=1.1398087920.16.12.utmcsr=google|utmccn=(organic)|utmcmd=organic|utmct



Record ID

495     [ Page 20 of 68, No. 4 ]

Date

2014-03

Author

Willi Semmler and Pu Chen

Affiliation

New School for Social Research and Melbourne Institute of Technology

Title

Financial Stress, Regime Switching and Macrodynamics: Theory and Empirics for the US, the EU and Non-EU Countries

Summary /
Abstract

Over-borrowing and financial stress has recently become an important issue in macroeconomic and policy discussions in the US as well as in the EU. In this paper the authors study two regimes of financial stress. In a regime of high financial stress, stress shocks can have large and persistent impacts on the real side of the economy whereas in regimes of low stress, shocks can easily dissipate having no lasting effects. In order to study the macroeconomic dynamics, with alternative paths resulting from financial stress shocks, the authors introduce a macromodel with a finance-macro link which uses a multi-period decision framework of economic agents. The agents can, in a finite horizon context, borrow and accumulate assets where however the above two scenarios may occur. The model is solved through nonlinear model predictive control (NMPC). Empirically the authors use a multi-regime VAR (MRVAR) to study the impact of financial stress shocks on the macroeconomy in a large number of countries.

Keywords

Financial Stress, Macro dynamics, MRVAR

URL

http://www.economics-ejournal.org/economics/journalarticles/2014-20



Record ID

494     [ Page 20 of 68, No. 5 ]

Date

2014-04

Author

Benjamin Käfer

Affiliation

University of Kassel, Germany

Title

The Taylor Rule and Financial Stability: A Literature Review with Application for the Eurozone

Summary /
Abstract

The question of whether central banks should bear responsibility for financial stability is still unanswered. Regarding interest rate implementation, it is thus not clear if and how the Taylor rule should be augmented by an additional financial stability term. This paper reviews the normative and positive literature on Taylor rules augmented with exchange rates, asset prices, credit, and spreads. These measures have developed as common indicators of financial (in)stability in the Taylor rule literature. In addition, our own analysis describes the development of these indicators for the core and the periphery of the Eurozone. Given the large degree of heterogeneity between euro area countries, the conclusion here is that an interest rate reaction to instability by the European Central Bank would be inappropriate in times of crisis. However, this conclusion is somewhat weakened if there is no crisis.

Keywords

Taylor rule, financial stability, sovereign debt crisis, Eurozone heterogeneity, exchange rates, asset prices, credit spreads

URL

http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/30-2014_kaefer.pdf



Record ID

493     [ Page 20 of 68, No. 6 ]

Date

2014-05

Author

Paolo Gelain and Pelin Ilbas

Affiliation

Norges Bank and National Bank of Belgium

Title

Monetary and macroprudential policies in an estimated model with financial intermediation

Summary /
Abstract

We estimate the Smets and Wouters (2007) model augmented with the Gertler and Karadi (2011) financial intermediation sector on US data by using real and financial observables. Given the framework of the estimated model, we address the question whether and how standard monetary policy should interact with macroprudential policy in order to safeguard real and financial stability. For this purpose, monetary policy is described by a flexible inflation targeting regime using the interest rate as instrument, while the macroprudential regulator adopts a tax/subsidy on bank capital in a countercyclical manner in order to stabilize nominal credit growth and the output gap. We look at the gains from coordination between the central bank and the macroprudential regulator under alternative assumptions regarding the degree of importance assigned to output gap fluctuations in the macroprudential mandate. The results suggest that there can be considerable gains from coordination if the macroprudential regulator has been assigned a sufficiently high weight on output gap stabilization, i.e. the common objective with monetary policy. If, on the other hand, the main focus of the macroprudential mandate is on credit growth, the macroprudential policy maker can reach better outcomes, while the central bank does worse, in the absence of coordination. Therefore, whether and to which extent monetary policy gains from coordination with the macroprudential regulator depends on the relative weight assigned to output fluctuations in the macroprudential mandate. Our counterfactual analysis further confirms the effectiveness of the countercyclical macroprudential tax/subsidy in containing the amplification effects triggered by a financial shock, and suggests that having a macroprudential regulatory tool at work could have successfully avoided the massive drop in credit such as the one observed at the onset of the Great Recession.

Keywords

Monetary policy, financial frictions, macroprudential policy, policy coordination, capital tax/subsidy

URL

http://www.nbb.be/doc/oc/repec/reswpp/wp258En.pdf



Record ID

492     [ Page 20 of 68, No. 7 ]

Date

2014-05

Author

J. Scott Davis and Ignacio Presno

Affiliation

Federal Reserve Bank of Dallas and Federal Reserve Bank of Boston

Title

Inflation targeting and the anchoring of inflation expectations: cross-country evidence from consensus forecasts

Summary /
Abstract

Using survey data of inflation expectations across a 36 developed and developing countries, this paper examines whether the adoption of inflation targeting has helped to anchor inflation expectations. We examine the response of inflation expectations following a shock to inflation, inflation expectations, and oil prices. For the 13 countries that adopted inflation targeting midway through the time period used in this study, there is a significant difference in the responses between the earlier and the later subperiods. A shock leads to a positive, significant, and persistent increase inflation expectations in the earlier, pre-targeting subperiod, but the same response is much less significant and persistent in the later, posttargeting subperiod. For the control group of 23 countries that did not adopt inflation targeting during this time period, there is no difference between responses in the earlier and the later sub-periods.

Keywords

Price levels, inflation, deflation, monetary policy

URL

http://www.dallasfed.org/assets/documents/institute/wpapers/2014/0174.pdf



Record ID

490     [ Page 20 of 68, No. 8 ]

Date

2014-03

Author

Franz Hamann, Marc Hofstetter, and Miguel Urrutia

Affiliation

Universidad de los Andes

Title

Inflation Targeting in Colombia, 2002-2012

Summary /
Abstract

After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflation-targeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange rate, and the short-term interest rate as the main instrument. We examine the experience of the Colombian Central Bank over the last decade, a period of consolidation and innovation of its IT strategy. We study the increasing number of instruments used by the CB, including systematic foreign exchange interventions, announcements, and, sporadically, macro-prudential policies, capital controls, and changes in reserve requirements, among others. The study also examines some political economy dimensions that help explain the behavior of the CB during this period. To guide the discussion, we estimate a small-scale open-economy-policy-model.

Keywords

Inflation Targeting, Monetary Policy, Exchange Rate, Taylor Rule, Colombia

URL

file:///C:/Users/Dan/Downloads/dcede2014-09.pdf



Record ID

488     [ Page 20 of 68, No. 9 ]

Date

2014-05

Author

Charles I. Plosser

Affiliation

President and CEO, Federal Reserve Bank of Philadelphia

Title

Communication and Transparency in the Conduct of Monetary Policy

Summary /
Abstract

President Plosser outlines his views that policy transparency and forward guidance could be
enhanced if the central bank would be more explicit about its reaction function.

President Plosser notes that one way to be more explicit would be to indicate the likely behavior of the policy rate based on a few different Taylor-like rules that have been consistent with past conduct of monetary policy and are robust to our uncertainties regarding the true economic model.

President Plosser believes that the Federal Reserve Board staff’s model, called FRB/US, seems to be a reasonable starting point for providing economic forecasts based on those rule-based policies.

Keywords

Monetary policy, communications, transparency

URL

http://philadelphiafed.org/publications/speeches/plosser/2014/05-08-14-cfr.pdf



Record ID

487     [ Page 20 of 68, No. 10 ]

Date

2014-05

Author

Peter Sarlin

Affiliation

Goethe University Frankfurt and RiskLab Finland

Title

Macroprudential oversight, risk communication and visualization

Summary /
Abstract

This paper discusses the role of risk communication in macroprudential oversight and of visualization in risk communication. Beyond the soar in availability and precision of data, the transition from firm-centric to system-wide supervision imposes obvious data needs. Moreover, broad and effective communication of timely information related to systemic risks is a key mandate of macroprudential supervisors, which further stresses the importance of simple representations of complex data. Risk communication comprises two tasks: internal and external dissemination of information about systemic risks. This paper focuses on the background and theory of information visualization and visual analytics, as well as techniques provided within these fields, as potential means for risk communication. We define the task of visualization in internal and external risk communication, and provide a discussion of the type of available macroprudential data and an overview of visualization techniques applied to systemic risk. We conclude that two essential, yet rare, features for supporting the analysis of big data and communication of risks are analytical visualizations and interactive interfaces. This is illustrated with implementations of three analytical visualizations and five web-based interactive visualizations to systemic risk indicators and models.

Keywords

Macroprudential oversight, risk communication, visualization, analytical visualization, interactive visualization

URL

http://arxiv.org/pdf/1404.4550.pdf



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