Selected Reference and Reading Materials compiled by Dan Villanueva


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Record ID

466     [ Page 23 of 68, No. 1 ]

Date

2013-12

Author

Denis Beau, Christophe Cahn, Laurent Clerc, and Benoît Mojon

Affiliation

Banco Central de Chile

Title

Macro-Prudential Policy and the Conduct of Monetary Policy

Summary /
Abstract

In this paper, we analyse the interactions between monetary and macro-prudential policies and the circumstances under which such interactions call for their coordinated implementation. We start with a review of the interdependencies between monetary and macro-prudential policies. Then, we use a DSGE model incorporating financial frictions, heterogeneous agents and housing, which is estimated for the euro area over the period 1985 -2010, to identify the circumstances under which monetary and macro-prudential policies may have compounding, neutral or conflicting impacts on price stability. We compare inflation dynamics across four “policy regimes” depending on: (a) the monetary policy objectives – that is, whether the policy instrument, the short-term interest rate factors in financial stability considerations by leaning against credit growth; and (b) the existence, or not, of an authority in charge of a financial stability objective through the implementation of macroprudential policies that can “lean against credit” without affecting the short-term interest rate. Our main result is that under most circumstances, macro-prudential policies have either a limited or a stabilizing effect on inflation.

Keywords

Macroprudential policy, monetary policy, price stability, financial stability interactions, coordination

URL

http://d.repec.org/n?u=RePEc:chb:bcchwp:715&r=mon



Record ID

465     [ Page 23 of 68, No. 2 ]

Date

2014-01

Author

Matias Escudero, Martin Gonzalez-Rozada, and Martin Sola

Affiliation

Northwestern University and Universidad Torcuato Di Tella

Title

Towards a “New” Inflation Targeting Framework: The Case of Uruguay

Summary /
Abstract

Using a dynamic stochastic general equilibrium model with financial frictions we study the effects of a rule that incorporates not only the interest rate but also the legal reserve requirements as instruments of the monetary policy. We evaluate the effectiveness of both instruments to accomplish the inflationary and/or financial stability objectives of the Central Bank of Uruguay. The main findings are that: (i) reserve requirements can be used to achieve the inflationary objectives of the Central Bank. However, reducing inflation using this instrument, it also produces a real appreciation of the Uruguayan peso; (ii) when the Central Bank uses the monetary policy rate as an instrument, the effect of the reserve requirements is to contribute to reduce the negative impact over consumption, investment and output of an eventual increase in this rate. Nevertheless, the quantitative results in terms of inflation reduction are rather poor; and (iii) the monetary policy rate becomes more effective to reduce inflation when the reserve requirement instrument is solely directed to achieve financial stability and the monetary policy rate used to achieve the inflationary target. Overall, the main policy conclusion of the paper is that having a non-conventional policy instrument, when well-targeted, can help effectively inflation control. Moving reserve requirements can also be instrumental in offsetting the impact of monetary policy on the real exchange rate.

Keywords

Dynamic stochastic general equilibrium models, financial frictions, monetary policy, reserve requirements, inflation targeting, non-conventional policy instruments

URL

http://d.repec.org/n?u=RePEc:udt:wpecon:wp201401&r=mon



Record ID

464     [ Page 23 of 68, No. 3 ]

Date

2013-12

Author

Frederick S. Mishkin

Affiliation

Columbia University and NBER

Title

Central Banking after the Crisis

Summary /
Abstract

This paper explores where central banking is heading after the recent financial crisis. First it discusses the central bank consensus before the crisis and then outlines the key facts learned from the crisis that require changes in the way central banks conduct their business. Finally, it discusses four main areas in which central banks are altering their policy frameworks: 1) the interaction between monetary and financial stability policies, 2) nonconventional monetary policy, 3) risk management, and 4) fiscal dominance and monetary policy.

Keywords

Central banking, Global financial crisis

URL

http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc714.pdf



Record ID

463     [ Page 23 of 68, No. 4 ]

Date

2014-01

Author

Ruperto P. Majuca

Affiliation

School of Economics, De La Salle University

Title

An Analysis of the Structure and Dynamics of the Philippine Macroeconomy: Results from a DSGE-Based Estimation

Summary /
Abstract

I use Bayesian methods to estimate a medium-scale closed economy dynamic stochastic general equilibrium (DSGE) model for the Philippine economy. Bayesian model selection techniques indicate that among the frictions introduced in the model, the investment adjustment costs, habit formation, and the price and wage rigidity features are important in capturing the dynamics of the data, while the variable capital utilization, fixed costs, and the price and wage indexation features are not important. I find that the Philippine macroeconomy is characterized by more instability than the U.S. economy. An analysis of the several subperiods in Philippine economic history also reveals some quantitative evidence that risk aversion increases during crisis periods. Also, I find that the inflation targeting (IT) era is associated with a more stable economy: the standard deviations of the technology shock, the risk-premium shock, and the investment-specific technology shock have significantly lower variability than the pre-IT era. Shock decomposition analysis also reveals that BSP’s conduct of monetary policy appears to be more procyclical than countercyclical, for example, during the recent global financial and economic crisis.

Keywords

DSGE models, Bayesian estimation, monetary policy, macroeconomics, Philippines

URL

http://ejournals.ph/index.php?journal=BER&page=article&op=view&path[]=7382&path[]=7694



Record ID

462     [ Page 23 of 68, No. 5 ]

Date

2014-01

Author

Carmen M. Reinhart and Kenneth S. Rogoff

Affiliation

Harvard University and National Bureau of Economic Research

Title

Recovery from Financial Crises: Evidence from 100 Episodes

Summary /
Abstract

We examine the evolution of real per capita GDP around 100 systemic banking crises. Part of the costs of these crises owes to the protracted nature of recovery. On average, it takes about eight years to reach the pre-crisis level of income; the median is about 6 ½ years. Five to six years after the onset of crisis, only Germany and the US (out of 12 systemic cases) have reached their 2007-2008 peaks in real income. Forty-five percent of the episodes recorded double dips. Postwar business cycles are not the relevant comparator for the recent crises in advanced economies.

Keywords

Financial crises, recovery



Record ID

461     [ Page 23 of 68, No. 6 ]

Date

2013-12

Author

Lukas Scheffknecht

Affiliation

University of Hohenheim, Department of Economics Chair for Economic Policy

Title

Contextualizing Systemic Risk

Summary /
Abstract

I analyze the rapidly growing literature about systemic risk in financial markets and find an important commonality. Systemic risk is regarded to be an endogenous outcome of interactions by rational agents on imperfect markets. Market imperfections give rise to systemic externalities which cause an excessive level of systemic risk. This creates a scope for welfare-increasing government interventions. Current policy debates usually refer to them as ’macroprudential regulation’. I argue that efforts undertaken in this direction - most notably the incipient implementation of Basel III- are insufficient. The problem of endogenous financial instability and excessive systemic risk remains an unresolved issue which carries unpleasant implications for central bankers. In particular, monetary policy is in danger of persistently getting burdened with the difficult task to simultaneously ensure macroeconomic and financial stability.

Keywords

Systemic Risk, Systemic Externalities, Macroprudential Regulation, Basel III.

URL

http://www.rome-net.org/RePEc/rmn/wpaper/rome-wp-2013-17.pdf



Record ID

460     [ Page 23 of 68, No. 7 ]

Date

2013-12

Author

Simon Potter, Executive Vice President

Affiliation

Federal Reserve Bank of New York

Title

Recent developments in monetary policy implementation

Summary /
Abstract

Remarks before the Money Marketeers of New York University, New York City.

Keywords

The Desk; dual mandate; primary dealers; counterparties; IOER; reverse repos; interest on excess reserves; System Open Market Account (SOMA)

URL

http://www.newyorkfed.org/newsevents/speeches/2013/pot131202.html



Record ID

459     [ Page 23 of 68, No. 8 ]

Date

2013-11

Author

Fabia A. de Carvalho, Marcos R. Castro, and Silvio M. A. Costa

Affiliation

Banco Central do Brazil

Title

Traditional and Matter-of-fact Financial Frictions in a DSGE Model for Brazil: the role of macroprudential instruments and monetary policy

Summary /
Abstract

This paper investigates the transmission channel of macroprudential instruments in a closed-economy DSGE model with a rich set of financial frictions. Banks' decisions on risky retail loan concessions are based on borrowers' capacity to settle their debt with labor income. We also introduce frictions in banks' optimal choices of balance sheet composition to better reproduce banks' strategic reactions to changes in funding costs, in risk perception and in the regulatory environment. The model is able to reproduce not only price effects from macroprudential policies, but also quantity effects. The model is estimated with Brazilian data using Bayesian techniques. Unanticipated changes in reserve requirements have important quantitative effects, especially on banks' optimal asset allocation and on the choice of funding. This result holds true even for required reserves deposited at the central bank that are remunerated at the base rate. Changes in required core capital substantially impact the real economy and banks' balance sheet. When there is a lag between announcements and actual implementation of increased capital requirement ratios, agents immediately engage in anticipatory behavior. Banks immediately start to retain dividends so as to smooth the impact of higher required capital on their assets, more particularly on loans. The impact on the real economy also shifts to nearer horizons. Announcements that allow the new regulation on required capital to be anticipated also improve banks' risk positions, since banks achieve higher capital adequacy ratios right after the announcement and throughout the impact period. The effects of regulatory changes to risk weights on bank assets are not constrained to impact the segment whose risk was reassessed. We compare the model responses with those generated by models with collateral constraints traditionally used in the literature. The choice of collateral constraint is found to have important implications for the transmission of shocks to the economy.

Keywords

DSGE models, Bayesian estimation, financial regulation, monetary policy, macroprudential policy

URL

http://www.bcb.gov.br/pec/wps/ingl/wps336.pdf



Record ID

458     [ Page 23 of 68, No. 9 ]

Date

2013-4

Author

Neville Arjani and Graydon Paulin

Affiliation

Bank of Canada

Title

Lessons from the Financial Crisis: Bank Performance and Regulatory Reform

Summary /
Abstract

The financial systems of some countries fared materially better than others during the global financial crisis of 2007-09. The performance of the Canadian banking system during this period was relatively strong. Using a case study approach together with empirical analysis, we assess some of the factors that contributed to this favourable outcome with a view to drawing useful lessons for regulatory reform. We argue that an important contributor to positive bank performance was a solid approach to risk management on the part of the Canadian banking system, an approach that was actively fostered by the domestic authorities. Efforts to buttress risk management were favourably influenced by several stressful yet instructive episodes in Canadian financial history. The 2007-09 crisis experience suggests a need to make risk management a pervasive element of financial system culture and emphasizes the importance of robust liquidity management.

Keywords

Financial institutions; Financial system regulation and policy

URL

http://www.bankofcanada.ca/wp-content/uploads/2013/12/dp2013-04.pdf



Record ID

457     [ Page 23 of 68, No. 10 ]

Date

2013-12

Author

Philippe Aghion and Enisse Kharroubi

Affiliation

Bank for International Settlements

Title

Cyclical macroeconomic policy, financial regulation and economic growth

Summary /
Abstract

This paper investigates the effect of cyclical macroeconomic policy and financial sector characteristics on growth. Using cross-country, cross-industry OECD data, it yields two main findings. First, countercyclical fiscal and monetary policies foster growth disproportionately in more credit/liquidity-constrained industries. Second, while higher bank capital ratios may contribute to reducing the benefit of a countercyclical monetary policy, countercyclical credit enhances growth disproportionately in more credit/liquidity-constrained industries and this complements the growth effects of countercyclical monetary policy. Raising regulatory requirements for bank capital can therefore help achieve financial stability and preserve economic growth if complemented with more countercyclical macroeconomic and regulatory policy.

Keywords

Growth, financial constraints, fiscal policy, monetary policy, financial regulation

URL

http://www.bis.org/publ/work434.pdf



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