Record ID

357     [ Page 33 of 68, No. 1 ]

Date

2013-05

Author

Catão, Luis and Chang, Roberto

Affiliation

Research Department, IMF

Title

World Food Prices, the Terms of Trade-Real Exchange Rate Nexus, and Monetary Policy

Summary /
Abstract

How should monetary policy respond to large fluctuations in world food prices? We study this question in an open economy model in which imported food has a larger weight in domestic consumption than abroad and international risk sharing can be imperfect. A key novelty is that the real exchange rate and the terms of trade can move in opposite directions in response to world food price shocks. This exacerbates the policy trade-off between stabilizing output prices vis a vis the real exchange rate, to an extent that depends on risk sharing and the price elasticity of exports. Under perfect risk sharing, targeting the headline CPI welfare-dominates targeting the PPI if the variance of food price shocks is not too small and the export price elasticity is realistically high. In such a case, however, targeting forecast CPI is a superior choice. With incomplete risk sharing, PPI targeting is clearly a winner.

Keywords

Commodity Price Shoc ks, Inflation Targeting, Taylor rules, Incomplete Markets

URL

http://www.imf.org/external/pubs/ft/wp/2013/wp13114.pdf

Record ID

356     [ Page 33 of 68, No. 2 ]

Date

2013-04

Author

Under the guidance of Karl Habermeier, prepared by a team led by Tommaso Mancini-Griffoli, and comprising Jiaqian Chen, Simon Gray, Tomas Mondino, Tahsin Saadi Sedik, Hideyuki Tanimoto, Nico Valckx (MCM), Andrea Pescatori (RES), Silvia Sgherri (SPR), in collaboration with Bernardin Akitoby, Takuji Komatsuzaki, and Ariel Binder (FAD)

Affiliation

MCM, SPR, and FAD, International Monetary Fund

Title

Unconventional Monetary Policies - Recent Experiences and Prospects - Background Paper

Summary /
Abstract

This paper provides background information to the main Board paper, “The Role and Limits of Unconventional Monetary Policy.” This paper is divided in five distinct sections, each focused on a different topic covered in the main paper, though most relate to bond purchase programs. As a result, this paper centers on the experience of the United States Federal Reserve (Fed), the Bank of England (BOE) and the Bank of Japan (BOJ), mostly leaving the European Central Bank (ECB) aside given its focus on restoring the functioning of financial markets and intermediation. Section A explores whether bond purchase programs were effective at decreasing bond yields and, if so, through which channels. Section B goes one step further in evaluating whether bond purchase programs had—or can be expected to have—significant effects on real growth and inflation. Section C studies the spillover effects of bond purchases on both advanced and emerging market economies, using very similar methods as introduced in the first section. Section D breaks from the immediate focus on bond purchases to discuss how inflation might decrease the debt burden in advanced economies, in light of possible pressures that could fall (or be perceived to fall) on central banks. Finally, Section E discusses the possible risks of exiting given the very large central bank balance sheets.

Keywords

Monetary policy | United Kingdom | United States | Japan | European Central Bank | Central banks, Bonds, Capital markets, Spillovers, Inflation, Economic growth

URL

http://www.imf.org/external/np/pp/eng/2013/041813.pdf

Record ID

355     [ Page 33 of 68, No. 3 ]

Date

2013-04

Author

Karl Habermeier and Tommaso Mancini Griffoli

Affiliation

Money and Capital Markets Department, IMF

Title

SUMMARY OF INFORMAL DISCUSSIONS WITH CENTRAL BANKERS AND OTHER OFFICIALS ON UNCONVENTIONAL MONETARY POLICIES

Summary /
Abstract

A series of conference calls was held in March 2013 with selected representatives of central banks and
other official agencies in advanced and emerging market economies to seek views on unconventional
monetary policies (UMP).

The key points raised during the discussions are summarized below. No views have been attributed to individual participants , and Fund staff is ultimately responsible for the contents of this summary.

Keywords

Unconventional monetary policies, zero bound, financial markets, monetary policy accommodation.

URL

http://www.imf.org/external/np/pp/eng/2013/042913.pdf

Record ID

354     [ Page 33 of 68, No. 4 ]

Date

2013-04

Author

Karl Habermeier, Luis Jacome, Tommaso Mancini-Griffoli, Chikako Baba, Jiaqian Chen, Simon Gray, Tomas Mondino, Tahsin Saadi Sedik, Hideyuki Tanimoto, Kenichi Ueda, Nico Valckx (MCM), Giovanni Dell’Ariccia, Andrea Pescatori, Fabian Valencia (RES), Tamim Bayoumi, Silvia Sgherri, and Manju Ismael (SPR), with contributions from Raphael Lam (APD), Bernardin Akitoby, Takuji Komatsuzaki, and Ariel Binder (FAD), Kelly Eckhold, Frederic Lambert, and Erik Oppers (MCM), as well as Ben Hunt and Dirk Muir (RES). Helpful comments were provided by a group of external advisors comprising Vittorio Corbo, Charles Goodhart, David Longworth, Lucas Papademos, and Charles Wyplosz. The paper also benefitted from discussions with representatives of central banks and other official agencies, summarized in a supplement to this paper.

Affiliation

International Monetary Fund

Title

UNCONVENTIONAL MONETARY POLICIES—RECENT EXPERIENCE AND PROSPECTS

Summary /
Abstract

This paper addresses three questions about unconventional monetary policies. First, what policies were tried, and with what objectives? Second, were policies effective? And third, what role might these policies continue to play in the future?

Central banks in the United States, United Kingdom, Japan, and euro area adopted a series of unconventional monetary policies with two broad goals. The first was to restore the functioning of financial markets and intermediation. The second was to provide further monetary policy accommodation at the zero lower bound. These two goals are clearly related, as both ultimate
ly aim to ensure macroeconomic stability. But each relies on different instruments: the first on targeted liquidity provision and private asset purchases, and the second on forward guidance and bond purchases.

These policies largely succeeded at achieving their domestic goals, and were especially effective at the time of greatest financial turmoil. Market functioning was broadly restored, and tail risks declined significantly. Policies also decreased long-term bond yields, and in some cases credit spreads. Growth and price stability also benefited, although findings are less clear cut, given the long lags and unstable
relations between variables, and the unresolved question of counterfactuals.

Unconventional monetary policies had a mixed effect on the rest of the world. Early announcements buoyed asset prices globally, and likely benefited trade. Later announcements had smaller effects and increased capital flows to emerging markets, with a shift to Latin America and Asia. Sound macroeconomic policies can help manage these capital flows. Yet, when flows become excessive, with the risk of sudden reversals, they can give rise to policy strains in recipient countries.

Looking ahead, unconventional monetary policies may continue to be warranted if economic conditions do not improve or even worsen. Yet, their growing scale raises risks. Some of these can be mitigated with macroprudential policies. A key concern is that monetary policy is called on to do too much, and that the breathing space it offers is not used to engage in needed fiscal, structural, and financial sector reforms. These reforms are essential to ensuring macroeconomic stability and entrenching the recovery, eventually allowing for the unwinding of unconventional monetary
policies.

Keywords

Unconventional monetary policies, zero bound, financial markets, monetary policy accommodation.

URL

http://www.imf.org/external/np/pp/eng/2013/041813a.pdf

Record ID

353     [ Page 33 of 68, No. 5 ]

Date

2013-02

Author

ANTOINE MARTIN and BRUNO M. PARIGI

Affiliation

Federal Reserve Bank of New York and University of Padova

Title

Bank Capital Regulation and Structured Finance

Summary /
Abstract

We model the interaction between bank capital regulation and financial innovation. Innovation takes the form of structured finance, namely, pooling and tranching of assets and the creation of separate structures with different seniority, different risk, and different capital charges. Structured finance can improve welfare by manufacturing safer securities, saving on the capital that the structures with different seniority need to satisfy incentive constraints. The divergence between private and social interests in future profits motivates regulation. Regulation lowers profits and may induce banks to innovate to evade the regulation itself, even if this decreases welfare.

Keywords

Bank regulation; financial innovation; structured finance

URL

http://onlinelibrary.wiley.com/doi/10.1111/j.1538-4616.2012.00563.x/pdf

Record ID

352     [ Page 33 of 68, No. 6 ]

Date

2012-12

Author

CHIH-NAN CHEN, TSUTOMU WATANABE, and TOMOYOSHI YABU

Affiliation

National Taipei University, University of Tokyo, and Keio University

Title

A New Method for Identifying the Effects of Foreign Exchange Interventions

Summary /
Abstract

Central banks react even to intraday changes in the exchange rate; however, in most cases, intervention data are available only at a daily frequency. This temporal aggregation makes it difficult to identify the effects of interventions on the exchange rate. We apply the Bayesian Markov-chain Monte Carlo (MCMC) approach to this endogeneity problem. We use “data augmentation” to obtain intraday intervention amounts and estimate the efficacy of interventions using the augmented data. Applying this new method to Japanese data, we find that an intervention of 1 trillion yen moves the yen/dollar rate by 1.8%, which is more than twice as much as the magnitude reported in previous studies applying ordinary least squares to daily observations. This shows the quantitative importance of the endogeneity problem due to temporal aggregation.

Keywords

Foreign exchange intervention; intraday data; Markov-chain Monte Carlo method; endogeneity problem; temporal aggregation

URL

http://onlinelibrary.wiley.com/doi/10.1111/j.1538-4616.2012.00542.x/pdf

Record ID

351     [ Page 33 of 68, No. 7 ]

Date

2013-03

Author

Lanzafame, Matteo and Nogueira, Reginaldo

Affiliation

Universita degli Studi di Messina, Italy, and IBMEC Business School, Brazil

Title

Inflation targeting and interest rates

Summary /
Abstract

Inflation Targeting (IT) can be expected to play a role in structurally reducing nominal interest rates, by lowering a country’s inflation expectations and risk premium. Relying on a panel of 52 advanced and emerging economies over the 1975-2009 years, we carry out a formal investigation of this hypothesis. Our econometric strategy adopts a flexible and efficient panel estimation framework, controlling for a number of issues usually neglected in the literature, such as parameter heterogeneity and cross-section dependence. Our findings are supportive of the optimistic view on IT, indicating that adoption of this monetary regime leads to lower nominal interest rates.

Keywords

Inflation targeting; Interest rates; panel data; multifactor modeling.

URL

http://mpra.ub.uni-muenchen.de/46153/1/MPRA_paper_46153.pdf

Record ID

350     [ Page 33 of 68, No. 8 ]

Date

2013-04

Author

Carlos de Resende, Ali Dib, René Lalonde and Nikita Perevalov

Affiliation

Bank of Canada

Title

Countercyclical Bank Capital Requirement and Optimized Monetary Policy Rules

Summary /
Abstract

Using BoC-GEM-Fin, a large-scale DSGE model with real, nominal and financial frictions featuring a banking sector, we explore the macroeconomic implications of various types of countercyclical bank capital regulations. Results suggest that countercyclical capital requirements have a significant stabilizing effect on key macroeconomic variables, but mostly after financial shocks. Moreover, the bank capital regulatory policy and monetary policy interact, and this interaction is contingent on the type of shocks that drive the economic cycle. Finally, we analyze loss functions based on macroeconomic and financial variables to arrive at an optimal countercyclical regulatory policy in a class of simple implementable Taylor-type rules. Compared to bank capital regulatory policy, monetary policy is able to stabilize the economy more efficiently after real shocks. On the other hand, financial shocks require the regulator to be more aggressive in loosening/tightening capital requirements for banks, even as monetary policy works to counter the deviations of inflation from the target.

Keywords

Economic models; Financial institutions; Financial stability

URL

http://www.bankofcanada.ca/wp-content/uploads/2013/04/wp2013-08.pdf

Record ID

349     [ Page 33 of 68, No. 9 ]

Date

2013-05

Author

Hansen, Niels-Jakob Harbo and Sulla, Olga

Affiliation

Western Hemisphere Department, IMF

Title

Credit Growth in Latin America: Financial Development or Credit Boom?

Summary /
Abstract

Banking credit to the private sector in Latin America has on average increased by 7 percent of GDP from primo 2004 to ultimo 2011, with real credit in some countries growing by up to 20 percent per year. This paper documents and analyzes the patterns of credit growth in 18 countries in Latin America and uses econometric methods to determine whether it is indicative of financial deepening or poses risks of credit booms. The strongest credit growth occurred for consumption and mortgages within the household sector and for construction within the corporate sector. At the same time credit has de-dollarized in most countries and there are some signs of maturity lengthening. To assess whether the recent credit growth is excessive two different methods are applied. First, by application of HP-filters the paper finds that credit-to-GDP levels in a number of countries are above their long-term trend. Second, using a panel co-integration approach on 107 high and mid-income countries the paper estimates a model for the credit-to-GDP levels. Comparing the actual levels of credit with the ones predicted by the model we find that some countries in Latin America show significant and positive deviations. These results indicate the existence of a certain level of risk in the recent credit developments.

Keywords

Credit boom; financial development; Latin America; panel co-integration

URL

http://www.imf.org/external/pubs/ft/wp/2013/wp13106.pdf

Record ID

348     [ Page 33 of 68, No. 10 ]

Date

2013-05

Author

Michal Andrle

Affiliation

Research Department, IMF

Title

What Is in Your Output Gap? Unified Framework & Decomposition into Observables

Summary /
Abstract

What Is in Your Output Gap? Unified Framework & Decomposition into Observables Author/Editor: Andrle, Michal Summary: This paper discusses several popular methods to estimate the ‘output gap’. It provides a unified, natural concept for the analysis, and demonstrates how to decompose the output gap into contributions of observed data on output, inflation, unemployment, and other variables. A simple bar-chart of contributing factors, in the case of multi-variable methods, sharpens the intuition behind the estimates and ultimately shows ‘what is in your output gap.’ The paper demonstrates how to interpret effects of data revisions and new data releases for output gap estimates (news effects) and how to obtain more insight into real-time properties of estimators.

Keywords

Output gap; linear filters; observable decomposition; DSGE

URL

http://www.imf.org/external/pubs/ft/wp/2013/wp13105.pdf