Selected Reference and Reading Materials compiled by Dan Villanueva


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Record ID

336     [ Page 35 of 68, No. 1 ]

Date

2012-01

Author

Tanaka Hiroatsu

Affiliation

Federal Reserve Board

Title

Monetary Policy Regimes and the Term Structure of Interests Rates with Recursive Utility

Summary /
Abstract

I study how two different monetary policy regimes characterized by their difference in degrees of credibility (a 'commitment' regime, in which the central bank can credibly commit to future policy and a 'discretion' regime, in which it cannot) affect the term structure of interest rates and attempt to evaluate which monetary policy regime seems more consistent with the data on macroeconomic variables and term structure dynamics. To this end, I construct a no-arbitrage affine-term structure model based on a New-Keynesian type micro-foundation. The model is augmented with Epstein-Zin (EZ) preferences, real wage rigidity and a simple central bank optimization problem. A shock structure that exhibits stochastic volatility in long-run risk of TFP growth parsimoniously generates time-varying term premia. The estimation of the model suggests that the assumption of a discretion regime performs better than a commitment regime in terms of quantitatively fitting some salient features of the US data on the term structure and the business cycle during the Volcker-Greenspan-Bernanke era. The lack of policy credibility leads to volatile and persistent inflation, which generates volatile expected long-run inflation that is negatively correlated with future continuation values. This is perceived particularly risky by EZ nominal bond holders and results in upward sloping average nominal yields, long-term yield volatility and excess return predictability closer to the magnitude observed in the data while keeping the unconditional volatilities of consumption growth and inflation realistic.

Keywords

Monetary policy regime, commitment, discretion, term structure, recursive utility, Volcker-Greenspan-Bernanke era

URL

http://www.economicdynamics.org/meetpapers/2012/paper_557.pdf



Record ID

335     [ Page 35 of 68, No. 2 ]

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; International topics

URL

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



Record ID

334     [ Page 35 of 68, No. 3 ]

Date

2013-03

Author

Andrew J. Filardo and Pierre L. Siklos

Affiliation

Bank for International Settlements and Wilfrid Laurier University

Title

Prolonged reserves accumulation, credit booms, asset prices and monetary policy in Asia

Summary /
Abstract

This paper examines past evidence of prolonged periods of reserve accumulation in Asian emerging market economies and the direct and indirect implications for monetary stability through the potential impact of such episodes on financial stability. The empirical research focuses on identifying periods of prolonged interventions and correlations with key macrofinancial aggregates. Related changes in central bank balance sheets are also examined, especially in periods when the interventions are linked to strong capital inflows. In particular, we consider whether changes in the central bank's balance sheet from prolonged intervention lead to spillovers to the balance sheet of the private sector. We explore the possible forms of the spillovers and the consequences on asset prices (e.g., housing prices, equity prices, the growth in domestic credit). Policy implications are drawn. Finally, we propose a new indicator of reserves adequacy and excessive foreign exchange reserves accumulation based on a factor model. Two broad conclusions emerge from the stylized facts and the econometric evidence. First, the best protection against costly reserves accumulation is a more flexible exchange rate. Second, the necessity to accumulate reserves as a bulwark against goods price inflation is misplaced. Instead, there is a strong link between asset price movements and the likelihood of accumulating foreign exchange reserves that are costly.

Keywords

Foreign exchange reserves accumulation, monetary and financial stability

URL

http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/2013/dp0513.pdf



Record ID

333     [ Page 35 of 68, No. 4 ]

Date

2013-04

Author

Benjamin M. Friedman

Affiliation

National Bureau of Economic Research

Title

The Simple Analytics of Monetary Policy: A Post-Crisis Approach

Summary /
Abstract

The standard workhorse models of monetary policy now commonly in use, both for teaching macroeconomics to students and for supporting policymaking within many central banks, are incapable of incorporating the most widely accepted accounts of how the 2007-9 financial crisis occurred and incapable too of analyzing the actions that monetary policymakers took in response to it. They also offer no point of entry for the frontier research that many economists have subsequently undertaken, especially research revolving around frictions in financial intermediation. This paper suggests a simple model that bridges this gap by distinguishing the interest rate that the central bank sets from the interest rate that matters for the spending decisions of households and firms. One version of this model adds to the canonical “new Keynesian” model a fourth equation representing the spread between these two interest rates. An alternate version replaces this reduced-form expression for the spread with explicit supply and demand equations for privately issued credit obligations. The discussion illustrates the use of both versions of the model for analyzing the kind of breakdown in financial intermediation that triggered the 2007-9 crisis, as well as “unconventional” central bank actions like large-scale asset purchases and forward guidance on the policy interest rate.

URL

http://www.nber.org/papers/w18960.pdf

Remarks

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Record ID

332     [ Page 35 of 68, No. 5 ]

Date

2013-03

Author

Sen Gupta, Abhijit and Sengupta, Rajeswari

Affiliation

Asian Development Bank, Institute for Financial Management and Research

Title

Management of Capital Flows in India: 1990-2011

Summary /
Abstract

Increased integration with global financial markets has amplified the complexity of macroeconomic management in India. The diverse objectives of a robust growth rate, healthy current account deficit, competitive exchange rate, adequate external capital to finance investment, moderate inflation, targeted monetary and credit growth rate, minimizing financial fragilities and maintaining adequate reserves need to be balanced in an era of volatile capital flows. In this paper we analyze India’s experience in negotiating the trade-offs between these varied objectives. We find that to minimize risks associated with financial fragilities India has adopted a calibrated and gradual approach towards opening of the capital account, prioritizing the liberalization of certain flows. Using empirical methods we find that instead of adopting corner solutions, India has embraced an intermediate approach in managing the conflicting objectives of the well-known Impossible Trinity – monetary autonomy, exchange rate stability and an open capital account. Our results indicate that the intermediate approach has been associated with an asymmetric intervention in the foreign exchange market, with the objective of resisting pressures of appreciation, and resulted in large accumulation of reserves. We also show that sterilization of this intervention has been incomplete at times leading to rapid increase in monetary aggregates and fueling inflation. Finally, we conclude that while the greater flexibility in exchange rate since 2007, has allowed pursuit of a more independent monetary policy and the exchange rate to act as a shock absorber, the hands-off approach has resulted in reserves remaining virtually stagnant since 2007, leading to a significant deterioration in the reserve adequacy measures.

Keywords

Capital controls, Macroeconomic trilemma, Financial integration, Foreign exchange intervention, Sterilization, Exchange market pressure, Reserve adequacy.

URL

http://mpra.ub.uni-muenchen.de/46217/1/MPRA_paper_46217.pdf



Record ID

331     [ Page 35 of 68, No. 6 ]

Date

2013-03

Author

Lanzafame, Matteo and Nogueira, Reginaldo

Affiliation

Universita degli Studi di Messina, Italy, 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

330     [ Page 35 of 68, No. 7 ]

Date

2013-04

Author

Chen, Xiaoshan; Kirsanova, Tatiana; and Leith, Campbell

Affiliation

University of Stirling, University of Glasgow, and University of Glasgow

Title

How Optimal is US Monetary Policy?

Summary /
Abstract

Most of the literature estimating DSGE models for monetary policy analysis assume that policy follows a simple rule. In this paper we allow policy to be described by various forms of optimal policy - commitment, discretion and quasi-commitment. We find that, even after allowing for Markov switching in shock variances, the inflation target and/or rule parameters, the data preferred description of policy is that the US Fed operates under discretion with a marked increase in conservatism after the 1970s. Parameter estimates are similar to those obtained under simple rules, except that the degree of habits is significantly lower and the prevalence of cost-push shocks greater. Moreover, we find that the greatest welfare gains from the 'Great Moderation' arose from the reduction in the variances in shocks hitting the economy, rather than increased inflation aversion. However, much of the high inflation of the 1970s could have been avoided had policymakers been able to commit, even without adopting stronger anti-inflation objectives. More recently the Fed appears to have temporarily relaxed policy following the 1987 stock market crash, and has lost, without regaining, its post-Volcker conservatism following the bursting of the dot-com bubble in 2000.

Keywords

Discretion; Commitment; Great Moderation; Optimal Monetary Policy; Interest Rate Rules; Bayesian Estimation

URL

http://www.stir.ac.uk/media/schools/management/documents/SEDP-2013-05-Chen-Kirsanova-Leith.pdf



Record ID

329     [ Page 35 of 68, No. 8 ]

Date

2013-03

Author

Kevin x.d. Huang and J. scott Davis

Affiliation

Vanderbilt University and Federal Reserve Bank of Dallas

Title

Credit Risks and Monetary Policy Trade-Offs

Summary /
Abstract

Financial frictions and financial shocks can affect the trade-off between inflation stabilization and output-gap stabilization faced by a central bank. Financial frictions lead to a greater response in output following any deviation of inflation from target and thus lead to an increase in the sacrifice ratio. As a result, optimal monetary policy in the face of credit frictions is to allow greater output gap instability in return for greater inflation stability. Such a shift in optimal monetary policy can be mimicked in a Taylor-type interest rate feedback rule that shifts weight to inflation and the lagged interest rate and away from output. However, the ability of the conventional Taylor rule to mimic optimal policy gets worse as credit market frictions and shocks intensify. By including a financial variable like the lending spread in the monetary policy rule, the central bank can partially reverse this worsening output-inflation trade-off brought about by financial frictions and partially undo the effects of credit market frictions and shocks. Thus the central bank may want to include lending spreads in the policy rule even when …financial distortions are not explicitly part of the central bank's objective function.

Keywords

Credit friction; Credit shock; Credit spread; Monetary policy trade-offs; Taylor rule

URL

http://www.accessecon.com/pubs/VUECON/VUECON-13-00004.pdf



Record ID

328     [ Page 35 of 68, No. 9 ]

Date

2013-03

Author

P. Manasse, R. Savona and M. Vezzoli

Affiliation

Economics Department, University of Bologna; Department of Economics and Management, University of Brescia; and Department of Economics and Management, University of Brescia

Title

Rules of Thumb for Banking Crises in Emerging Markets

Summary /
Abstract

This paper employs a recent statistical algorithm (CRAGGING) in order to build an early warning model for banking crises in emerging markets. We perturb our data set many times and create “artificial” samples from which we estimated our model, so that, by construction, it is flexible enough to be applied to new data for out-of-sample prediction. We find that, out of a large number (540) of candidate explanatory variables, from macroeconomic to balance sheet indicators of the countries’ financial sector, we can accurately predict banking crises by just a handful of variables. Using data over the period from 1980 to 2010, the model identifies two basic types of banking crises in emerging markets: a “Latin American type”, resulting from the combination of a (past) credit boom, a flight from domestic assets, and high levels of interest rates on deposits; and an “Asian type”, which is characterized by an investment boom financed by banks’ foreign debt. We compare our model to other models obtained using more traditional techniques, a Stepwise Logit, a Classification Tree, and an “Average” model, and we find that our model strongly dominates the others in terms of out-of-sample predictive power.

Keywords

Banking Crises, Early Warnings, Regression and Classification Trees, Stepwise Logit

URL

http://www2.dse.unibo.it/wp/WP872.pdf



Record ID

327     [ Page 35 of 68, No. 10 ]

Date

2013-03

Author

Olivier DARNE, Guy LEVY-RUEFF and Adrian POP

Affiliation

University of Nantes (LEMNA), Institute of Banking and Finance; Banque de France, Business Conditions and Macroeconomic Forecasting Division; and University of Nantes (LEMNA), Institute of Banking and Finance

Title

Calibrating Initial Shocks in Bank Stress Test Scenarios: An Outlier Detection Based Approach

Summary /
Abstract

We propose a rigorous and flexible methodological framework to select and calibrate initial shocks to be used in bank stress test scenarios based on statistical techniques for detecting outliers in time series of risk factors. Our approach allows us to characterize not only the magnitude, but also the persistence of the initial shock. The stress testing exercises regularly conducted by supervisors distinguish between two types of shocks, transitory and permanent. One of the main advantages of our framework, particularly relevant as regards the calibration of transitory shocks, is that it allows considering various reverting patterns for the stressed variables and informs the choice of the appropriate stress horizon. We illustrate the proposed methodology by implementing outlier detection algorithms to several time series of (macro)economic and financial variables typically used in bank stress testing.

Keywords

Stress testing; Stress scenarios; Financial crises; Macroprudential regulation.

URL

http://www.banque-france.fr/uploads/tx_bdfdocumentstravail/DT-426_01.pdf



Total records: 676 | Select no. of records per page: 10 | 20 | 30 | 50 | 100 | Show all | Search
Select a Page:   << Previous  1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 Next >>



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