Record ID

297     [ Page 39 of 68, No. 1 ]

Date

2013-01

Author

Beechey, Meredith and Österholm, Pär

Affiliation

Sveriges Riksbank and National Institute of Economic Research

Title

Central Bank Forecasts of Policy Interest Rates: An Evaluation of the First Years

Summary /
Abstract

In recent years the central banks of Norway and Sweden have published their endogenous policy interest-rate forecasts. In this paper, we evaluate those forecasts alongside policy-rate expectations inferred from market pricing. We find that for both economies there are only small differences in relative forecasting precision between the central bank and market-implied measures. However, both types of forecast fail tests for unbiasedness and efficiency at longer horizons.

Keywords

Monetary policy; Market expectations; Norges Bank; Sveriges Riksbank

URL

http://www.konj.se/download/18.11e05f6313b817f634fdb1/WP128.pdf

Record ID

296     [ Page 39 of 68, No. 2 ]

Date

2013-02

Author

Paul Hubert

Affiliation

OFCE – Sciences Po, France

Title

ECB projections as a tool for understanding policy decisions

Summary /
Abstract

The European Central Bank publishes inflation projections quarterly. This paper aims at establishing whether they influence private forecasts and whether they may be considered as an enhanced means of implementing policy decisions by facilitating private agents’ information processing. We provide original evidence that ECB inflation projections do influence private inflation expectations. We also find that ECB projections give information about future ECB rate movements, and that the ECB rate has different effects if complemented or not with the publication of ECB projections. We conclude that ECB projections enable private agents to correctly interpret and predict policy decisions.

Keywords

Monetary policy, ECB, Private forecasts,Influence, structural Var

URL

http://www.ofce.sciences-po.fr/pdf/dtravail/WP2013-04.pdf

Remarks

This research was conducted while the author was visiting the Monetary Policy Strategy Division at the European Central Bank. The research project benefited from funding from the European Union Seventh Framework Programme.

Record ID

295     [ Page 39 of 68, No. 3 ]

Date

2012-11

Author

Michael Joyce, David Miles, Andrew Scott and Dimitri Vayanos

Affiliation

Bank of England

Title

QUANTITATIVE EASING AND UNCONVENTIONAL MONETARY POLICY – AN INTRODUCTION

Summary /
Abstract

This article assesses the impact of Quantitative Easing and other unconventional monetary policies
followed by central banks in the wake of the financial crisis that began in 2007. We consider the
implications of theoretical models for the effectiveness of asset purchases and look at the evidence
from a range of empirical studies. We also provide an overview of the contributions of the other
articles in this Feature.

URL

http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0297.2012.02551.x/pdf

Record ID

294     [ Page 39 of 68, No. 4 ]

Date

2013-01

Author

Katalin Szilágyi, Dániel Baksa, Jaromir Benes, Ágnes Horváth, Csaba Köber, and Gábor D. Soós

Affiliation

Magyar Nemzeti Bank (Central bank of Hungary) and IMF

Title

The Hungarian Monetary Policy Model

Summary /
Abstract

March 2011 marked the introduction of the Magyar Nemzeti Bank’s Monetary Policy Model (MPM), representing a paradigm shift in both macroeconomic projection and monetary policy decision support. In contrast to previous conditional projections, the MPM provides an endogenous definition of both the projected policy rate and the projected exchange rate. Given the forward-looking nature of the model, expectations of economic agents play a key role in the monetary transmission process; therefore, the future achievement of the inflation target is guaranteed by the projected path of the interest rate over the forecast horizon. In this paper, we discuss the underlying structure and logic behind the MPM, describe the key behavioural equations and examine how the channels of monetary transmission appear in the model. In addition, we present the empirical validation process in detail from calibration, through Bayesian estimation and discussion of the economic properties of the model to the historical projection exercise. Finally, we discuss the main challenges we faced during the first year of application.

Keywords

Model projection, simulation, central banking, monetary policy

URL

http://www.mnb.hu/Root/Dokumentumtar/ENMNB/Kiadvanyok/mnben_mnbfuzetek/WP_2013-01.pdf

Record ID

293     [ Page 39 of 68, No. 5 ]

Date

2013-02

Author

Jordi Galí

Affiliation

NBER

Title

Monetary Policy and Rational Asset Price Bubbles

Summary /
Abstract

I examine the impact of alternative monetary policy rules on a rational asset price bubble, through the lens of an overlapping generations model with nominal rigidities. A systematic increase in interest rates in response to a growing bubble is shown to enhance the fluctuations in the latter, through its positive effect on bubble growth. The optimal monetary policy seeks to strike a balance between stabilization of the bubble and stabilization of aggregate demand. The paper's main findings call into question the theoretical foundations of the case for "leaning against the wind" monetary policies.

URL

http://www.nber.org/papers/w18806.pdf

Remarks

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

Record ID

292     [ Page 39 of 68, No. 6 ]

Date

2013-02

Author

Hector Zarate and Angelina Rengifo

Affiliation

Banco de la Republica de Colombia

Title

Forecasting annual inflation with power transformations: the case of inflation targeting countries

Summary /
Abstract

This paper investigates whether transforming the Consumer Price Index with a class of power transformations lead to an improvement of inflation forecasting accuracy. We use one of the prototypical models to forecast short run inflation which is known as the univariate time series ARIMA . This model is based on past inflation which is traditionally approximated by the difference of logarithms of the underlying consumer price index. The common practice of applying the logarithm could damage the forecast precision if this transformation does not stabilize the variance adequately. In this paper we investigate the benefits of incorporating these transformations using a sample of 28 countries that has adopted the inflation targeting framework. An appropriate transformation reduces problems with estimation, prediction and inference. The choice of the parameter is done by Bayesian grounds.

Keywords

ARIMA models, power transformations, seasonality, Bayesian analysis

URL

http://www.banrep.gov.co/docum/ftp/be_756.pdf

Record ID

291     [ Page 39 of 68, No. 7 ]

Date

2013-02

Author

Hernando Vargas Herrera, Andrés González, and Diego Rodríguez

Affiliation

Banco de la Republica de Colombia

Title

Foreign Exchange Intervention in Colombia

Summary /
Abstract

Banco de la República’s FX intervention policy is described, with a focus on its objectives and main features. Then, based on a survey of the effectiveness of sterilized intervention in Colombia, it is argued that this tool is not useful to cope with the challenges posed by medium term external factors such as quantitative easing in advanced economies, reduced risk premiums in emerging economies or high international commodity prices. The duration of the impact of sterilized intervention on the exchange rate (if any) is much shorter than the effects of those factors. Finally, it is argued that if sterilized FX intervention is effective due to the operation of the portfolio balance channel, it may also have an expansionary effect on credit supply and aggregate demand. In this case, the macroeconomic outcomes of intervention depend on the monetary policy response. This issue is studied with a small open economy DSGE. In general, FX intervention implies a volatility of credit and consumption that is higher than under a more efficient allocation and under alternative monetary regimes without intervention. Furthermore, the more inclined the central bank is to meet an inflation target, the stronger its response to the expansionary effects of the intervention and, consequently, the lower the impact of the intervention on the exchange rate.

Keywords

Monetary Policy, Foreign Exchange Intervention

URL

http://www.banrep.gov.co/docum/ftp/be_757.pdf

Record ID

290     [ Page 39 of 68, No. 8 ]

Date

2013-02

Author

Anna Scherbina

Affiliation

Institute for Capacity Development, IMF

Title

Asset Price Bubbles: A Selective Survey

Summary /
Abstract

Why do asset price bubbles continue to appear in various markets? This paper provides an overview of recent literature on bubbles, with significant attention given to behavioral models and rational models with frictions. Unlike the standard rational models, the new literature is able to model the common characteristics of historical bubble episodes and offer insights for how bubbles are initiated and sustained, the reasons they burst, and why arbitrage forces do not routinely step in to squash them. The latest U.S. real estate bubble
is described in the context of this literature.

Keywords

Bubbles, Limits to Arbitrage, Financial Crisis

URL

http://www.imf.org/external/pubs/ft/wp/2013/wp1345.pdf

Record ID

289     [ Page 39 of 68, No. 9 ]

Date

2013-01

Author

Fabian Fink and Yves S. Schüler

Affiliation

Department of Economics, University of Konstanz, Germany

Title

The Transmission of US Financial Stress: Evidence for Emerging Market Economies

Summary /
Abstract

We provide empirical evidence that US financial stress shocks (US-FSSs) are an important driver for economic dynamics and fluctuations in emerging market economies (EMEs). Applying a structural vector auto regression, we analyze the international transmission of US-FSSs to eight EMEs using monthly data from 1999 to 2012. US-FSSs are identified as unexpected changes in the financial conditions index of the Federal Reserve Bank of Chicago. Findings indicate that a typical EME experiences similar negative effects as the US economy in response to US-FSSs. Our results emphasize that the transmission through international financial interconnections is dominant, while contagion through trade is inessential. Further, with regard to fluctuations in real economic activity, US-FSSs are as important as all other external factors jointly. In general, US-FSSs represent a crucial driver for volatility in the emerging world; also at business cycle frequencies.

Keywords

Financial Stress Shocks, International Transmission, Emerging Markets, SVAR

URL

http://www.uni-konstanz.de/FuF/wiwi/workingpaperseries/WP_01-Fink-Schueler_2013.pdf

Record ID

288     [ Page 39 of 68, No. 10 ]

Date

2013-01

Author

Robert N. McCauley

Affiliation

Asian Development Bank Institute

Title

Risk-On/Risk-Off, Capital Flows, Leverage, and Safe Assets

Summary /
Abstract

This paper describes the international flow of funds associated with calm and volatile global equity markets. During calm periods, portfolio investment by real money and leveraged investors in advanced countries flows into emerging markets, leading to an asymmetric asset swap (risky emerging market assets against safe reserve currency assets) and leveraging up by emerging market central banks. In declining and volatile global equity markets, these flows reverse, and, contrary to some claims, emerging market central banks draw down reserves substantially. In effect emerging market central banks then release safe assets from their reserves, supplying safe havens to global investors.

Keywords

Capital flows; safe assets; international flow funds; global liquidity

URL

http://www.adbi.org/files/2013.01.25.wp405.risk.on.risk.off.capital.flows.pdf