Selected Reference and Reading Materials compiled by Dan Villanueva

Selected Reference and Reading Materials compiled by Dan Villanueva

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Record ID	377 [ Page 4 of 7, No. 1 ]
Date	2013-05
Author	William R. Cline
Affiliation	Peterson Institute for International Economics
Title	Estimates of Fundamental Equilibrium Exchange Rates
Summary / Abstract	In this semiannual update, William R. Cline presents new estimates of fundamental equilibrium exchange rates (FEERs). Once again it is found that the key cases of the United States and China involve only modest over- and undervaluation, respectively. However, the Japanese yen is found to have fallen substantially below its FEER as a consequence of the aggressive quantitative easing policy, and Cline suggests that if the currency continues much further along a downward path, the G-7 may need to consider joint intervention to curb its decline. The study concludes by adding a variant of the calculations in which rich countries are set a floor target of at least a zero current account balance, and emerging market economies are set a ceiling target of zero balance. In this "aggressive rebalancing" in which capital would no longer flow "uphill" from poor to rich countries, the US dollar would require a much larger depreciation and the Chinese renminbi a much larger appreciation.
Keywords	FEERs, G-7, zero current account balance, capital flows
URL	http://www.piie.com/publications/pb/pb13-15.pdf

Record ID	376 [ Page 4 of 7, No. 2 ]
Date	2012-09
Author	Florina-Cristina Badarau and Alexandra Popescu
Affiliation	Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu and LEO - Laboratoire d'économie d'Orleans - Université d'Orléans
Title	Monetary Policy and Credit Cycles: A DSGE Analysis
Summary / Abstract	The recent financial crisis revealed several flaws in both monetary and financial regulation. Contrary to what was believed, price stability is not a sufficient condition for financial stability. At the same time, micro-prudential regulation alone becomes insufficient to ensure the financial stability objective. In this paper, we propose an ex-post analysis of what a central bank could have done to improve the reaction of the economy to the financial bubble. We study by means of a financial accelerator DSGE model the dynamics of our economy when the central bank has, first, only traditional objectives, and second, when an additional financial stability objective is added. Overall, results indicate that a more aggressive monetary policy would have had little success in improving the response of the economy to the financial bubble, as the actions of the central bank would have remained limited by the use of a single instrument, the interest rate.
Keywords	Bank capital channel, credit cycles, financial stability, monetary policy.
URL	http://halshs.archives-ouvertes.fr/docs/00/82/80/74/PDF/dr201214.pdf
Remarks	The above analytical paper concludes that raising the interest rate to counter an asset price bubble makes matters worse, assuming that the central bank uses only this single policy instrument in an augmented Taylor rule (augmented to include a credit-to-GDP ratio as a third argument besides inflation and unemployment--all three variables measured as deviations from their steady-state values). The reason is that raising the interest rate "fails to discourage speculative investors. Actually, higher interest rates attract only risky agents (Stiglitz and Weiss, 1981, reference by the authors)." This is the same argument I used in my recent paper,"Should Policymakers Respond Directly to Financial Stability in Their Interest-Rate Rule?" in The Future of Inflation Targeting (http://www.seacen.org/products/702001-100305-PDF.pdf).

Record ID	375 [ Page 4 of 7, No. 3 ]
Date	2013-06
Author	Poirson, Hélène ; and Schmittmann, Jochen M.
Affiliation	European Department and Monetary and Capital Markets Department, IMF
Title	Risk Exposures and Financial Spillovers in Tranquil and Crisis Times: Bank-Level Evidence
Summary / Abstract	For a sample of 83 financial institutions during 2003–2011, this paper attempts to answer three questions: first, what is the evolution of banks’ stock price exposure to country-level and global risk factors as approximated by equity indices; second, which bank-specific characteristics explain these risk exposures; third, are there clusters of banks with equity price linkages beyond market risk factors. The paper finds a rise in sensitivities to both country and global risk factors in 2011, although on average to levels still below those of the subprime crisis. The average sensitivity to European risk, specifically, has been steadily rising since 2008. Banks that are reliant on wholesale funding, have weaker capital levels and low valuations, and higher exposures to crisis countries are found to be the most vulnerable to shocks. The analysis of bank-to-bank linkages suggests that any “globalization” of the euro area crisis is likely to be channelled through U.K. and U.S. banks, with little evidence of direct spillover effects to other regions.
Keywords	Financial sector; financial institutions; banks; Europe; financial crisis; spillovers
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13142.pdf

Record ID	374 [ Page 4 of 7, No. 4 ]
Date	2013-06
Author	Dell'Ariccia, Giovanni ; Laeven, Luc ; and Suarez, Gustavo
Affiliation	Research Department, IMF
Title	Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States
Summary / Abstract	We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.
Keywords	Interest rates, monetary policy, banks, leverage, risk
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13143.pdf

Record ID	373 [ Page 4 of 7, No. 5 ]
Date	2013-05
Author	Issing, Otmar
Affiliation	Center for Financial Studies, Frankfurt, Germany
Title	A new paradigm for monetary policy?
Summary / Abstract	Keynote speech to Conference “Twenty Years of Transition – Experiences and Challenges” Central Bank of Slovakia, Bratislava, 3 May 2013
URL	http://econstor.eu/bitstream/10419/73859/1/74634550X.pdf

Record ID	372 [ Page 4 of 7, No. 6 ]
Date	2013-03
Author	Guillermo Escudé
Affiliation	Central Bank of Argentina
Title	A DSGE Model for a Small, Open Economy with Systematic Interest and Foreign Exchange Policies in Which Policymakers Exploit the Risk Premium for Stabilization Purposes
Summary / Abstract	This paper builds a DSGE model for a SOE in which the central bank systematically intervenes in both the domestic currency bond and the FX markets using two policy rules: a Taylor-type rule and a second rule in which the operational target is the rate of nominal currency depreciation. For this, the instruments used by the central bank (bonds and international reserves) must be included in the model, as well as the institutional arrangements that determine the total amount of resources the central bank can use. The "corner" regimes in which only one of the policy rules is used are particular cases of the model. The model is calibrated and implemented in Dynare for 1) simple policy rules, 2) optimal simple policy rules, and 3) optimal policy under commitment. Numerical losses are obtained for ad-hoc loss functions for different sets of central bank preferences (styles). The results show that the losses are systematically lower when both policy rules are used simultaneously, and much lower for the usual preferences (in which only inflation and/or output stabilization matter). It is shown that this result is basically due to the central bank´s enhanced ability, when it uses the two policy rules, to influence capital flows through the effects of its actions on the endogenous risk premium in the (risk-adjusted) interest parity equation.
Keywords	DSGE models, exchange rate policy, optimal policy, Small Open Economy
URL	http://www.bcra.gov.ar/pdfs/investigaciones/WP_61_2013.pdf

Record ID	371 [ Page 4 of 7, No. 7 ]
Date	2012-03
Author	Orphanides, Athanasios and Wieland, Volker
Affiliation	Massachusetts Institute of Technology and University of Frankfurt
Title	Complexity and monetary policy*
Summary / Abstract	The complexity resulting from intertwined uncertainties regarding model misspecification and mismeasurement of the state of the economy defines the monetary policy landscape. Using the euro area as laboratory this paper explores the design of robust policy guides aiming to maintain stability in the economy while recognizing this complexity. We document substantial output gap mismeasurement and make use of a new model data base to capture the evolution of model specification. A simple interest rate rule is employed to interpret ECB policy since 1999. An evaluation of alternative policy rules across 11 models of the euro area confirms the fragility of policy analysis optimized for any specific model and shows the merits of model averaging in policy design. Interestingly, a simple difference rule with the same coefficients on inflation and output growth as the one used to interpret ECB policy is quite robust as long as it responds to current outcomes of these variables.
Keywords	Financial Crisis, Complexity, Monetary Policy, Model Uncertainty, Robust Simple Rules, ECB
URL	http://econstor.eu/bitstream/10419/71149/1/726555479.pdf
Remarks	*Prepared for the Federal Reserve Board conference on Central Banking: Before, During, and After the Crisis, Washington, DC, 23-24 March 2012.

Record ID	370 [ Page 4 of 7, No. 8 ]
Date	2012-08
Author	Klaus Schmidt-Hebbel and Francisco Muñoz
Affiliation	Catholic University of Chile
Title	Monetary policy decisions by the world's central banks using real-time data
Summary / Abstract	This paper contributes to the empirical understanding of monetary policy in five dimensions. First, specifiying a generalized Taylor equation that nests backward and forward-looking inflation and activity variables in setting policy rates. Second, using real-time data. Third, estimating the model on a world panel of monthly 1994-2011 data for 28 advanced and emerging economies. Fourth, using alternative panel data estimators to test for robustness. Fifth, testing for differences in monetary policy over time and across country groups. The findings are very supportive of the nested model and generally show that the Taylor principle is satisfied by the world's central banks.
Keywords	Monetary policy, Taylor rule, Taylor principle, heterogeneous panels
URL	http://www.economia.puc.cl/docs/dt_426.pdf

Record ID	369 [ Page 4 of 7, No. 9 ]
Date	2013-06
Author	Adedeji, Olumuyiwa ; Du, Huancheng ; Opoku-Afari, Maxwell
Affiliation	African Department, IMF
Title	Inclusive Growth: An Application of the Social Opportunity Function to Selected African Countries
Summary / Abstract	The inclusiveness of growth depends on the extent of access to economic and social opportunities. This paper applies the concept of social opportunity function to ascertain the inclusiveness of growth episodes in selected African countries. Premised on the concept of social welfare function, inclusive growth is associated with increased average opportunities available to the population and improvement in their distribution. The paper establishes that the high growth episodes in the last decade in the selected countries came with increased average opportunities in education and health; but distribution of such opportunities varied across countries, depending on the country-specific policies underpining the growth episodes.
Keywords	Inclusive growth, social opportunity curve, and equity
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13139.pdf

Record ID	368 [ Page 4 of 7, No. 10 ]
Date	2013-05
Author	Rahul Anand, David Coady, Adil Mohommad, Vimal Thakoor, and James P. Walsh
Affiliation	Asia and Pacific Department, IMF
Title	The Fiscal and Welfare Impacts of Reforming Fuel Subsidies in India
Summary / Abstract	Rising fuel subsidies have contributed to fiscal pressures in India. A key policy concern regarding subsidy reform is the adverse welfare impact on households, in particular poor households. This paper evaluates the fiscal and welfare implications of fuel subsidy reform in India. Fuel subsidies are found to be badly targeted, with the richest ten percent of households receiving seven times more in benefits than the poorest ten percent. Although subsidy reform would generate substantial fiscal savings, the associated increases in fuel and other prices would lower household real incomes of all income groups. Better targeting of fuel subsidies would fully protect lower income households while still generating substantial net fiscal savings. Lessons from subsidy reforms in other countries are identified and discussed.
Keywords	Fuel pricing, subsidy reform, distributional impact, compensating transfers, India
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13128.pdf

Record ID	367 [ Page 4 of 7, No. 11 ]
Date	2013-02
Author	Paul Hubert
Affiliation	Ofce sciences-po
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

Record ID	366 [ Page 4 of 7, No. 12 ]
Date	2013-02
Author	Paul Hubert
Affiliation	OFCE – SciencesPo
Title	The influence and policy signaling role of FOMC forecasts
Summary / Abstract	Policymakers at the Federal Open Market Committee (FOMC) publish forecasts since 1979. We examine the effects of publishing FOMC inflation forecasts in two steps using a structural VAR model. We assess whether they influence private inflation expectations and the underlying mechanism at work: do they convey policy signals for forward guidance or help interpreting current policy decisions? We provide original evidence that FOMC inflation forecasts are able to influence private ones. We also find that FOMC forecasts give information about future Fed rate movements and affect private expectations in a different way than Fed rate shocks. This body of evidence supports the use of central bank forecasts to affect inflation expectations especially while conventional policy instruments are at the zero lower bound.
Keywords	Monetary policy, Forecasts, FOMC, influence, Policy signals, structural Var
URL	http://www.ofce.sciences-po.fr/pdf/dtravail/WP2013-03.pdf

Record ID	365 [ Page 4 of 7, No. 13 ]
Date	2007-04
Author	Gerhard Illing
Affiliation	University of Munich
Title	Financial Stability and Monetary Policy – A Framework
Summary / Abstract	The paper presents a stylised framework to analyse conditions under which monetary policy contributes to amplified movements in the housing market. Extending work by Hyun Shin (2005), the paper analyses self enforcing feedback mechanisms resulting in amplifier effects in a credit constrained economy. The paper characterizes conditions for asymmetric effects, causing systemic crises. By injecting liquidity, monetary policy can prevent a meltdown. Anticipating such a response, private agents are encouraged to take higher risks. Provision of liquidity works as a public good, but it may create potential conflicts with other policy objectives and may give incentives to build up leverage with a high systemic exposure to small probability events.
Keywords	Financial stability, monetary policy, interactions
URL	http://www.cesifo-group.de/DocDL/cesifo1_wp1971.pdf

Record ID	364 [ Page 4 of 7, No. 14 ]
Date	2011-12
Author	Deniz Igan and Heedon Kang
Affiliation	Research Department and Monetary and Capital Markets Department, IMF
Title	Do Loan-to-Value and Debt-to-Income Limits Work? Evidence from Korea
Summary / Abstract	With another real estate boom-bust bringing woes to the world economy, a quest for a better policy toolkit to deal with these boom-busts has begun. Macroprudential measures could be in such a toolkit. Yet, we know very little about their impact. This paper takes a step to fill this gap by analyzing the Korean experience with these measures. We find that loan-to-value and debt-to-income limits are associated with a decline in house price appreciation and transaction activity. Furthermore, the limits alter expectations, which play a key role in bubble dynamics.
Keywords	Housing markets, mortgage, macroprudential regulation
URL	http://www.imf.org/external/pubs/ft/wp/2011/wp11297.pdf

Record ID	363 [ Page 4 of 7, No. 15 ]
Date	2009-03
Author	Vasco Cúrdia and Michael Woodford
Affiliation	Federal Reserve Bank of New York and Columbia University
Title	Credit frictions and optimal monetary policy
Summary / Abstract	We extend the basic (representative-household) New Keynesian [NK] model of the monetary transmission mechanism to allow for a spread between the interest rate available to savers and borrowers, that can vary for either exogenous or endogenous reasons. We find that the mere existence of a positive average spread makes little quantitative difference for the predicted effects of particular policies. Variation in spreads over time is of greater significance, with consequences both for the equilibrium relation between the policy rate and aggregate expenditure and for the relation between real activity and inflation. Nonetheless, we find that the target criterion - a linear relation that should be maintained between the inflation rate and changes in the output gap - that characterises optimal policy in the basic NK model continues to provide a good approximation to optimal policy, even in the presence of variations in credit spreads. We also consider a "spread-adjusted Taylor rule", in which the intercept of the Taylor rule is adjusted in proportion to changes in credit spreads. We show that while such an adjustment can improve upon an unadjusted Taylor rule, the optimal degree of adjustment is less than 100 percent; and even with the correct size of adjustment, such a rule of thumb remains inferior to the targeting rule. This is part of a series of BIS Working Papers (273 to 278) collecting papers presented at the BIS's Seventh Annual Conference on "Whither monetary policy? Monetary policy challenges in the decade ahead" in Luzern, Switzerland, on 26-27 June 2008. The event brought together senior representatives of central banks and academic institutions to exchange views on this topic. BIS Paper 45 contains the opening address of William R White (BIS), the contributions of the policy panel on "Beyond price stability - the challenges ahead" and speeches by Edmund Phelps (Columbia University) and Martin Wolf (Financial Times). The participants in the policy panel discussion chaired by Malcolm D Knight (BIS) were Martin Feldstein (Harvard University), Stanley Fischer (Bank of Israel), Mark Carney (Bank of Canada) and Jean-Pierre Landau (Banque de France). This Working Paper includes comments by Olivier Blanchard and Charles Goodhart.
Keywords	Financial Frictions, Interest Rate Spreads
URL	http://www.bis.org/publ/work278.pdf

Record ID	362 [ Page 4 of 7, No. 16 ]
Date	2012-12
Author	Working Group chaired by José-Manuel González-Páramo, formerly European Central Bank
Affiliation	Committee on the Global Financial System. BIS
Title	Operationalising the selection and application of macroprudential instruments
Summary / Abstract	This report aims to help policymakers in operationalising macroprudential policies. Specifically, it draws out three high-level criteria that are key in determining the selection and application of macroprudential instruments: 1. the ability to determine the appropriate timing for the activation or deactivation of the instrument; 2. the effectiveness of the instrument in achieving the stated policy objective; and 3. the efficiency of the instrument in terms of a cost-benefit assessment. In trying to operationalise these criteria, this report proposes a number of practical tools. First, to help determine the appropriate timing for the activation and deactivation of instruments, it lays out stylised scenarios. Their identification is facilitated by two alternative approaches that seek to link systemic risk analysis and instrument selection. Second, to support the evaluation of the effectiveness and efficiency of macroprudential tools for a range of macroprudential instruments, the report proposes "transmission maps" - stylised presentations of how changes in individual instruments are expected to contribute to the objectives of macroprudential policy.
Keywords	Macroprudential instruments, selection criteria
URL	http://www.bis.org/publ/cgfs48.pdf

Record ID	361 [ Page 4 of 7, No. 17 ]
Date	2013-05
Author	Ceyhun Elgin and Tolga Umut Kuzubas
Affiliation	Bogazici University, Istanbul, Turkey
Title	Wage-Productivity Gap in OECD Economies
Summary / Abstract	The Walrasian theory of labor market equilibrium predicts that in the absence of any market frictions, workers earn a wage rate equal to their marginal productivity. In this paper, based on the neoclassical tradition, the authors define the ratio of the marginal product of labor to real wages as the Pigouvian exploitation rate and then construct a panel dataset of this specific wage-productivity gap for the manufacturing sector in OECD economies. Next, they investigate its relationship with the unemployment rate along with various other variables such as the government taxation, capital expansion, unionization, inflation. Their findings suggest that the wage-productivity gap gives a robust and significantly positive response to shocks to unemployment rate and a negative response to shocks to unionization.
Keywords	Wages; marginal productivity of labor; panel-VAR; OECD economies
URL	http://www.economics-ejournal.org/economics/journalarticles/2013-21/version_1/count

Record ID	360 [ Page 4 of 7, No. 18 ]
Date	2013-05
Author	Valentina Bruno and Hyun Song Shin
Affiliation	National Bureau of Economic Research
Title	Capital Flows, Cross-Border Banking and Global Liquidity
Summary / Abstract	We investigate global factors associated with cross-border capital flows. We formulate a model of gross capital flows through the international banking system and derive a closed form solution that highlights the leverage cycle of global banks as being a prime determinant of the transmission of financial conditions across borders. We then test the predictions of our model in a panel study of 46 countries and find that global factors dominate local factors as determinants of banking sector capital flows.
Keywords	Capital Flows, Cross-Border Banking, Global Liquidity
URL	http://www.nber.org/papers/w19038.pdf
Remarks	Information about Free Papers 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	359 [ Page 4 of 7, No. 19 ]
Date	2013-04
Author	Simone Meier
Affiliation	Swiss National Bank
Title	Financial Globalization and Monetary Transmission
Summary / Abstract	This paper analyzes the way in which international financial integration affects the transmission of monetary policy in a New Keynesian open economy framework. It extends Woodford’s (2010) analysis to a model with a richer financial markets structure, allowing for international trading in multiple assets and subject to financial intermediation costs. Two different forms of financial integration are considered, in particular an increase in the level of gross foreign asset holdings and a decrease in the costs of international asset trading. The simulations in the calibrated model show that none of the analyzed forms of financial integration undermine the effectiveness of monetary policy in influencing domestic output and inflation. Under realistic parameterizations, monetary policy is more, rather than less, effective as the positive impact of strengthened exchange rate and wealth channels more than offsets the negative impact of weakened interest rate channels. The paper also analyzes the interaction of financial integration with trade integration, varying both the importance of trade linkages and the degree of exchange rate pass-through. These interactions show that the positive effects of financial integration are amplified by trade integration. Overall, monetary policy is most effective in parameterizations with the highest degree of both financial and real integration.
Keywords	Globalization, Monetary Policy, Monetary Transmission
URL	http://www.dallasfed.org/assets/documents/institute/wpapers/2013/0145.pdf

Record ID	358 [ Page 4 of 7, No. 20 ]
Date	2013-05
Author	Ivailo Arsov, Elie Canetti, Laura Kodres and Srobona Mitra
Affiliation	Money and Capital Markets Department, IMF
Title	"Near-Coincident" Indicators of Systemic Stress
Summary / Abstract	The G-20 Data Gaps Initiative has called for the IMF to develop standard measures of tail risk, which we identify in this paper with systemic risk. To understand the conditions under which tail risk is present, it is first necessary to develop a measure of what constitutes a systemic stress, or tail, event. We develop such a measure and uses it to assess the performance of eleven near-term systemic risk indicators as ‘early’ warning of distress among top financial institutions in the United States and the euro area. Two indicators perform particularly well in both regions, and a couple of other simple indicators do well across a number of criteria. We also find that the sizes of institutions do not necessarily correspond with their contribution to spillover risk. Some practical guidance for policies is provided.
Keywords	Coincident Indicator; Early Warning; Financial Stress; Systemic Risk; Tail Risk
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13115.pdf

Record ID	357 [ Page 4 of 7, No. 21 ]
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 4 of 7, No. 22 ]
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 4 of 7, No. 23 ]
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 4 of 7, No. 24 ]
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 4 of 7, No. 25 ]
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 4 of 7, No. 26 ]
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 4 of 7, No. 27 ]
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 4 of 7, No. 28 ]
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 4 of 7, No. 29 ]
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 4 of 7, No. 30 ]
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

Record ID	347 [ Page 4 of 7, No. 31 ]
Date	2013-01
Author	Otaviano Canuto and Matheus Cavallari
Affiliation	World Bank - Poverty Reduction and Economic Management (PREM)
Title	Monetary Policy and Macroprudential Regulation: Whither Emerging Markets (World Bank Policy Research Working Paper 6310)
Summary / Abstract	Confidence in combining inflation-targeting-cum-flexible-exchange-rate regimes with isolated microprudential regulation as a means to guarantee both macroeconomic and financial stability has been shattered by the scale and synchronization of asset price booms and busts that preceded the current global financial crisis. This paper has a two-fold purpose. On the one hand, it explores the implications and challenges of acknowledging the need for coordination between monetary policies and macroprudential regulation. On the other, it points out specific challenges currently faced by central bankers in emerging economies, as they cope with policy and regulatory coordination in a context of debt overhang and unconventional monetary policies in advanced economies.
Keywords	Currencies and Exchange Rates, Debt Markets, Emerging Markets, Economic Theory & Research, Banks & Banking Reform
URL	http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2198779

Record ID	346 [ Page 4 of 7, No. 32 ]
Date	2013-05
Author	Michael U. Krause and Stéphane Moyen
Affiliation	Deutsche Bundesbank
Title	Public debt and changing inflation targets
Summary / Abstract	What are the effects of a higher central bank inflation target on the burden of real public debt? Several recent proposals have suggested that even a moderate increase in the inflation target can have a pronounced effect on real public debt. We consider this question in a New Keynesian model with a maturity structure of public debt and an imperfectly observed inflation target. We find that moderate changes in the inflation target only have significant effects on real public debt if they are essentially permanent. Moreover, the additional benefits of not communicating a change in the inflation target are minor.
Keywords	Public debt, learning, inflation target, callable perpetuity, debt maturity
URL	http://econstor.eu/bitstream/10419/71902/1/742499790.pdf

Record ID	345 [ Page 4 of 7, No. 33 ]
Date	2013-04
Author	Viral V. Acharya, Robert Engle, and Diane Pierret
Affiliation	National Bureau of Economic Research
Title	Testing Macroprudential Stress Tests: The Risk of Regulatory Risk Weights
Summary / Abstract	Macroprudential stress tests have been employed by regulators in the United States and Europe to assess and address the solvency condition of financial firms in adverse macroeconomic scenarios. We provide a test of these stress tests by comparing their risk assessments and outcomes to those from a simple methodology that relies on publicly available market data and forecasts the capital shortfall of financial firms in severe market-wide downturns. We find that: (i) The losses projected on financial firm balance-sheets compare well between actual stress tests and the market-data based assessments, and both relate well to actual realized losses in case of future stress to the economy; (ii) In striking contrast, the required capitalization of financial firms in stress tests is found to be rather low, and inadequate ex post, compared to that implied by market data; (iii) This discrepancy arises due to the reliance on regulatory risk weights in determining required levels of capital once stress-test losses are taken into account. In particular, the continued reliance on regulatory risk weights in stress tests appears to have left financial sectors under-capitalized, especially during the European sovereign debt crisis, and likely also provided perverse incentives to build up exposures to low risk-weight assets.
Keywords	Macroprudential Stress Testing, Regulatory Risk Weights
URL	http://www.nber.org/papers/w18968.pdf
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Record ID	344 [ Page 4 of 7, No. 34 ]
Date	2013-05
Author	Knüppel, Malte and Schultefrankenfeld, Guido
Affiliation	Deutsche Bundesbank
Title	The empirical (ir)relevance of the interest rate assumption for central bank forecasts
Summary / Abstract	The interest rate assumptions for macroeconomic forecasts differ considerably among central banks. Common approaches are given by the assumption of constant interest rates, interest rates expected by market participants, or the central bank's own interest rate expectations. From a theoretical point of view, the latter should yield the highest forecast accuracy. The lowest accuracy can be expected from forecasts conditioned on constant interest rates. However, when investigating the predictive accuracy of the forecasts for interest rates, inflation and output growth made by the Bank of England and the Banco do Brasil, we hardly find any significant differences between the forecasts based on different interest assumptions. We conclude that the choice of the interest rate assumption, while being a major concern from a theoretical point of view, appears to be at best of minor relevance empirically.
Keywords	Forecast Accuracy, Density Forecasts, Projections
URL	http://econstor.eu/bitstream/10419/71907/1/742526879.pdf

Record ID	343 [ Page 4 of 7, No. 35 ]
Date	2013-04
Author	Simone Meier
Affiliation	Swiss National Bank
Title	Financial Globalization and Monetary Transmission
Summary / Abstract	This paper analyzes the way in which international financial integration affects the transmission of monetary policy in a New Keynesian open economy framework. It extends Woodford's (2010) analysis to a model with a richer financial markets structure, allowing for international trading in multiple assets and subject to financial intermediation costs. Two different forms of financial integration are considered, in particular an increase in the level of gross foreign asset holdings and a decrease in the costs of international asset trading. The simulations in the calibrated model show that none of the analyzed forms of financial integration undermine the effectiveness of monetary policy in influencing domestic output and inflation. Under realistic parameterizations, monetary policy is more, rather than less, effective as the positive impact of strengthened exchange rate and wealth channels more than offsets the negative impact of weakened interest rate channels. The paper also analyzes the interaction of financial integration with trade integration, varying both the importance of trade linkages and the degree of exchange rate pass-through. These interactions show that the positive effects of financial integration are amplified by trade integration. Overall, monetary policy is most effective in parameterizations with the highest degree of both financial and real integration.
Keywords	Monetary policy transmission, International financial integration
URL	http://www.snb.ch/n/mmr/reference/working_paper_2013_03/source/working_paper_2013_03.n.pdf

Record ID	342 [ Page 4 of 7, No. 36 ]
Date	2012-12
Author	Stephen M. Miller, WenShwo Fang, and Ozkan Eren
Affiliation	University of Nevada, Las Vegas, Feng Chia University, Taiwan, and University of Nevada, Las Vegas
Title	Inflation Targeting: Does It Improve Economic Performance?
Summary / Abstract	The last two decades witnessed a dramatic transformation of how central banks operate. An increasing number of central banks now use inflation targeting as their monetary policy control mechanism. A series of papers attempt to measure the effectiveness of inflation targeting on economic performance. The basic challenge in such tests is that inflation targeting appeared during a time when inflation trended downward across nearly all countries – those that did and did not adopt inflation targeting. This paper reviews the existing methods used to test for the effectiveness of inflation targeting and compares the findings of these different methods for both developed and developing countries. In general, inflation targeting does not affect economic performance in developed countries but does exert a positive effect on economic performance in developing countries. We conclude that the effectiveness of inflation targeting policy garners little, or only transitory, support based on evidence from developed countries. Much more support exists for developing countries.
Keywords	Inflation targeting, difference in differences, fixed and random effects, treatment effects, developed and developing countries
URL	http://web.unlv.edu/projects/RePEc/pdf/1207.pdf

Record ID	341 [ Page 4 of 7, No. 37 ]
Date	2012-05
Author	Kapan, Tümer and Minoiu, Camelia
Affiliation	Research Department, IMF
Title	Balance Sheet Strength and Bank Lending During the Global Financial Crisis
Summary / Abstract	We examine the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy. Using data from the syndicated loan market, we exploit variation in banks’ reliance on wholesale funding and their structural liquidity positions in 2007Q2 to estimate the impact of exposure to market freezes during 2007–08 on the supply of bank credit. We find that banks with strong balance sheets were better able to maintain lending during the crisis. In particular, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks. However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework.
Keywords	Bank lending channel, wholesale funding, capital, net stable funding ratio, Basel II
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13102.pdf

Record ID	340 [ Page 4 of 7, No. 38 ]
Date	2013-04
Author	Akcelik, Yasin; Aysan, Ahmet Faruk; and Oduncu, Arif
Affiliation	Central Bank of the Republic of Turkey
Title	Central Banking in Making during the Post-crisis World and the Policy-Mix of the Central Bank of the Republic of Turkey
Summary / Abstract	After the global crisis, one of the most important lessons learned for the Central Banks has appeared to be the vital importance of financial stability along with the price stability. Hence, finding solutions to how to incorporate the financial stability objective in the implementation of the monetary policy without diluting the price-stability objective has started to be heavily discussed by the academics and policy makers. Accordingly, it has started to be debated that using only short-term interest rates as the main policy tool may not be enough to maintain the price stability and the financial stability at the same time. Interest rates that provide price stability and financial stability can be different and this necessitates the central banks to use multiple policy tools. In view of this, the Central Bank of the Republic of Turkey adopted a new monetary policy framework called the new policy mix in which multiple tools are employed to achieve multiple objectives. In this framework, required reserves ratios, weekly repo rates, interest rate corridor, funding strategy and other macro prudential tools are jointly used as complementary tools for the credit, interest rate and liquidity policies to achieve the price and the financial stability objectives concurrently. This new monetary policy adopted in Turkey also provides an interesting case study to assess how a country came up with novel policies to account for its country specific characteristics.
Keywords	Central banking, Policy-mix, Global financial crisis, Financial Stability
URL	http://mpra.ub.uni-muenchen.de/46612/1/MPRA_paper_46612.pdf

Record ID	339 [ Page 4 of 7, No. 39 ]
Date	2013-05
Author	Donal McGettigan, Kenji Moriyama, J. Noah Ndela Ntsama, Francois Painchaud, Haonan Qu, and Chad Steinberg
Affiliation	Strategy, Policy and Review Department, IMF
Title	Monetary Policy in Emerging Markets: Taming the Cycle
Summary / Abstract	In contrast to advanced markets (AMs), procyclical monetary policy has been a problem for emerging markets (EMs), with macroeconomic policies amplifying economic upswings and deepening downturns. The stark difference in policy has not been subject to extensive study and this paper attempts to address the gap. Key findings, using a large sample of EMs over the past 50 years, are: (i) EMs have adopted increasingly countercyclical monetary policy over time, although large differences remain among EMs and policies became more procyclical during the recent crisis. (ii) Inflation targeting and better institutions have been key factors behind the move to countercyclicality. (iii) Only deep financial markets allow EMs with flexible exchange rate regimes turn countercyclical. (iv) More countercyclical policy is associated with far less volatile output. The economically meaningful impact of IT on monetary policy countercyclicality and output variability is another reason in its favor, over and above better inflation outcomes.
Keywords	Monetary Policy, Countercyclical Policy, Emerging Markets
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp1396.pdf

Record ID	338 [ Page 4 of 7, No. 40 ]
Date	2013-04
Author	Laurence Ball
Affiliation	Johns Hopkins University
Title	The Case for Four Percent Inflation
Summary / Abstract	Many central banks target an inflation rate near two percent. This essay argues that policymakers would do better to target four percent inflation. A four percent target would ease the constraints on monetary policy arising from the zero bound on interest rates, with the result that economic downturns would be less severe. This benefit would come at minimal cost, because four percent inflation does not harm an economy significantly.
Keywords	Inflation targeting, cost of inflation, unemployment
URL	http://econ.jhu.edu/wp-content/uploads/pdf/papers/wp607_ball.pdf

Record ID	337 [ Page 4 of 7, No. 41 ]
Date	2013-04
Author	Franz Alonso Hamann Salcedo, Rafael Hernández, Luisa Fernanda Silva EScobar and Fernando Tenjo Galarza
Affiliation	Banco de la Republica de Colombia
Title	Credit Pro-cyclicality and Bank Balance Sheet in Colombia
Summary / Abstract	The recent financial crisis has renewed the interest of economists, both at the theoretical and empirical level, in developing a better understanding of credit and its mechanisms. A rapidly growing strand of the literature views banks as facing funding restrictions that condition their borrowing to a risk-based capital constraint which, in turn, affects bank lending. This work explores the way banks in Colombia manage their balance sheet and sheds light into the dynamics of credit and leverage during the business cycle. Using a sample of monthly bank balance sheets for the period 1994-2012, we find not only that the Colombian banking sector is predominantly pro-cyclical, but also that the composition of bank liabilities provides important information to policy makers regarding the phase of the cycle of the economy. Shifts from low non-core liability ratios to higher ones during the upward phase of the leverage cycle could play the role of an early warning indicator of financial vulnerability. In addition, we find that bank heterogeneity matters and thus, an aggregate measure of bank leverage can mask successfully a fragile financial sector.
Keywords	Banks, credit, leverage, non-core liabilities, balance sheet, business cycle, Colombia.
URL	http://www.banrep.gov.co/docum/ftp/be_762.pdf

Record ID	336 [ Page 4 of 7, No. 42 ]
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 4 of 7, No. 43 ]
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 4 of 7, No. 44 ]
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 4 of 7, No. 45 ]
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
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Record ID	332 [ Page 4 of 7, No. 46 ]
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 4 of 7, No. 47 ]
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 4 of 7, No. 48 ]
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 4 of 7, No. 49 ]
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 4 of 7, No. 50 ]
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 4 of 7, No. 51 ]
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

Record ID	326 [ Page 4 of 7, No. 52 ]
Date	2013-01
Author	Xisong Jin and Francisco Nadal De Simone
Affiliation	Luxembourg School of Finance and Banque centrale du Luxembourg
Title	Banking Systemic Vulnerabilities: A Tail-risk Dynamic CIMDO Approach
Summary / Abstract	This study proposes a novel framework which combines marginal probabilities of default estimated from a structural credit risk model with the consistent information multivariate density optimization (CIMDO) methodology of Segoviano, and the generalized dynamic factor model (GDFM) supplemented by a dynamic t-copula. The framework models banks' default dependence explicitly and captures the time-varying non-linearities and feedback effects typical of financial markets. It measures banking systemic credit risk in three forms: (1) credit risk common to all banks; (2) credit risk in the banking system conditional on distress on a specific bank or combinations of banks and; (3) the buildup of banking system vulnerabilities over time which may unravel disorderly. In addition, the estimates of the common components of the banking sector short-term and conditional forward default measures contain early warning features, and the identification of their drivers is useful for macroprudential policy. Finally, the framework produces robust out-of-sample forecasts of the banking systemic credit risk measures. This paper advances the agenda of making macroprudential policy operational.
Keywords	Financial stability; procyclicality, macroprudential policy; credit risk; early warning indicators; default probability, non-linearities, generalized dynamic factor model; dynamic copulas; GARCH
URL	http://www.bcl.lu/fr/publications/cahiers_etudes/82/BCLWP082.pdf

Record ID	325 [ Page 4 of 7, No. 53 ]
Date	2013-04
Author	Money and Capital Markets Department
Affiliation	IMF
Title	A NEW LOOK AT THE ROLE OF SOVEREIGN CREDIT DEFAULT SWAPS (Ch. 2, Global Financial Stability Report, April 2013)
Summary / Abstract	Credit default swaps on government debt are effective tools for investors to hedge risks, and can enhance financial stability, according to a new analysis from the International Monetary Fund. Credit default swaps are financial instruments investors can use for hedging. In the case of government debt, investors use the swaps to express an opinion about the creditworthiness of a government, and to protect themselves in the event a country defaults or undertakes a debt restructuring. The growing use of sovereign credit default swaps in advanced economy debt has raised questions about whether their speculative use could have destabilizing effects on the financial system, and how policymakers should respond. The European Union has recently banned the purchase of protection using these contracts if the buyer isn’t hedging, called naked selling of sovereign credit default swaps contracts. In new research from the Global Financial Stability Report, the IMF said policymakers could improve the market for sovereign credit default swaps in other ways: by requiring more data disclosure, and by implementing the Group of Twenty regulatory reforms that aim to enhance the robustness and functioning of over-the-counter derivatives markets. “Our study showed that sovereign credit default swaps are receiving a bad rap—they are no more or less effective at representing the credit risk of governments than are the government’s own bonds,” said Laura Kodres chief of the global stability analysis division in the IMF’s Monetary and Capital Markets Department and the head of the team that produced the analysis. Not just for emerging economies anymore Financial markets developed credit default swaps on government debt as flexible instruments to hedge and trade sovereign credit risks. Before to the global crisis, the market consisted largely of contracts on emerging market government debt because investors consider their credit risk as higher and more variable. Although credit default swaps on government debt are only a fraction of countries’ outstanding debt market, their importance has been growing rapidly since 2008, especially in advanced economies where the creditworthiness of some of these countries have come under pressure. With the intensified attention, their usage has come under more scrutiny. Debunking myths about credit default swaps The IMF said credit default swap spreads provide indications of sovereign credit risk that reflect the same economic fundamentals and market conditions as the underlying government bonds. There is little indication that they raise sovereign funding costs—in other words, not much evidence that “the tail wags the dog.” The IMF’s empirical analysis finds that both credit default swaps and government bond spreads exhibit similar and significant dependence on key economic fundamentals, such as government debt-to-GDP ratios and GDP growth prospects. Also, investor appetite for risk and market liquidity similarly influence both swap and bond spreads. The analysis also shows that credit default swap markets incorporate new information faster than sovereign bond markets during periods of stress, despite wide differences across countries in normal times. Generally, the more liquid the credit default swaps market, the more rapidly it incorporates information relative to bond markets. By contrast, whether credit default swap markets are more likely to propagate shocks than other markets is unclear. This is because risks embedded in credit default swaps cannot be readily isolated from risks generally found in the financial system, such as those associated with financial firms. “We found little evidence to support many of the negative perceptions and alleged destabilizing roles of credit default swaps, although there is some evidence of that swap spreads overshoot their predicted level for some euro area countries during periods of stress,” said Kodres. Don’t shoot the messenger Initiatives by policymakers, such as the European Union ban on naked selling of credit default swaps, could eventually harm the hedging role of markets as market liquidity and depth deteriorate and result in higher spillovers to other markets. This could add to financial instability and contagious transmission channels as hedgers migrate their hedges to the next best markets, potentially adding unintended stress and volatility to these markets. In the longer term, such actions could increase sovereign funding costs, to the contrary of the intentions of policymakers. The IMF said policymakers can improve how the market for sovereign credit default swaps works by focusing their attention on implementing existing measures: • Require counterparties to post initial margin on bilateral trades or move them to a central counterparty clearing house to lessen counterparty risks and reduce the potential for spillovers from sovereign credit events • Mandate better data disclosure to mitigate uncertainty about exposures and interconnections of the market participants • Implement temporary restrictions rather than imposing permanent ones only if necessary due to stress in financial markets, although previous research has found temporary trading bans to be of only limited use.
Keywords	Sovereign credit default swaps, government debt, hedging risks, financial stability
URL	http://www.imf.org/external/pubs/ft/gfsr/2013/01/pdf/c2.pdf

Record ID	324 [ Page 4 of 7, No. 54 ]
Date	2013-04
Author	Money and Capital Markets Department
Affiliation	IMF
Title	Do Central Bank Policies Since the Crisis Carry Risks to Financial Stability? (Ch. 3, Global Financial Stability Report, April 2013)
Summary / Abstract	Several years of exceptionally low interest rates and bond buying by some advanced economy central banks have improved some indicators of banks’ health while supporting the economy and financial stability, according to new research from the International Monetary Fund. In its latest Global Financial Stability Report, the IMF analyzes the effects of central bank policies on banks and financial stability since the global crisis. Central banks have taken bold policy actions that have reduced banking sector vulnerabilities and stabilized some markets, such as the interbank and mortgage securities markets. But the policies may have undesirable side-effects that could put financial stability at risk the longer they are in place. The IMF said so far these risks are not showing up much in banks, but could be shifting to other parts of the financial sector, such as to so-called “shadow banks.” There is also some concern that the prolonged period of low interest rates is encouraging banks to roll over nonperforming loans rather than repairing their balance sheets. “So far, so good, but if the time that central banks have provided through their unconventional policies is not used productively by financial institutions and their regulators, at some point we can expect another round of financial distress,” said Laura Kodres, chief of global stability analysis in the IMF’s Monetary and Capital Markets Department and the head of the team that produced the analysis. Potential risks Despite the positive short-run effects for banks, there are financial risks associated with these central bank policies, which are likely to increase the longer they are maintained, according to the IMF. The analysis found some aspects of this unprecedented monetary policy may be delaying balance sheet repair in banks and could raise credit risk over the medium term. This would explain the increase in market perceptions of bank default risk in response to central bank policy announcements, the IMF said. Risks may also be shifting to other parts of the financial system not examined in the report, such as shadow banks, pension funds and insurance companies—or to other countries. Monitoring these risks requires improved data collection by those responsible for monitoring system-wide risks on nonbank financial institutions, as well as intrusive oversight by financial supervisors. The report cautions that some risks may materialize when central banks end the measures taken in the wake of the global crisis. Uncertainty about asset sales by central banks could lead to shifts in market sentiment and rapid price changes that could result in losses for bond holders—especially banks and central banks. The degree to which long-term yields may rise from their currently compressed levels, which would make bond prices drop, heightens this concern. Losses could hurt weakly capitalized banks in the short run, although the IMF said the net effect of interest rate increases may be positive for banks over the medium term as their lending picks up. Policymakers should be vigilant and flexible The report says that central bank policies should continue to support the economy and financial stability until the recovery is well established. The IMF said policymakers need to be vigilant and assess the emergence of potential and emerging financial stability threats. They also should use targeted policies designed to foster bank balance-sheet repair and reduce their vulnerability to market disruptions. By reducing the risks in the financial sector, micro- and macroprudential policies will allow greater leeway for monetary policy to support the economy. The report identifies specific measures that could prove helpful to contain credit risk and funding challenges for banks, such as robust capital requirements, improved liquidity requirements, and well-designed dynamic forward-looking provisioning. Because the experience with some macroprudential tools is still relatively limited, the IMF recommends that policymakers closely monitor the effectiveness of their policies and stand ready to adjust them as needed. Coordination with other economic policies, such as monetary and fiscal policy, will also help reduce the reliance on macroprudential tools. To minimize adverse effects on market sentiment, the IMF points out that it is important that central banks communicate clearly about their strategies to exit from their extraordinary policy measures, ahead of their implementation.
Keywords	Global financial stability, potential risks of long periods of low interest rates and bond-buying
URL	http://www.imf.org/external/pubs/ft/gfsr/2013/01/pdf/c3.pdf

Record ID	323 [ Page 4 of 7, No. 55 ]
Date	2013-04
Author	Chan-Lau, Jorge
Affiliation	Money and Capital Markets Department, IMF
Title	Market-Based Structural Top-Down Stress Tests of the Banking System
Summary / Abstract	Despite increased need for top-down stress tests of financial institutions, performing them is challenging owing to the absence of granular information on banks’ trading and loan portfolios. To deal with these data shortcomings, this paper presents a market-based structural top-down stress testing methodology that relies in market-based measures of a bank's probability of default and structural models of default risk to infer the capital losses they could experience in stress scenarios. As an illustration, the methodology is applied to a set of banks in an advanced emerging market economy.
Keywords	Stress tests, banks, default risk, syst emic risk, structural models, market prices
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp1388.pdf

Record ID	322 [ Page 4 of 7, No. 56 ]
Date	2013-04
Author	Ioan Carabenciov, Charles Freedman, Roberto Garcia-Saltos, Douglas Laxton, Ondra Kamenik, and Petar Manchev
Affiliation	Research Department, IMF
Title	The Global Projection Model with 6 Regions
Summary / Abstract	This is the sixth of a series of papers that are being written as part of a project to estimate a small quarterly Global Projection Model (GPM). The GPM project is designed to improve the toolkit to which economists have access for studying both own-country and cross-country linkages. In this paper, we add three more regions and make a number of other changes to a previously estimated small quarterly projection model of the US, euro area, and Japanese economies. The model is estimated with Bayesian techniques, which provide a very efficient way of imposing restrictions to produce both plausible dynamics and sensible forecasting properties.
Keywords	Macroeconomic Modeling, Bayesian Estimation, Monetary Policy
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp1387.pdf

Record ID	321 [ Page 4 of 7, No. 57 ]
Date	2013-02
Author	Sewon Hur and Illenin O. Kondo
Affiliation	University of Pittsburgh and Federal Reserve Board
Title	A theory of rollover risk, sudden stops, and foreign reserves
Summary / Abstract	Emerging economies, unlike advanced economies, have accumulated large foreign reserve holdings. We argue that this policy is an optimal response to an increase in foreign debt rollover risk. In our model, reserves play a key role in reducing debt rollover crises ("sudden stops"), akin to the role of bank reserves in preventing bank runs. We find that a small, unexpected, and permanent increase in rollover risk accounts for the outburst of sudden stops in the late 1990s, the subsequent increase in foreign reserves holdings, and the salient resilience of emerging economies to sudden stops ever since. Finally, we show that a policy of pooling reserves can substantially reduce the reserves needed by emerging economies.
Keywords	Rollover risk, reserves, sudden stops
URL	http://www.federalreserve.gov/pubs/ifdp/2013/1073/ifdp1073.pdf

Record ID	320 [ Page 4 of 7, No. 58 ]
Date	2010-09
Author	Strategy, Policy, and Review Department, Monetary and Capital Markets Department, Fiscal Affairs Department, and Research Department
Affiliation	International Monetary Fund
Title	The IMF-FSB Early Warning Exercise: Design and Methodological Toolkit
Summary / Abstract	One of the G-20's first reactions to the financial crisis that erupted by late 2008 was to task the IMF and the Financial Stability Board (FSB) with establishing a joint Early Warning Exercise (EWE). This Occasional Paper presents an overview of the IMF's contributions to the EWE. Part I sets out the process, analytical framework, outputs, and dissemination of the EWE, as well as the collaboration with the FSB. Part II describes the main analytical tools deployed in the exercise as of September 2010. As new tools are developed (or become available), they are being added to the EWE or substituted for other models. Once the global economy returns to more stable conditions, the EWE is likely to become the more forward-looking exercise it was initially meant to be, focusing primarily on low-probability, high-impact events (e.g., tail risks). Over time, as new sources of systemic risks emerge and new analytical tools become available, the EWE framework will continue to adapt.
Keywords	Early Warning Exercise, IMF, FSB
URL	http://www.imf.org/external/np/pp/eng/2010/090110.pdf

Record ID	319 [ Page 4 of 7, No. 59 ]
Date	2013-04
Author	Itai Agur and Maria Demertzis
Affiliation	IMF - Singapore Regional Training Institute
Title	"Leaning Against the Wind" and the Timing of Monetary Policy
Summary / Abstract	If monetary policy is to aim also at financial stability, how would it change? To analyze this question, this paper develops a general-form framework. Financial stability objectives are shown to make monetary policy more aggressive: in reaction to negative shocks, cuts are deeper but shorter-lived than otherwise. By keeping cuts brief, monetary policy tightens as soon as bank risk appetite heats up. Within this shorter time span, cuts must then be deeper than otherwise to also achieve standard objectives. Finally, we analyze how robust this result is to the presence of a bank regulatory tool, and provide a parameterized example.
Keywords	Monetary policy, financial stability, bank risk, regulation
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp1386.pdf

Record ID	318 [ Page 4 of 7, No. 60 ]
Date	2013-04
Author	Tobias Hagen
Affiliation	Frankfurt University of Applied Sciences, Department of Business and Law
Title	Impact of National Financial Regulation on Macroeconomic and Fiscal Performance after the 2007 Financial Shock – Econometric Analyses Based on Cross-Country Data
Summary / Abstract	Using cross-country data, this paper estimates the impact of the 2007 financial shock on countries’ macroeconomic developments conditional on national financial regulations before the crisis. For this purpose, the “financial reform index” developed by Abiad et al. (A New Database of Financial Reforms, 2008) is used. The econometric analyses indicate that countries with more deregulated financial markets experienced deeper recessions, stronger employment losses, and larger government budget deficits. Against the background of the ongoing global crisis and the results of other studies, the usefulness of liberalized financial markets for macroeconomic stability and economic development should be rigorously reconsidered.
Keywords	Financial crisis; financial regulation, Great Recession, robust regression, semiparametric regression
URL	http://www.economics-ejournal.org/economics/discussionpapers/2013-26/count

Record ID	317 [ Page 4 of 7, No. 61 ]
Date	2013-03
Author	David Miles, Jing Yang and Gilberto Marcheggiano
Affiliation	Monetary Policy Committee, Bank of England, Bank for International Settlements, and Bank of England
Title	OPTIMAL BANK CAPITAL
Summary / Abstract	This article reports estimates of the long-run costs and benefits of having banks fund more of their assets with loss-absorbing capital, or equity. We model how shifts in funding affect required rates of return and how costs are influenced by the tax system. We draw a clear distinction between costs to individual institutions (private costs) and overall economic (or social) costs. We find that the amount of equity capital that is likely to be desirable for banks to use is very much larger than banks have used in recent years and also higher than targets agreed under the Basel III framework.
Keywords	Bank capital, Basle III framework, private vs social costs
URL	http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0297.2012.02521.x/pdf

Record ID	316 [ Page 4 of 7, No. 62 ]
Date	2013-03
Author	Adolfo Barajas, Thorsten Beck, Era Dabla-Norris, and Seyed Reza Yousefi
Affiliation	Strategy, Policy, and Review Department, IMF
Title	Too Cold, Too Hot, Or Just Right? Assessing Financial Sector Development Across the Globe
Summary / Abstract	This paper introduces the concept of the financial possibility frontier as a constrained optimum level of financial development to gauge the relative performance of financial systems across the globe. This frontier takes into account structural country characteristics, institutional, and macroeconomic factors that impact financial system deepening. We operationalize this framework using a benchmarking exercise, which relates the difference between the actual level of financial development and the level predicted by structural characteristics, to an array of policy variables. We also show that an overshooting of the financial system significantly beyond levels predicted by its structural fundamentals is associated with credit booms and busts.
Keywords	Financial Development; Financial Sector Policies; Benchmarking
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp1381.pdf

Record ID	315 [ Page 4 of 7, No. 63 ]
Date	2010-02
Author	Martin Fukac
Affiliation	Federal Reserve Bank of Kansas City
Title	Impulse Response Identification in DSGE Models
Summary / Abstract	Dynamic stochastic general equilibrium (DSGE) models have become a widely used tool for policymakers. This paper modifies the global identification theory used for structural vectorautoregressions, and applies it to DSGE models. We use this theory to check whether a DSGE model structure allows for unique estimates of structural shocks and their dynamic effects. The potential cost of a lack of identification for policy oriented models along that specific dimension is huge, as the same model can generate a number of contrasting yet theoretically and empirically justifiable recommendations. The problem and methodology are illustrated using a simple New Keynesian business cycle model.
Keywords	Identification of DSGE models, impulse response, identification, minimal system realisation
URL	http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1553933_code694895.pdf?abstractid=1553933&mirid=2

Record ID	314 [ Page 4 of 7, No. 64 ]
Date	2010-02
Author	Adrian Pagan and Martin Fukac
Affiliation	Australian National University (ANU) - Research School of Social Sciences (RSSS), University of New South Wales - Australian School of Business - School of Economics, and Federal Reserve Bank of Kansas City
Title	Structural Macro-Econometric Modelling in a Policy Environment
Summary / Abstract	In this paper we review the evolution of macroeconomic modelling in a policy environment that took place over the past sixty years. We identify and characterize four generations of macro models. Particular attention is paid to the fourth generation - dynamic stochastic general equilibrium models. We discuss some of the problems in how these models are implemented and quantified.
Keywords	History of macroeconomic modeling, policy oriented models, structural model evaluation, DSGE models
URL	http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1553948_code694895.pdf?abstractid=1553948&mirid=2

Record ID	313 [ Page 4 of 7, No. 65 ]
Date	2010-02
Author	Pier Francesco Asso, George A. Kahn, and Robert Leeson
Affiliation	University of Palermo, Federal Reserve Bank of Kansas City, and Hoover Institution
Title	The Taylor Rule and the Practice of Central Banking
Summary / Abstract	The Taylor rule has revolutionized the way many policymakers at central banks think about monetary policy. It has framed policy actions as a systematic response to incoming information about economic conditions, as opposed to a period-by-period optimization problem. It has emphasized the importance of adjusting policy rates more than one-for-one in response to an increase in inflation. And, various versions of the Taylor rule have been incorporated into macroeconomic models that are used at central banks to understand and forecast the economy. This paper examines how the Taylor rule is used as an input in monetary policy deliberations and decision-making at central banks. The paper characterizes the policy environment at the time of the development of the Taylor rule and describes how and why the Taylor rule became integrated into policy discussions and, in some cases, the policy framework itself. Speeches by policymakers and transcripts and minutes of policy meetings are examined to explore the practical uses of the Taylor rule by central bankers. While many issues remain unresolved and views still differ about how the Taylor rule can best be applied in practice, the paper shows that the rule has advanced the practice of central banking.
Keywords	Taylor rule, monetary policy, rules versus discretion
URL	http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1553978_code694895.pdf?abstractid=1553978&mirid=2

Record ID	312 [ Page 4 of 7, No. 66 ]
Date	2013-03
Author	Luis Felipe Cespedes, Roberto Chang, and Andres Velasco
Affiliation	Universidad Adolfo Ibáñez, Rutgers University and National Bureau of Economic Research, and Columbia University and National Bureau of Economic Research
Title	Is Inflation Targeting Still on Target? The Recent Experience of Latin America
Summary / Abstract	This paper reviews the recent experience of a half-dozen Latin American inflation targeting (IT) nations. Repeated and large deviations from the standard IT framework are documented: exchange market interventions have been lasting and widespread; the real exchange rate has often become a target of policy, though this target is seldom made explicit; a range of other non-conventional policy tools, especially changes in reserve requirements but occasionally taxes or restrictions on international capital movements, also came into common use. As in developed nations, during the 2008-2009 crisis issues of liquidity provision took center stage. A first evaluation of the emerging modified framework of monetary policy is also attempted. In general terms, the new approach seems to have been effective, at the very least since the region weathered the crisis reasonably well. But also, and perhaps more importantly, many questions remain about the desirability of non-conventional monetary policies in Latin America.
Keywords	Inflation targeting, monetary policy, financial crisis
URL	http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=37635005
Remarks	Are countries in the region moving toward a new monetary policy framework? Or are they simply adding bells and whistles to the basic Inflation Targeting logic? The authors of this paper are inclined to take the second alternative. What seems to be emerging is not an alternative regime to IT, but rather an expanded and enriched version. The old IT may no longer be on target, but perhaps a new version soon will be.

Record ID	311 [ Page 4 of 7, No. 67 ]
Date	2013-01
Author	Armand Fouejieu A. and Scott Roger
Affiliation	International Monetary Fund
Title	Inflation Targeting and Country Risk: an Empirical Investigation
Summary / Abstract	The sovereign debt crisis in Europe has highlighted the role of country risk premia as a link between countries’ fiscal and external balances, financial conditions and monetary policy. The purpose of this paper is to estimate how adoption of inflation targeting (IT) affects spreads. It is hypothesized that country risk premia for IT countries (especially among emerging market economies) may be lower than for other countries owing to greater policy predictability and more stable long-term inflation. The findings suggest that IT reduces the risk premium, both through adoption of the IT regime, and through the observed track record in stabilizing inflation.
Keywords	Inflation targeting, risk premium, external debt
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp1321.pdf

Record ID	310 [ Page 4 of 7, No. 68 ]
Date	2013-01
Author	Benes, Jaromir ; Berg, Andrew ; Portillo, Rafael ; Vavra, David
Affiliation	Research Department, IMF
Title	Modeling Sterilized Interventions and Balance Sheet Effects of Monetary Policy in a New-Keynesian Framework
Summary / Abstract	We study a wide range of hybrid inflation-targeting (IT) and managed exchange rate regimes, analyzing their implications for inflation, output and the exchange rate in the presence of various domestic and external shocks. To this end, we develop an open economy new-Keynesian model featuring sterilized interventions in the foreign exchange (FX) market as an additional central bank instrument operating alongside the Taylor rule, and affecting the economy through portfolio balance sheet effects in the financial sector. We find that there can be advantages to combining IT with some degree of exchange rate management via FX interventions. Unlike "pure" IT or exchange rate management via interest rates, FX interventions can help insulate the economy against certain shocks, especially shocks to international financial conditions. However, managing the exchange rate through FX interventions may also hinder necessary exchange rate adjustments, e.g., in the presence of terms of trade shocks.
Keywords	Sterilized FX inte rventions, monetary policy, emer ging markets, new-Keynesian economics.
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp1311.pdf

Record ID	309 [ Page 4 of 7, No. 69 ]
Date	2013-02
Author	Atish R. Ghosh, Jun I. Kim, Enrique G. Mendoza, Jonathan D. Ostry and Mahvash S. Qureshi
Affiliation	International Monetary Fund and University of Pennsyulvania (Mendoza)
Title	FISCAL FATIGUE, FISCAL SPACE AND DEBT SUSTAINABILITY IN ADVANCED ECONOMIES
Summary / Abstract	How high can public debt rise without compromising fiscal solvency? We answer this question using a stochastic model of sovereign default in which risk-neutral investors lend to a government that displays ‘fiscal fatigue’, whereby its ability to increase primary balances cannot keep pace with rising debt. As a result, the government faces an endogenous debt limit beyond which debt cannot be rolled over. Using data for 23 advanced economies over the period 1970-2007, we find evidence of a fiscal reaction function with these features, and use it to compute ‘fiscal space’, defined as the difference between current debt ratios and the estimated debt limits.
Keywords	Fiscal fatigue, fiscal space, debt sustainability
URL	http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12010/pdf
Remarks	A practical guide to public borrowing.

Record ID	308 [ Page 4 of 7, No. 70 ]
Date	2012-09
Author	Strategy, Policy, and Review Department, in consultation with other Departments
Affiliation	IMF
Title	IMF Policy Paper: Fifth Periodic Monitoring Report on the Status of Implementation Plans in Response to Board-Endorsed IEO Recommendations
Summary / Abstract	Periodic Monitoring Reports update the status on Management Implementation Plans (MIPs) in response to Executive Board-endorsed IEO recommendations. The last Periodic Monitoring Report (PMR) was discussed by the Board Evaluation Committee (EVC) and then agreed by the Board in August 2011. That report concluded that all key performance benchmarks related to the MIPs covered in that report had either been met or were on track for timely completion, that no new remedial actions were proposed, and that there were no outstanding performance benchmarks to be reviewed in the next PMR. In their assessment to the Executive Board, the EVC did, however, note that further work was needed on three other issues—staff mobility, enhanced coverage of previous implementation plans, and the process for following up on IEO recommendations. This fifth report therefore updates work on these three issues, including a consolidated picture of recent progress on all Board-endorsed recommendations made since the first PMR in 2007. This PMR also presents progress on the Implementation Plan in response to Board-endorsed recommendations arising from the IEO Evaluation of IMF Interactions with Member Countries (hereafter, Interactions Evaluation).
Keywords	Independent Evaluation Office (IEO)
URL	http://www.imf.org/external/np/pp/eng/2012/092412.pdf
Remarks	It would be useful for the BSP and other national authorities in the Philippines to be aware of recent initiatives that the IMF Executive Board had approved or been pursuing or intending to pursue in areas of relationships and obligations between the Philippines and the IMF.

Record ID	307 [ Page 4 of 7, No. 71 ]
Date	2013-03
Author	Shekhar Aiyar, Romain Duval, Damien Puy, Yiqun Wu, and Longmei Zhang
Affiliation	Asia and Pacific Department, IMF
Title	Growth Slowdowns and the Middle-Income Trap
Summary / Abstract	The “middle-income trap” is the phenomenon of hitherto rapidly growing economies stagnating at middle-income levels and failing to graduate into the ranks of high-income countries. In this study we examine the middle-income trap as a special case of growth slowdowns, which are identified as large sudden and sustained deviations from the growth path predicted by a basic conditional convergence framework. We then examine their determinants by means of probit regressions, looking into the role of institutions, demography, infrastructure, the macroeconomic environment, output structure and trade structure. Two variants of Bayesian Model Averaging are used as robustness checks. The results—including some that indeed speak to the special status of middle-income countries—are then used to derive policy implications, with a particular focus on Asian economies.
Keywords	Growth, slowdown, middle income trap, Bayesian Model Averaging
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp1371.pdf
Remarks	The Philippines is included in this study. The authors, all from the Asia and Pacific Department of the IMF, examine the role of institutions, demography, infrastructure, the macroeconomic environment, output structure and trade structure in the potential risk of growth slowdown. They conclude that "taken at face value, the empirical results imply that, compared with other Asian economies, Malaysia, the Philippines and China would face a larger risk of growth slowdown stemming from institutions." The authors measure "institutions" from indices on (1) government size, (2) rule of law, (3) freedom to trade internationally, (4) regulation, and (5) financial openness.

Record ID	306 [ Page 4 of 7, No. 72 ]
Date	2013-03
Author	Michael J. Lamla and Jan-Egbert Sturm
Affiliation	KOF Swiss Economic Institute, ETH Zurich, Switzerland
Title	Interest Rate Expectations in the Media and Central Bank Communication
Summary / Abstract	While there is ample evidence how central bank communication and interest rate decisions are perceived by financial markets, insights regarding the response of the public is lacking. Media is known to be an important transmitter of news to the public. Based on articles in the Financial Times Europe, we test how expectations on the future course of monetary policy presented in the media are affected by central bank communication and interest rate decisions.
Keywords	European Central Bank, monetary policy announcements, central bank communication, media expectations
URL	http://d.repec.org/n?u=RePEc:kof:wpskof:13-334&r=mon

Record ID	305 [ Page 4 of 7, No. 73 ]
Date	2013-02
Author	Wolfgang J. Luhan and Johann Scharler
Affiliation	Ruhr-Universität Bochum and University of Innsbruck
Title	Monetary Policy, Inflation Illusion and the Taylor Principle – An Experimental Study
Summary / Abstract	We develop a simple experimental setting to evaluate the role of the Taylor principle, which holds that the nominal interest rate has to respond more than one-for-one to fluctuations in the inflation rate. In our setting, the average inflation rate fluctuates around the inflation target if the computerized central bank obeys the Taylor principle. If the Taylor principle is violated, then the average inflation rate persistently deviates from the target. We find that these deviations from the target are less pronounced, if inflation rates cannot be as readily observed as nominal interest rates. This result is consistent with the interpretation that subjects underestimate the influence of inflation on the real return to savings if the inflation rate is only observed ex post.
Keywords	Taylor principle, interest rate rule, inflation illusion, laboratory experiment
URL	http://repec.rwi-essen.de/files/REP_13_402.pdf

Record ID	304 [ Page 4 of 7, No. 74 ]
Date	2013-03
Author	Phan, Tuan
Affiliation	Australian National University
Title	Should central banks publish interest rate forecasts? - a survey
Summary / Abstract	As a particular form of transparency, some central banks publish their interest rate forecasts while many others refuse to do that. Whether the publication is good or bad for economic performance and social welfare is now a hotly debated subject. This paper provides a review of the literature in both theoretical and empirical aspects. We also establish a criteria table which could be used as a preliminary guideline for central banks in answering the question whether they should reveal the forecasts, and how to publish the policy rate inclinations. The suggested conclusion is that interest rate projections should be considered as one of the last items that central banks should reveal and they should be very careful in publishing their policy rate forecasts.
Keywords	Central bank transparency, interest rate forecasts
URL	http://mpra.ub.uni-muenchen.de/44676/1/MPRA_paper_44676.pdf

Record ID	303 [ Page 4 of 7, No. 75 ]
Date	2013-02
Author	Ambrogio Cesa-Bianchi and Alessandro Rebucci
Affiliation	Inter-American Development Bank
Title	Does Easing Monetary Policy Increase Financial Instability?
Summary / Abstract	This paper develops a model featuring both a macroeconomic and a financial stability objective that speaks to the interaction between monetary and macroprudential policies. First, we find that interest rate rigidities in a monopolistic banking system have an asymmetric impact on financial stability: they lead to greater financial instability in response to contractionary shocks, while they act as an automatic financial stabilizer in response to expansionary shocks. Second, we find that when the policy interest rate is the only instrument, a monetary authority subject to the same constraints as private agents cannot always achieve a (constrained) efficient allocation and faces a trade-off between macroeconomic and financial stability in response to contractionary shocks. This has important implications for the role played by U. S. monetary policy in the run-up to the global financial crisis: the model suggests that the weak link in the U. S. policy framework was not the monetary policy stance after 2002, but rather the absence of an effective second policy pillar aimed at preserving financial stability.
Keywords	Monetary policy, macroprudential policies, financial crises, real rigidities, credit friction
URL	http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=37462291
Remarks	This paper's conclusion that "... the weak link in the U. S. policy framework was not the monetary policy stance after 2002, but rather the absence of an effective second policy pillar aimed at preserving financial stability" is similar to the conclusion of my paper "Should Policymakers Respond Directly to Financial Stability in Their Interest Rule?" in http://www.seacen.org/file/file/2nd_seacen_cemla/2nd_SC_danvillanueva.pdf

Record ID	302 [ Page 4 of 7, No. 76 ]
Date	2013-02
Author	Michael Bleaney and Sharmila Devadas
Affiliation	School of Economics, University of Nottingham, and Bank Negara Malaysia
Title	Foreign Exchange Inflows in Emerging Markets: How Much Are They Sterilised?
Summary / Abstract	As some emerging market economies have amassed large quantities of foreign exchange reserves, concern has arisen over the sterilisation of the domestic money stock from these flows. Existing studies focus mostly on narrow (reserve) money, and estimate a high degree of sterilisation. Empirical work on the long-run relationship between money and prices emphasises broad money, yet the long-run effect of foreign exchange inflows on broad money has been almost entirely ignored. Using a sample of quarterly data from 28 countries over the period 1990-2010, it is shown that broad money is sterilised to a significantly smaller degree than reserve money. This pattern is not confined to any particular group of countries and is unrelated to the nature of the flows (e.g. current account versus capital account surpluses). Sterilisation rates have increased in Asia during the recent period of persistent accumulation of foreign exchange reserves.
Keywords	Foreign exchange intervention, money, sterilisation, emerging markets
URL	http://www.nottingham.ac.uk/economics/documents/discussion-papers/13-01.pdf

Record ID	301 [ Page 4 of 7, No. 77 ]
Date	2013-01
Author	Mehrotra, Aaron
Affiliation	Bank of Finland
Title	On the use of sterilisation bonds in emerging Asia
Summary / Abstract	We document recent developments in the use of sterilisation bonds by six central banks in emerging Asia, and discuss the implications for monetary policy and the financial sector. An important development in the sterilisation of foreign exchange interventions in past years has been the frequent use of central banks’ own paper. There has been an attempt to lengthen the maturity structure of sterilisation bills, and maturities have risen, especially in 2010–11. The choice of sterilisation instrument is likely to depend partly on their relative costs. In particular, as the yield on central bank securities has fallen relative to the rate of remuneration of required reserves, some central banks in Asia have increasingly used central bank securities for sterilisation.
Keywords	Sterilisation bonds, central bank bonds and bills, foreign exchange reserves, Emerging Asia
URL	http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/2013/dp0113.pdf

Record ID	300 [ Page 4 of 7, No. 78 ]
Date	2013-02
Author	Paul Hubert
Affiliation	Ofce sciences-po, France
Title	The influence and policy signaling role of FOMC forecasts
Summary / Abstract	Policymakers at the Federal Open Market Committee (FOMC) publish forecasts since 1979. We examine the effects of publishing FOMC inflation forecasts in two steps using a structural VAR model. We assess whether they influence private inflation expectations and the underlying mechanism at work: do they convey policy signals for forward guidance or help interpreting current policy decisions? We provide original evidence that FOMC inflation forecasts are able to influence private ones. We also find that FOMC forecasts give information about future Fed rate movements and affect private expectations in a different way than Fed rate shocks. This body of evidence supports the use of central bank forecasts to affect inflation expectations especially while conventional policy instruments are at the zero lower bound.
Keywords	Monetary policy, Forecasts, FOMC, influence, Policy signals, structural Var
URL	http://www.ofce.sciences-po.fr/pdf/dtravail/WP2013-03.pdf

Record ID	299 [ Page 4 of 7, No. 79 ]
Date	2013-01
Author	Nidhaleddine Ben Cheikh
Affiliation	University of Rennes 1 - CREM UMR CNRS 6211, France
Title	Nonlinear Mechanism of the Exchange Rate Pass-Through: Does Business Cycle Matter?
Summary / Abstract	This paper examines the presence of nonlinear mechanism in the exchange rate pass-through (ERPT) to CPI inflation for 12 euro area (EA) countries. Using logistic smooth transition models, we explore the existence of nonlinearity with respect to economic activity along the business cycle. Our results provide a strong evidence of nonlinearity in 6 out of 12 EA countries with significant differences in the degree of ERPT between the periods of expansion and recession. However, we find no clear direction in this regime-dependence of pass-through to business cycle. In some countries, ERPT is higher during expansions than in recessions; however, in other countries, this result is reversed. These cross-country differences in the nonlinear mechanism of pass-through would have important implications for the design of monetary policy and the control of inflation in the EA context.
Keywords	Exchange Rate Pass-Through, Inflation, Smooth Transition Regression
URL	http://crem.univ-rennes1.fr/wp/2013/201306.pdf

Record ID	298 [ Page 4 of 7, No. 80 ]
Date	2012-02
Author	Hyeong Ho Moon, Tae-Hwan Kim, and Seongho Nah
Affiliation	Department of Economics, University of California at San Diego, USA, School of Economics, Yonsei University, South Korea, and Bank of Korea, South Korea
Title	On measuring the nonlinear effect of interest rates on inflation and output
Summary / Abstract	While economists are interested in the reaction of the interest rate to changes in the inflation rate, central bankers are usually more interested in the reverse causal relationship, i.e., the response of inflation (and output) to a change in the official interest rate as administrated by the central bank. Whether the reverse causal relationship is linear or nonlinear is an empirical issue. We investigated the reverse causal relationship by employing the LSTVAR model proposed by Weise (1999). We found strong evidence in favor of nonlinearity. As a consequence of the nonlinearity, we discovered various types of asymmetric effects of the interest rate on inflation and output. An asymmetric effect of monetary shocks of different sizes was uncovered, which implies that when the unexpected change in the official rate is doubled (i.e. from 0.25% to 0.5%), its effect on inflation and output is likely to be more than doubled. However, this finding is upheld only when the economy is in recession. The opposite result, in which the effect is smaller, is supported when the economy is expanding. Regarding the other asymmetric effect of monetary shocks with different signs, we found that central banks can expect that increasing the official rate by some certain amount (e.g. 0.25%) is likely to have much larger effect on inflation and output than decreasing the rate by the same amount (e.g. -0.25%) regardless of the state of the economy.
Keywords	Nonlinear VAR, impulse response function, asymmetric monetary effect
URL	ftp://repec.yonsei.ac.kr/repec/yon/wpaper/2013rwp-53.pdf

Record ID	297 [ Page 4 of 7, No. 81 ]
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 4 of 7, No. 82 ]
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 4 of 7, No. 83 ]
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 4 of 7, No. 84 ]
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 4 of 7, No. 85 ]
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 4 of 7, No. 86 ]
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 4 of 7, No. 87 ]
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 4 of 7, No. 88 ]
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 4 of 7, No. 89 ]
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 4 of 7, No. 90 ]
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

Record ID	287 [ Page 4 of 7, No. 91 ]
Date	2013-01
Author	Christina D. Romer and David H. Romer
Affiliation	National Bureau of Economic Research (NBER)
Title	The Missing Transmission Mechanism in the Monetary Explanation of the Great Depression
Summary / Abstract	This paper examines an important gap in the monetary explanation of the Great Depression: the lack of a well-articulated and documented transmission mechanism of monetary shocks to the real economy. It begins by reviewing the challenge to Friedman and Schwartz’s monetary explanation provided by the decline in nominal interest rates in the early 1930s. We show that the monetary explanation requires not just that there were expectations of deflation, but that those expectations were the result of monetary contraction. Using a detailed analysis of Business Week magazine, we find evidence that monetary contraction and Federal Reserve policy contributed to expectations of deflation during the central years of the downturn. This suggests that monetary shocks may have depressed spending and output in part by raising real interest rates.
URL	http://d.repec.org/n?u=RePEc:nbr:nberwo:18746&r=cba
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	286 [ Page 4 of 7, No. 92 ]
Date	2012-10
Author	Runchana Pongsaparn, Panda Ketruangroch and Dhanaporn Hirunwong
Affiliation	Bank of Thailand
Title	Monetary Policy Conduct in Review: The Appropriate Choice of Instruments
Summary / Abstract	In achieving price stability, central banks can choose different ways to conduct monetary policy. The difference in the conduct of monetary policy lies in the instrument they use not in the monetary policy regime per se. The paper finds that the higher the level of financial development, the higher degree of monopoly power (uniqueness) in exports and the stronger the institution, the more likely a country will use interest rate as the main monetary policy instrument. Furthermore, based on three criteria: (1) controllability of policy instrument and monetary conditions (2) the degree of counter-cyclicality and (3) the effectiveness of instrument in influencing inflation and output, interest rate appears to be an appropriate monetary policy instrument for Thailand. So far, performance of the current monetary policy framework in Thailand has been fine, with transparency through communication with the general public being one of the key factors contributing to the performance and policy effectiveness.
Keywords	Economic Rationales for Central Banking
URL	http://www.bot.or.th/Thai/EconomicConditions/Publication/DiscussionPaper/dp052012_eng.pdf

Record ID	285 [ Page 4 of 7, No. 93 ]
Date	2012-10
Author	Pornpinun Chantapacdepong, Nuttathum Chutasripanich, and Bovonvich Jindarak
Affiliation	Bank of Thailand
Title	Central Bank Balance Sheet and Policy Implications
Summary / Abstract	Recently, weak central bank financial positions, especially of emerging economies, have brought into the public spotlight whether or not such weakness will constrain or obstruct the policy implementation in the long run. The country case studies and statistical performance show that the central bank capital erosion does not directly relate to the policy effectiveness, but creates the vulnerabilities to the monetary policy process. The key factor helping to achieve the policy objectives, even with the losses or negative capital, is “central bank credibility”. The policy choices to reduce such vulnerabilities are discussed in this paper.
Keywords	Central Bank Balance Sheet and Policy Implications
URL	http://www.bot.or.th/Thai/EconomicConditions/Publication/DiscussionPaper/dp072012_eng.pdf

Record ID	284 [ Page 4 of 7, No. 94 ]
Date	2012-10
Author	Wanvimol Sawangngoenyuang, Sukrita Sa-nguanpan, and Worawut Sabborriboon
Affiliation	Bank of Thailand
Title	Financial Systemic Stability: Challenging Aspects of Central Banks
Summary / Abstract	Since 2007 global financial crisis, many central banks have tended to focus on financial stability much more than ever. Lessons learned from recent crises witness that in a period of sustained economic growth with low and stable inflation, financial imbalances could adversely affect financial system and real economy, which eventually leads to financial crises. In addition, the cost of crises becomes increasingly expensive over time because crises themselves have been more systemic. Risk from one financial institution can easily transfer to others and then to the whole financial market. Thus, current crises highlight the importance of financial stability role of central banks in two main aspects, crisis prevention and crisis management. The paper indicates that in recent financial crises, many central banks have stepped beyond their traditional roles in order to ensure financial system stability. Some instruments and measures that central banks have implemented can be considered as unconventional ones. Looking forward, these practices then lead to new challenges for central banks in three main aspects: risk identification, risk mitigation, and policy issuance process. Eventually, this paper also provides policy implications to Bank of Thailand, based on international experiences and lessons learned from recent crises.
Keywords	Financial Systemic Stability
URL	http://www.bot.or.th/Thai/EconomicConditions/Publication/DiscussionPaper/dp062012_eng.pdf

Record ID	283 [ Page 4 of 7, No. 95 ]
Date	2012-12
Author	Fabrice Collard, Harris Dellas, Behzad Diba, and Olivier Loisel
Affiliation	University of Bern, Georgetown University, and CREST(ENSAE)
Title	Optimal Monetary and Prudential Policies
Summary / Abstract	The recent financial crisis has highlighted the interconnectedness between macroeconomic and financial stability and has raised the question of whether and how to combine the corresponding main policy instruments (interest rate and bank-capital requirements). This paper offers a characterization of the jointly optimal setting of monetary and prudential policies and discusses its implications for the business cycle. The source of financial fragility is the socially excessive risk-taking by banks due to limited liability and deposit insurance. We characterize the conditions under which locally optimal (Ramsey) policy dedicates the prudential instrument to preventing inefficient risk-taking by banks; and the monetary instrument to dealing with the business cycle, with the two instruments co-varying negatively. Our analysis thus identifies circumstances that can validate the prevailing view among central bankers that standard interest-rate policy cannot serve as the first line of defense against financial instability. In addition, we also provide conditions under which the two instruments might optimally co-move positively and countercyclically.
Keywords	Prudential policy, Capital requirements, Monetary policy, Ramsey-optimal policies
URL	http://www.crest.fr/images/doctravail/doctravail2012/2012-34.pdf

Record ID	282 [ Page 4 of 7, No. 96 ]
Date	2012-12
Author	IMF staff team led by Erlend Nier, comprising Heedon Kang, Tommaso Mancini, Heiko Hesse (all MCM), Francesco Columba (WHD), Robert Tchaidze (EUR), and Jerome Vandenbussche (EUR).
Affiliation	IMF
Title	The Interaction of Monetary and Macroprudential Policies - Background Paper (IMF Policy Paper)
Summary / Abstract	This paper provides background material to support the Board paper on the interaction of monetary and macroprudential policies. It analyzes the scope for and evidence on interactions between monetary and macroprudential policies. It first reviews a recent conceptual literature on interactive effects that arise when both macroprudential and monetary policy are employed. It goes on to explore the “side effects” of monetary policy on financial stability and their implications for macroprudential policy. It finally addresses the strength of possible effects of macroprudential policies on output and price stability, and draws out implications for the conduct of monetary policy.
Keywords	Monetary policies, macroprudential policies
URL	http://www.imf.org/external/np/pp/eng/2013/012713.pdf

Record ID	281 [ Page 4 of 7, No. 97 ]
Date	2013-01
Author	Pelin Ilbas, Øistein Røisland, and Tommy Sveen
Affiliation	National Bank of Belgium, Norges Bank, and BI Norwegian Business School
Title	The Influence of the Taylor rule on US monetary policy
Summary / Abstract	We analyze the influence of the Taylor rule on US monetary policy by estimating the policy preferences of the Fed within a DSGE framework. The policy preferences are represented by a standard loss function, extended with a term that represents the degree of reluctance to letting the interest rate deviate from the Taylor rule. The empirical support for the presence of a Taylor rule term in the policy preferences is strong and robust to alternative specifications of the loss function. Analyzing the Fed's monetary policy in the period 2001-2006, we find no support for a decreased weight on the Taylor rule, contrary to what has been argued in the literature. The large deviations from the Taylor rule in this period are due to large, negative demand-side shocks, and represent optimal deviations for a given weight on the Taylor rule.
Keywords	Optimal monetary policy, simple rules, central bank preferences
URL	http://www.nbb.be/doc/oc/repec/reswpp/wp241En.pdf

Record ID	280 [ Page 4 of 7, No. 98 ]
Date	2013-01
Author	John B. Taylor
Affiliation	Stanford University, Stanford Institute for Economic Policy Research
Title	The Effectiveness of Central Bank Independence Versus Policy Rules
Summary / Abstract	This paper assesses the relative effectiveness of central bank independence versus policy rules for the policy instruments in bringing about good economic performance. It examines historical changes in (1) macroeconomic performance, (2) the adherence to rules-based monetary policy, and (3) the degree of central bank independence. Macroeconomic performance is defined in terms of both price stability and output stability. Factors other than monetary policy rules are examined. Both de jure and de facto central bank independence at the Fed are considered. The main finding is that changes in macroeconomic performance during the past half century were closely associated with changes the adherence to rules-based monetary policy and in the degree of de facto monetary independence at the Fed. But changes in economic performance were not associated with changes in de jure central bank independence. Formal central bank independence alone has not generated good monetary policy outcomes. A rules-based framework is essential.
Keywords	Central bank independence, rules-based monetary policy, macroeconomic performance
URL	http://www-siepr.stanford.edu/repec/sip/12-009.pdf

Record ID	279 [ Page 4 of 7, No. 99 ]
Date	2013-01
Author	Stijn Claessens and M. Kose
Affiliation	Research Department, IMF
Title	Financial Crises Explanations, Types, and Implications
Summary / Abstract	This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.
Keywords	Sudden stops, debt crises, banking crises, currency crises, defaults, policy implications, financial restructuring, asset booms, credit booms, crises prediction
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp1328.pdf

Record ID	278 [ Page 4 of 7, No. 100 ]
Date	2013-01
Author	Mikael Apel, Carl Andreas Claussen, Petra Gerlach-Kristen, Petra Lennartsdotter, and Øistein Røisland
Affiliation	Norges Bank (Central Bank of Norway)
Title	Monetary policy decisions – comparing theory and “inside” information from MPC members
Summary / Abstract	How do monetary policy committee (MPC) members form their views about the appropriate interest rate? To what extent do they change their minds during the deliberations in the interest rate meeting? How important is the Chairman? The theoretical literature makes assumptions about these issues. We have asked actual MPC members in Sweden and Norway. This paper reports the results from this unique survey and discusses how well existing theories on monetary policy by committee capture the reality.
Keywords	Monetary Policy Committee, Sveriges Riksbank, Norges Bank, Decision Making, Questionnaire Study.
URL	http://www.norges-bank.no/pages/92821/Norges_Bank_Working_Paper_2013_03.pdf

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