Record ID

247     [ Page 44 of 68, No. 1 ]

Date

2012-08

Author

Sami Ben Mim and Mohamed Sami Ben Ali

Affiliation

University of Sousse

Title

Through Which Channels Can Remittances Spur Economic Growth in MENA Countries?

Summary /
Abstract

This paper studies the remittances’ effect on economic growth. Using panel data techniques, the authors estimate several specifications to provide support of such relationship for MENA countries over the period 1980–2009. The findings provide new robust evidence on how remittances are used in MENA countries and detect the main channels which may interfere in this process. Estimation outcomes show that the most important part of remittances is consumed and that remittances stimulate growth only when they are invested. Moreover, empirical results suggest that remittances can enhance growth by encouraging human capital accumulation. Human capital is therefore an effective channel through which remittances stimulate growth in MENA countries.

Keywords

Workers’ remittances; economic growth; panel data; MENA zone

URL

http://www.economics-ejournal.org/economics/journalarticles/2012-33/version_1/count

Record ID

246     [ Page 44 of 68, No. 2 ]

Date

2012-08

Author

Andreas Jobst

Affiliation

Money and Capital Markets Department, IMF

Title

Measuring Systemic Risk-Adjusted Liquidity (SRL) - A Model Approach

Summary /
Abstract

Little progress has been made so far in addressing—in a comprehensive way—the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines option pricing with market information and balance sheet data to generate a probabilistic measure of the frequency and severity of multiple entities experiencing a joint liquidity event. It links a firm’s maturity mismatch between assets and liabilities impacting the stability of its funding with those characteristics of other firms, subject to individual changes in risk profiles and common changes in market conditions. This approach can then be used (i) to quantify an individual institution’s time-varying contribution to system-wide liquidity shortfalls and (ii) to price liquidity risk within a macroprudential framework that, if used to motivate a capital charge or insurance premia, provides incentives for liquidity managers to internalize the systemic risk of their decisions. The model can also accommodate a stress testing approach for institution-specific and/or general funding shocks that generate estimates of systemic liquidity risk (and associated charges) under adverse scenarios.

Keywords

Systemic risk, liquidity risk, Net Stable Funding Ratio (NSFR), extreme value theory, financial contagion, macroprudential regulation.

URL

http://www.imf.org/external/pubs/ft/wp/2012/wp12209.pdf

Record ID

245     [ Page 44 of 68, No. 3 ]

Date

2012-07

Author

Hernando Vargas and Pamela Cardozo

Affiliation

Banco de la Republica Colombia

Title

The Use of Reserve Requirements in an Optimal Monetary Policy Framework

Summary /
Abstract

We analyse three models to determine the conditions under which reserve requirements are used as a part of an optimal monetary policy framework in an inflation targeting regime. In all cases the Central Bank (CB) minimizes an objective function that depends on deviations of inflation from its target, the output gap and deviations of reserve requirements from its optimal long term level. In a closed economy model we find that optimal monetary policy implies setting reserve requirements at their long term level, while adjusting the policy interest rate to face macroeconomic shocks. Reserve requirements are included in an optimal monetary policy response in an open economy model with the same CB objective function and in a closed economy model in which the CB objective function includes financial stability. The relevance, magnitude and direction of the movements of reserve requirements depend on the parameters of the economy and the shocks that affect it.

Keywords

Reserve Requirements, Inflation Targeting, Monetary Policy

URL

http://d.repec.org/n?u=RePEc:bdr:borrec:716i&r=mon

Record ID

244     [ Page 44 of 68, No. 4 ]

Date

2012-06

Author

Legal and Strategy, Policy and Review Departments

Affiliation

IMF

Title

Modernizing the Legal Framework for Surveillance― An Integrated Surveillance Decision

Summary /
Abstract

This paper proposes a draft Integrated Surveillance Decision (ISD) for adoption. As part of broader efforts to strengthen Fund surveillance, the Fund is modernizing its legal framework to better support operations. In April 2012, the Fund’s Executive Board discussed Modernizing the Legal Framework for Surveillance—Building Blocks Toward an Integrated Surveillance Decision. That paper highlighted key weaknesses in the current legal framework for surveillance and provided proposals for addressing them. Most Directors agreed that introducing a new surveillance decision covering both bilateral and multilateral surveillance would help address these weaknesses. In particular, they agreed with the general proposed approach to fill the gaps in bilateral surveillance through multilateral surveillance.

Keywords

IMF Surveillance, Legal Framework, Integrated Surveillance Decision

URL

http://www.imf.org/external/np/pp/eng/2012/062612.pdf

Record ID

243     [ Page 44 of 68, No. 5 ]

Date

2012-06

Author

Carrera, Cesar and Vega, Hugo

Affiliation

Banco Central de Reserva del Perú

Title

Interbank Market and Macroprudential Tools in a DSGE Model

Summary /
Abstract

The interbank market helps regulate liquidity in the banking sector. Banks with outstanding resources usually lend to banks that are in need of liquidity. Regulating the interbank market may actually benefit the policy stance of monetary policy. Introducing an interbank market in a general equilibrium model may allow better identification of the final effects of non-conventional policy tools such as reserve requirements. We introduce an interbank market in which there are two types of private banks and a central bank that has the ability to issue money into a DSGE model. Then, we use the model to analyse the effects of changes to reserve requirements (a macroprudential tool), while the central bank follows a Taylor rule to set the policy interest rate. We find that changes in reserve requirements have similar effects to changes in interest rates and that both monetary policy tools can be used jointly in order to avoid big swings in the policy rate (that could have an undesired effect on private expectations) or a zero bound (i.e. liquidity trap scenarios).

Keywords

Reserve requirements, collateral, banks, interbank market, DSGE

URL

http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2012/documento-de-trabajo-14-2012.pdf

Record ID

242     [ Page 44 of 68, No. 6 ]

Date

2012-03

Author

Dániel Holló, Manfred Kremer, and Marco Lo Duca

Affiliation

Magyar Nemzeti Bank and European Central Bank

Title

CISS - a composite indicator of systemic stress in the financial system

Summary /
Abstract

This paper introduces a new indicator of contemporaneous stress in the financial system named Composite Indicator of Systemic Stress (CISS). Its specific statistical design is shaped according to standard definitions of systemic risk. The main methodological innovation of the CISS is the application of basic portfolio theory to the aggregation of five market-specific subindices created from a total of 15 individual financial stress measures. The aggregation accordingly takes into account the time-varying cross-correlations between the subindices. As a result, the CISS puts relatively more weight on situations in which stress prevails in several market segments at the same time, capturing the idea that financial stress is more systemic and thus more dangerous for the economy as a whole if financial instability spreads more widely across the whole financial system. Applied to euro area data, we determine within a threshold VAR model a systemic crisis-level of the CISS at which financial stress tends to depress real economic activity.

Keywords

Financial system, financial stability, systemic risk, financial stress index, macro-financial linkages.

URL

http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1426.pdf

Record ID

241     [ Page 44 of 68, No. 7 ]

Date

2012-06

Author

Fiscal Affairs Department

Affiliation

International Monetary Fund

Title

Fiscal Policy and Employment in Advanced and Emerging Economies

Summary /
Abstract

This paper discusses tax and expenditure policy reforms to raise employment. Using data for 58 advanced and emerging economies, the paper provides a unified assessment of tax and expenditure measures that have usually been addressed separately. The focus is on incentives to increase labor demand and supply rather than on the impact of fiscal policy on employment through aggregate demand effects. It also discusses policies to improve the matching of labor supply and demand, and the principles which should guide the design of country-specific fiscal reforms to boost employment. A comprehensive set of tables on fiscal policies and labor market outturns for advanced and emerging economies is provided, permitting cross-country comparisons to facilitate the design of reform strategies.

Keywords

Fiscal Policy, Labor Markets, Employment, Emerging Economies

URL

http://www.imf.org/external/np/pp/eng/2012/061512.pdf

Record ID

240     [ Page 44 of 68, No. 8 ]

Date

2012-05

Author

Linghui Han and Il Houng Lee

Affiliation

Asia and Pacific Department, IMF

Title

Optimal Liquidity and Economic Stability

Summary /
Abstract

Monetary aggregates are now much less used as policy instruments as identifying the right measure has become difficult and interest rate transmission has worked well in an increasingly complex financial system. In this process, little attention was paid to the potential spillover of excess liquidity. This paper suggests a notional level of "optimal" liquidity beyond which asset prices will start to rise faster than the GDP deflator, thereby creating a gap between the face value and the real purchasing value of financial assets and widen the wedge in income between those with capital stock and those living on salaries. Such divergence will eventually lead to an abrupt and disorderly adjustment of the asset value, with repercussions on the real sector.

Keywords

Monetary policy; liquidity; dynamic panel

URL

http://www.imf.org/external/pubs/ft/wp/2012/wp12135.pdf

Record ID

239     [ Page 44 of 68, No. 9 ]

Date

2012-06

Author

Fabio Milani and Ashish Rajbhandari

Affiliation

University of California-Irvine

Title

Expectation Formation and Monetary DSGE Models: Beyond the Rational Expectations Paradigm

Summary /
Abstract

Empirical work in macroeconomics almost universally relies on the hypothesis of rational expectations. This paper departs from the literature by considering a variety of alternative expectations formation models. We study the econometric properties of a popular New Keynesian monetary DSGE model under different expectational assumptions: the benchmark case of rational expectations, rational expectations extended to allow for `news' about future shocks, near-rational expectations and learning, and observed subjective expectations from surveys. The results show that the econometric evaluation of the model is extremely sensitive to how expectations are modeled. The posterior distributions for the structural parameters significantly shift when the assumption of rational expectations is modified. Estimates of the structural disturbances under different expectation processes are often dissimilar. The modeling of expectations has important effects on the ability of the model to fit macroeconomic time series. The model achieves its worse fit under rational expectations. The introduction of news improves fit. The best-fitting specifications, however, are those that assume learning. Expectations also have large effects on forecasting. Survey expectations, news, and learning all work to improve the model's one-step-ahead forecasting accuracy. Rational expectations, however, dominate over longer horizons, such as one-year ahead or beyond.

Keywords

Expectation formation; Rational expectations; News shocks; Adaptive learning; Survey expectations; Econometric evaluation of DSGE models; Forecasting

URL

http://www.economics.uci.edu/files/economics/docs/workingpapers/2011-2012/milani-12.pdf

Record ID

238     [ Page 44 of 68, No. 10 ]

Date

2012-02

Author

Chan, Joshua; Koop, Gary; and Potter, Simon

Affiliation

Australian National University, University of Strathclyde, and Federal Reserve Bank of New York

Title

A New Model Of Trend Inflation

Summary /
Abstract

This paper introduces a new model of trend (or underlying) inflation. In contrast to many earlier approaches, which allow for trend inflation to evolve according to a random walk, ours is a bounded model which ensures that trend inflation is constrained to lie in an interval. The bounds of this interval can either be fixed or estimated from the data. Our model also allows for a time-varying degree of persistence in the transitory component of inflation. The bounds placed on trend inflation mean that standard econometric methods for estimating linear Gaussian state space models cannot be used and we develop a posterior simulation algorithm for estimating the bounded trend inflation model. In an empirical exercise with CPI inflation we find the model to work well, yielding more sensible measures of trend inflation and forecasting better than popular alternatives such as the unobserved components stochastic volatility model.

Keywords

Constrained inflation, non-linear state space model, underlying inflation, inflation targeting, inflation forecasting, Bayesian

URL

http://repo.sire.ac.uk/bitstream/10943/315/1/SIRE_DP_2012_12.pdf