Selected Reference and Reading Materials compiled by Dan Villanueva

Selected Reference and Reading Materials compiled by Dan Villanueva

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Record ID	277 [ Page 5 of 7, No. 1 ]
Date	2013-01
Author	Christian Saborowski and Sebastian Weber
Affiliation	European Department, IMF
Title	Assessing the Determinants of Interest Rate Transmission Through Conditional Impulse Response Functions
Summary / Abstract	We employ a structural panel VAR model with interaction terms to identify determinants of effective transmission from central bank policy rates to retail lending rates in a large country sample. The framework allows deriving country specific pass-through estimates broken down into the contributions of structural country characteristics and policies. The findings suggest that industrial economies tend to enjoy a higher pass-through largely on account of their more flexible exchange rate regimes and their more developed financial systems. The average pass-through in our sample increased from 30 to 60 percent between 2003 and 2008, mainly due to positive risk sentiment, rising inflation and increasingly diversified banking sectors. The crisis reversed this trend partly as banks increased precautionary liquidity holdings, non-performing loans proliferated and inflation moderated.
Keywords	Interest Rate Pass-Through, Banking Sector, Monetary Policy Transmission
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp1323.pdf

Record ID	276 [ Page 5 of 7, No. 2 ]
Date	2013-01
Author	Armand Fouejieu and Scott Roger
Affiliation	l’Université d’Orléans and 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	275 [ Page 5 of 7, No. 3 ]
Date	2012-12
Author	Pelin Ilbas, Øistein Røisland, and Tommy Sveen
Affiliation	National Bank of Belgium, Norges Bank, BI Norwegian Business School
Title	Robustifying optimal monetary policy using simple rules as cross-checks
Summary / Abstract	There are two main approaches to modelling monetary policy; simple instrument rules and optimal policy. We propose an alternative that combines the two by extending the loss function with a term penalizing deviations from a simple rule. We analyze the properties of the modified loss function by considering three different models for the US economy. The choice of the weight on the simple rule determines the trade-off between optimality and robustness. We show that by placing some weight on a simple Taylor-type rule in the loss function, one can prevent disastrous outcomes if the model is not a correct representation of the underlying economy.
Keywords	Model uncertainty, optimal control, simple rules
URL	http://www.norges-bank.no/pages/92245/Norges_Bank_Working_Paper_2012_22.pdf

Record ID	274 [ Page 5 of 7, No. 4 ]
Date	2012-12
Author	Abdul Abiad, John Bluedorn, Jaime Guajardo, and Petia Topalova
Affiliation	Research Department, IMF
Title	The Rising Resilience of Emerging Market and Developing Economies
Summary / Abstract	Economic performance in many emerging market and developing economies (EMDEs) improved substantially over the past twenty years. The past decade was particularly good—for the first time EMDEs spent more time in expansion and had smaller downturns than advanced economies. In this paper we document the history of EMDEs’ resilience over the past sixty years, and investigate what factors have been associated with it. We find that their improved performance in recent years is accounted for by both good policies and a lower incidence of external and domestic shocks—better policies account for about three-fifths of their improved resilience, while less frequent shocks account for the remainder.
Keywords	Emerging markets, low-income countries, developing countries, growth, development, expansion, recovery
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp12300.pdf
Remarks	The Philippines is included in this study.

Record ID	273 [ Page 5 of 7, No. 5 ]
Date	2012-08
Author	Independent Evaluation Office
Affiliation	IMF
Title	International Reserves: IMF Concerns and Country Perspectives
Summary / Abstract	This evaluation focuses on two aspects of the IMF’s concerns and advice related to international reserves. First, it examines the origin, rationale, and robustness of the IMF’s concerns about the effects of excessive reserve accumulation on the stability of the international monetary system. Second, it assesses the conceptual underpinnings and quality of the advice on reserve adequacy in the context of bilateral surveillance. In 2009, IMF Management and some senior staff began to emphasize the potential for large reserve accumulation to threaten the stability of the international monetary system. The evaluation argues that the focus on reserve accumulation as a risk for the international monetary system was not helpful in that it stressed the symptom of problems rather than the underlying causes, and it did not appear to be different from the longer-standing concerns about risks from global imbalances. Many country officials also felt that the IMF should have placed greater emphasis on other developments relating to the evolution and stability of the international monetary system—in particular the causes and consequences of fluctuations of global liquidity and international capital flows—that they considered to be of more pressing concern than reserves. The evaluation found a broadly held view that Management’s emphasis on excessive reserve accumulation was a response to frustration among some member countries with the IMF’s inability to achieve exchange rate adjustments in Asian countries with persistently large current account surpluses. In parallel with the aforementioned concerns about excessive reserve accumulation, IMF staff developed a new indicator to assess reserve adequacy in emerging-market economies. The new indicator defined upper and lower bounds for precautionary reserves. A number of country officials became worried that its use would engender pressures on countries to reduce their reserves at a time of heightened uncertainty in the global economy. With respect to reserve adequacy assessments in the context of bilateral surveillance, the evaluation centered on a sample of 43 economies that had accumulated the bulk of global reserves during the 2000–11 period. The country sample reflects the evaluation’s focus on the possible implications of excess reserves. The evaluation concludes that the IMF’s assessments and discussions of international reserves were often pro forma, emphasizing a few traditional indicators and insufficiently incorporating country-specific circumstances. It also identifies cases where the Fund’s analysis and advice could have been improved, notably by embedding the assessment of reserve adequacy in a broader analysis of countries’ internal and external stability. The evaluation recommends that: (1) Policy initiatives should target distortions and their causes rather than symptoms such as excessive reserves. Discussion of reserve accumulation in the multilateral context should be imbedded in a comprehensive treatment of threats to global financial stability, one that is informed by developments in global liquidity and financial markets; (2) Policy initiatives that are meant to deal with systemic externalities must take into account the relative size of countries’ contributions to the externality; (3) Reserve adequacy indicators should be applied flexibly and reflect country-specific circumstances; and (4) The multiple tradeoffs involved in decisions on reserve accumulation and reserve adequacy at the country level need to be recognized, and advice on reserves should be integrated with advice in related policy areas. Advice should not be directed only to emerging markets but, when necessary, take into account the concerns in advanced economies that have arisen since the financial crisis.
Keywords	International reserves; reserve adequacy assessments
URL	http://www.ieo-imf.org/ieo/files/completedevaluations/IR_Main_Report.pdf

Record ID	272 [ Page 5 of 7, No. 6 ]
Date	2012-12
Author	Medina, Leandro
Affiliation	Middle East and Central Asia Department, IMF
Title	Spring Forward or Fall Back? The Post-Crisis Recovery of Firms
Summary / Abstract	This paper studies corporate performance in the aftermath of the global crisis by examining 6,581 manufacturing firms in 48 developed and developing countries in 2010, identifying factors of resilience as well as vulnerability. Based on a cross-sectional analysis, the results show that pre-crisis leverage and short-term debt have had negative effects on the speed of the recovery, while asset tangibility has had positive effects. The negative effect of leverage is non-linear, being particularly strong in firms with high pre-crisis leverage. Furthermore, the effects are different for advanced and emerging market economies. The paper also shows that the macroeconomic framework critically matters for firm growth. In particular, in countries that have allowed the exchange rate to depreciate, firms have had a faster recovery in sectors highly dependent on trade.
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp12292.pdf
Remarks	There are 17 Philippine firms included in this empirical study.

Record ID	271 [ Page 5 of 7, No. 7 ]
Date	2011-04
Author	Andrew G. Berg and Jonathan D. Ostry
Affiliation	Research Department, IMF
Title	Inequality and Unsustainable Growth: Two Sides of the Same Coin?
Summary / Abstract	The relationship between income inequality and economic growth is complex. Some inequality is integral to the effective functioning of a market economy and the incentives needed for investment and growth. But inequality can also be destructive to growth, for example, by amplifying the risk of crisis or making it difficult for the poor to invest in education. The evidence has also been mixed: some find that average growth over long periods of time is higher with more initial equality; others find that an increase in equality today tends to lower growth in the near term. The empirical literature on growth and inequality, however, has missed a key feature of the growth process in developing countries: namely, its lack of persistence. Per capita incomes do not typically grow steadily for decades. Rather, periods of rapid growth are punctuated by collapses and sometimes stagnation—the hills, valleys, and plateaus of growth. Relating income distribution to long-run average growth may thus miss the point. The more relevant issue for many countries is: how is income distribution related to these sharp growth breaks? This note focuses on the duration of growth spells—defined as the interval starting with a growth upbreak and ending with a downbreak—and on the links between duration and various policies and country characteristics, including income distribution. It turns out that many of even the poorest countries have succeeded in initiating growth at high rates for a few years. What is rarer—and what separates growth miracles from laggards—is the ability to sustain growth. The question then becomes: what determines the length of growth spells, and what is the role of income inequality in duration? We find that longer growth spells are robustly associated with more equality in the income distribution. For example, closing, say, half the inequality gap between Latin America and emerging Asia would, according to our central estimates, more than double the expected duration of a growth spell. Inequality typically changes only slowly, but a number of countries in our sample have experienced improvements in income distribution of this magnitude in the course of a growth spell. Inequality still matters, moreover, even when other determinants of growth duration—external shocks, initial income, institutional quality, openness to trade, and macroeconomic stability—are taken into account. A key implication of these results is that it is difficult to separate analyses of growth and income distribution. The immediate role for policy, however, is less clear. Increased inequality may shorten growth duration, but poorly designed efforts to lower inequality could grossly distort incentives and thereby undermine growth, hurting even the poor. There nevertheless may be some "win-win" policies, such as better-targeted subsidies, improvements in economic opportunities for the poor, and active labor market policies that promote employment. When there are trade-offs between potential short-run effects of policies on growth and income distribution, the evidence presented in this note is not decisive. But the analysis below does perhaps tilt the balance towards the notion that attention to inequality can bring significant longer-run benefits for growth. Over longer horizons, reduced inequality and sustained growth may thus be two sides of the same coin.
Keywords	Income distribution; sustainable growth.
URL	http://www.imf.org/external/pubs/ft/sdn/2011/sdn1108.pdf
Remarks	The authors thank Olivier Blanchard and other IMF colleagues for useful discussions on this IMF Staff Discussion Note.

Record ID	270 [ Page 5 of 7, No. 8 ]
Date	2011-04
Author	Jonathan D. Ostry, Atish R. Ghosh, Karl Habermeier, Luc Laeven, Marcos Chamon, Mahvash S. Qureshi, and Annamaria Kokenyne
Affiliation	Research Department, IMF
Title	Managing Capital Inflows: What Tools to Use?
Summary / Abstract	Emerging market economies are facing increasing challenges in managing the current wave of capital inflows. In an earlier note (Ostry et al., 2010), we laid out a set of circumstances under which capital controls could usefully form part of the policy response to inflow surges. For countries whose currencies were on the strong side, where reserves were adequate, where overheating concerns precluded easier monetary policy, and where the fiscal balance was consistent with macroeconomic and public debt considerations, capital controls were a useful part of the policy toolkit to address inflow surges. Beyond macroeconomic considerations, capital controls could also help to address financial-stability concerns when prudential tools were insufficient or could not be made effective in a timely manner. We also stressed that the use of capital controls needs to take account of multilateral considerations, as well as their costs and the mixed evidence on their effectiveness in restraining aggregate flows. This note elaborates on how the macro and financial-stability rationales for capital controls fit together; how prudential and capital control measures should be deployed against various risks that inflow surges may bring; and specifically, how capital controls should be designed to best meet the goals of efficiency and effectiveness. Four broad conclusions emerge. First, capital controls may be useful in addressing both macroeconomic and financial stability concerns in the face of inflow surges, but before imposing capital controls, countries need first to exhaust their macroeconomic-cum-exchange-rate policy options. The macro policy response needs to have primacy both because of its importance in helping to abate the inflow surge, and because it ensures that countries act in a multilaterally-consistent manner and do not impose controls merely to avoid necessary external and macro-policy adjustment. Second, while prudential regulations and capital controls can help reduce the buildup of vulnerabilities on domestic balance sheets, they both inevitably create distortions—reducing some “good” financial flows alongside “bad” ones—and may be circumvented. Thus, there is no unambiguous welfare ranking of policy instruments (though non-discriminatory prudential measures are always appropriate), and a pragmatic approach taking account of the economy’s most pertinent risks and distortions needs to be adopted. Third, measures need to be targeted to the risks at hand. When inflows are intermediated through the regulated financial system, prudential regulation will be the main instrument. When inflows bypass regulated markets and institutions, capital controls may be the best option if the perimeter of regulation cannot be widened sufficiently quickly or effectively. Fourth, the design of capital controls needs to be tailored to country circumstances. Where inflows raise macro concerns, controls will need to be broad, usually price-based, and temporary (though institutional arrangements to implement controls could be maintained). To address financial-stability concerns, controls could be targeted on the riskiest flows, might include administrative measures, and could be used even against more persistent inflows.
Keywords	Capital inflows, capital controls, prudential tools
URL	http://www.imf.org/external/pubs/ft/sdn/2011/sdn1106.pdf
Remarks	This research paper was approved by Olivier Blanchard.

Record ID	269 [ Page 5 of 7, No. 9 ]
Date	2012-11
Author	Jain-Chandra, Sonali ; Unsal, D. Filiz
Affiliation	Asia and Pacific Department, IMF
Title	The Effectiveness of Monetary Policy Transmission Under Capital Inflows: Evidence from Asia
Summary / Abstract	The effectiveness of the monetary policy transmission mechanism in open economies could be impaired if interest rates are driven primarily by global factors, especially during periods of large capital inflows. The main objective of this paper is to assess whether this is true for emerging Asia’s economies. Using a dynamic factor model and a structural vector auto-regression model, we show that long-term interest rates in Asia are indeed predominantly driven by global factors. However, monetary policy transmission mechanism remains effective in the region, as it operates predominantly through short-term interest rates. Nevertheless, the monetary transmission mechanism, though effective, is somewhat weaker in Asia during the periods of surges in capital inflows.
Keywords	Monetary policy transmission, capital flows, dynamic factor model, structural VAR
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp12265.pdf

Record ID	268 [ Page 5 of 7, No. 10 ]
Date	2012-06
Author	Giovanni Dell’Ariccia, Deniz Igan, Luc Laeven, and Hui Tong
Affiliation	Research Department, IMF
Title	Policies for Macrofinancial Stability: How to Deal with Credit Booms
Summary / Abstract	Credit booms buttress investment and consumption and can contribute to long-term financial deepening. But they often end up in costly balance sheet dislocations, and, more often than acceptable, in devastating financial crises whose cost can exceed the benefits associated with the boom. These risks have long been recognized. But, until the global financial crisis in 2008, policy paid limited attention to the problem. The crisis—preceded by booms in many of the hardest-hit countries—has led to a more activist stance. Yet, there is little consensus about how and when policy should intervene. This note explores past credit booms with the objective of assessing the effectiveness of macroeconomic and macroprudential policies in reducing the risk of a crisis or, at least, limiting its consequences. It should be recognized at the onset that a more interventionist policy will inevitably imply some trade-offs. No policy tool is a panacea for the ills stemming from credit booms, and any form of intervention will entail costs and distortions, the relevance of which will depend on the characteristics and institutions of individual countries. With these caveats in mind, the analysis in this note brings the following insights. First, credit booms are often triggered by financial reform, capital inflow surges associated with capital account liberalizations, and periods of strong economic growth. They tend to be more frequent in fixed exchange rate regimes, when banking supervision is weak, and when macroeconomic policies are loose. Second, not all booms are bad. About a third of boom cases end up in financial crises. Others do not lead to busts but are followed by extended periods of below-trend economic growth. Yet many result in permanent financial deepening and benefit long-term economic growth. Third, it is difficult to tell “bad” from “good” booms in real time. But there are useful telltales. Bad booms tend to be larger and last longer (roughly half of the booms lasting longer than six years end up in a crisis). Fourth, monetary policy is in principle the natural lever to contain a credit boom. In practice, however, capital flows (and related concerns about exchange rate volatility) and currency substitution limit its effectiveness in small open economies. In addition, since booms can occur in low-inflation environments, a conflict may emerge with its primary objective. Fifth, given its time lags, fiscal policy is ill-equipped to timely stop a boom. But consolidation during the boom years can help create fiscal room to support the financial sector or stimulate the economy if and when a bust arrives. Finally, macroprudential tools have at times proven effective in containing booms, and more often in limiting the consequences of busts, thanks to the buffers they helped to build. Their more targeted nature limits their costs, although their associated distortions, should these tools be abused, can be severe. Moreover, circumvention has often been a major issue, underscoring the importance of careful design, coordination with other policies (including across borders), and close supervision to ensure the efficacy of these tools.
Keywords	Credit booms; financial stability; macroprudential regulation; macroeconomic policy
URL	http://www.imf.org/external/pubs/ft/sdn/2012/sdn1206.pdf

Record ID	267 [ Page 5 of 7, No. 11 ]
Date	2012-08
Author	Paolo Gelain, Kevin J. Lansing, and Caterina Mendicino
Affiliation	Norges Bank, FRB San Francisco, and Bank of Portugal
Title	House Prices, Credit Growth, and Excess Volatility: Implications for Monetary and Macro-prudential Policy
Summary / Abstract	Progress on the question of whether policymakers should respond directly to ﬁnancial variables requires a realistic economic model that captures the links between asset prices, credit expansion, and real economic activity. Standard DSGE models with fully-rational expectations have difficulty producing large swings in house prices and household debt that resemble the patterns observed in many developed countries over the past decade. We introduce excess volatility into an otherwise standard DSGE model by allowing a fraction of households to depart from fully-rational expectations. Specifically, we show that the introduction of simple moving-average forecast rules for a subset of households can significantly magnify the volatility and persistence of house prices and household debt relative to otherwise similar model with fully-rational expectations. We evaluate various policy actions that might be used to dampen the resulting excess volatility, including a direct response to house price growth or credit growth in the central bank’s interest rate rule, the imposition of more restrictive loan-to-value ratios, and the use of a modified collateral constraint that takes into account the borrower’s loan- to-income ratio. Of these, we ﬁnd that a loan-to-income constraint is the most eﬀective tool for dampening overall excess volatility in the model economy. We ﬁnd that while an interest-rate response to house price growth or credit growth can stabilize some economic variables, it can significantly magnify the volatility of others, particularly inﬂation.
Keywords	Asset Pricing, Excess Volatility, Credit Cycles, Housing Bubbles, Monetary policy, Macroprudential policy.
URL	http://www.norges-bank.no/Upload/English/Publications/Working%20Papers/2012/wp_2012_08.pdf

Record ID	266 [ Page 5 of 7, No. 12 ]
Date	2012-11
Author	Selim Elekdag, Phurichai Rungcharoenkitkul, and Yiqun Wu
Affiliation	Asia and Pacific Department, IMF
Title	The Evolution of Asian Financial Linkages: Key Determinants and the Role of Policy
Summary / Abstract	This paper examines how Asian financial linkages with systemic economies have changed over time. After developing a factor model, it estimates Asian financial sensitivities to systemic economies, and then seeks to uncover their key determinants, which include trade and financial linkages, as well as policies. In line with Asia’s growing role in the global economy—including through deeper financial integration—regional financial markets have become more sensitive to systemic economies. Asian financial sensitivities to systemic economies exhibit cyclical fluctuations, and reached historically high levels during the latest global financial crisis of 2008–09. While macroeconomic policy frameworks have helped Asian economies cope well with market turbulence, they cannot completely insulate Asian financial markets against major global financial shocks.
Keywords	Financial linkages; Asia; beta; global financial crisis
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp12262.pdf

Record ID	265 [ Page 5 of 7, No. 13 ]
Date	2012-10
Author	Bong-Han Kim, Hyeongwoo Kim and Bong-Soo Lee
Affiliation	Auburn University and Florida State University
Title	Spillover Effects of the U.S. Financial Crisis on Financial Markets in Emerging Asian Countries
Summary / Abstract	We examine spillover effects of the recent U.S. financial crisis on five emerging Asian countries by estimating conditional correlations of financial asset returns across countries using multivariate GARCH models. We propose a novel approach that simultaneously estimates the conditional correlation coefficient and the effects of its determining factors over time, which can be used to identify the channels of spillovers. We find some evidence of financial contagion around the collapse of Lehman Brothers in September 2008. We further find a dominant role of foreign investment for the conditional correlations in international equity markets. The dollar Libor-OIS spread, the sovereign CDS premium, and foreign investment are found to be significant factors affecting foreign exchange markets.
Keywords	Financial Crisis; Spillover Effects; Contagion; Emerging Asian Countries; Dynamic Conditional Correlation; DCCX-MGARCH
URL	http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2012-06&r=cba
Remarks	The sample includes five emerging Asian countries: Indonesia, Korea, Philippines, Thailand, and Taiwan.

Record ID	264 [ Page 5 of 7, No. 14 ]
Date	2012-10
Author	Luis Felipe Céspedes, Roberto Chang and Andrés Velasco
Affiliation	National Bureau of Economic Research
Title	Financial Intermediation, Exchange Rates, and Unconventional Policy in an Open Economy
Summary / Abstract	This paper develops an open economy model in which financial intermediation is subject to occasionally binding collateral constraints, and uses the model to study unconventional policies such as credit facilities and foreign exchange intervention. The model highlights the interaction between the real exchange rate, interest rates, and financial frictions. The exchange rate can affect the financial intermediaries' international credit limit via a net worth effect and a leverage ratio effect; the latter is novel and depends on the equilibrium link between exchange rates and interest spreads. Unconventional policies are nonneutral if and only if financial constraints are binding in equilibrium. Credit programs are more effective if targeted towards financial intermediaries rather than the corporate sector. Sterilized foreign exchange interventions matter because the increased availability of tradables, resulting from the sterilizing credit, can relax financial frictions; this perspective is new in the literature. Finally, self fulfilling expectations can lead to the coexistence of financially constrained and unconstrained equilibria, justifying a policy of defending the exchange rate and the accumulation of international reserves.
Keywords	Financial intermediation, Financial Frictions, Exchange Rates, International Reserves, and Unconventional Monetary Policy
URL	http://d.repec.org/n?u=RePEc:nbr:nberwo:18431&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	263 [ Page 5 of 7, No. 15 ]
Date	2012-10
Author	Juan José Echavarría and Mauricio Villamizar
Affiliation	Banco de la Republica Colombia
Title	Great expectations? Evidence from Colombia’s exchange rate survey
Summary / Abstract	In this document we use the Expectations Survey conducted monthly by the Central Bank of Colombia during the period of October 2003 – August 2012. We find that exchange rate revaluations were generally followed by expectations of further revaluation in the short run (1 month), but by expectations of devaluations in the long run (1 year), and that expectations are stabilizing both in the short and long run. The forward rate is generally different from the future spot rate, mainly because forecast errors are on average different from zero. This suggests that exchange rate expectations are not rational. The role of the risk premium is also important, albeit statistically significant only for the 1 year ahead forecasts (not for 1 month). One month expectations are much better predictors than the models of extrapolative, adaptive or regressive expectations or even the forward discount, and all of them outperform a random walk. But results are almost the opposite for 1 year. In this case traders and analysts could actually do much better by following some simple models or by looking at some key variables rather than by following the strategy that they pursue today.
Keywords	Exchange rate expectations, risk premium, market efficiency, forecasting accuracy, random walk, forward discount, rational expectations hypothesis.
URL	http://d.repec.org/n?u=RePEc:bdr:borrec:735&r=cba

Record ID	262 [ Page 5 of 7, No. 16 ]
Date	2012-07
Author	José de Gregorio
Affiliation	University of Chile
Title	Commodity Prices, Monetary Policy and Inflation
Summary / Abstract	During the second half of the 2000s, the world experienced a rapid and substantial rise in commodity prices. This shock posed complex challenges for monetary policy, in particular due to the significant increase in food and energy prices, and the repercussions they had on aggregate inflation measures. This paper discusses the role of commodity price shocks in monetary policy in the light of recent episodes of such shocks. It begins by discussing whether monetary policy should target core or headline inflation, and what should be the role of commodity price shocks in setting interest rates. It is argued that there are good reasons to focus on headline inflation, as most central banks actually do. Although core inflation provides a good indicator of underlying inflationary pressures, the evolution of commodity prices should not be overlooked, because of pervasive second-round effects. This paper reviews the evidence on the rise of inflation across countries and reports that food inflation, more than energy inflation, has relevant propagation effects on core inflation. This finding is particularly important in emerging market economies, where the share of food in the consumer basket is significant. The evidence also shows that countries that had lower inflation during the run up of commodity prices before the global crisis had more inflation in the subsequent rise after the global crisis, suggesting that part of the pre-crisis inflationary success may have been due to repressed inflation. This paper also discusses other factors that may explain different inflationary performances across countries.
Keywords	Commodity prices, inflation, and monetary policy
URL	http://d.repec.org/n?u=RePEc:udc:wpaper:wp359&r=cba

Record ID	261 [ Page 5 of 7, No. 17 ]
Date	2012-08
Author	Paolo Gelain, Kevin J. Lansing, and Caterina Mendicino
Affiliation	Norges Bank, FRB San Francisco, and Bank of Portugal
Title	House prices, credit growth, and excess volatility: Implications for monetary and macroprudential policy
Summary / Abstract	Progress on the question of whether policymakers should respond directly to financial variables requires a realistic economic model that captures the links between asset prices, credit expansion, and real economic activity. Standard DSGE models with fully-rational expectations have difficulty producing large swings in house prices and household debt that resemble the patterns observed in many developed countries over the past decade. We introduce excess volatility into an otherwise standard DSGE model by allowing a fraction of households to depart from fully-rational expectations. Specifically, we show that the introduction of simple moving-average forecast rules for a subset of households can significantly magnify the volatility and persistence of house prices and household debt relative to otherwise similar model with fully-rational expectations. We evaluate various policy actions that might be used to dampen the resulting excess volatility, including a direct response to house price growth or credit growth in the central bank's interest rate rule, the imposition of more restrictive loan-to-value ratios, and the use of a modified collateral constraint that takes into account the borrower's loan-to-income ratio. Of these, we find that a loan-to-income constraint is the most effective tool for dampening overall excess volatility in the model economy. We find that while an interest-rate response to house price growth or credit growth can stabilize some economic variables, it can significantly magnify the volatility of others, particularly inflation.
Keywords	Asset pricing, Excess volatility, Credit cycles, Housing bubbles, Monetary policy, Macroprudential policy
URL	http://www.norges-bank.no/en/about/published/publications/working-papers/2012/wp-201208/

Record ID	260 [ Page 5 of 7, No. 18 ]
Date	2012-09
Author	Francesco Drudi, Alain Durré and Francesco Paolo Mongelli
Affiliation	European Central Bank
Title	The interplay of economic reforms and monetary policy: the case of the Euro area
Summary / Abstract	The world has been struck by a mutating systemic financial crisis that is unprecedented in terms of financial losses and fiscal costs, geographic reach, and speed and synchronisation. The crisis from August 2007 to date can be divided into three main phases: the financial turmoil from August 2007 to the collapse of Lehman Brothers; the global financial crisis from September 2008 until spring 2010; and the euro area sovereign debt crisis from spring 2010 to the current period. While each phase has brought significant challenges, the current sovereign debt crisis has been the most critical stage for the euro area. It has brought unprecedented challenges for the monetary union and triggered extraordinary adjustments in both monetary policy and institutional arrangements at the euro area level. The purpose of this article is to outline the features of each crisis phase, to describe the actions taken by the European Central Bank (ECB) during each phase and to explain the rationale for such measures. It also discusses the need to strengthen further the economic union in order to guarantee the sustainability of the monetary union of the euro area. In this respect, it is argued that the recent institutional adjustments made at the EU level would have been necessary independently of the financial crisis.
Keywords	Monetary policy decision-making, Eurosystem, financial crisis, financial and institutional reforms
URL	http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121467&r=mon

Record ID	259 [ Page 5 of 7, No. 19 ]
Date	2012-06
Author	Martin Schmitz, Maarten De Clercq, Michael Fidora, Bernadette Lauro and Cristina Pinheiro
Affiliation	European Central Bank
Title	Revisiting the effective exchange rates of the Euro
Summary / Abstract	This paper describes in detail the methodology currently used by the European Central Bank (ECB) to determine the nominal and real effective exchange rate indices of the euro. Building on the work of Buldorini et al. (2002), it shows how the ECB’s techniques for calculating effective exchange rates have been updated over time and explains the related theoretical foundations. In particular, the paper discusses the use and development of trade weights based on trade in manufactured goods (taking account of third market effects), the trading partners selected, and the choice of deflators for constructing the real effective exchange rate indices. In addition, it presents evidence on exchange rate and competitiveness developments for both the euro area as a whole and individual Member States. While the growing importance of China is reflected in the updated trade weights of euro effective exchange rates, it appears that the increasing integration of the euro area with other European economies accounts for the largest variation in trade weights. The US dollar, an anchor currency for a number of large emerging markets, continues to play an important role for the effective exchange rate of the euro and euro area competitiveness. Overall, euro area competitiveness has improved slightly since the introduction of the single currency, despite significant heterogeneity within the euro area.
Keywords	Competitiveness, effective exchange rate (EER), harmonised competitiveness indicator (HCI), nominal effective exchange rate (NEER), real effective exchange rate (REER), trade weights
URL	http://d.repec.org/n?u=RePEc:ecb:ecbops:20120134&r=mon

Record ID	258 [ Page 5 of 7, No. 20 ]
Date	2012-08
Author	Michael D. Bauer and Christopher J. Neely
Affiliation	Federal Reserve Bank of San Francisco and Federal Reserve Bank of St. Louis
Title	International channels of the Fed’s unconventional monetary policy
Summary / Abstract	Previous research has established that the Federal Reserve large scale asset purchases (LSAPs) significantly influenced international bond yields. This paper analyzes the channels through which these effects occurred. We use dynamic term structure models to decompose international yield changes into changes in term premia and expected short rates. The conclusions for most countries are model dependent. Models that impose a unit root tend to imply large signaling effects for Australia, Canada, Germany and the United States. Models that do not restrict persistence imply negligible signaling effects for any country. Our preferred bias-corrected model implies large signaling effects for Canada and the United States. The idea that LSAP announcements signal information about Canadian rates is intuitively attractive because conventional US monetary policy shocks strongly predict Canadian rates.
Keywords	Monetary policy, bonds, international finance
URL	http://d.repec.org/n?u=RePEc:fip:fedfwp:2012-12&r=mon

Record ID	257 [ Page 5 of 7, No. 21 ]
Date	2012-08
Author	Fabian Eser, Marta, Stefano Iacobelli, and Marc Rubens
Affiliation	European Central Bank, Banco de España, Banca d’Italia, and National Bank of Belgium
Title	The use of the Eurosystem's monetary policy instruments and operational framework since 2009
Summary / Abstract	This paper provides a comprehensive overview of the use of the Eurosystem’s monetary policy instruments and the operational framework from the first quarter of 2009 until the second quarter 2012. The paper discusses in detail, from a liquidity management perspective, the standard and non-standard monetary policy measures taken over this period. The paper reviews the evolution of the Eurosystem balance sheet, participation in tender operations, the outright purchase programmes, patterns of reserve fulfilment, recourse to standing facilities as well as the steering of money market interest rates.
Keywords	Monetary policy implementation, central bank operational framework, central bank liquidity management, non-standard monetary policy measures
URL	http://d.repec.org/n?u=RePEc:ecb:ecbops:20120135&r=mon

Record ID	256 [ Page 5 of 7, No. 22 ]
Date	2012-08
Author	Research Department, under the general direction of Olivier Blanchard and Jonathan Ostry
Affiliation	IMF
Title	External Balance Assessment (EBA): Technical Background of the Pilot Methodology
Summary / Abstract	The IMF's Research Department is developing the External Balance Assessment (EBA) methodology as a successor to the CGER methodology for assessing current accounts and exchange rates. The new methodology brings a greater focus on the role of policies and policy distortions, as well as on global capital market and cyclical influences.* A pilot version of EBA was implemented recently; the Pilot External Sector Report draws in part on the results of that exercise, and includes a general overview of EBA in its Appendix I. This technical background note provides a more extended description of the pilot EBA methodology and is being made available to solicit comments and suggestions for the future development and refinement of EBA. *The EBA methodology is a project of the IMF’s Research Department, under the general direction of Olivier Blanchard and Jonathan D. Ostry. The EBA Team comprises Steve Phillips (head), Luis Catão (lead on current account analysis), Luca Ricci (lead on real exchange rate analysis), Mitali Das (lead on external sustainability analysis), D. Filiz Unsal, Jungjin Lee, Marola Castillo, John Kowalski, and Mauricio Vargas. The EBA Team gratefully acknowledges comments and suggestions received, on various aspects of the project, from Joshua Aizenman, Menzie Chinn, Martin Evans, Joseph Gagnon, Eduardo Lora, Maurice Obstfeld, Dennis Quinn, and Jay Shambaugh, as well from numerous IMF colleagues.
Keywords	Current account, real exchange rate, external balance assessment
URL	http://www.imf.org/external/np/res/eba/pdf/080312.pdf

Record ID	255 [ Page 5 of 7, No. 23 ]
Date	2012-07
Author	Martin Schmitz
Affiliation	European Central Bank
Title	Financial markets and international risk sharing in emerging market economics
Summary / Abstract	In light of rapidly increasing foreign equity liability positions of emerging market economies, we test for a necessary condition of international risk sharing, namely for systematic patterns between idiosyncratic output fluctuations and financial market developments. Panel analysis of 22 emerging market economies shows strong evidence for pro-cyclicality of capital gains on domestic stock markets both over short and medium term horizons. This implies that domestic output fluctuations can be hedged through cross-border ownership of financial markets.
Keywords	International risk sharing, capital gains, cross-border investment, financial globalisation, emerging market economies
URL	http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121451&r=cba

Record ID	254 [ Page 5 of 7, No. 24 ]
Date	2012-08
Author	Paolo Guarda, Abdelaziz Rouabah, and John Theal
Affiliation	Banque Centrale du Luxembourg
Title	An MVAR framework to capture extreme events in macro-prudential stress tests
Summary / Abstract	Severe financial turbulences are driven by high impact and low probability events that are the characteristic hallmarks of systemic financial stress. These unlikely adverse events arise from the extreme tail of a probability distribution and are therefore very poorly captured by traditional econometric models that rely on the assumption of normality. In order to address the problem of extreme tail events, we adopt a mixture vector autoregressive (MVAR) model framework that allows for a multi-modal distribution of the residuals. A comparison between the respective results of a VAR and MVAR approach suggests that the mixture of distributions allows for a better assessment of the effect that adverse shocks have on counterparty credit risk, the real economy and banks’ capital requirements. Consequently, we argue that the MVAR provides a more accurate assessment of risk since it captures the fat tail events often observed in time series of default probabilities.
Keywords	Stress testing, MVAR, tier 1 capital ratio, counterparty risk, Luxembourg banking sector
URL	http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121464&r=cba

Record ID	253 [ Page 5 of 7, No. 25 ]
Date	2012-01
Author	Yener Altunbas, Leonardo Gambacorta and David Marques-Ibanez
Affiliation	Bangor Business School, Bank for International Settlements, and European Central Bank
Title	Does monetary policy affect bank risk?
Summary / Abstract	We investigate the effect of relatively loose monetary policy on bank risk through a large panel including quarterly information from listed banks operating in the European Union and the United States. We find evidence that relatively low levels of interest rates over an extended period of time contributed to an increase in bank risk. This result holds for a wide range of measures of risk, as well as macroeconomic and institutional controls including the intensity of supervision, securitization activity and bank competition. The results also hold when changes in realized bank risk due to the crisis are accounted for. The results suggest that monetary policy is not neutral from a financial stability perspective.
Keywords	Bank risk, monetary policy, credit crisis
URL	http://d.repec.org/n?u=RePEc:bng:wpaper:12002&r=cba

Record ID	252 [ Page 5 of 7, No. 26 ]
Date	2012-08
Author	Itai Agur and Maria Demertzis
Affiliation	IMF, STI and De Nederlandsche Bank
Title	Excessive bank risk taking and monetary policy
Summary / Abstract	Why should monetary policy "lean against the wind"? Can’t bank regulation perform its task alone? We model banks that choose both asset volatility and leverage, and identify how monetary policy transmits to bank risk. Subsequently, we introduce a regulator whose tool is a risk-based capital requirement. We derive from welfare that the regulator trades off bank risk and credit supply, and show that monetary policy affects both sides of this trade-off. Hence, regulation cannot neutralize the policy rate’s impact, and monetary policy matters for financial stability. An extension shows how the commonality of bank exposures affects monetary transmission.
Keywords	Macroprudential, leverage, supervision, monetary transmission
URL	http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121457&r=cba

Record ID	251 [ Page 5 of 7, No. 27 ]
Date	2012-08
Author	Luca Gattini, Huw Pill, and Ludger Schuknecht
Affiliation	European Investment Bank, Goldman Sachs, and German Ministry of Finance/European Central Bank
Title	A global perspective on inflation and propagation channels
Summary / Abstract	This paper revisits the evidence on the monetary policy transmission channels. It extends the existing literature along three lines: i) it takes a global perspective with aggregate series based on a broader set of countries (ca 70% per cent of the global economy) and a longer time (1960-2010) than previous studies. It, thereby, internalises potential international transmission channels (i.e. via global commodity prices); ii) it examines the interaction between monetary variables, asset prices (notably residential property) and inflation; and iii) it looks at the role of public debt for consumer price developments. On the basis of a VAR analysis, the study finds that i) global money demand shocks affect global inflation and also global commodity prices, which in turn impact on inflation; ii) global asset/property price dynamics appear to respond to financing cost shocks, but not to shocks to global money demand. Moreover, positive house price shocks exert a significant influence on inflation. From a global perspective, the study suggests recognition of global externalities of commodities and asset values as well as the close monitoring of real estate price developments.
Keywords	VAR, global inflation, global house prices, global money
URL	http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121462&r=cba

Record ID	250 [ Page 5 of 7, No. 28 ]
Date	2012-08
Author	Tanya Molodtsova and David Papell
Affiliation	National Bureau of Economic Research
Title	Taylor Rule Exchange Rate Forecasting During the Financial Crisis
Summary / Abstract	This paper evaluates out-of-sample exchange rate predictability of Taylor rule models, where the central bank sets the interest rate in response to inflation and either the output or the unemployment gap, for the euro/dollar exchange rate with real-time data before, during, and after the financial crisis of 2008-2009. While all Taylor rule specifications outperform the random walk with forecasts ending between 2007:Q1 and 2008:Q2, only the specification with both estimated coefficients and the unemployment gap consistently outperforms the random walk from 2007:Q1 through 2012:Q1. Several Taylor rule models that are augmented with credit spreads or financial condition indexes outperform the original Taylor rule models. The performance of the Taylor rule models is superior to the interest rate differentials, monetary, and purchasing power parity models.
Keywords	Taylor Rule, Financial Crisis
URL	http://d.repec.org/n?u=RePEc:nbr:nberwo:18330&r=cba

Record ID	249 [ Page 5 of 7, No. 29 ]
Date	2012-08
Author	Paolo Gelain, Kevin J. Lansing, and Caterina Mendicino
Affiliation	Norges Bank, FRB San Francisco, and Bank of Portugal
Title	House prices, credit growth, and excess volatility: implications for monetary and macroprudential policy
Summary / Abstract	Progress on the question of whether policymakers should respond directly to financial variables requires a realistic economic model that captures the links between asset prices, credit expansion, and real economic activity. Standard DSGE models with fully-rational expectations have difficulty producing large swings in house prices and household debt that resemble the patterns observed in many developed countries over the past decade. We introduce excess volatility into an otherwise standard DSGE model by allowing a fraction of households to depart from fully-rational expectations. Specifically, we show that the introduction of simple moving-average forecast rules for a subset of households can significantly magnify the volatility and persistence of house prices and household debt relative to otherwise similar model with fully-rational expectations. We evaluate various policy actions that might be used to dampen the resulting excess volatility, including a direct response to house price growth or credit growth in the central bank’s interest rate rule, the imposition of more restrictive loan-to-value ratios, and the use of a modified collateral constraint that takes into account the borrower’s loan-to-income ratio. Of these, we find that a loan-to-income constraint is the most effective tool for dampening overall excess volatility in the model economy. We find that while an interest-rate response to house price growth or credit growth can stabilize some economic variables, it can significantly magnify the volatility of others, particularly inflation.
Keywords	Housing - Prices ; Housing - Econometric models
URL	http://d.repec.org/n?u=RePEc:fip:fedfwp:2012-11&r=mon

Record ID	248 [ Page 5 of 7, No. 30 ]
Date	2012-08
Author	Tanya Molodtsova and David Papell
Affiliation	National Bureau of Economic Research
Title	Taylor Rule Exchange Rate Forecasting During the Financial Crisis
Summary / Abstract	This paper evaluates out-of-sample exchange rate predictability of Taylor rule models, where the central bank sets the interest rate in response to inflation and either the output or the unemployment gap, for the euro/dollar exchange rate with real-time data before, during, and after the financial crisis of 2008-2009. While all Taylor rule specifications outperform the random walk with forecasts ending between 2007:Q1 and 2008:Q2, only the specification with both estimated coefficients and the unemployment gap consistently outperforms the random walk from 2007:Q1 through 2012:Q1. Several Taylor rule models that are augmented with credit spreads or financial condition indexes outperform the original Taylor rule models. The performance of the Taylor rule models is superior to the interest rate differentials, monetary, and purchasing power parity models.
Keywords	Taylor rule, Exchange rates
URL	http://d.repec.org/n?u=RePEc:nbr:nberwo:18330&r=mon

Record ID	247 [ Page 5 of 7, No. 31 ]
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 5 of 7, No. 32 ]
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 5 of 7, No. 33 ]
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 5 of 7, No. 34 ]
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 5 of 7, No. 35 ]
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 5 of 7, No. 36 ]
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 5 of 7, No. 37 ]
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 5 of 7, No. 38 ]
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 5 of 7, No. 39 ]
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 5 of 7, No. 40 ]
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

Record ID	237 [ Page 5 of 7, No. 41 ]
Date	2011
Author	Benjamin Morton Friedman
Affiliation	William Joseph Maier Professor of Political Economy at Harvard University (e-mail: bfriedman@harvard.edu)
Title	Reconstructing Economics in Light of the 2007-? Financial Crisis
Summary / Abstract	The lessons learned from the recent financial crisis should significantly reshape the economics profession's thinking, including, importantly, what we teach our students. Five such lessons are that we live in a monetary economy and therefore aggregate demand and policies that affect aggregate demand are determinants of real economic outcomes; that what actually matters for this purpose is not money but the volume, availability, and price of credit; that the fact that most lending is done by financial institutions matters as well; that the prices set in our financial markets do not always exhibit the â€œrationalityâ€ economists normally claim for them; and that both frictions and the uneven impact of economic events prevent us from adapting to disturbances in the way textbook economics suggests.
Keywords	Financial crisis, teaching macroeconomics
URL	http://dash.harvard.edu/bitstream/handle/1/5241348/Friedman_ReconstructingEconomics.pdf

Record ID	236 [ Page 5 of 7, No. 42 ]
Date	2012-06
Author	Lund-Jensen, Kasper
Affiliation	Money and Capital Markets Department, IMF
Title	Monitoring Systemic Risk Based on Dynamic Thresholds
Summary / Abstract	Successful implementation of macroprudential policy is contingent on the ability to identify and estimate systemic risk in real time. In this paper, systemic risk is defined as the conditional probability of a systemic banking crisis and this conditional probability is modeled in a fixed effect binary response model framework. The model structure is dynamic and is designed for monitoring as the systemic risk forecasts only depend on data that are available in real time. Several risk factors are identified and it is hereby shown that the level of systemic risk contains a predictable component which varies through time. Furthermore, it is shown how the systemic risk forecasts map into crisis signals and how policy thresholds are derived in this framework. Finally, in an out-of-sample exercise, it is shown that the systemic risk estimates provided reliable early warning signals ahead of the recent financial crisis for several economies.
Keywords	Systemic Risk, Financial Stability, Macroprudential Policy
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp12159.pdf

Record ID	235 [ Page 5 of 7, No. 43 ]
Date	2012-05
Author	Markus K. Brunnermeier, Thomas M. Eisenbach and Yuliy Sannikov
Affiliation	National Bureau of Economic Research
Title	Macroeconomics with Financial Frictions: A Survey
Summary / Abstract	This article surveys the macroeconomic implications of financial frictions. Financial frictions lead to persistence and when combined with illiquidity to non-linear amplification effects. Risk is endogenous and liquidity spirals cause financial instability. Increasing margins further restrict leverage and exacerbate downturns. A demand for liquid assets and a role for money emerges. The market outcome is generically not even constrained efficient and the issuance of government debt can lead to a Pareto improvement. While financial institutions can mitigate frictions, they introduce additional fragility and through their erratic money creation harm price stability.
Keywords	Macroeconomics, financial frictions
URL	http://d.repec.org/n?u=RePEc:nbr:nberwo:18102&r=mon

Record ID	234 [ Page 5 of 7, No. 44 ]
Date	2009-05
Author	Camilo Tovar
Affiliation	Bank for International Settlements
Title	DSGE Models and Central Banks
Summary / Abstract	Over the past 15 years there has been remarkable progress in the specification and estimation of dynamic stochastic general equilibrium (DSGE) models. Central banks in developed and emerging market economies have become increasingly interested in their usefulness for policy analysis and forecasting. This paper reviews some issues and challenges surrounding the use of these models at central banks. It recognises that they offer coherent frameworks for structuring policy discussions. Nonetheless, they are not ready to accomplish all that is being asked of them. First, they still need to incorporate relevant transmission mechanisms or sectors of the economy; second, issues remain on how to empirically validate them; and finally, challenges remain on how to effectively communicate their features and implications to policy makers and to the public. Overall, at their current stage DSGE models have important limitations. How much of a problem this is will depend on their specific use at central banks.
Keywords	DSGE models; central banks; communication; estimation; modelling
URL	http://www.economics-ejournal.org/economics/journalarticles/2009-16/version_1/count

Record ID	233 [ Page 5 of 7, No. 45 ]
Date	2012-06
Author	Vitek, Francis
Affiliation	Strategy, Policy, and Review Department, IMF
Title	Policy Analysis and Forecasting in the World Economy: A Panel Unobserved Components Approach
Summary / Abstract	This paper develops a structural macroeconometric model of the world economy, disaggregated into thirty five national economies. This panel unobserved components model features a monetary transmission mechanism, a fiscal transmission mechanism, and extensive macrofinancial linkages, both within and across economies. A variety of monetary policy analysis, fiscal policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated, based on a Bayesian framework for conditioning on judgment.
Keywords	Monetary policy analysis; Fiscal policy analysis; Spillover analysis; Forecasting; World economy; Panel unobserved components model; Bayesian econometrics
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp12149.pdf

Record ID	232 [ Page 5 of 7, No. 46 ]
Date	2012-05
Author	Temitope L.A. Leshoro
Affiliation	University of South Africa
Title	Estimating the inflation threshold for South Africa
Summary / Abstract	How detrimental is inflation to growth in South Africa? At what level? Motivated by the adoption of inflation targeting by many countries, this paper sets out to empirically determine the threshold level of inflation in South Africa. This study adopts quarterly time series data spanning over the period 1980:Q2 to 2010:Q3. The threshold regression model developed by Khan and Senhadji (2001) was used in this study. The econometric technique used is the Ordinary Least Squares (OLS) and the model was re-estimated using the two-stage least squares instrumental variable (2SLS-IV) to check for robustness. The results show that the inflation threshold level occurs at 4 percent. At inflation levels below and up to 4 percent there is a positive but insignificant relationship between inflation and growth. The relationship becomes negative and significant when the inflation rate is above 4 percent. The tests of robustness support these findings.
Keywords	Inflation, GDP Growth, threshold level, South Africa
URL	http://d.repec.org/n?u=RePEc:rza:wpaper:285&r=mon

Record ID	231 [ Page 5 of 7, No. 47 ]
Date	2011-01
Author	Frankel, Jeffrey A.
Affiliation	Harvard Kennedy School
Title	Monetary Policy in Emerging Markets: A Survey
Summary / Abstract	The characteristics that distinguish most developing countries, compared to large industrialized countries, include: greater exposure to supply shocks in general and trade volatility in particular, procyclicality of both domestic fiscal policy and international finance, lower credibility with respect to both price stability and default risk, and other imperfect institutions. These characteristics warrant appropriate models. Models of dynamic inconsistency in monetary policy and the need for central bank independence and commitment to nominal targets apply even more strongly to developing countries. But because most developing countries are price-takers on world markets, the small open economy model, with nontraded goods, is often more useful than the two-country two-good model. Contractionary effects of devaluation are also far more important for developing countries, particularly the balance sheet effects that arise from currency mismatch. The exchange rate was the favored nominal anchor for monetary policy in inflation stabilizations of the late 1980s and early 1990s. After the currency crises of 1994-2001, the conventional wisdom anointed Inflation Targeting as the preferred monetary regime in place of exchange rate targets. But events associated with the global crisis of 2007-09 have revealed limitations to the choice of CPI for the role of price index. The participation of emerging markets in global finance is a major reason why they have by now earned their own large body of research, but it also means that they remain highly prone to problems of asymmetric information, illiquidity, default risk, moral hazard and imperfect institutions. Many of the models designed to fit emerging market countries were built around such financial market imperfections; few economists thought this inappropriate. With the global crisis of 2007-09, the tables have turned: economists should now consider drawing on the models of emerging market crises to try to understand the unexpected imperfections and failures of advanced-country financial markets
Keywords	Central bank, crises, developing countries, emerging markets, macroeconomics, monetary policy
URL	http://dash.harvard.edu/bitstream/handle/1/4669671/RWP11-003_Frankel.pdf?sequence=1

Record ID	230 [ Page 5 of 7, No. 48 ]
Date	2012-06
Author	Tovar Mora, Camilo Ernesto ; Garcia-Escribano, Mercedes ; and Vera Martin, Mercedes
Affiliation	WHD, IMF
Title	Credit Growth and the Effectiveness of Reserve Requirements and Other Macroprudential Instruments in Latin America
Summary / Abstract	Over the past decade policy makers in Latin America have adopted a number of macroprudential instruments to manage the procyclicality of bank credit dynamics to the private sector and contain systemic risk. Reserve requirements, in particular, have been actively employed. Despite their widespread use, little is known about their effectiveness and how they interact with monetary policy. In this paper, we examine the role of reserve requirements and other macroprudential instruments and report new cross-country evidence on how they influence real private bank credit growth. Our results show that these instruments have a moderate and transitory effect and play a complementary role to monetary policy.
Keywords	Reserve requirements, countercyclical policy, credit, monetary transmission, interest rate spreads
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp12142.pdf

Record ID	229 [ Page 5 of 7, No. 49 ]
Date	2012-05
Author	Chowdhury, Ibrahim and Keller, Leonor
Affiliation	OED, IMF
Title	Managing Large-Scale Capital Inflows: The Case of the Czech Republic, Poland and Romania
Summary / Abstract	Many emerging market economies have in the recent past experienced a surge in capital inflows that may threaten their economic and financial stability. The IMF in early 2011 proposed a framework intended to guide Fund advice to policymakers on how to best respond to such inflows, including both macroeconomic instruments and so-called capital flow management measures (CFMs). The paper applies this framework to three countries that have experienced elevated capital inflows after the onset of the 2008 global financial crisis - the Czech Republic, Poland, and Romania. It finds that the evaluation of the macroeconomic criteria as prescribed by the framework does not support the use of CFMs, but instead advocates macroeconomic policies as the first line of defense against large-scale capital inflows. This finding is by and large consistent with the IMF’s policy advice given to country authorities in the context of surveillance missions.
Keywords	Capital inflows, capital controls
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp12138.pdf

Record ID	228 [ Page 5 of 7, No. 50 ]
Date	2011-11
Author	Athanasios Orphanides
Affiliation	Governor, Central Bank of Cyprus
Title	New Paradigms in Central Banking?
Summary / Abstract	This paper reviews whether and how the ongoing financial crisis has influenced central banking policy practice. Taking a historical perspective, it argues that throughout the existence of central banks the main objective has remained the same¯stability. What has been evolving over time, and has been influenced by the crisis, is our understanding about how to achieve and maintain stability over time. The paper focuses on the role and relative importance of price stability, economic stability and financial stability arguing that while the crisis has not materially shifted views regarding the monetary policy framework, it has highlighted the need for greater emphasis on financial stability than was appreciated before the crisis. It further argues that central banks must not only have a strong role in macro-prudential supervision but have more direct involvement in micro-supervision of the banking sector. Lastly, the paper argues that the crisis has reaffirmed that strong economic governance is a prerequisite for stability in a monetary union and, in the context of the euro area sovereign crisis, discusses the tremendous costs stemming from of lack of sufficient progress regarding economic governance going forward.
Keywords	Monetary policy, financial stability, economic governance, micro-prudential supervision, macro-prudential supervision
URL	http://d.repec.org/n?u=RePEc:cyb:wpaper:2011-6&r=mon

Record ID	227 [ Page 5 of 7, No. 51 ]
Date	2012-05
Author	Richard P.C. Brown and Fabrizio Carmignani
Affiliation	School of Economics, The University of Queensland
Title	Revisiting the effects of remittances on bank credit: a macro perspective
Summary / Abstract	We investigate the effect of remittances on bank credit in developing countries. Understanding this link is important in view of the growing relevance of remittances as a source of external finance and of the beneficial impact that financial intermediation is likely to have on economic growth. Using a simple theoretical formalization, we predict the relationship to be U-shaped. We test this prediction using panel data for a large group of developing and emerging economies over the period 1960-2009. The empirical results suggest that at initially low levels of remittances, an increase in remittances reduces the volume of credit extended by banks. However, at sufficiently high levels of remittances, the effect becomes positive. The turning point of the relationship occurs at a level of remittances of about 2.5% of GDP.
Keywords	Bank credit, remittances, panel data, financial development
URL	http://d.repec.org/n?u=RePEc:qld:uq2004:461&r=cba

Record ID	226 [ Page 5 of 7, No. 52 ]
Date	2012-04
Author	Luis Fernando Melo and Rubén Albeiro Loaiza Maya
Affiliation	Bank of the Republic of Colombia
Title	Bayesian Forecast Combination for Inflation Using Rolling Windows: An Emerging Country Case
Summary / Abstract	Typically, when forecasting inflation rates, there are a variety of individual models and a combination of several of these models. We implement a Bayesian shrinkage combination methodology to include information that is not captured by the individual models using expert forecasts as prior information. To take into account two common characteristics in emerging countries’ economies, possible parameter instabilities and non-stationary dynamics, we use a rolling estimation windows technique for series integrated of order one. The empirical results of Colombian inflation show that the Bayesian forecast combination model outperforms the individual models and the random walk predictions for every evaluated forecast horizon. Moreover, these results outperform shrinkage forecasts that consider other priors as equal or zero weights.
Keywords	Forecast combination, shrinkage, expert forecasts, rolling window estimation, inﬂation forecasts.
URL	http://d.repec.org/n?u=RePEc:col:000094:009511&r=cba

Record ID	225 [ Page 5 of 7, No. 53 ]
Date	2012-05
Author	Opoku-Afari, Maxwell and Dixit, Shiv
Affiliation	African Department, IMF
Title	Tracking Short-Term Dynamics of Economic Activity in Low-Income Countries in the Absence of High-Frequency GDP Data
Summary / Abstract	This paper uses a set of routinely collected high-frequency data in low-income countries (LICs) to construct an aggregate and a comprehensive index of economic activity which could serve (i) as a measure of the direction of economic activity; and (ii) as a useful input in analyzing contemporaneous real sector performance in LICs in the absence of high-frequency, and often outdated, GDP data. It could also serve as a useful tool for policymakers to gauge short-term dynamics of economic activity and shape appropriate and timely policy responses.
Keywords	Short-Term Dynamics, Economic Activity, GDP
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp12119.pdf

Record ID	224 [ Page 5 of 7, No. 54 ]
Date	2012-04
Author	Caglayan, Mustafa; Jehan, Zainab; and Mouratidis, Kostas
Affiliation	University of Sheffield
Title	Asymmetric monetary policy rules for open economies: Evidence from four countries
Summary / Abstract	This study presents an analytical framework to examine the policy reaction function of a central bank in an open economy context while allowing for asymmetric preferences. The paper then empirically examines the policy rule obtained from this framework using quarterly data for the US, Canada, Japan, and the UK. The results, based on GMM approach, provide evidence that domestic policy is affected by changes in the foreign interest rate and exchange rate. We also provide evidence of the presence of asymmetries in response to the inflation rate and output gap for all the sample countries.
Keywords	Monetary policy rule; asymmetric preferences; open economy
URL	http://mpra.ub.uni-muenchen.de/37401/1/MPRA_paper_37401.pdf

Record ID	223 [ Page 5 of 7, No. 55 ]
Date	2012-02
Author	In Choi and Seong Jin Hwang
Affiliation	Department of Economics, Sogang University, Seoul
Title	Forecasting Korean inflation
Summary / Abstract	This paper studies the performance of various forecasting models for Ko- rean inflation rates. The models studied in this paper are the AR(p) model, the dynamic predictive regression model with such exogenous variables as the unemployment rate and the term spread, the inflation target model, the random walk model, and the dynamic predictive regression model using estimated factors along with the unemployment rate and the term spread. The sampling period studied in this paper is 2000M11-2011M06. Among the studied models, the dynamic predictive regression model using estimated factors along with the unemployment rate and the term spread tends to perform best at the 6-month horizon when the factors are extracted from I(0) series and the variables for the factor extraction are selected by the criterion of the correlation of each variable with the inflation rate. The dynamic predictive regression models with the unemployment rate and the term spread also work well at shorter horizons.
Keywords	Inflation forecasting, Phillips curve, term spread, factor model, principal-component estimation, generalized principal-component estimation
URL	http://d.repec.org/n?u=RePEc:sgo:wpaper:1202&r=mon

Record ID	222 [ Page 5 of 7, No. 56 ]
Date	2012-04
Author	Chen, Jiaqian and Imam, Patrick A.
Affiliation	Money and Capital Markets Department, IMF
Title	Consequences of Asset Shortages in Emerging Markets
Summary / Abstract	We assess econometrically the impact of asset shortages on economic growth, asset bubbles, the probability of a crisis, and the current account for a group of 41 Emerging markets for 1995-2008. The econometric estimations confirm that asset shortages pose a serious danger to EMs in terms of reducing economic growth, raising the probability of a crisis, and leading to asset price bubbles. Moreover, asset shortages can also explain the current account positions of EMs. The findings suggest that the consequences of asset shortages for macroeconomic stability are significant, and must be tackled urgently. We conclude with policy implications.
Keywords	Asset Shortage, Emerging Market, Crisis, Current Account, Asset Bubble
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp12102.pdf

Record ID	221 [ Page 5 of 7, No. 57 ]
Date	2011-09
Author	Jurgen von Hagen and Haiping Zhang
Affiliation	University of Bonn, Indiana University and CEPR, and School of Economics, Singapore Management University
Title	International Capital Flows with Limited Commitment and Incomplete Markets
Summary / Abstract	Recent literature has proposed two alternative types of financial frictions, i.e., limited commitment and incomplete markets, to explain the patterns of international capital flows between developed and developing countries observed in the past two decades. This paper integrates both types of frictions into a two-country overlapping-generations framework to facilitate a direct comparison of their effects. In our model, limited commitment distorts the investment made by agents with different productivity, which creates a wedge between the interest rates on equity capital vs. credit capital; while incomplete markets distort the investment among projects with different riskiness, which creates a wedge between the risk-free rate and the mean rate of return to risky capital. We show that the two approaches are observationally equivalent with respect to their implications for international capital flows, production efficiency, and aggregate output.
Keywords	Financial development, financial frictions, foreign direct investment, incomplete markets, limited commitment, international capital flows
URL	http://d.repec.org/n?u=RePEc:siu:wpaper:10-2012&r=cba

Record ID	220 [ Page 5 of 7, No. 58 ]
Date	2012-02
Author	Frédérique Bec and Songlin Zeng
Affiliation	THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise
Title	Are Southeast Asian Real Exchange Rates Mean Reverting?
Summary / Abstract	Since the late nineties, both theoretical and empirical analysis devoted to the real exchange rate suggest that their dynamics might be well approximated by nonlinear models. This paper examines this possibility for post-1970 monthly ASEAN-5 data, extending the existing research in two directions. First, we use recently developed unit root tests which allow for more flexible nonlinear stationary models under the alternative than the commonly used Self-Exciting Threshold or Exponantial Smooth Transition AutoRegressions. Second, while different nonlinear models survive the mis-specification tests, a Monte Carlo experiment from generalized impulse response functions is used to compare their relative relevance. Our results i) support the nonlinear mean-reverting hypothesis, and hence the Purchasing Power Parity, in most of the ASEAN-5 countries and ii) point to the Multiple Regime-Logistic Smooth Transition and the Exponantial Smooth Transition AutoRegression models as the most likely data generating processes of these real exchange rates.
Keywords	Purchasing Power Parity; Nonlinear ThresholdModels; Southeast Asian Real Exchange Rates
URL	http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00685812&r=cba

Record ID	219 [ Page 5 of 7, No. 59 ]
Date	2012-04
Author	Glocker, Ch. and Towbin P.
Affiliation	Austrian Institute of Economic Research and Banque de France
Title	The Macroeconomic Effects of Reserve Requirements
Summary / Abstract	Monetary authorities in emerging markets are often reluctant to raise interest rates when dealing with credit booms driven by capital inflows, as they fear that an increase attracts even more capital and appreciates the currency. A number of countries therefore use reserve requirements as an additional policy instrument. The present study provides evidence on their macroeconomic effects. We estimate a vector autoregressive (VAR) model for the Brazilian economy and identify interest rate and reserve requirement shocks. For both instruments a discretionary tightening leads to a decline in domestic credit. We find, however, very different effects for other macroeconomic aggregates. In contrast to interest rate policy, a positive reserve requirement shock leads to an exchange rate depreciation and an improvement in the current account, but also to an increase in prices. The results suggest that reserve requirement policy can complement interest rate policy in pursuing a financial stability objective, but cannot be its substitute with regards to a price stability objective.
Keywords	Reserve Requirements, Capital flows, Monetary Policy, Business Cycle
URL	http://d.repec.org/n?u=RePEc:bfr:banfra:374&r=cba

Record ID	218 [ Page 5 of 7, No. 60 ]
Date	2012-03
Author	Goodhart, Ch. A. E., Kashyap, A. K., Tsomocos, D. P., and Vardoulakis, A. P.
Affiliation	London School of Economics, Federal Reserve Bank of Chicago, Oxford University, and Banque de France
Title	Financial Regulation in General Equilibrium
Summary / Abstract	This paper explores how different types of financial regulation could combat many of the phenomena that were observed in the financial crisis of 2007 to 2009. The primary contribution is the introduction of a model that includes both a banking system and a “shadow banking system” that each help households finance their expenditures. Households sometimes choose to default on their loans, and when they do this triggers forced selling by the shadow banks. Because the forced selling comes when net worth of potential buyers is low, the ensuing price dynamics can be described as a fire sale. The proposed framework can assess five different policy options that officials have advocated for combating defaults, credit crunches and fire sales, namely: limits on loan to value ratios, capital requirements for banks, liquidity coverage ratios for banks, dynamic loan loss provisioning for banks, and margin requirements on repurchase agreements used by shadow banks. The paper aims to develop some general intuition about the interactions between the tools and to determine whether they act as complements and substitutes.
Keywords	Price setting, changeover, euro, inflation
URL	http://d.repec.org/n?u=RePEc:bfr:banfra:372&r=cba

Record ID	217 [ Page 5 of 7, No. 61 ]
Date	2012-02
Author	Günes Kamber and Christoph Thoenissen
Affiliation	Reserve Bank of New Zealand
Title	The financial accelerator and monetary policy rules
Summary / Abstract	The ability of financial frictions to amplify the output response of monetary policy, as in the financial accelerator model of Bernanke et al (1999), is analysed for a wider class of policy rules where the policy interest rate responds to both inflation and the output gap. When policy makers respond to the output gap as well as inflation, the standard financial accelerator model reacts less to an interest rate shock than does a comparable model without an operational financial accelerator mechanism. In recessions, when firm-specific volatility rises, financial acceleration due to financial frictions is further reduced, even under pure inflation targeting.
Keywords	Financial accelerator, Inflation targeting
URL	http://d.repec.org/n?u=RePEc:nzb:nzbdps:2012/01&r=cba

Record ID	216 [ Page 5 of 7, No. 62 ]
Date	2012-01
Author	Robert G. King and Mark W. Watson
Affiliation	Boston University and Princeton University)
Title	Inflation and Unit Labor Cost
Summary / Abstract	We study two decompositions of inflation, , motivated by a New Keynesian Pricing Equation. The first uses four components: lagged , expected future , real unit labor cost ( ), and a residual. The second uses two components: fundamental inflation (discounted expected future ) and a residual. We find large low-frequency differences between actual and fundamental inflation. From 1999-2011 fundamental inflation fell by more than 15 percentage points, while actual inflation changed little. We discuss this discrepancy in terms of the data (a large drop in labor's share of income) and through the lens of a canonical structural model (Smets-Wouters (2007)).
Keywords	Inflation targeting, inflation forecasts, inflation forecasts targeting, inflation expectations, labor cost, DSGE models
URL	http://d.repec.org/n?u=RePEc:bos:wpaper:wp2012-005&r=cba

Record ID	215 [ Page 5 of 7, No. 63 ]
Date	2012-02
Author	Adam, Klaus and Woodford, Michael
Affiliation	Center for Economic Policy Research
Title	Robustly Optimal Monetary Policy in a Microfounded New Keynesian Model
Summary / Abstract	We consider optimal monetary stabilization policy in a New Keynesian model with explicit microfoundations, when the central bank recognizes that private-sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs close enough to model-consistency. We show how to characterize robustly optimal policy without restricting consideration a priori to a particular parametric family of candidate policy rules. We show that robustly optimal policy can be implemented through commitment to a target criterion involving only the paths of inflation and a suitably defined output gap, but that a concern for robustness requires greater resistance to surprise increases in inflation than would be considered optimal if one could count on the private sector to have 'rational expectations'.
Keywords	Belief distortions; near-rational expectations; robust control; target criterion
URL	http://d.repec.org/n?u=RePEc:cpr:ceprdp:8826&r=mon
Remarks	This paper is available for purchase at http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=8826.asp

Record ID	214 [ Page 5 of 7, No. 64 ]
Date	2012-02
Author	Svensson, Lars E O
Affiliation	Deputy Governor, Sveriges Riksbank
Title	Central-banking challenges for the Riksbank: Monetary policy, financial-stability policy and asset management
Summary / Abstract	The Riksbank faces challenges with regard to each of its three core functions, conducting monetary policy with the objective of stabilising inflation around the inflation target and resource utilisation around a sustainable level, promoting a safe and efficient payment system and thereby conducting a policy for financial stability, and managing its financial assets to attain a good risk-adjusted rate of return without prejudice to the first two core functions. I conclude that the challenges are best met by focusing monetary policy exclusively on stabilising inflation around the inflation target and resource utilisation around a sustainable level and not treating the policy rate, housing prices or household debt as separate explicit or implicit target variables, by not confusing monetary policy with financial-stability policy but treating them as separate policies, and by eliminating the large unnecessary currency risk in the Riksbank’s balance sheet.
Keywords	Central bank asset management; macroprudential policy; monetary policy
URL	http://d.repec.org/n?u=RePEc:cpr:ceprdp:8789&r=mon

Record ID	213 [ Page 5 of 7, No. 65 ]
Date	2012-02
Author	Kurmas Akdogan, Selen Baser, Meltem Gulenay Chadwick, Dilara Ertug, Timur Hulagu, Sevim Kosem, and Fethi Ogunc M. Utku Ozmen, Necati Tekatli
Affiliation	Central Bank of Turkey
Title	Short-Term Inflation Forecasting Models For Turkey and a Forecast Combination Analysis
Summary / Abstract	In this paper, we produce short term forecasts for the inflation in Turkey, using a large number of econometric models. In particular, we employ univariate models, decomposition based approaches (both in frequency and time domain), a Phillips curve motivated time varying parameter model, a suite of VAR and Bayesian VAR models and dynamic factor models. Our findings suggest that the models which incorporate more economic information outperform the benchmark random walk, and the relative performance of forecasts are on average 30 percent better for the first two quarters ahead. We further combine our forecasts by means of several weighting schemes. Results reveal that, the forecast combination leads to a reduction in forecast error compared to most of the models, although some of the individual models perform alike in certain horizons.
Keywords	Short-term Forecasting, Forecast Combination
URL	http://www.tcmb.gov.tr/research/discus/2012/WP1209.php

Record ID	212 [ Page 5 of 7, No. 66 ]
Date	2012-03
Author	Le Leslé, Vanessa and Avramova, Sofiya
Affiliation	Money and Capital Markets Dept., IMF
Title	Revisiting Risk-Weighted Assets (RWAs): Why Do RWAs Differ Across Countries and What Can Be Done About It?
Summary / Abstract	In this paper, we provide an overview of the concerns surrounding the variations in the calculation of risk-weighted assets (RWAs) across banks and jurisdictions and how this might undermine the Basel III capital adequacy framework. We discuss the key drivers behind the differences in these calculations, drawing upon a sample of systemically important banks from Europe, North America, and Asia Pacific. We then discuss a range of policy options that could be explored to fix the actual and perceived problems with RWAs, and improve the use of risk-sensitive capital ratios.
Keywords	Banks, regulation, risk-weighted assets, Basel I, II, III, Capital
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp1290.pdf

Record ID	211 [ Page 5 of 7, No. 67 ]
Date	2012-02
Author	Brahima Coulibaly
Affiliation	Board of Governors, Federal Reserve System
Title	Monetary policy in emerging market economies: what lessons from the global financial crisis?
Summary / Abstract	During the 2008-2009 global financial crisis, emerging market economies (EMEs) loosened monetary policy considerably to cushion the shock. In previous crises episodes, by contrast, EMEs generally had to tighten monetary policy to defend the value of their currencies, to contain capital flight, and to bolster policy credibility. Our study aims to understand the factors that enabled this remarkable shift in monetary policy, and also to assess whether this marks a new era in which EMEs can now conduct countercyclical policy, more in line with advanced economies. The results indicate statistically significant linkages between some characteristics of the economies and their ability to conduct countercyclical monetary policy. We find that macroeconomic fundamentals and lower vulnerabilities, openness to trade, and international capital flows, financial reforms, and the adoption of inflation targeting all facilitated the conduct of countercyclical policy. Of these factors, the most important have been the financial reforms achieved over the past decades and the adoption of inflation targeting. As long as EMEs maintain these strong economic fundamentals, continue to reform their financial sector, and adopt credible and transparent monetary policy frameworks such as inflation targeting, the conduct of countercyclical monetary policy will likely be sustainable.
Keywords	Monetary policy, crises, macroeconomic stabilization
URL	http://www.federalreserve.gov/pubs/ifdp/2012/1042/ifdp1042.pdf

Record ID	210 [ Page 5 of 7, No. 68 ]
Date	2012-03
Author	Khramov, Vadim
Affiliation	OEDRU, IMF
Title	Assessing DSGE Models with Capital Accumulation and Indeterminacy
Summary / Abstract	The simulated results of this paper show that New Keynesian DSGE models with capital accumulation can generate substantial persistencies in the dynamics of the main economic variables, due to the stock nature of capital. Empirical estimates on U.S. data from 1960:I to 2008:I show the response of monetary policy to inflation was almost twice lower than traditionally considered, as capital accumulation creates an additional channel of influence through real interest rates in the production sector. Versions of the model with indeterminacy empirically outperform determinate versions. This paper allows for the reconsideration of previous findings and has significant monetary policy implications.
Keywords	Monetary DSGE Models, Indeterminacy, Capital Accumulation
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp1283.pdf

Record ID	209 [ Page 5 of 7, No. 69 ]
Date	2011-12-01
Author	Jakub Ryšánek, Jaromír Tonner, Osvald Vašíček
Affiliation	Czech National Bank and Institute of Economic Studies, Charles University
Title	Monetary Policy Implications of Financial Frictions in the Czech Republic
Summary / Abstract	As the global economy seems to be recovering from the 2009 financial crisis, we find it desirable to look back and analyze the Czech economy ex post. We work with a Swedish New Keynesian model of a small open economy which embeds financial frictions in light of the financial accelerator literature. Without explicitly modeling the banking sector, this model serves as a tool for understanding how a negative financial shock may spread to the real economy and how monetary policy may react. We use Bayesian techniques to estimate the model parameters to adjust the model structure closer to the evidence stemming from Czech data. Our attention focuses on a set of experiments in which we generate ex post forecasts of the economy prior to the 2009 crisis and illustrate that the monetary policy response to an upcoming crisis implied by the model with financial frictions is stronger on account of an increasing interest rate spread.
Keywords	Bayesian methods, financial frictions
URL	http://www.cnb.cz/en/research/research_publications/cnb_wp/2011/cnbwp_2011_12.html

Record ID	208 [ Page 5 of 7, No. 70 ]
Date	2012-02
Author	Miao, Yanliang and Pant, Malika
Affiliation	Strategy, Policy, and Review Department, IMF
Title	Coincident Indicators of Capital Flows
Summary / Abstract	Capital flows data from Balance of Payments statistics often lag 3-6 months, which renders timely surveillance and policy deliberation difficult. To address the tension, we propose two coincident composite indicators for capital flows that improve upon existing proxies. We find that the most widely used proxy, the capital tracker, often overpredicts net flows by 30 percent. We augment the tracker into a composite indicator by assigning to it a lesser but optimally estimated weight while incorporating other regional and global coincident correlates of capital flows. The proposed composite indicator of net flows outperforms the capital tracker in its original format. To complement the indicator with an even timelier variant, we also utilize the EPFR high frequency coverage of gross bond and equity flows as an indicator on foreign investors’ sentiment.
Keywords	Capital Flows; Coincident Indicators; Capital Tracker
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp1255.pdf

Record ID	207 [ Page 5 of 7, No. 71 ]
Date	2012-02
Author	René Tapsoba
Affiliation	Clermont Université, Université d’Auvergne, CNRS, UMR 6587, Centre d’Etudes et de Recherches sur le Développement International (CERDI), F-63009 Clermont-Ferrand, France
Title	Does Inflation Targeting Matter for Attracting Foreign Direct Investment into Developing Countries?
Summary / Abstract	This paper investigates the effect of Inflation Targeting (IT) on Foreign Direct Investment (FDI). Based on panel data of 53 developing countries over the period 1980-2007, this study is the first, to the best of the author's knowledge, to evaluate directly the effect of IT on FDI. Using a variety of propensity scores-matching methods which allow controlling for self-selection in policy adoption, it finds that the treatment effect of IT on FDI is positive, statistically significant and robust to a set of alternative specifications. In terms of policy recommendations, this finding therefore suggests that if well implemented, IT adoption can be a legitimate part of the policy toolkit available to policymakers in developing countries in their competition to attract more FDI.
Keywords	Inflation targeting, foreign direct investment, propensity scores-matching, developing countries.
URL	http://d.repec.org/n?u=RePEc:cdi:wpaper:1322&r=mon

Record ID	206 [ Page 5 of 7, No. 72 ]
Date	2011
Author	Magdalena Szyszko
Affiliation	National Bank of Poland
Title	The interdependences of central bank’s forecasts and economic agents inflation expectations: Empirical study
Summary / Abstract	This paper focuses on the associations between the inflation forecasts of the central bank and inflation expectations of the households. The first part is of a descriptive nature. It gives the theoretical background of modern monetary policy focusing on the role of expectations. It also presents the idea of inflation forecast targeting. Then the framework of the inflation forecast targeting in four countries, the Czech Republic, Hungary, Poland and Romania, is presented. The empirical part of the study is an attempt to find associations between the inflation forecasts results and inflation expectations of consumers derived on the basis of surveys. The theory gives sound background for the existence of such relationships.The interdependences are tested in several ways. The last part of the paper focuses on the results and conclusions.
Keywords	Inflation forecasts, inflation forecasts targeting, inflation expectations
URL	http://d.repec.org/n?u=RePEc:nbp:nbpmis:105&r=mon

Record ID	205 [ Page 5 of 7, No. 73 ]
Date	2010-12
Author	Hernando Vargas Herrera, Yanneth R Betancourt, Carlos Varela and Norberto Rodríguez
Affiliation	Respectively, Deputy Governor and staff members of the Economic Studies Subdirectorate at the Banco de la República, Colombia
Title	Effects of reserve requirements in an inflation targeting regime: the case of Colombia
Summary / Abstract	RRs have been used in Colombia under an IT regime with different objectives. In 2007, RR increases were aimed at speeding up monetary policy transmission and curbing excessive credit growth. In 2008, RRs were again raised to sterilise part of the monetary expansion resulting from international reserve purchases. Later that year, they were reduced to ensure the provision of adequate liquidity in the context of heightened uncertainty brought about by the Lehman Brothers crisis. The effects of RRs on interest rate and interest rate pass-through in an IT regime are not as straightforward as those under a monetary targeting regime. Conceptually, those effects depend on the degree of substitution between deposits and central bank credit as sources of bank funding and on the extent to which RR changes affect the risks facing banks. The empirical results for Colombia suggest that RRs are important long-term determinants of business loan interest rates and have been effective in strengthening the pass-through from policy to deposit and lending interest rates. These findings support the use of RRs as a policy instrument in an IT regime in terms of their effectiveness in reinforcing monetary policy transmission. These benefits must be contrasted with the fact that RRs are costly taxes on financial intermediation and may be too blunt a tool to fine-tune the adjustment of credit markets or aggregate demand. Hence, their use is justified when policymakers perceive that standard, less costly policy instruments are deemed insufficient to maintain price or financial stability. The empirical models used to assess the impact of RRs on interest rates were also exploited to characterise other features of the dynamics of interest rate pass-through. For Colombia, policy rate transmission seems to be asymmetric, with rate drops generating larger responses of market rates than policy rate increases. Moreover, a low NCP of the central bank with the financial system appears to weaken the transmission of policy rates to CD and short-term lending interest rates.
Keywords	Reserve requirements, inflation targeting
URL	http://www.bis.org/publ/bppdf/bispap54i.pdf

Record ID	204 [ Page 5 of 7, No. 74 ]
Date	2011-05
Author	Stefan Ingves
Affiliation	Governor, Sveriges Bank
Title	Flexible inflation targeting in theory and practice
Summary / Abstract	Let me round off. I would guess that many of you here today are used to seeing monetary policy through an academic’s eyes. When you hear the term monetary policy you may first and foremost associate it with the theoretical framework – the way that monetary policy is often portrayed in textbooks and scientific articles. Others of you may think instead of the more conventional, day-to-day image of monetary policy given in the media, with a focus on the Riksbank’s interest rate changes and possible disagreement among the Executive Board. One might say that these two images in some way represent the start and finish of the monetary policy process. When an interest rate decision is to be made, the process starts in one way or another with the simple theoretical framework. As I noted earlier, this captures fairly well the intuition behind flexible inflation targeting – that a well-balanced monetary policy concerns finding a suitable balance between stabilising inflation and stabilising the real economy. Each of us involved in making the policy rate decision has some version of the theoretical framework in our head, even if it is probably often fairly implicit. At the other end of the process is the media image, with concrete repo rate decisions. The basic question is how we can best go from the simple theoretical analysis into actual policy. There is a balancing act to achieve here: On the one hand, one wants to retain sufficient clarity and structure in the process as given by the theoretical framework. But on the other hand, one does not want to provide an overly simple and thereby perhaps misleading picture of monetary policy and the deliberations that we have to make in practice. What I have talked about here today concerns the link between theory and practice, and more specifically why the connections between them are not so simple. The interesting but difficult challenges faced when going from theoretical analysis to practical policy are something the Riksbank – and presumably also other central banks – spends a lot of time and energy managing. These challenges may not be so well-known outside of the central bank world and I hope that I have now been able to provide some insight into them.
Keywords	Inflation targeting, theory and policy
URL	http://www.bis.org/review/r110517c.pdf?frames=0

Record ID	203 [ Page 5 of 7, No. 75 ]
Date	1998-10
Author	Athanasios Orphanides
Affiliation	Board of Governors of the Federal Reserve System
Title	Monetary Policy Evaluation With Noisy Information
Summary / Abstract	This paper investigates the implications of noisy information regarding the measurement of economic activity for the evaluation of monetary policy. A common implicit assumption in such evaluations is that policymakers observe the current state of the economy promptly and accurately and can therefore adjust policy based on this information. However, in reality, decisions are made in real time when there is considerable uncertainty about the true state of aairs in the economy. Policy must be made with partial information. Using a simple model of the U.S. economy, I show that failing to account for the actual level of information noise in the historical data provides a seriously distorted picture of feasible macroeconomic outcomes and produces inecient policy rules. Naive adoption of policies identied as ecient when such information noise is ignored results in macroeconomic performance worse than actual experience. When the noise content of the data is properly taken into account, policy reactions are cautious and less sensitive to the apparent imbalances in the unltered data. The resulting policy prescriptions reflect the recognition that excessively activist policy can increase rather than decrease economic instability.
Keywords	Policy evaluation, interest rate rules, data revisions, real-time data, optimal control, observation noise, inflation targeting.
URL	http://www.federalreserve.gov/pubs/feds/1998/199850/199850pap.pdf
Remarks	The author is currently Governor, Central Bank of Cyprus.

Record ID	202 [ Page 5 of 7, No. 76 ]
Date	2011-12
Author	Jon Christensson, Kenneth Spong, and Jim Wilkinson
Affiliation	Federal Reserve Bank of Kansas City
Title	What can financial stability reports tell us about macroprudential supervision?
Summary / Abstract	Many countries have suggested macroprudential supervision as a means for earlier identification and better control of the risks that might lead to a financial crisis. Since macroprudential supervision would focus on the financial system in its entirety and on major risks that could threaten financial stability, it shares many of the same goals as the financial stability reports written by most central banks. This article examines the financial stability reports of five central banks to assess how effective they were in identifying the problems that led to the recent financial crisis and what implications they might have for macroprudential supervision. ; The financial stability reports in these five countries were generally successful in foreseeing the risks that contributed to the crisis, but the reports underestimated the severity of the crisis and did not fully anticipate the timing and pattern of important events. While the stress tests in these reports provided insights into the resiliency and capital needs of the banks in these countries, the stresses and scenarios tested often differed from what actually occurred and some of the reports did not consider them to be likely events. One other major challenge for the central banks was in taking the concerns expressed in financial stability reports and linking them to effective and timely supervisory policy. Overall, the reports were a worthwhile exercise in identifying and monitoring key financial trends and emerging risks, but they also indicate the significant challenges macroprudential supervision will have in anticipating and addressing financial market disruptions
Keywords	Macroprudential supervision, financial stability reports, financial crisis, banks
URL	http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp11-15&r=ban

Record ID	201 [ Page 5 of 7, No. 77 ]
Date	2011-12
Author	Tobias Adrian, Paolo Colla, and Hyun Song Shin
Affiliation	Federal Reserve Bank of New York
Title	Which financial frictions? parsing the evidence from the financial crisis of 2007-09
Summary / Abstract	We provide an overview of data requirements necessary to monitor repurchase agreements (repos) and securities lending (sec lending) markets for the purposes of informing policymakers and researchers about firm-level and systemic risk. We start by explaining the functioning of these markets, and argue that it is crucial to understand the institutional arrangements. Data collection is currently incomplete. A comprehensive collection should include six characteristics of repo and sec lending trades at the firm level: principal amount, interest rate, collateral type, haircut, tenor, and counterparty.
Keywords	Financial intermediation, credit supply
URL	http://d.repec.org/n?s=http://www.newyorkfed.org/research/staff_reports/sr528.pdf

Record ID	200 [ Page 5 of 7, No. 78 ]
Date	2012-01
Author	František Brázdik, Michal Hlaváček, and Aleš Maršál
Affiliation	Czech National Bank
Title	Survey of Research on Financial Sector Modeling within DSGE Models: What Central Banks Can Learn from It
Summary / Abstract	This survey gives insight into the ongoing research in financial frictions modeling. The recent financial turmoil has fueled interest in operationalizing financial frictions concepts and introducing them into tools for policy makers. The rapid growth of the literature on these issues is the motivation for our review of the presented approaches. The empirical facts that motivate the inclusion of financial frictions are surveyed. This survey provides a description of the basic approaches for introducing financial frictions into dynamic stochastic general equilibrium models. The significance and empirical identification of the financial accelerator effect is then discussed. The role of financial frictions models in CNB monetary and macroprudential policy is also described. It is concluded that given the heterogeneity of the approaches to financial frictions it is beneficial for the conduct of monetary policy to focus on the development of satellite approaches. The role of financial frictions in DSGE models for macroprudential policy is also discussed, as these models can be used to generate stress-testing scenarios. It can be concluded that DSGE models with financial frictions could complement current stress-testing practice, but are not able to replace stress tests.
Keywords	DSGE models, financial accelerator, financial frictions.
URL	http://www.cnb.cz/en/research/research_publications/irpn/download/rpn_3_2011.pdf

Record ID	199 [ Page 5 of 7, No. 79 ]
Date	2012-01
Author	Sami Ben Mim and Mohamed Sami Ben Ali
Affiliation	University of Monastir and IHEC Business School of Sousse, 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 show 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	https://docs.google.com/viewer?a=v&pid=gmail&attid=0.1&thid=135184af44f5cede&mt=application/pdf&url=https://mail.google.com/mail/?ui%3D2%26ik%3Deef2a3d00e%26view%3Datt%26th%3D135184af44f5cede%26attid%3D0.1%26disp%3Dsafe%26zw&sig=AHIEtbRLr3fn43phz_r52DF29I

Record ID	198 [ Page 5 of 7, No. 80 ]
Date	2012-01
Author	Roger, Scott and Vlcek, Jan
Affiliation	International Monetary Fund
Title	Macrofinancial Modeling at Central Banks: Recent Developments and Future Directions
Summary / Abstract	This paper surveys dynamic stochastic general equilibrium models with financial frictions in use by central banks and discusses priorities for future development of such models for the purpose of monetary and financial stability analysis. It highlights the need to develop macrofinancial models which allow analysis of the macroeconomic effects of macroprudential policy tools and to evaluate elements of the Basel III reforms as a priority. The paper also reviews the main approaches to introducing financial frictions into general equilibrium models.
Keywords	Monetary policy analysis, financial frictions, macroeconomic modeling
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp1221.pdf

Record ID	197 [ Page 5 of 7, No. 81 ]
Date	2011-09
Author	Claudio Borio
Affiliation	Head, Research and Policy Analysis, BIS
Title	Central banking post-crisis: What compass for uncharted waters?
Summary / Abstract	The global financial crisis has shaken the foundations of the deceptively comfortable pre-crisis central banking world. Central banks face a threefold challenge: economic, intellectual and institutional. This essay puts forward a compass to help central banks sail in the largely uncharted waters ahead. The compass is based on tighter integration of the monetary and financial stability functions, keener awareness of the global dimensions of those tasks, and stronger safeguards for an increasingly vulnerable central bank operational independence.
Keywords	Central banking, monetary and financial stability, macroprudential, own-house-in-order doctrine, operational independence
URL	http://www.bis.org/publ/work353.pdf

Record ID	196 [ Page 5 of 7, No. 82 ]
Date	2011-11
Author	Adam Gersl and Jakub Seidler
Affiliation	Czech National Bank
Title	Credit Growth and Capital Buffers: Empirical Evidence from Central and Eastern European Countries
Summary / Abstract	Excessive credit growth is often considered to be an indicator of future problems in the financial sector. This paper examines the issue of how to determine whether the observed level of private sector credit is excessive in the context of the counter-cyclical capital buffer, a macroprudential tool proposed in the new regulatory framework of Basel III by the Basel Committee on Banking Supervision. An empirical analysis of selected Central and Eastern European countries, including the Czech Republic, provides alternative estimates of excessive private credit and shows that the HP filter calculation proposed by the Basel Committee is not necessarily a suitable indicator of excessive credit growth for converging countries.
Keywords	Basel regulation, credit growth, financial crisis countercyclical buffer
URL	http://www.cnb.cz/en/research/research_publications/irpn/download/rpn_2_2011.pdf

Record ID	195 [ Page 5 of 7, No. 83 ]
Date	2011-11
Author	Luis Ignacio JÃ¡come, Tahsin Saadi Sedik, and Simon Townsend
Affiliation	Monetary and Capital Markets Department, IMF
Title	Can Emerging Market Central Banks Bail Out Banks? A Cautionary Tale from Latin America
Summary / Abstract	This paper investigates whether developing and emerging market countries can implement monetary policies similar to those used by advanced countries during the recent global crisis - injecting significant amounts of money into the financial system without facing major short-run adverse macroeconomic repercussions. Using panel data techniques, the paper analyzes episodes of financial turmoil in 16 Latin American countries during 1995-2007. The results show that developing and emerging market countries should be cautious because injecting money on a large scale into the financial system may fuel further macroeconomic instability, increasing the chances of simultaneous currency crises.
Keywords	Banking crises, central banks, currency crises, financial stability
URL	http://www.imf.org/external/pubs/ft/wp/2011/wp11258.pdf

Record ID	194 [ Page 5 of 7, No. 84 ]
Date	2012-01
Author	Schaechter, Andrea; Alper, C. Emre; Arbatli, Elif; Caceres, Carlos; Callegari, Giovanni; Gerard, Marc ; Jonas, Jiri; Kinda, Tidiane; Shabunina, Anna; and Weber, Anke
Affiliation	Fiscal Affairs Department, IMF
Title	A Toolkit to Assessing Fiscal Vulnerabilities and Risks in Advanced Economies
Summary / Abstract	This paper presents a range of tools and indicators for analyzing fiscal vulnerabilities and risks for advanced economies. The analysis covers key short-, medium- and long-term dimensions. Short-term pressures are captured by assessing (i) gross funding needs, (ii) market perceptions of default risk, and (iii) stress dependence among sovereigns. Medium- and long-term pressures are summarized by (iv) medium- and long-term budgetary adjustment needs, (v) susceptibility of debt projections to growth and interest rate shocks, and (vi) stochastic risks to medium-term debt dynamics. Aiming to cover a wide range of advanced economies and minimize data lags, has also influenced the selection of empirical methods. Due to these features, they can, for example, help inform the joint IMF-FSB Early Warning Exercise (EWE) on the fiscal dimensions of economic risks.
Keywords	Fiscal vulnerabilities, fiscal risk, fiscal indicators, sustainability
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp1211.pdf

Record ID	193 [ Page 5 of 7, No. 85 ]
Date	2012-01
Author	Harun Alp, Selim Elekdag, and Subir Lall
Affiliation	Asia and Pacific Department, IMF
Title	Did Korean Monetary Policy Help Soften the Impact of the Global Financial Crisis of 2008–09?
Summary / Abstract	Korea was one of the Asian economies hardest hit by the global financial crisis. Anticipating the downturn that would follow the episode of extreme financial stress, the Bank of Korea (BOK) let the exchange rate depreciate as capital flowed out, and preemptively cut the policy rate by 325 basis points. But did it work? This paper seeks a quantitative answer to the following question: Were it not for an inflation targeting framework underpinned by a flexible exchange rate regime, how much deeper would the recession have been? Taking the most intense year of the crisis as our baseline (2008:Q4–2009:Q3), counterfactual simulations indicate that rather the actual outcome of a –2.1 percent contraction, the outturn would have been –2.9 percent if the BOK had not implemented countercyclical and discretionary interest rate cuts. Furthermore, had a fixed exchange rate regime been in place, simulations indicate that output would have contracted by –7.5 percent over the same four-quarter period. In other words, exchange rate flexibility and the interest rate cuts implemented by the BOK helped substantially soften the impact of the global financial crisis on the Korean economy. These counterfactual experiments are based on an estimated structural model, which, along with standard nominal and real rigidities, includes a financial accelerator mechanism in an open economy framework.
Keywords	Financial accelerator, Bayesian estimation, DSGE model, financial crises, sudden stops, monetary policy, Korea, emerging economies, emerging markets.
URL	http://www.imf.org/external/pubs/ft/wp/2012/wp1205.pdf

Record ID	192 [ Page 5 of 7, No. 86 ]
Date	2011-12
Author	Peter Sinclair
Affiliation	University of Birmingham
Title	Inflation Targeting Dilemmas
Summary / Abstract	This paper poses, and then attempts to answer, eleven questions about the principles and practice of inflation targeting under contemporary conditions
Keywords	Inflation targeting
URL	http://d.repec.org/n?u=RePEc:bir:birmec:11-23&r=mac

Record ID	191 [ Page 5 of 7, No. 87 ]
Date	2011-12
Author	Daniel Sámano
Affiliation	Banco de Mexico
Title	In the Quest of Macroprudential Policy Tools
Summary / Abstract	The global financial crisis of late 2008 could not have provided more convincing evidence that price stability is not a sufficient condition for financial stability. In order to attain both, central banks must develop macroprudential instruments in order to prevent the occurrence of systemic risk episodes. For this reason testing the effectiveness of different macroprudential tools and their interaction with monetary policy is crucial. In this paper we explore whether two policy instruments, namely, a capital adequacy ratio rule in combination with a Taylor rule may provide a better macroeconomic outcome than a Taylor rule alone. We conduct our analysis by appending a macroeconometric financial block to an otherwise standard semistructural small open economy neokeynesian model for policy analysis estimated for the Mexican economy. Our results show that with the inclusion of the second instrument, the central bank may obtain substantial gains. Specifically, the central authority can isolate financial shocks and dampen their effects over macroeconomic variables.
Keywords	Macroprudential policy, monetary policy, capital requirements
URL	http://d.repec.org/n?u=RePEc:bdm:wpaper:2011-17&r=mac
Remarks	In the above paper, Daniel Sámano of Banco de Mexico explores "whether two policy instruments, namely, a capital adequacy ratio (CAR) rule in combination with a Taylor rule may provide a better macroeconomic outcome than a Taylor rule alone," conducting his analysis by adding a financial block to a Neo-Keynesian, semistructural small open economy model estimated using Mexican data. With a CAR rule as second instrument, he concludes that Banco de Mexico can continue to implement small, measured increments in the policy rates, with lower variability in inflation and output outcomes. His model is estimable and potentially useful when adapted to the Philippine situation.

Record ID	190 [ Page 5 of 7, No. 88 ]
Date	2011-11
Author	Edward R. Gemayel, Sarwat Jahan, and Alexandra Peter
Affiliation	Strategy, Policy, and Review Department, IMF
Title	What Can Low-Income Countries Expect from Adopting Inflation Targeting?
Summary / Abstract	Inflation targeting (IT) is a relatively new monetary policy framework for low-income countries (LICs). The limited number of LICs with an IT framework and the short time that has elapsed since the adoption of this framework explains why there are no previous empirical studies on the performance of IT in LICs. This paper has made a first attempt at filling this gap. It finds that inflation targeting appears to be associated with lower inflation and inflation volatility. At the same time, there is no robust evidence of an adverse impact on output. This may explain the appeal of IT for many LICs, where building credibility of monetary policy is difficult and minimizing output costs of reducing inflation is imperative for social and political reasons.
Keywords	Albania , Armenia , Cross country analysis , Developed countries , Emerging markets , Ghana , Inflation targeting , Low-income developing countries , Monetary policy
URL	http://www.imf.org/external/pubs/ft/wp/2011/wp11276.pdf

Record ID	189 [ Page 5 of 7, No. 89 ]
Date	2011-11
Author	Antonio, Paradiso; Kumar, Saten; and Rao, B Bhaskara
Affiliation	University of Rome La Sapienza, Auckland University of Technology, and University of Western Sydney
Title	A New Keynesian IS Curve for Australia: Is it Forward Looking or Backward Looking?
Summary / Abstract	This paper estimates the forward looking, backward looking and an extended version of the New Keynesian IS curve for Australia. The validity of these models is investigated by imposing the constraint on real rate of interest and as well as when the constraint is relaxed. Two measures of output gap viz. GAP1 (constructed using the unobserved components approach) and GAP2 (constructed using a quadratic trend) are utilized. Our results suggest that the baseline backward looking and forward looking models are overwhelmingly rejected by the data. Evidence strongly supports for the extended backward looking model (with GAP2) being relevant for monetary policy analysis.
Keywords	New Keynesian IS curve; Backward looking; Forward looking; Australia
URL	http://mpra.ub.uni-muenchen.de/35296/1/MPRA_paper_35296.pdf

Record ID	188 [ Page 5 of 7, No. 90 ]
Date	2011-12
Author	Ian Christensen, Césaire Meh, and Kevin Moran
Affiliation	Bank of Canada and Département d’économique, Université Laval
Title	Bank Leverage Regulation and Macroeconomic Dynamics
Summary / Abstract	This paper assesses the merits of countercyclical bank balance sheet regulation for the stabilization of financial and economic cycles and examines its interaction with monetary policy. The framework used is a dynamic stochastic general equilibrium model with banks and bank capital, in which bank capital solves an asymmetric information problem between banks and their creditors. In this economy, the lending decisions of individual banks affect the riskiness of the whole banking sector, though banks do not internalize this impact. Regulation, in the form of a constraint on bank leverage, can mitigate the impact of this externality by inducing banks to alter the intensity of their monitoring efforts. We find that countercyclical bank leverage regulation can have desirable stabilization properties, particularly when financial shocks are an important source of economic fluctuations. However, the appropriate contribution of countercyclical capital requirements to stabilization after a technology shock depends on the size of the externality and on the conduct of the monetary authority.
Keywords	Moral hazard, bank capital, countercyclical capital requirements, leverage, monetary policy
URL	http://www.cirpee.org/fileadmin/documents/Cahiers_2011/CIRPEE11-40.pdf

Record ID	187 [ Page 5 of 7, No. 91 ]
Date	2011-12
Author	Anton Korinek
Affiliation	Research Department, IMF
Title	The New Economics of Capital Controls Imposed for Prudential Reasons
Summary / Abstract	This paper provides an introduction to the new economics of prudential capital controlsin emerging economies. This literature is based on the notion that there are externalities associated with financial crises because individual market participants do not internalize their contribution to aggregate financial instability when they make their finacing decisions. As a result they impose externalities in the form of greater financial instability on each other, and the private financing decisions of individuals are distorted towards excessive risk-taking. We discuss how prudential capital controls can induce private agents to internalize these externalities and thereby increase macroeconomic stability and enhance welfare.
Keywords	Financial crises, balance sheet effects, pecuniary externalities, capital controls
URL	http://www.imf.org/external/pubs/ft/wp/2011/wp11298.pdf

Record ID	186 [ Page 5 of 7, No. 92 ]
Date	2011-09
Author	Hiona Balfoussia, Sophocles N. Brissimis, and Manthos D. Delis
Affiliation	Bank of Greece, Eurosystem, and City University
Title	The theoretical framework of monetary policy revisited
Summary / Abstract	The three-equation New-Keynesian model advocated by Woodford (2003) as a self-contained system on which to base monetary policy analysis is shown to be inconsistent in the sense that its long-run static equilibrium solution implies that the interest rate is determined from two of the system’s equations, while the price level is left undetermined. The inconsistency is remedied by replacing the Taylor rule with a standard money demand equation. The modified system is seen to possess the key properties of monetarist theory for the long run, i.e. monetary neutrality with respect to real output and the real interest rate and proportionality between money and prices. Both the modified and the original New-Keynesian models are estimated on US data and their dynamic properties are examined by impulse response analysis. Our research suggests that the economic and monetary analysis of the European Central Bank could be unified into a single framework.
Keywords	Monetary theory; Central banking; New-Keynesian model; Impulse response analysis
URL	http://www.bankofgreece.gr/BogEkdoseis/Paper2011138.pdf

Record ID	185 [ Page 5 of 7, No. 93 ]
Date	2011-11
Author	Lam, W. Raphael
Affiliation	Asia and Pacific Department, IMF
Title	Bank of Japan’s Monetary Easing Measures: Are They Powerful and Comprehensive?
Summary / Abstract	With policy rates near the zero bound, the Bank of Japan (BoJ) has introduced a series of unconventional monetary easing measures since late 2009 in response to lingering deflation and a weakening economy. These measures culminated in a new Asset Purchase Program under the Comprehensive Monetary Easing (CME) which differs from typical quantitative easing in other central banks by including purchases of risky asset in an effort to reduce term and risk premia. This note assesses the impact of monetary easing measures on financial markets using an event study approach. It finds that the BoJ’s monetary easing measures has had a statistically significant impact on lowering bond yields and improving equity prices, but no notable impact on inflation expectations.
Keywords	Monetary and Credit Easing, Quantitative Easing, Large-scale Asset Purchases
URL	http://www.imf.org/external/pubs/ft/wp/2011/wp11264.pdf

Record ID	184 [ Page 5 of 7, No. 94 ]
Date	2011-11
Author	Schumacher, Liliana and Barnhill, Theodore M.
Affiliation	Money and Capital Markets, IMF
Title	Modeling Correlated Systemic Liquidity and Solvency Risks in a Financial Environment with Incomplete Information
Summary / Abstract	This paper proposes and demonstrates a methodology for modeling correlated systemic solvency and liquidity risks for a banking system. Using a forward looking simulation of many risk factors applied to detailed balance sheets for a 10 bank stylized United States banking system, we analyze correlated market and credit risk and estimate the probability that multiple banks will fail or experience liquidity runs simultaneously. Significant systemic risk factors are shown to include financial and economic environment regime shifts to stressful conditions, poor initial loan credit quality, loan portfolio sector and regional concentrations, bank creditors’ sensitivity to and uncertainties regarding solvency risk, and inadequate capital. Systemic banking system solvency risk is driven by the correlated defaults of many borrowers, other market risks, and inter-bank defaults. Liquidity runs are modeled as a response to elevated solvency risk and uncertainties and are shown to increase correlated bank failures. Potential bank funding outflows and contractions in lending with significant real economic impacts are estimated. Increases in equity capital levels needed to reduce bank solvency and liquidity risk levels to a target confidence level are also estimated to range from 3 percent to 20 percent of assets. For a future environment that replicates the 1987-2006 volatilities and correlations, we find only a small risk of U.S. bank failures focused on thinly capitalized and regionally concentrated smaller banks. For the 2007-2010 financial environment calibration we find substantially elevated solvency and liquidity risks for all banks and the banking system.
Keywords	Solvency risk; systemic liquidity; stress tests.
URL	http://www.imf.org/external/pubs/ft/wp/2011/wp11263.pdf

Record ID	183 [ Page 5 of 7, No. 95 ]
Date	2011-06
Author	Michel DE VROEY and Pierre MALGRANGE
Affiliation	UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES), and CEPREMAP, Paris
Title	The History of Macroeconomics from Keynes’s General Theory to the Present
Summary / Abstract	This paper is a contribution to the forthcoming Edward Elgar Handbook of the History of Economic Analysis volume edited by Gilbert Faccarello and Heinz Kurz. Its aim is to introduce the reader to the main episodes that have marked the course of modern macroeconomics: its emergence after the publication of Keynes’s General Theory, the heydays of Keynesian macroeconomics based on the IS-LM model, disequilibrium and non-Walrasian equilibrium modelling, the invention of the natural rate of unemployment notion, the new classical attack against Keynesian macroeconomics, the first wave of new Keynesian models, real business cycle modelling and, finally, the second wave of new Keynesian models, i.e. DSGE models. A main thrust of the paper is the contrast we draw between Keynesian macroeconomics and stochastic dynamic general equilibrium macroeconomics. We hope that our paper will be useful for teachers of macroeconomics wishing to complement their technical material with a historical addendum.
Keywords	Keynes, Lucas, IS-LM model, DSGE models
URL	http://sites-final.uclouvain.be/econ/DP/IRES/2011028.pdf

Record ID	182 [ Page 5 of 7, No. 96 ]
Date	2011-10
Author	Matthias Neuenkirch
Affiliation	University of Marburg
Title	Monetary Policy Transmission in Vector Autoregressions: A New Approach Using Central Bank Communication
Summary / Abstract	In this paper, we study the role central bank communication plays in the monetary policy transmission mechanism. We employ the Swiss Economic Institute’s Monetary Policy Communicator to measure the future stance of the European Central Bank’s monetary policy. Our results indicate that, first, communication influences prices and output. Second, communication partly crowds out the effects of the short-term interest rate as the latter’s influence is lower and its implementation lag increases compared to a benchmark model without central bank communication. Future work on monetary policy transmission should incorporate both a short-term interest rate and a communication indicator.
Keywords	Central Bank Communication, European Central Bank, Monetary Policy Shocks, Monetary Policy Transmission, Vector Autoregression
URL	http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/43-2011_neuenkirch.pdf

Record ID	181 [ Page 5 of 7, No. 97 ]
Date	2011-10
Author	Kuttner, Kenneth and Posen, Adam
Affiliation	Monetary Policy Committee Unit, Bank of England
Title	How flexible can inflation targeting be and still work?
Summary / Abstract	This paper takes up the issue of the flexibility of inflation targeting regimes, with the specific goal of determining whether the monetary policy of the Bank of England, which has a formal inflation target, has been any less flexible than that of the Federal Reserve, which does not have such a target. The empirical analysis uses the speed of inflation forecast convergence, estimated from professional forecasters' predictions at successive forecast horizons, to gauge the perceived flexibility of the central bank's response to macroeconomic shocks. Based on this criterion, these is no evidence to suggest that the Bank of England's inflation target has compelled it to be more aggressive in pursuit of low inflation than the Federal Reserve.
Keywords	Inflation targeting; inflation expectations; monetary policy
URL	http://www.bankofengland.co.uk/publications/externalmpcpapers/extmpcpaper0034.pdf

Record ID	180 [ Page 5 of 7, No. 98 ]
Date	2011-10
Author	Melecky, Ales and Melecky, Martin
Affiliation	Technical University of Ostrava
Title	Analyzing the Impact of Macroeconomic Shocks on Public Debt Dynamics: An Application to the Czech Republic
Summary / Abstract	The global financial crisis and its ramification into the fiscal area have demonstrated the importance of regular assessment and monitoring of fiscal vulnerabilities, including the sustainability of sovereign debt. This paper extends the analytical framework of Favero and Giavazzi (2007) to facilitate the analysis of the effects of macroeconomic shocks on public debt dynamics in an open economy. It then applies this framework using the data for the Czech Republic and derives some policy implications from such an analysis. The modeling framework nests a linear structural vector auto-regression (SVAR) model estimated with short-run identifying restrictions and a non-linear equation describing the public debt dynamics. The main variables of the system include GDP growth, inflation, the effective interest rate on government debt, government expenditures and revenues, the exchange rate and government debt. The utilized estimation method is the Bayesian approach.
Keywords	Macroeconomic Shocks, Non-linear Public Debt Dynamics, Open Economy, Czech Republic, Structural Vector Autoregression Model, Bayesian Estimation.
URL	http://mpra.ub.uni-muenchen.de/34114/1/MPRA_paper_34114.pdf

Record ID	179 [ Page 5 of 7, No. 99 ]
Date	2011-09
Author	Burcu Aydin and Engin Volkan
Affiliation	Asia and Pacific Department, IMF
Title	Incorporating Financial Stability in Inflation Targeting Frameworks
Summary / Abstract	The global financial crisis has exposed the limitations of a conventional inflation targeting (IT) framework in insulating an economy from shocks, and demonstrated that its rigid application may aggravate the effect of shocks on output and inflation. Accordingly, we investigate possible refinements to the IT framework by incorporating financial stability considerations. We propose a small open economy DSGE model, calibrated for Korea during the period of 2003 - 07, with real and financial frictions. The findings indicate that incorporating financial stability considerations can help smooth business cycle fluctuations more effectively than a conventional IT framework.
Keywords	DSGE, financial accelerator, monetary policy, financial stability
URL	http://d.repec.org/n?u=RePEc:imf:imfwpa:11/224&r=mon

Record ID	178 [ Page 5 of 7, No. 100 ]
Date	2010-11
Author	Hirose, Yasuo
Affiliation	Keio University
Title	Monetary policy and sunspot fluctuation in the U.S. and the Euro area
Summary / Abstract	We estimate a two-country open economy version of the New Keynesian DSGE model for the U.S. and the Euro area, using Bayesian techniques that allow for both determinacy and indeterminacy of the equilibrium. Our empirical analysis shows that the worldwide equilibrium is indeterminate due to a passive monetary policy in the Euro area, even if U.S. policy is aggressive enough. We demonstrate that the impulse responses under indeterminacy exhibit different dynamics than those under determinacy and that sunspot shocks affect the Euro economy to a substantial degree, while the transmission of sunspots to the U.S. is limited.
Keywords	Monetary Policy, Indeterminacy, Sunspot Shock, Open Economy Model, Bayesian Analysis.
URL	http://mpra.ub.uni-muenchen.de/33693/1/MPRA_paper_33693.pdf

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