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Record ID
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570
[ Page 5 of 23, No. 1 ]
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Date
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2014-10 |
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Author
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Truman, Edwin M.
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Affiliation
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Peterson Institute for International Economics |
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Title
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The Federal Reserve engages the world (1970-2000): an insider's narrative of the transition to managed floating and financial turbulence |
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Summary /
Abstract
|
This paper traces the evolution of the Federal Reserve and its engagement with the global economy over the last three decades of the 20th century: 1970 to 2000. The paper examines the Federal Reserve’s role in international economic and financial policy and analysis covering four areas: the emergence and taming of the great inflation, developments in US external accounts, foreign exchange analysis and activities, and external financial crises. It concludes that during this period the US central bank emerged to become the closest the world has to a global central bank. |
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Keywords
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Federal Reserve; Federal Open Market Committee; inflation; macroeconomic policies; monetary policy; external balance; exchange rates; exchange market intervention; financial crises; third world debt crises; Mexican crisis; Asian financial crises |
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URL
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http://www.dallasfed.org/assets/documents/institute/wpapers/2014/0210.pdf
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Record ID
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569
[ Page 5 of 23, No. 2 ]
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Date
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2014-10 |
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Author
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Aladangady, Aditya
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Affiliation
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Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, Washington, D.C. |
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Title
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Homeowner Balance Sheets and Monetary Policy |
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Summary /
Abstract
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This paper empirically identifies an important channel through which monetary policy affects consumer spending: homeowner balance sheets. A monetary loosening increases home values, thereby strengthening homeowner balance sheets and stimulating household spending due to a combination of collateral and wealth effects. The magnitude of these effects on a given household depends on local housing market characteristics such as local geography and regulation. Cities with the largest geographic and regulatory barriers to new construction see 3-4 percent responses in real house prices compared with unconstrained, elastic-supply cities where construction holds prices in check. Using non-public geocoded microdata from the Consumer Expenditures Survey, house price and consumption responses are compared across areas differing in local land availability and zoning laws to identify a marginal propensity to consume out of housing of 0.07. Homeowners with debt service ratios in the highest quartile have MPCs as high as 0.14 compared with negligible responses for those with low debt service ratios. This indicates a strong role for collateral effects, as opposed to pure wealth effects, in driving the relationship between home values and spending. I discuss the implications of these results for the aggregate effects and regional heterogeneity in responses to monetary shocks. |
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Keywords
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Consumption; housing; wealth effects; collateral; home equity; monetary policy |
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URL
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http://www.federalreserve.gov/econresdata/feds/2014/files/201498pap.pdf
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Record ID
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565
[ Page 5 of 23, No. 6 ]
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Date
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2014-11 |
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Author
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Michael Bordo and Pierre Siklos
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Affiliation
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National Bureau of Economic Research |
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Title
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Central Bank Credibility, Reputation and Inflation Targeting in Historical Perspective |
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Summary /
Abstract
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This paper examines the historical evolution of central bank credibility using both historical narrative and empirics for a group of 16 countries, both advanced and emerging. It shows how the evolution of credibility has gone through a pendulum where credibility was high under the classical gold standard before 1914 before being lost and not fully regained until the 1980s. This characterization does not, however, seem to apply to the monetary history in the emerging markets examined in the paper. Nevertheless, credibility in all the economies examined has been enhanced in recent decades thanks to the adoption of inflation targeting. However, the recent financial crisis and the call for central banks to focus more on financial stability relying on macro prudential regulation may pose significant challenges for central bank credibility. |
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Keywords
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Credibility, Inflation Targeting, Monetary Policy |
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Remarks
|
Information about Free Papers
You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.
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Record ID
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563
[ Page 5 of 23, No. 8 ]
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Date
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2014-11 |
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Author
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Del Negro, Marco and Sims, Christopher A.
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Affiliation
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Federal Reserve Bank of New York |
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Title
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When does a central bank’s balance sheet require fiscal support? |
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Summary /
Abstract
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Using a simple general equilibrium model, we argue that it would be appropriate for a central bank with a large balance sheet composed of long-duration nominal assets to have access to, and be willing to ask for, support for its balance sheet by the fiscal authority. Otherwise its ability to control inflation may be at risk. This need for balance sheet support—a within-government transaction—is distinct from the need for fiscal backing of inflation policy that arises even in models where the central bank’s balance sheet is merged with that of the rest of the government. |
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Keywords
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Central bank’s balance sheet; solvency; monetary policy |
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URL
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http://www.newyorkfed.org/research/staff_reports/sr701.pdf
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Record ID
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562
[ Page 5 of 23, No. 9 ]
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Date
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2014-11 |
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Author
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Vikram Rai and Lena Suchanek
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Affiliation
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Bank of Canada |
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Title
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The Effect of the Federal Reserve’s Tapering Announcements on Emerging Markets |
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Summary /
Abstract
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The Federal Reserve’s quantitative easing (QE) program has been accompanied by a flow of funds into emerging-market economies (EMEs) in search of higher returns. When Federal Reserve officials first mentioned an eventual slowdown and end of purchases under the central bank’s QE program in May and June 2013, foreign investors started to withdraw some of these funds, leading to capital outflows, a drop in EME currencies and stock markets, and a rise in bond yields. Using an event-study approach, this paper estimates the impact of “Fed tapering” on EME financial markets and capital flows for 19 EMEs. Results suggest that EMEs with strong fundamentals (e.g., stronger growth and current account position, lower debt, and higher growth in business confidence and productivity), saw more favourable responses to Fed communications on tapering. Capital account openness initially played a role as well, but diminished in importance in subsequent tapering announcements. |
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Keywords
|
International financial markets; Transmission of monetary policy; International topics |
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URL
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http://www.bankofcanada.ca/wp-content/uploads/2014/11/wp2014-50.pdf
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Record ID
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561
[ Page 5 of 23, No. 10 ]
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Date
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2014-12 |
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Author
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Jiaqian Chen, Tommaso Mancini-Griffoli, and Ratna Sahay
|
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Affiliation
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Money and Capital Markets Department, IMF |
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Title
|
Spillovers from United States Monetary Policy on Emerging Markets: Different This Time? |
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Summary /
Abstract
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The impact of monetary policy in large advanced countries on emerging market economies—dubbed spillovers—is hotly debated in global and national policy circles. When the U.S. resorted to unconventional monetary policy, spillovers on asset prices and capital flows were significant, though remained smaller in countries with better fundamentals. This was not because monetary policy shocks changed (in size, sign or impact on stance). In fact, the traditional signaling channel of monetary policy continued to play the leading role in transmitting shocks, relative to other channels, affecting longer-term bond yields. Instead, we find that larger spillovers stem more from structural factors, such as the use of new instruments (asset purchases). We obtain these results by developing a new methodology to extract, separate, and interpret U.S. monetary policy shocks. |
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Keywords
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Monetary policy announcements, unconventional monetary policies, spillovers, capital flows, equity markets, bond markets, exchange rates, emerging markets. |
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URL
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http://www.imf.org/external/pubs/ft/wp/2014/wp14240.pdf
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Record ID
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560
[ Page 5 of 23, No. 11 ]
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Date
|
2014-10 |
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Author
|
Nikolaos Antonakakis
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Affiliation
|
Department of Economics, Vienna University of Economics and Business |
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Title
|
Sovereign Debt and Economic Growth Revisited: The Role of (Non-)Sustainable Debt Thresholds |
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Summary /
Abstract
|
Contributing to the contentious debate on the relationship between sovereign debt and economic growth, I examine the role of theory-driven (non-)sustainable debt-ratios in combination with debt-ratio thresholds on economic growth. Based on both dynamic and non-dynamic panel data analyses in the euro area (EA) 12 countries over the period 1970-2013, I find that non-sustainable debt-ratios above and below the 60% threshold, have a detrimental effect on short-run economic growth, while sustainable debt-ratios below the 90% threshold exert a positive influence on short-run economic growth. In the long-run, both non-sustainable and sustainable debt-ratios above the 90% threshold, as well as non-sustainable debt-ratios below the 60% compromise economic growth. Robustness analysis supports these findings, and provides additional evidence of a positive effect of sustainable debt-ratios below the 60% threshold, as predicated by the Maastricht Treaty criterion, on (short- and long-run) economic growth. Overall, these results suggest that debt sustainability in addition to debt non-linearities should be considered simultaneously in the debt-growth nexus. In addition, the results indicate the importance of a timely reaction of fiscal policy in countries with non-sustainable debts, as implied by fiscal rules, in an attempt to ensure fiscal sustainability and, ultimately, promote long-run economic growth. |
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Keywords
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Government debt, growth, sustainability, threshold, government budget constraint |
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URL
|
https://epub.wu.ac.at/4321/1/wp187.pdf
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Record ID
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559
[ Page 5 of 23, No. 12 ]
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Date
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2014-05 |
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Author
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Marco Pagano
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Affiliation
|
Center for Financial Studies (CFS), Goethe University Frankfurt |
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Title
|
Dealing with financial crises: How much help from research? |
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Summary /
Abstract
|
Has economic research been helpful in dealing with the financial crises of the early 2000s? On the whole, the answer is negative, although there are bright spots. Economists have largely failed to predict both crises, largely because most of them were not analytically equipped to understand them, in spite of their recurrence in the last 25 years. In the pre-crisis period, however, there have been important exceptions - theoretical and empirical strands of research that largely laid out the basis for our current thinking about financial crises. Since 2008, a flurry of new studies offered several different interpretations of the US crisis: to some extent, they point to potentially complementary factors, but disagree on their relative importance, and therefore on policy recommendations. Research on the euro debt crisis has so far been much more limited: even Europe-based researchers - including CEPR ones - have often directed their attention more to the US crisis than to that occurring on their doorstep. In terms of impact on policy and regulatory reform, the record is uneven. On the one hand, the swift and massive liquidity provision by central banks in the wake of both crises is, at least partly, to be credited to previous research on the role of central banks as lenders of last resort in crises and on the real effects of bank lending and monetary policy. On the other hand, economists have had limited impact on the reform of prudential and security market regulation. In part, this is due to their neglect of important regulatory choices, which policy-makers are therefore left to take without the guidance of academic research-based analysis. |
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Keywords
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Financial crisis, risk taking, systemic risk, financial regulation, monetary policy, politics |
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URL
|
http://econstor.eu/bitstream/10419/102957/1/798409630.pdf
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Record ID
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558
[ Page 5 of 23, No. 13 ]
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Date
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2014-10 |
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Author
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Richard Clarida
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Affiliation
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NBER |
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Title
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Monetary Policy in Open Economies: Practical Perspectives for Pragmatic Central Bankers |
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Summary /
Abstract
|
This paper reviews and interprets some of the key policy implications that flow from a class of DSGE models for optimal monetary policy in the open economy. The framework suggests that good macroeconomic outcomes in open economies are possible by focusing inflation targeting that is implemented by a Taylor type rule, a rule that in equilibrium is reflected in the exchange rate as an asset price. Optimal monetary policy will not be able deliver a stationary ('stable') nominal exchange rate - let alone a fixed exchange rate or one that remains inside a target zone ‐ because, absent a commitment device, optimal monetary can't deliver a stationary domestic price level. Another feature in the data for inflation targeting countries that is consistent with monetary policy via Taylor type rule is that it will tend push the nominal exchange rate in the opposite direction from PPP in response to an 'inflation' shock - the 'bad news god news' result of Clarida -Waldman (2008;2014). This is so even though in the long run of these models the nominal exchange rate must in expectation obey PPP. |
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Keywords
|
Monetary policy, inflation targeting |
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URL
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http://www.nber.org/papers/w20545.pdf
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|
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. |
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Record ID
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557
[ Page 5 of 23, No. 14 ]
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Date
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2014-09 |
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Author
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Martin Bodenstein, Luca Guerrieri, and Joe LaBriola
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Affiliation
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National University of Singapore, Board of Governors of the Federal Reserve System, and University of California, Berkeley |
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Title
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Macroeconomic Policy Games |
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Summary /
Abstract
|
Strategic interactions between policymakers arise whenever each policymaker has distinct objectives. Deviating from full cooperation can result in large welfare losses. To facilitate the study of strategic interactions, we develop a toolbox that characterizes the welfare-maximizing cooperative Ramsey policies under full commitment and open-loop Nash games. Two examples for the use of our toolbox offer some novel results. The first example revisits the case of monetary policy coordination in a two-country model to confirm that our approach replicates well-known results in the literature and extends these results by highlighting their sensitivity to the choice of policy instrument. For the second example, a central bank and a macroprudential regulator are assigned distinct objectives in a model with financial frictions. Lack of coordination leads to large welfare losses even if technology shocks are the only source of fluctuations. |
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Keywords
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Optimal policy; strategic interaction; welfare analysis; monetary policy cooperation; marcroprudential regulation |
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URL
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http://www.federalreserve.gov/econresdata/feds/2014/files/201487pap.pdf
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Record ID
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556
[ Page 5 of 23, No. 15 ]
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Date
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2014-10 |
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Author
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Fernando López Vicente and José María Serena Garralda
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Affiliation
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Banco de España |
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Title
|
Macroeconomic policy in Brazil: inflation targeting, public debt structure and credit policies |
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Summary /
Abstract
|
Macroeconomic policy in Latin America underwent significant changes in the late nineties. Brazil is an outstanding example: inflation targeting was introduced in 1999 and a new fiscal policy framework was set up in 2000 with the Fiscal Responsibility Law. However, two elements of the Brazilian economy constrained the apparently state-of-the-art macroeconomic policy framework: the composition of public debt and the structure of the banking system. This paper discusses why macroeconomic policies were restricted by those factors and how they have evolved differently. The structure of public debt, characterised by indexation, short-term maturities and short US dollar positions, imposed significant constraints on macroeconomic policies during the 2000s. Nevertheless, these vulnerabilities were gradually overcome and the composition of public debt has remained stable in the aftermath of the global financial crisis. At the same time, the structure of the banking system was characterised by credit segmentation and high interest spreads, and these characteristics are still present today. These features have become key elements in understanding current macroeconomic developments, credit dynamics and the economic policy stance. |
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Keywords
|
Public debt, central banking, credit policies, Brazil. |
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URL
|
http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/14/Fich/do1405.pdf
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Record ID
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555
[ Page 5 of 23, No. 16 ]
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Date
|
2014-11 |
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Author
|
Jesús A. Bejarano and Luisa F. Charry
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Affiliation
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Banco de la Republica de Colombia |
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Title
|
Financial Frictions and Optimal Monetary Policy in a Small Open Economy |
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Summary /
Abstract
|
In this paper we set up a small open economy model with financial frictions, following Curdia and Woodford (2010)’s model. Unlike other results in the literature such as Curdia and Woodford (2010), McCulley and Ramin (2008) and Taylor (2008), we find that optimal monetary policy should not respond to changes in domestic interest rate spreads when the source of fluctuations are exogenous financial shocks. A novel result here is that the optimal size of policy responses to changes in the credit spread is large when the disturbance source are shocks to the foreign interest rate. Our results suggest that such a response is welfare enhancing. |
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Keywords
|
Financial frictions, optimal interest rate rules, interest rate spreads, welfare, small open economy, second order approximation |
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URL
|
http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_852.pdf
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Record ID
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554
[ Page 5 of 23, No. 17 ]
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Date
|
2014-11 |
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Author
|
BEN ROMDHANE, Ikram and MENSI, Sami
|
|
Affiliation
|
University of Mannouba Tunisia |
|
Title
|
Assessing the macroeconomic effects of inflation targeting: Evidence from OECD Economies |
|
Summary /
Abstract
|
With the numerous monetary policy reforms undertaken during the 1990s, inflation targeting emerged as one of the possible solutions. The macroeconomic performance of this regime has attracted the attention of recent research, yet no final consensus on its role is reached. The aim of this paper is to contribute to this debate through a panoply of mixed results proven by the recent literature. Empirically, the purpose of this study is to assess the impact of inflation targeting on inflation and output based on a panel of 30 OECD countries over the period 1980_2012, using the “differences-in- differences” approach of Ball and Sheridan (2005). Our results indicate that inflation targeting helps to improve macroeconomic performance of targeters OECD countries more than non- targeters in terms of average inflation and volatility. Our findings corroborate previous studies like those of Wu (2004), Ball and Sheridan (2005) and Manai,O (2014). However, our results point to an insignificant impact of this regime on output consistent with Gonçalves- Salles (2008) and Ftiti & Essadi (2013). Our results contrast those of S-Hebbel (2007) and Ftiti J. Goux (2011) which assume that there is no difference between targeters and non-targeters OECD countries. |
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Keywords
|
Inflation targeting, Performance, Macroeconomic Dimensions, Monetary Policy, Panel Analysis. |
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URL
|
http://mpra.ub.uni-muenchen.de/60108/1/MPRA_paper_60108.pdf
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Record ID
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553
[ Page 5 of 23, No. 18 ]
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Date
|
2014-12 |
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Author
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Stijn Claessens
|
|
Affiliation
|
Research Department, IMF |
|
Title
|
An Overview of Macroprudential Policy Tools |
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Summary /
Abstract
|
Macroprudential policies – caps on loan to value ratios, limits on credit growth and other balance sheets restrictions, (countercyclical) capital and reserve requirements and surcharges, and Pigouvian levies – have become part of the policy paradigm in emerging markets and advanced countries alike. But knowledge is still limited on these tools. Macroprudential policies ought to be motivated by market failures and externalities, but these can be hard to identify. They can also interact with various other policies, such as monetary and microprudential, raising coordination issues. Some countries, especially emerging markets, have used these tools and analyses suggest that some can reduce procyclicality and crisis risks. Yet, much remains to be studied, including tools’ costs ? by adversely affecting resource allocations; how to best adapt tools to country circumstances; and preferred institutional designs, including how to address political economy risks. As such, policy makers should move carefully in adopting tools. |
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Keywords
|
Financial stability, financial intermediation, externalities, market failures, procyclicality, systemic risk |
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URL
|
http://www.imf.org/external/pubs/ft/wp/2014/wp14214.pdf
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Record ID
|
552
[ Page 5 of 23, No. 19 ]
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|
Date
|
2014-11 |
|
Author
|
Bradley Jones
|
|
Affiliation
|
Monetary and Capital Markets Department, IMF |
|
Title
|
Identifying Speculative Bubbles: A Two-Pillar Surveillance Framework |
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Summary /
Abstract
|
In the aftermath of the global financial crisis, the issue of how best to identify speculative asset bubbles (in real-time) remains in flux. This owes to the difficulty of disentangling irrational investor exuberance from the rational response to lower risk based on price behavior alone. In response, I introduce a two-pillar (price and quantity) approach for financial market surveillance. The intuition is straightforward: while asset pricing models comprise a valuable component of the surveillance toolkit, risk taking behavior, and financial vulnerabilities more generally, can also be reflected in subtler, non-price terms. The framework appears to capture stylized facts of asset booms and busts—some of the largest in history have been associated with below average risk premia (captured by the ‘pricing pillar’) and unusually elevated patterns of issuance, trading volumes, fund flows, and survey-based return projections (reflected in the ‘quantities pillar’). Based on a comparison to past boom-bust episodes, the approach is signaling mounting vulnerabilities in risky U.S. credit markets. Policy makers and regulators should be attune to any further deterioration in issuance quality, and where possible, take steps to ensure the post-crisis financial infrastructure is braced to accommodate a re-pricing in credit risk. |
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Keywords
|
Asset bubbles, Market efficiency, Financial stability, Financial crises |
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URL
|
http://www.imf.org/external/pubs/ft/wp/2014/wp14208.pdf
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Record ID
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551
[ Page 5 of 23, No. 20 ]
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Date
|
2014-09 |
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Author
|
Manai Daboussi, Olfa
|
|
Affiliation
|
University of Tunis |
|
Title
|
Inflation Targeting As a Monetary Policy Rule: Experience and Prospects |
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Summary /
Abstract
|
This paper examines the inflation targeting experience in developing countries. Based on panel data of 53 developing countries, of which 20 those have adopted inflation targeting policy by the end of 2007, the purpose is to show the effects of inflation targeting on macroeconomic performance in these economies. We use the Great Moderation approach of Pétursson (2005) to analyze the relationship between inflation targeting and macroeconomic performance over the period 1980-2012. A key lesson from this experience is that this monetary policy realizes macroeconomic performance and contributes to the reduction of inflation, especially in developing countries with hyperinflation. |
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Keywords
|
Monetary policy, Inflation targeting, Macroeconomic performance, Developing economies |
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URL
|
http://mpra.ub.uni-muenchen.de/59336/1/MPRA_paper_59336.pdf
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Record ID
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550
[ Page 5 of 23, No. 21 ]
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Date
|
2005-05 |
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Author
|
Thórarinn G. Pétursson
|
|
Affiliation
|
Central Bank of Iceland and Reykjavík University |
|
Title
|
INFLATION TARGETING AND ITS EFFECTS ON MACROECONOMIC PERFORMANCE |
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Summary /
Abstract
|
An increasing number of countries have adopted inflation targeting since New Zealand first adopted this framework in early 1990. Currently there are 21 countries using inflation targeting in every continent of the world. This paper discusses the characteristics of these countries and how the adoption of inflation targeting has affected their economic performance along several dimensions. The main conclusion is that inflation targeting has largely been a success. The new framework has made central banks, which previously lacked credibility, able to change the way they do monetary policy towards what is commonly considered best practice. In many respects they have even been leading in creating a new benchmark for how to formulate monetary policy. |
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Keywords
|
Inflation Targeting, Monetary Policy |
|
URL
|
http://press.suerf.org/download/studies/study20055.pdf
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Record ID
|
549
[ Page 5 of 23, No. 22 ]
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Date
|
2014-09 |
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Author
|
André Minella, Paulo Springer de Freitas, Ilan Goldfajn, and Marcelo Kfoury Muinhos
|
|
Affiliation
|
Central Bank of Brazil |
|
Title
|
Inflation Targeting in Brazil: Constructing Credibility under Exchange Rate Volatility |
|
Summary /
Abstract
|
This paper assesses the challenges faced by the inflation-targeting regime in Brazil. The confidence crisis in the future performance of the Brazilian economy and the increase in risk aversion in international markets were responsible for a sudden stop of capital inflows in 2002 that caused a significant depreciation of the exchange rate. The inflation-targeting framework has played a critical role in macroeconomic stabilization. We stress two important challenges: construction of credibility and exchange rate volatility. The estimations indicate the following results: i) the inflation targets have worked as an important coordinator of expectations; ii) the Central Bank has reacted strongly to inflation expectations; iii) there has been a reduction in the degree of inflation persistence; and iv) the exchange rate pass-through for "administered or monitored" prices is two times higher than for "market" prices. |
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Keywords
|
Inflation targeting, Brazil, monetary policy |
|
URL
|
http://ecomod.net/sites/default/files/document-conference/ecomod2003/Minella.pdf
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Record ID
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548
[ Page 5 of 23, No. 23 ]
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Date
|
2014-09 |
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Author
|
Adrian, Tobias and Liang, J. Nellie
|
|
Affiliation
|
Federal Reserve Bank of New York |
|
Title
|
Monetary policy, financial conditions, and financial stability |
|
Summary /
Abstract
|
In the conduct of monetary policy, there exists a risk-return trade-off between financial conditions and financial stability, which complements monetary policy’s traditional trade-off between inflation and real activity. The trade-off exists even if monetary policy does not target financial stability considerations independently of its inflation and real activity goals, because risks to future financial stability are increased by the buildup of financial vulnerabilities from persistent accommodative monetary policy when the economy is close to potential. We review monetary policy transmission channels and financial frictions that give rise to this trade-off between financial conditions and financial stability, within a monitoring program across asset markets, banking firms, shadow banking, and the nonfinancial sector. We focus on vulnerabilities that affect monetary policy’s risk-return trade-off, including 1) pricing of risk, 2) leverage, 3) maturity and liquidity mismatch, and 4) interconnectedness and complexity. We also discuss the extent to which structural and time-varying macroprudential policies can counteract the buildup of vulnerabilities, thus mitigating monetary policy’s risk-return trade-off. |
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Keywords
|
Risk-taking channel of monetary policy; monetary policy transmission; monetary policy rules; financial stability; financial conditions; macroprudential policy |
|
URL
|
http://www.newyorkfed.org/research/staff_reports/sr690.pdf
|
|
Record ID
|
547
[ Page 5 of 23, No. 24 ]
|
|
Date
|
2014-09 |
|
Author
|
Aiyar, Shekhar; Calomiris, Charles; and Wieladek, Tomasz
|
|
Affiliation
|
International Monetary Fund, Columbia Business School, and Bank of England |
|
Title
|
How does credit supply respond to monetary policy and bank minimum capital requirements? |
|
Summary /
Abstract
|
We use data on UK banks’ minimum capital requirements to study the interaction of monetary policy and capital requirement regulation. UK banks were subject to both time-varying capital requirements and changes in interest rate policy. Tightening of either capital requirements or monetary policy reduces the supply of lending. Lending by large banks reacts substantially to capital requirement changes, but not to monetary policy changes. Lending by small banks reacts to both. There is little evidence of interaction between these two policy instruments. The differences in the responses of small and large banks, and the lack of interaction between capital requirement changes and monetary policy, have important policy implications. Our results confirm the theoretical consensus view that monetary policy should focus on price stability objectives and that capital requirement changes are a more effective tool to achieve financial stability objectives related to loan supply. We also identify important distributional consequences within the financial system of these two policy instruments. Finally, our findings do not corroborate theoretical models that raise concerns about complex interactions between monetary policy and macroprudential variation in capital requirements. |
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Keywords
|
Loan supply; capital requirements; monetary policy; macroprudential regulation |
|
URL
|
http://www.bankofengland.co.uk/research/Documents/workingpapers/2014/wp508.pdf
|
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Record ID
|
546
[ Page 5 of 23, No. 25 ]
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|
Date
|
2014-08 |
|
Author
|
William Tayler and Roy Zilberman
|
|
Affiliation
|
Lancaster University Management School |
|
Title
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Macroprudential Regulation and the Role of Monetary Policy |
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Summary /
Abstract
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We study the macroprudential roles of bank capital regulation and monetary policy in a borrowing cost channel model with endogenous financial frictions, driven by credit risk, bank losses and bank capital costs. These frictions induce financial accelerator mechanisms and motivate the examination of a macroprudential toolkit. Following credit shocks, countercyclical regulation is more effective than monetary policy in promoting price, financial and macroeconomic stability. For supply shocks, combining macroprudential regulation with a stronger anti-inflationary policy stance is optimal. The findings emphasize the importance of the Basel III accords and cast doubt on the desirability of conventional Taylor rules during periods of financial distress. |
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Keywords
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Bank Capital Regulation, Macroprudential Policy, Basel III, Monetary Policy, Borrowing Cost Channel |
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URL
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http://eprints.lancs.ac.uk/70632/1/MacroprudentialRegulation.pdf
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Record ID
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545
[ Page 5 of 23, No. 26 ]
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Date
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2014-08 |
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Author
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S. Boragan Aruoba
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Affiliation
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Federal Reserve Bank of Minneapolis |
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Title
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Term Structures of Inflation Expectations and Real Interest Rates: The Effects of Unconventional Monetary Policy |
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Summary /
Abstract
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Inflation expectations have recently received increased interest because of the uncertainty created by the Federal Reserve’s unprecedented reaction to the Great Recession. The effect of this reaction on the real economy is also an important topic. In this paper I use various surveys to produce a term structure of inflation expectations – inflation expectations at any horizon from 3 to 120 months – and an associated term structure of real interest rates. Inflation expectations extracted from this model track actual (ex-post) realizations of inflation quite well, and in terms of forecast accuracy they are at par with or superior to some popular alternatives obtained from financial variables. Looking at the period 2008–2013, I conclude that the unconventional policies of the Federal Reserve kept long-run inflation expectations anchored and provided a large level of monetary stimulus to the economy. |
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Keywords
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Inflation expectations; Real interest rate; Unconventional policies |
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URL
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http://www.minneapolisfed.org/research/sr/sr502.pdf
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Record ID
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544
[ Page 5 of 23, No. 27 ]
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Date
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2014-06 |
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Author
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Plosser, Charles I.
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Affiliation
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Federal Reserve Bank of Philadelphia |
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Title
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Systematic Monetary Policy and Communication |
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Summary /
Abstract
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President Plosser gives his views on the economy and the FOMC’s most recent policy decisions. He also discusses the benefits of rule-like, systematic behavior in the design and conduct of monetary policy and how this behavior combined with greater transparency leads to more effective communication. He explains how a detailed monetary policy report could promote the
FOMC to conduct policy in a more systematic manner, which he believes will lead to better decisions and better economic outcomes over the longer run. When policymakers deviate, it would require that they explain why. He uses five widely recognized simple rules to explore their implications for the future path of policy and highlights the real uncertainties that policymakers face making policy. |
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Keywords
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Monetary policy; FOMC |
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URL
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http://www.philadelphiafed.org/publications/speeches/plosser/2014/06-24-14-economicclubny.pdf
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Record ID
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543
[ Page 5 of 23, No. 28 ]
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Date
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2014-07 |
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Author
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Marlene Amstad, Simon Potter and Robert Rich
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Affiliation
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Bank for International Settlements |
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Title
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The FRBNY Staff Underlying Inflation Gauge: UIG |
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Summary /
Abstract
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Monetary policymakers and long-term investors would benefit greatly from a measure of underlying inflation that uses all relevant information, is available in real-time, and forecasts inflation better than traditional underlying inflation measures such as core inflation measures. This paper presents the "Federal Reserve Bank of New York (FRBNY) Staff Underlying Inflation Gauge (UIG)" for CPI and PCE. Using a dynamic factor model approach, the UIG is derived from a broad data set that extends beyond price series to include a wide range of nominal, real, and financial variables. It also considers the specific and time-varying persistence of individual subcomponents of an inflation series. An attractive feature of the UIG is that it can be updated on a daily basis, which allows for a close monitoring of changes in underlying inflation. This capability can be very useful when large and sudden economic fluctuations occur, as at the end of 2008. In addition, the UIG displays greater forecast accuracy than traditional measures of core inflation. |
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Keywords
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Inflation, Dynamic Factor Models, Core Inflation, Monetary Policy, Forecasting |
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URL
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http://www.bis.org/publ/work453.pdf
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Record ID
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542
[ Page 5 of 23, No. 29 ]
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Date
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2014-07 |
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Author
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Fabio Verona, Manuel M. F. Martins, and Inês Drumond
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Affiliation
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Bank of Finland, Monetary Policy and Research Department; Banco de Portugal, Financial Stability Department; and University of Porto |
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Title
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Financial Shocks and Optimal Monetary Policy Rules |
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Summary /
Abstract
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We assess the performance of optimal Taylor-type interest rate rules, with and without reaction to financial variables, in stabilizing the macroeconomy following financial shocks. We use a DSGE model that comprises both a loan and a bond market, which best suits the contemporary structure of the U.S. financial system and allows for a wide set of financial shocks and transmission mechanisms. Overall, we find that targeting financial stability – in particular credit growth, but in some cases also financial spreads and asset prices – improves macroeconomic stabilization. The specific policy implications depend on the policy regime, and on the origin and the persistence of the financial shock. |
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Keywords
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Financial shocks, optimal monetary policy, Taylor rules, DSGE models, bond market, loan market |
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URL
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http://cefup.fep.up.pt/uploads/WorkingPapers/wp1402.pdf
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Record ID
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541
[ Page 5 of 23, No. 30 ]
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Date
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2014-07 |
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Author
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Fabio Verona, Manuel M. F. Martins, and Inês Drumond
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Affiliation
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Bank of Finland, University of Porto, and Banco de Portugal |
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Title
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Financial Shocks and Optimal Monetary Policy Rules |
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Summary /
Abstract
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We assess the performance of optimal Taylor-type interest rate rules, with and without reaction to financial variables, in stabilizing the macroeconomy following financial shocks. We use a DSGE model that comprises both a loan and a bond market, which best suits the contemporary structure of the U.S. financial system and allows for a wide set of financial shocks and transmission mechanisms. Overall, we find that targeting financial stability – in particular credit growth, but in some cases also financial spreads and asset prices – improves macroeconomic stabilization. The specific policy implications depend on the policy regime, and on the origin and the persistence of the financial shock. |
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Keywords
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Financial shocks, optimal monetary policy, Taylor rules, DSGE models, bond market, loan market |
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URL
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http://cefup.fep.up.pt/uploads/WorkingPapers/wp1402.pdf
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