Selected Reference and Reading Materials compiled by Dan Villanueva


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Record ID

106     [ Page 58 of 68, No. 1 ]

Date

2010-12

Author

Maral Kichian, Fabio Rumler, and Paul Corrigan

Affiliation

Bank of Canada, Oesterreichische Nationalbank

Title

Semi-Structural Models for Inflation Forecasting

Summary /
Abstract

We propose alternative single-equation semi-structural models for forecasting inflation in Canada, whereby structural New Keynesian models are combined with time-series features in the data. Several marginal cost measures are used, including one that in addition to unit labour cost also integrates relative price shocks known to play an important role in open-economies. Structural estimation and testing is conducted using identification-robust methods that are valid whatever the identification status of the econometric model. We find that our semi-structural models perform better than various strictly structural and conventional time series models. In the latter case, forecasting performance is significantly better, both in the short run and in the medium run.

Keywords

Inflation and prices; Econometric and statistical methods

URL

http://www.bankofcanada.ca/en/res/wp/2010/wp10-34.pdf



Record ID

105     [ Page 58 of 68, No. 2 ]

Date

2011-01

Author

Roman Horváth, Jakub Matějů

Affiliation

Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic

Title

How Are Inflation Targets Set?

Summary /
Abstract

This paper aims to contribute to a better understanding on how inflation targets are set. For this reason, we first gather evidence from official central bank and government publications and from a questionnaire sent to central banks on how inflation targets are set; we then estimate the determinants of the level of inflation target in 19 inflation targeting countries using unbalanced panel interval regressions (to deal with the issue that targets are typically set as a range rather than as a point). Inflation targets are found to reflect macroeconomic fundamentals. Higher level as well as higher variability of inflation are associated with higher target. The setting of the inflation target is also found to have an important international dimension, as higher world inflation is positively correlated with inflation targets. Rapidly growing countries exhibit higher inflation targets. Our results also suggest that the larger width of inflation target is set in a more volatile macroeconomic environment. We find that central bank credibility is negatively associated with the level of inflation target, suggesting that less credible central banks are likely to recognize the risks related to anchoring inflation expectations at low levels. On the other hand, government party orientation does not matter even in less independent central banks.

Keywords

inflation targeting, central bank, inflation, credibility, independence

URL

http://d.repec.org/n?u=RePEc:fau:wpaper:wp2011_01&r=mon



Record ID

104     [ Page 58 of 68, No. 3 ]

Date

2011-01

Author

Ramon Moreno

Affiliation

Bank for International Settlements

Title

Policymaking from a “macroprudential” perspective in emerging market economies

Summary /
Abstract

Recurrent capital inflows pose important challenges for authorities in emerging market economies seeking to preserve financial stability. Raising interest rates to dampen imbalances that could arise from capital flows can also attract more capital inflows and accentuate appreciation pressures. For this reason authorities have used a number of instruments to mitigate the effects of capital flows, all with financial stability implications. Many of these instruments (eg reserve requirements) may have been used for other purposes but the global financial crisis has raised interest in examining them from a financial stability, or "macroprudential" perspective. This paper reviews some of these instruments, drawing in part on material provided by central banks to the BIS. The instruments include foreign exchange market intervention and foreign reserve accumulation; measures to strengthen bank balance sheets and capital and measures to maintain the quality of credit or to ifnluence credit growth or allocation, and capital controls. Certain implementation issues are also discussed, including signals to respond to, timing of prudential measures and procyclicality and effectiveness and calibration. An unresolved question is how the instruments described are to be used in conjunction with interest rate policy. Over the medium term, these instruments raise concerns because they may impair the development of the financial system.

Keywords

Capital flows, monetary policy, macroprudential

URL

http://d.repec.org/n?s=http://www.bis.org/publ/work336.pdf



Record ID

103     [ Page 58 of 68, No. 4 ]

Date

2011-01

Author

Hess Chung Jean-Philippe Laforte David Reifschneider John C. Williams

Affiliation

Federal Reserve Board of Governors and Federal Reserve Bank of San Francisco

Title

Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?

Summary /
Abstract

Before the recent recession, the consensus among researchers was that the zero lower bound (ZLB) probably would not pose a significant problem for monetary policy as long as a central bank aimed for an inflation rate of about 2 percent; some have even argued that an appreciably lower target inflation rate would pose no problems. This paper reexamines this consensus in the wake of the financial crisis, which has seen policy rates at their effective lower bound for more than two years in the United States and Japan and near zero in many other countries. We conduct our analysis using a set of structural and time series statistical models. We find that the decline in economic activity and interest rates in the United States has generally been well outside forecast confidence bands of many empirical macroeconomic models. In contrast, the decline in inflation has been less surprising. We identify a number of factors that help to account for the degree to which models were surprised by recent events. First, uncertainty about model parameters and latent variables, which were typically ignored in past research, significantly increases the probability of hitting the ZLB. Second, models that are based primarily on the Great Moderation period severely understate the incidence and severity of ZLB events. Third, the propagation mechanisms and shocks embedded in standard DSGE models appear to be insufficient to generate sustained periods of policy being stuck at the ZLB, such as we now observe. We conclude that past estimates of the incidence and effects of the ZLB were too low and suggest a need for a general reexamination of the empirical adequacy of standard models. In addition to this statistical analysis, we show that the ZLB probably had a first-order impact on macroeconomic outcomes in the United States. Finally, we analyze the use of asset purchases as an alternative monetary policy tool when short-term interest rates are constrained by the ZLB, and find that the Federal Reserve's asset purchases have been effective at mitigating the economic costs of the ZLB. In particular, model simulations indicate that the past and projected expansion of the Federal Reserve's securities holdings since late 2008 will lower the unemployment rate, relative to what it would have been absent the purchases, by 1-1/2 percentage points by 2012. In addition, we find that the asset purchases have probably prevented the U.S. economy from falling into deflation.

Keywords

Inflation (Finance) ; Macroeconomics - Econometric models

URL

http://d.repec.org/n?u=RePEc:fip:fedfwp:2011-01&r=mac



Record ID

102     [ Page 58 of 68, No. 5 ]

Date

2010-12

Author

Nicolas Groshenny

Affiliation

Reserve Bank of New Zealand

Title

Monetary Policy, Inflation, and Unemployment

Summary /
Abstract

To what extent did deviations from the Taylor rule between 2002 and 2006 help to promote price stability and maximum sustainable employment? To address that question, this paper estimates a New Keynesian model with unemployment and performs a counterfactual experiment where monetary policy strictly follows a Taylor rule over the period 2002:Q1 - 2006:Q4 The paper finds that such a policy would have generated a sizeable increase in unemployment and resulted in an undesirably low rate of inflation. Around mid-2004, when the counterfactual deviates the most from the actual series, the model indicates that the probability of an unemployment rate greater than 8 percent would have been as high as 80 percent, while the probability of an inflation rate above 1 percent would have been close to zero.

URL

http://d.repec.org/n?u=RePEc:nzb:nzbdps:2010/14&r=mac

Remarks

After the 2001 recession, John Taylor argued that the Fed kept the federal funds rate too low for quite a while. In contrast, the present Fed Gov, Ben Bernanke, argued the opposite--that not deviating from the Taylor rule would have resulted in extremely low inflation and unacceptably high unemployment. Nicolas' counterfactual simulations validate Bernanke's testimony.



Record ID

101     [ Page 58 of 68, No. 6 ]

Date

2010-12

Author

Lars E.O. Svensson

Affiliation

NBER

Title

Inflation Targeting

Summary /
Abstract

Inflation targeting is a monetary-policy strategy that is characterized by an announced numerical inflation target, an implementation of monetary policy that gives a major role to an inflation forecast and has been called forecast targeting, and a high degree of transparency and accountability. It was introduced in New Zealand in 1990, has been very successful in terms of stabilizing both inflation and the real economy, and has, as of 2010, been adopted by about 25 industrialized and emerging-market economies. The chapter discusses the history, macroeconomic effects, theory, practice, and future of inflation targeting.

URL

http://www.nber.org/papers/w16654.pdf

Remarks

This is a free download for developing countries. "ph" is included.



Record ID

100     [ Page 58 of 68, No. 7 ]

Date

2010-10

Author

Subir Gokarn

Affiliation

Deputy Governor, Reserve Bank of India

Title

Monetary Policy Considerations after the Crisis: Practitioners' Perspectives

Summary /
Abstract

Economic stability can be seen as an essential component of any strategy for inclusive development. To the extent that central banks play a role in providing that stability, the experience of the crisis has led to considerable thinking and debate on its implications for central bank mandates, strategies and instruments in the quest for maintaining stability. A lot of this is being articulated by central bankers around the world, as they try and distill the lessons of the crisis into what they should be doing more or less of, or differently and how they should go about fulfilling possibly changed objectives. These issues have been explored in this talk. These issues, reflected in recent articulations by a cross-section of central bankers and use this as a backdrop for our own thinking on how to deal with challenges to macroeconomic stability.

Keywords

monetary policy, financial stability, central bank, macroeconomic stability, finance, policy

URL

http://d.repec.org/n?u=RePEc:ess:wpaper:id:3342&r=mon



Record ID

99     [ Page 58 of 68, No. 8 ]

Date

2010-08

Author

Hiroyuki Taguchi, Woong-Ki Sohn

Affiliation

Ministry of Finance, Japan

Title

Inflation Targeting and Pass-through Rate in East Asian Economies

Summary /
Abstract

This article sets out to assess the performance of inflation targeting (IT) frameworks from the perspective of the pass-through effect of external price shocks into consumer price inflation, focusing on the four East Asian economies which have adopted IT, during the period of 1990-2009. We first examine their monetary policy rules to identify the IT implementation, and then investigate the linkage between inflation-responsive rules and pass-through rates, as suggested by Gagnon and Ihrig (2004). Our main findings are as follows. First, under the IT adoption, Korea has taken an inflation responsive rule in a forward-looking manner, while Indonesia and Thailand have adopted the rule in a backward-looking manner. Second, only Korea has lost pass-through under IT adoption, thereby showing the clear linkage between inflation-responsive rules and the loss of pass-through. Third, the sensitivity test of inflation expectations to import price shocks in Korea also supports this linkage. These findings imply that IT adoption, if conducted in a forward-looking manner, can be a resisting power against external price shocks, even in small, open, emerging market economies, as tested under the latest global financial crisis in Korea.

Keywords

inflation targeting, pass-through, East Asian emerging market economies, policy reaction function, inflation expectations

URL

http://ideas.repec.org/p/eab/macroe/2458.html

Remarks

This is another (second) paper written by staff from Japan's Ministry of Finance that belittles the achievements of the Philippine IT regime. The first paper may be found in http://dv.data.ph/articles/display.php?id=95, co-written by the same principal author. It suffers from a partial equilibrium weakness, despite the use of an instrumental variables estimation. Besides, the policy interest rate used in the policy reaction function is the "money market rate" published in the IFS. The paper deserves to be critiqued.

Also available for downloading at:
- http://www.eaber.org/intranet/documents/102/2458/PRI_Taguchi_2010_3.pdf



Record ID

98     [ Page 58 of 68, No. 9 ]

Date

2010-11

Author

Jaromir Baxa, Roman Horvath, and Borek Vasicek

Affiliation

Czech National Bank

Title

How Does Monetary Policy Change? Evidence on Inflation Targeting Countries

Summary /
Abstract

We examine the evolution of monetary policy rules in a group of inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom) applying moment-based estimator at time-varying parameter model with endogenous regressors. Using this novel flexible framework, our main findings are threefold. First, monetary policy rules change gradually pointing to the importance of applying time-varying estimation framework. Second, the interest rate smoothing parameter is much lower that what previous time-invariant estimates of policy rules typically report. External factors matter for all countries, albeit the importance of exchange rate diminishes after the adoption of inflation targeting. Third, the response of interest rates on inflation is particularly strong during the periods, when central bankers want to break the record of high inflation such as in the U.K. or in Australia at the beginning of 1980s. Contrary to common wisdom, the response becomes less aggressive after the adoption of inflation targeting suggesting the positive effect of this regime on anchoring inflation expectations. This result is supported by our finding that inflation persistence as well as policy neutral rate typically decreased after the adoption of inflation targeting.

Keywords

Endogenous regressors, inflation targeting, monetary policy, Taylor rule, time-varying parameter model.

URL

http://d.repec.org/n?u=RePEc:fip:fedgfe:2010-57&r=mac



Record ID

97     [ Page 58 of 68, No. 10 ]

Date

2010-11

Author

Charles Goodhart

Affiliation

London Shool of Economics

Title

The changing role of central banks

Summary /
Abstract

Although Central Banks have pursued the same objectives throughout their existence, primarily price and financial stability, the interpretation of their role in doing so has varied. We identify three stable epochs, when such interpretations had stabilised, i. e.,

1. The Victorian era, 1840s to 1914;
2. The decades of government control, 1930s to 1960s;
3. The triumph of the markets, 1980s to 2007.

Each epoch was followed by a confused inter-regnum, searching for a new consensual blueprint. The final such epoch concluded with a crisis, when it became apparent that macro-economic stability, the Great Moderation, plus (efficient) markets could not guarantee financial stability. So the search is now on for additional macro-prudential (counter-cyclical) instruments. The use of such instruments will need to be associated with controlled variations in systemic liquidity, and in the balance sheet of the Central Bank. Such control over its own balance sheet is the core, central function of any Central Bank, even more so than its role in setting short-term interest rates, which latter could be delegated. We end by surveying how relationships between Central Banks and governments may change over the next period.

Keywords

central banks, financial stability, financial regulation, bank taxes

URL

http://www.bis.org/publ/work326.pdf

Remarks

On 24–25 June 2010, the BIS held its Ninth Annual Conference, on “The future of central banking under post-crisis mandates” in Lucerne, Switzerland. The attached paper by Charles Goodhart is a provocative and controversial essay delivered and discussed in the first session chaired by BSP Governor Amando Tetangco, Jr. Among the paper's discussants, Stanley Fischer's comments are worth digesting.



Total records: 676 | Select no. of records per page: 10 | 20 | 30 | 50 | 100 | Show all | Search
Select a Page:   << Previous  1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 Next >>



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