Selected Reference and Reading Materials compiled by Dan Villanueva


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Record ID

1     [ Page 65 of 68, No. 1 ]

Date

2010-06

Author

Michael Woodford

Affiliation

Columbia University

Title

Optimal Monetary Stabilization Policy

Summary /
Abstract

This chapter reviews the theory of optimal monetary stabilization policy in New Keynesian models, with particular emphasis on developments since the treatment of this topic in Woodford (2003). The primary emphasis of the chapter is on methods of analysis that are useful in this area, rather than on final conclusions about the ideal conduct of policy (that are obviously model-dependent, and hence dependent on the stand that one might take on many issues that remain controversial), and on general themes that have been found to be important under a range of possible model specifications. With regard to methodology, some of the central themes of this review will be the application of the method of Ramsey policy analysis to the problem of the optimal conduct of monetary policy, and the connection that can be established between utility maximization and linear-quadratic policy problems of the sort often considered in the central banking literature. With regard to the structure of a desirable decision framework for monetary policy deliberations, some of the central themes will be the importance of commitment for a superior stabilization outcome, and more generally, the importance of advance signals about the future conduct of policy; the advantages of history-dependent policies over purely forward-looking approaches; and the usefulness of a target criterion as a way of characterizing a central bank's policy commitment.

URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:16095&r=mon
- http://www.nber.org/papers/w16095.pdf
- http://www.econ.columbia.edu/RePEc/pdf/DP0910-18.pdf

URL

http://d.repec.org/n?u=RePEc:nbr:nberwo:16095&r=mon



Record ID

32     [ Page 65 of 68, No. 2 ]

Date

2010-05-28

Author

IMF

Title

Colombia: Arrangement Under the Flexible Credit Line

Summary /
Abstract

Colombia: Arrangement Under the Flexible Credit Line and Cancellation of the Current Arrangement - Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the authorities of Colombia

URL: http://www.imf.org/external/pubs/cat/longres.cfm?sk=23919.0

URL

http://www.imf.org/external/pubs/cat/longres.cfm?sk=23919.0

Remarks

The paper is all about Colombia's precautionary request under the FCL. Note that the strengths of the three F's (Fiscal Framework, Flexible Exchange Rate, Financial Sector Oversight) and of IT are deemed sufficient. Colombia is noteworthy as far as the Philippines is concerned, because of Colombia's strong inflation targeting monetary policy framework, introduced at about the same time as did the Philippines. I think that the area that needs significant improvement for the Philippines is the Fiscal Framework. Don't you agree? With BSP's strong reserve position, I did not mean to imply that the Philippines needs an FCL, but note that Colombia's reserves (aided by workers' remittances just like in the Philippines) are also at a comfortable level. The Colombian authorities made the request for the FCL in case the external environment turns worse than expected.



Record ID

22     [ Page 65 of 68, No. 3 ]

Date

2010-05-27

Author

Kenji Fujita, Karl Habermeier, Erlend Nier, Scott Roger, Noel Sacasa, Mark Stone, and Jan Vlcek

Affiliation

IMF-MCMD

Title

Central Banking Lessons from the Crisis

Summary /
Abstract

The crisis brought the financial system to the verge of systemic collapse and raised the prospect of depression and deflation. Central banks helped defuse these threats, including through exceptional measures. Considerable efforts are now under way to draw policy lessons from the crisis. For central banks, the crisis seems to provide three important lessons for policy frameworks-mainly concerning systemic financial stability.

Source: IMF Policy Paper

URL

http://www.imf.org/external/pp/longres.aspx?id=4461



Record ID

30     [ Page 65 of 68, No. 4 ]

Date

2010-05-27

Author

Krisztina Molnár and Sergio Santoro

Affiliation

Norges Bank and Bank of Italy

Title

Optimal Monetary Policy When Agents Are Learning

Summary /
Abstract

We derive the optimal monetary policy in a sticky price model when private agents follow adaptive learning. We show that this slight departure from rationality has important implications for policy design. The central bank faces a new intertemporal trade-off, not present under rational expectations: it is optimal to forego stabilizing the economy in the present in order to facilitate private sector learning and thus ease the future intratemporal inflation-output gap trade-offs. The policy recommendation is robust: the welfare loss entailed by the optimal policy under learning if the private sector actually has rational expectations is much smaller than if the central bank mistakenly assumes rational expectations when in fact agents are learning.

URL:http://d.repec.org/n?u=RePEc:bno:worpap:2010_08&r=mac

Keywords

optimal monetary policy, learning, rational expectations

URL

http://www.norges-bank.no/templates/article____76978.aspx

Remarks

This interesting paper concludes that, if the central bank does not know the exact nature of private inflation expectations (whether rational or adaptive), monetary policy focused on lowering and stabilizing inflation, as opposed to stabilizing employment/economic activity, is the optimal monetary policy.



Record ID

33     [ Page 65 of 68, No. 5 ]

Date

2010-05-25

Author

Karl Aiginger

Title

The Great Recession versus the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents

Summary /
Abstract

This paper compares the depth of the recent crisis and the Great Depression. We use a new data set to compare the drop in activity in the industrialized countries for seven activity indicators. This is done under the assumption that the recent crisis leveled off in mid-2009 for production and will do so for unemployment in 2010. Our data indicate that the recent crisis indeed had the potential to be another Great Depression, as shown by the speed and simultaneity of the decline in the first nine months. However, if we assume that a large second dip can be avoided, the drop in all indicators will have been smaller than during the Great Depression. This holds true specifically for GDP, employment and prices, and least for manufacturing output. The difference in the depth in the crises concurs with differences in policy reaction. This time monetary policy and fiscal policy were applied courageously, speedily and partly internationally coordinated.During the Great Depression for several years fiscal policy tried to stabilize budgets instead of aggregate demand, and either monetary policy was not applied or was rather ineffective insofar as deflation turned lower nominal interest rates into higher real rates. Only future research will be able to prove the exact impact of economic policy, but the current tentative conclusion is that economic policy prevented the recent crisis from developing into a second Great Depression. This is also a partial vindication for economists. The majority of them might not have been able to predict the crisis, but the science did learn its lesson from the Great Depression and was able to give decent policy advice to at least limit thedepth of the recent crisis.

URL

http://www.economics-ejournal.org/economics/journalarticles/2010-18



Record ID

3     [ Page 65 of 68, No. 6 ]

Date

2010-05

Author

Vasco Curdia and Michael Woodford

Affiliation

Federal Reserve Bank of New York and Columbia University - Department of Economics

Title

Conventional and Unconventional Monetary Policy

Summary /
Abstract

We extend a standard New Keynesian model to incorporate heterogeneity in spending opportunities and two sources of (potentially time-varying) credit spreads, and to allow a role for the central bank's balance sheet in equilibrium determination. We use the model to investigate the implications of imperfect financial intermediation for familiar monetary policy prescriptions, and to consider additional dimensions of central-bank policy | variations in the size and composition of the central bank's balance sheet, and payment of interest on reserves, alongside the traditional question of the proper choice of an operating target for an overnight policy rate. We also give particular attention to the special problems that arise when the zero lower bound for the policy rate is reached. We show that it is possible to provide criteria for the choice of policy along each of these possible dimensions, within a single unified framework, and to provide policy prescriptions that apply equally when financial markets work efficiently and when they are subject to substantial disruptions, and equally when the zero bound is reached and when it is not a concern.

URL:http://d.repec.org/n?u=RePEc:clu:wpaper:0910-17&r=mac

URL

http://d.repec.org/n?u=RePEc:clu:wpaper:0910-17&r=mac

Remarks

- http://www.econ.columbia.edu/RePEc/pdf/DP0910-17.pdf



Record ID

31     [ Page 65 of 68, No. 7 ]

Date

2010-05

Author

Sandra Gomes, Pascal Jacquinot and Massimiliano Pisani

Affiliation

Bank of Portugal, ECB, Bank of Italy

Title

The EAGLE-- A Model for Policy Analysis of Macroeconomic Interdependence in the Euro Area

Summary /
Abstract

Building on the New Area Wide Model, we develop a 4-region macroeconomic model of the euro area and the world economy. The model (EAGLE, Euro Area and Global Economy model) is microfounded and designed for conducting quantitative policy analysis of macroeconomic interdependence across regions belonging to the euro area and between euro area regions and the world economy. Simulation analysis shows the transmission mechanism of region-specific or common shocks, originating in the euro area and abroad.

Source: Working Paper Series No. 1195 / May 2010

URL

www.ecb.int/pub/pdf/scpwps/ecbwp1195.pdf



Record ID

35     [ Page 65 of 68, No. 8 ]

Date

2010-05

Author

Laura Jaramillo

Affiliation

IMF

Title

Determinants of Investment Grade Status in Emerging Markets

Summary /
Abstract

"The paper finds that investment grade ratings by the three major credit agencies can be explained by a small number of variables. The panel random effects framework identifies a set of five core variables that are relevant for the determination of investment grade status, in particular external public debt, domestic public debt, political risk, exports, and financial depth. Overall, the specification correctly predicts 86 percent of investment grade status of all observations, and two thirds of the upgrades and downgrades from and to investment grade. The findings suggest that efforts by emerging markets to increase the likelihood of an upgrade to investment grade should focus on a faster pace of public debt reduction, in particular external public debt. While efforts to improve on all fronts would be desirable, progress on trade, financial depth and political risk is likely to be gradual and not directly linked with macroeconomic policies. In contrast, a strong process of fiscal consolidation could result in a steady reduction in debt levels. Furthermore, given the larger weight assigned by rating agencies to external debt over domestic debt in their assessments, a sharper decline in external debt is likely to have greater impact on increasing the near-term probability of achieving investment grade status."

Source: IMF Working Paper No. 10/117

URL

http://www.imf.org/external/pubs/ft/wp/2010/wp10117.pdf



Record ID

36     [ Page 65 of 68, No. 9 ]

Date

2010-05

Author

Hiromi Yamaoka and Murtaza Syed

Affiliation

IMF

Title

Managing the Exit: Lessons from Japan’s Reversal of Unconventional Monetary Policy

Summary /
Abstract

In responding to the global crisis, central banks in several advanced economies ventured beyond traditional monetary policy. A variety of unorthodox measures, including purchases of public and private assets, have significantly enlarged their balance sheets. As recoveries take hold, focus will increasingly shift from countering the Great Recession to orchestrating an exit and returning to a more normal monetary framework. Five years ago, as its economy recovered from a severe financial crisis, Japan attempted just such an exit. This note revisits the Bank of Japan’s experience and draws potential lessons for managing an orderly exit today, with a focus on technical aspects, practicalities, and communication strategies. While the nature of the assets acquired during the present crisis could pose additional complications, parts of Japan’s arsenal—communication, flexibility, a sufficient set of policy tools and a strategy for using them, safeguards against potential losses, the revival of risk appetite through decisive restructuring of balance sheets, and refinements to the monetary framework upon exit—also could be important this time around.

Source: IMF Working Paper No. 10/114

URL

http://www.imf.org/external/pubs/ft/wp/2010/wp10114.pdf



Record ID

37     [ Page 65 of 68, No. 10 ]

Date

2010-05

Author

Charles Freedman and Inci Ötker-Robe

Title

Important Elements for Inflation Targeting for Emerging Economies

Summary /
Abstract

This is the fifth chapter of a forthcoming monograph entitled "On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." It examines whether certain conditions have to be met before emerging economies can adopt an inflation-targeting regime and provides some empirical evidence on the matter. The issues analyzed are the priority of inflation targeting over other goals, the absence of fiscal dominance, central bank independence, the degree of control over the policy interest rate, a sound methodology for forecasting, and the soundness of financial institutions and markets, and resilience to changes in exchange rates and interest rates.

Source: IMF Wokring Paper No. 10/113

URL

http://www.imf.org/external/pubs/ft/wp/2010/wp10113.pdf

Remarks

This paper represents the fifth chapter of a manuscript that is being prepared by Charles Freedman, Douglas Laxton and Inci Ötker-Robe On Developing a Full-Fledged Inflation Targeting Regime: Doing What You Say and Saying What you Do.



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