|
Record ID
|
477
[ Page 8 of 23, No. 1 ]
|
|
Date
|
2014-02 |
|
Author
|
Ahmet Faruk Aysan, Salih Fendoglu, and Mustafa Kilinc
|
|
Affiliation
|
Central Bank of Turkey |
|
Title
|
Macroprudential Policies as Buffer Against Volatile Cross-border Capital Flows |
|
Summary /
Abstract
|
This paper investigates the effectiveness of macroprudential policies introduced by Turkey in late 2010. The unprecedented quantitative easing policies of advanced countries after the global financial crisis have presented serious financial stability concerns for most emerging countries including Turkey. To cope with these challenges, Turkey has devised new policy tools such as asymmetric interest rate corridor and reserve option mechanism. From the perspective of capital flows, the interest rate corridor works mainly through stabilizing supply of foreign funds, and the reserve option mechanism through decreasing the sensitivity of equilibrium exchange rate to shifts in the demand for foreign funds. Using a large panel of 46 countries and employing Bruno and Shin (2013a,b)’s methodology, we investigate whether the new policy framework in Turkey has been successful in cushioning the economy from volatile cross-border capital flows from a comparative perspective. The results show that, after controlling for a set of domestic and external variables and relative to a group of advanced and emerging countries, cross-border capital flows to Turkey have been less sensitive to global factors after the implementation of macroprudential policies. |
|
Keywords
|
Capital Flows, Macroprudential Policies |
|
URL
|
http://www.tcmb.gov.tr/research/discus/2014/WP1404.pdf
|
|
Record ID
|
476
[ Page 8 of 23, No. 2 ]
|
|
Date
|
2014-02 |
|
Author
|
Davis, Scott and Presno, Ignacio
|
|
Affiliation
|
Federal Reserve Bank of Dallas and Federal Reserve Bank of Boston |
|
Title
|
Capital controls as an instrument of monetary policy |
|
Summary /
Abstract
|
Large swings in capital flows into and out of emerging markets can potentially lead to excessive volatility in asset prices and credit supply. In order to lessen the impact of capital flows on financial instability, a number of researchers and policy markers have recently proposed the use of capital controls. This paper considers the benefit of adding capital controls as a potential instrument of monetary policy in a small open economy. In a DSGE framework, we find that when domestic agents are subject to collateral constraints and the value of collateral is subject to fluctuations driven by foreign capital inflows and outflows, the adoption of temporary capital controls can lead to a significant welfare improvement. The benefits of capital controls are present even when monetary policy is determined optimally, implying that there may be a role for capital controls to exist side-by-side with conventional monetary tools as an instrument of monetary policy. |
|
Keywords
|
Capital controls, capital flows, DSGE, monetary policy instrument |
|
URL
|
http://www.dallasfed.org/assets/documents/institute/wpapers/2014/0171.pdf
|
|
Record ID
|
475
[ Page 8 of 23, No. 3 ]
|
|
Date
|
2014-02 |
|
Author
|
Ahmet Faruk Aysan, Salih Fendoğlu, and Mustafa Kılınç
|
|
Affiliation
|
Central Bank of the Republic of Turkey |
|
Title
|
Managing Short-Term Capital Flows in New Central Banking: Unconventional Monetary Policy Framework in Turkey |
|
Summary /
Abstract
|
During the global financial crisis of 2008-2009, both advanced and emerging countries have implemented significant easing policies on monetary and fiscal fronts. Yet, the recovery, especially in advanced countries, was not as quick or strong as expected. These quantitative easing policies, coupled with weak recovery and restricted fiscal positions, have created not only abundant but also excessively volatile global liquidity conditions, leading to short-term and excessively volatile capital flows to emerging markets. To contain potential risks due to such flows, emerging countries have augmented their existing policy frameworks. Central Bank of the Republic of Turkey (CBRT), for example, has introduced two new policy tools in its new monetary policy framework: the asymmetric interest rate corridor and the reserve option mechanism. From a capital flows perspective, the interest rate corridor helps smooth fluctuations in supply of foreign funds, whereas the reserve option mechanism helps contain movements in demand for foreign funds. Both policies have been actively used by the CBRT and appeared to be effective in containing financial stability risks stemming from excessively volatile capital flows. |
|
Keywords
|
Capital flows, macroprudential policies, central banking. |
|
URL
|
http://www.tcmb.gov.tr/research/discus/2014/WP1403.pdf
|
|
Record ID
|
474
[ Page 8 of 23, No. 4 ]
|
|
Date
|
2014-02 |
|
Author
|
Mauro Napoletano, Andrea Roventini, Giovanni Dosi, Giorgio Fagiolo and Tania Treibich
|
|
Affiliation
|
OFCE, SKEMA Business School, Scuola Superiore Sant’Anna; Università di Verona, Scuola Superiore Sant’Anna, OFCE; Scuola Superiore Sant’Anna; Scuola Superiore Sant’Anna; and Maastricht University, Scuola Superiore Sant’Anna, and GREDEG-CNRS University of Nice-Sophia Antipolis |
|
Title
|
Fiscal and monetary policies in complex evolving economies |
|
Summary /
Abstract
|
In this paper we explore the effects of alternative combinations of fiscal and monetary policies under different income distribution regimes. In particular, we aim at evaluating fiscal rules in economies subject to banking crises and deep recessions. We do so using an agent-based model populated by heterogeneous capital- and consumption-good forms, heterogeneous banks, workers/consumers, a Central Bank and a Government. We show that the model is able to reproduce a wide array of macro and micro empirical regularities, including stylised facts concerning financial dynamics and banking crises. Simulation results suggest that the most appropriate policy mix to stabilise the economy requires unconstrained counter-cyclical fiscal policies, where automatic stabilisers are free to dampen business cycles fluctuations, and a monetary policy targeting also employment. Instead, discipline-guided" fiscal rules such as the Stability and Growth Pact or the Fiscal Compact in the Eurozone always depress the economy, without improving public finances, even when escape clauses in case of recessions are considered. Consequently, austerity policies appear to be in general self-defeating. Furthermore, we show that the negative effects of austere fiscal rules are magnified by conservative monetary policies focused on inflation stabilisation only. Finally, the effects of monetary and fiscal policies become sharper as the level of income inequality increases. |
|
Keywords
|
Agent based model; fiscal policy; monetary policy; banking crises; income inequality; austerity policies; disequilibrium dynamics |
|
URL
|
http://spire.sciences-po.fr/hdl:/2441/f6h8764enu2lskk9p6go0e900/resources/wp2014-05.pdf
|
|
Record ID
|
473
[ Page 8 of 23, No. 5 ]
|
|
Date
|
2014-02 |
|
Author
|
Zied Ftiti and Walid Hichri
|
|
Affiliation
|
IPAG Business School 75006 Paris, France |
|
Title
|
The Price Stability Under Inflation Targeting Regime : An Analysis With a New Intermediate Approach |
|
Summary /
Abstract
|
This paper analyzes the relevance of the inflation targeting (IT) policy in achieving its primary goal of medium-term price stability. Contrary to previous studies, we propose, in this work, a new approach; an intermediate approach that consists in conducting a time-series analysis (employed in the literature under unilateral cases-absolute approach-) with a comparison of inflation performance of IT countries and those of non-IT countries (comparison made in literature under the relative approach). Empirically, we employ a frequency analysis based on evolutionary spectral theory of Priestley (1965-1996) in order to distinguish between different inflation horizons; short-run and the medium-run inflation rate. To check the stability of spectral density functions for inflation series for each country under studied frequencies, we apply a Bai and Perron (2003a, b) test. Our results show that after IT framework implementation, there is no break point in inflation series in short and medium terms. This result is not verified for non-IT countries. Therefore, IT is more relevant in achieving price stability and consequently more effective on inflation expectation anchoring than other monetary policies. |
|
Keywords
|
Inflation Targeting, Inflation Stability, Structural Change, Evolutionary Spectral Analysis, intermediate approach |
|
Record ID
|
472
[ Page 8 of 23, No. 6 ]
|
|
Date
|
2014-02 |
|
Author
|
Angel Ubide
|
|
Affiliation
|
Peterson Institute for International Economics |
|
Title
|
Is the European Central Bank Failing Its Price Stability Mandate? |
|
Summary /
Abstract
|
Inflation in the euro area is too low, and the European Central Bank (ECB) is at risk of missing its price stability mandate. With the market forecasting average inflation in the euro area over the next five years in the 1.25 to 1.5 percent range, the ECB must prepare to act forcefully to push inflation higher. The ECB should (1) update the definition of price stability as inflation at 2 percent over 2 to 3 years to eliminate the ambiguity over the inflation objective; (2) reduce risk premia in the yield curve via a program of quantitative easing, making clear that this is a monetary policy operation—and thus legal under the Maastricht Treaty; and (3) ease the quantitative credit shortages to small and medium enterprises (SMEs) via a well-designed lending program, offering long-term funds at the policy rate to banks who lend to SMEs. These actions would restore price stability and encourage sustainable growth. |
|
Keywords
|
Price stability, target inflation, quantitative easing, risk premia, yield curve, monetary policy, growth |
|
URL
|
http://www.piie.com/publications/pb/pb14-5.pdf
|
|
Record ID
|
471
[ Page 8 of 23, No. 7 ]
|
|
Date
|
2014-02 |
|
Author
|
Olivier Jeanne
|
|
Affiliation
|
Johns Hopkins University, Peterson Institute for International Economics, NBER and CEPR |
|
Title
|
Macroprudential Policies in a Global Perspective |
|
Summary /
Abstract
|
This paper analyzes the case for the international coordination of macroprudential policies in the context of a simple theoretical framework. Both domestic macroprudential policies and prudential capital controls have international spillovers through their impact on capital flows. The uncoordinated use of macroprudential policies may lead to a "capital war" that depresses global interest rates. International coordination of macroprudential policies is not warranted, however, unless there is unemployment in some countries. There is scope for Pareto-improving international policy coordination when one part of the world is in a liquidity trap while the rest of the world accumulates reserves for prudential reasons. |
|
Keywords
|
Macroprudential Policy, Capital Flows, Capital Controls, International Reserves, International Coordination, Liquidity Trap |
|
URL
|
http://www.imes.boj.or.jp/research/papers/english/14-E-01.pdf
|
|
Record ID
|
470
[ Page 8 of 23, No. 8 ]
|
|
Date
|
2014-02 |
|
Author
|
Andreas Hoffmann
|
|
Affiliation
|
University of Leipzig, Institute for Economic Policy |
|
Title
|
Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets |
|
Summary /
Abstract
|
Since 2009, central banks in the major advanced economies have held interest rates at very low levels to stabilize financial markets and support the recovery of their economies. Based on a Mises-Hayek-BIS view on credit booms and Mises’ law of unintended consequences, this paper suggests that the prolonged period of very low interest rates in the large advanced economies (unintentionally) spurs volatile capital flows and fuels asset market bubbles in fast-growing emerging markets. The resulting inflationary pressure and risks of capital flow reversals gives rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows. |
|
Keywords
|
Monetary Policy, Emerging Markets, Financial Repression |
|
URL
|
http://www.icer.it/docs/wp2014/ICERwp02-14.pdf
|
|
Record ID
|
469
[ Page 8 of 23, No. 9 ]
|
|
Date
|
2014-01 |
|
Author
|
Bang Nam Jeon and Ji Wu
|
|
Affiliation
|
The Role of Foreign Banks in Monetary Policy Transmission: Evidence from Asia during the Crisis of 2008-9
Date: 2014-01
Drexel University and Hong Kong Institute for Monetary Research, and Southwestern University of Finance and Economics |
|
Title
|
The Role of Foreign Banks in Monetary Policy Transmission: Evidence from Asia during the Crisis of 2008-9 |
|
Summary /
Abstract
|
Since the 1997-8 Asian financial crisis, the level of foreign bank penetration has increased steadily in Asian banking markets. This paper examines the impact of foreign banks on the monetary policy transmission mechanism in emerging Asian economies during the period from 2000 to 2009, with a specific focus on the global financial crisis of 2008-9. We present consistent evidence that, on the whole, an increase in foreign bank penetration weakened the effectiveness of the monetary policy transmission mechanism in the host emerging Asian countries during crisis periods. We also investigate various conditions and environments, including the type of monetary policy shocks, the severity of shocks upon parent banks in global crisis, the dependence of parent banks on the wholesale funding market, the country of origin of foreign banks, and entry modes, under which the effectiveness of monetary policy transmission is reduced more severely due to the increasing presence of foreign banks in the emerging Asian banking markets. |
|
Keywords
|
Foreign Bank Penetration, Monetary Policy Transmission, Asian Banking |
|
URL
|
http://motu-www.motu.org.nz/wpapers/14_02.pdf
|
|
Record ID
|
468
[ Page 8 of 23, No. 10 ]
|
|
Date
|
2014-02 |
|
Author
|
Arthur Grimes
|
|
Affiliation
|
Motu Economic and Public Policy Research and the University of Auckland |
|
Title
|
Four Lectures on Central Banking |
|
Summary /
Abstract
|
These four lectures on central banking topics were presented in London between September and December 2013. The lectures were delivered as part of Arthur Grimes’ NZ-UK Link Foundation Visiting Professorship, based at the University of London’s School of Advanced Study. They followed his stepping down as Chair of the Reserve Bank of New Zealand in September 2013 after ten years in that role. The four lecture topics (and the institution at which they were delivered) are: Inflation Targeting: 25 Years’ Experience of the Pioneer (Bank of England); A Floating Exchange Rate is the Worst Exchange Rate Regime (except for all the others that have been tried) (University College London); How Prudent are Macroprudential Policies? (London School of Economics); Responsibility and Accountability in the Financial Sector (Institute of Advanced Legal Studies). A key theme across all four lectures is the importance of ensuring that central bank policies and actions are time consistent. Time consistency requires that a central bank can commit to implementing the policies that it says it will implement. For instance, if a central bank commits to delivering low inflation, it will not use its powers to deliver other goals at the expense of low inflation. Similarly, if it commits not to bail out banks in the event of failure, then it (and other official bodies) will not bail out a failed bank. |
|
Keywords
|
Central banking; inflation targeting; exchange rate systems; macroprudential policy; microprudential policy |
|
URL
|
http://motu-www.motu.org.nz/wpapers/14_02.pdf
|
|
Record ID
|
467
[ Page 8 of 23, No. 11 ]
|
|
Date
|
2014-02 |
|
Author
|
Longmei Zhang and Edda Zoli
|
|
Affiliation
|
Asia and Pacific Department, IMF |
|
Title
|
Leaning Against the Wind: Macroprudential Policy in Asia |
|
Summary /
Abstract
|
In recent years, macroprudential policy has become an increasingly active policy area. Many countries have adopted it as a tool to safeguard financial stability, in particular to deal with the credit and asset price cycles driven by global capital flows. This paper reviews the use of key macroprudential instruments and capital flow measures in 13 Asian economies and 33 economies in other regions since 2000, and constructs various macroprudential policy indices, aggregating sub-indices on key instruments. Asian economies appear to have made greater use of macroprudential tools, especially housing-related measures, than their counterparts in other regions. The effects of macroprudential policy are then assessed through an event study, cross-country macro panel regressions and bank-level micro panel regressions. The analysis suggests that macroprudential policy and capital flow measures have helped curb housing price growth, equity flows, credit growth, and bank leverage. The instruments that have been particularly effective in this regard include loan-to-value ratio caps, housing tax measures, and foreign currency-related measures. |
|
Keywords
|
Macroprudential policy; capital flow measures; credit growth; housing price |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2014/wp1422.pdf
|
|
Record ID
|
466
[ Page 8 of 23, No. 12 ]
|
|
Date
|
2013-12 |
|
Author
|
Denis Beau, Christophe Cahn, Laurent Clerc, and Benoît Mojon
|
|
Affiliation
|
Banco Central de Chile |
|
Title
|
Macro-Prudential Policy and the Conduct of Monetary Policy |
|
Summary /
Abstract
|
In this paper, we analyse the interactions between monetary and macro-prudential policies and the circumstances under which such interactions call for their coordinated implementation. We start with a review of the interdependencies between monetary and macro-prudential policies. Then, we use a DSGE model incorporating financial frictions, heterogeneous agents and housing, which is estimated for the euro area over the period 1985 -2010, to identify the circumstances under which monetary and macro-prudential policies may have compounding, neutral or conflicting impacts on price stability. We compare inflation dynamics across four “policy regimes” depending on: (a) the monetary policy objectives – that is, whether the policy instrument, the short-term interest rate factors in financial stability considerations by leaning against credit growth; and (b) the existence, or not, of an authority in charge of a financial stability objective through the implementation of macroprudential policies that can “lean against credit” without affecting the short-term interest rate. Our main result is that under most circumstances, macro-prudential policies have either a limited or a stabilizing effect on inflation. |
|
Keywords
|
Macroprudential policy, monetary policy, price stability, financial stability interactions, coordination |
|
URL
|
http://d.repec.org/n?u=RePEc:chb:bcchwp:715&r=mon
|
|
Record ID
|
465
[ Page 8 of 23, No. 13 ]
|
|
Date
|
2014-01 |
|
Author
|
Matias Escudero, Martin Gonzalez-Rozada, and Martin Sola
|
|
Affiliation
|
Northwestern University and Universidad Torcuato Di Tella |
|
Title
|
Towards a “New” Inflation Targeting Framework: The Case of Uruguay |
|
Summary /
Abstract
|
Using a dynamic stochastic general equilibrium model with financial frictions we study the effects of a rule that incorporates not only the interest rate but also the legal reserve requirements as instruments of the monetary policy. We evaluate the effectiveness of both instruments to accomplish the inflationary and/or financial stability objectives of the Central Bank of Uruguay. The main findings are that: (i) reserve requirements can be used to achieve the inflationary objectives of the Central Bank. However, reducing inflation using this instrument, it also produces a real appreciation of the Uruguayan peso; (ii) when the Central Bank uses the monetary policy rate as an instrument, the effect of the reserve requirements is to contribute to reduce the negative impact over consumption, investment and output of an eventual increase in this rate. Nevertheless, the quantitative results in terms of inflation reduction are rather poor; and (iii) the monetary policy rate becomes more effective to reduce inflation when the reserve requirement instrument is solely directed to achieve financial stability and the monetary policy rate used to achieve the inflationary target. Overall, the main policy conclusion of the paper is that having a non-conventional policy instrument, when well-targeted, can help effectively inflation control. Moving reserve requirements can also be instrumental in offsetting the impact of monetary policy on the real exchange rate. |
|
Keywords
|
Dynamic stochastic general equilibrium models, financial frictions, monetary policy, reserve requirements, inflation targeting, non-conventional policy instruments |
|
URL
|
http://d.repec.org/n?u=RePEc:udt:wpecon:wp201401&r=mon
|
|
Record ID
|
464
[ Page 8 of 23, No. 14 ]
|
|
Date
|
2013-12 |
|
Author
|
Frederick S. Mishkin
|
|
Affiliation
|
Columbia University and NBER |
|
Title
|
Central Banking after the Crisis |
|
Summary /
Abstract
|
This paper explores where central banking is heading after the recent financial crisis. First it discusses the central bank consensus before the crisis and then outlines the key facts learned from the crisis that require changes in the way central banks conduct their business. Finally, it discusses four main areas in which central banks are altering their policy frameworks: 1) the interaction between monetary and financial stability policies, 2) nonconventional monetary policy, 3) risk management, and 4) fiscal dominance and monetary policy. |
|
Keywords
|
Central banking, Global financial crisis |
|
URL
|
http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc714.pdf
|
|
Record ID
|
463
[ Page 8 of 23, No. 15 ]
|
|
Date
|
2014-01 |
|
Author
|
Ruperto P. Majuca
|
|
Affiliation
|
School of Economics, De La Salle University |
|
Title
|
An Analysis of the Structure and Dynamics of the Philippine Macroeconomy:
Results from a DSGE-Based Estimation |
|
Summary /
Abstract
|
I use Bayesian methods to estimate a medium-scale closed economy dynamic stochastic general equilibrium (DSGE) model for the Philippine economy. Bayesian model selection techniques indicate that among the frictions introduced in the model, the investment adjustment costs, habit formation, and the price and wage rigidity features are important in capturing the dynamics of the data, while the variable capital utilization, fixed costs, and the price and wage indexation features are not important. I find that the Philippine macroeconomy is characterized by more instability than the U.S. economy. An analysis of the several subperiods in Philippine economic history also reveals some quantitative evidence that risk aversion increases during crisis periods. Also, I find that the inflation targeting (IT) era is associated with a more stable economy: the standard deviations of the technology shock, the risk-premium shock, and the investment-specific technology shock have significantly lower variability than the pre-IT era. Shock decomposition analysis also reveals that BSP’s conduct of monetary policy appears to be more procyclical than countercyclical, for example, during the recent global financial and economic crisis. |
|
Keywords
|
DSGE models, Bayesian estimation, monetary policy, macroeconomics, Philippines |
|
URL
|
http://ejournals.ph/index.php?journal=BER&page=article&op=view&path[]=7382&path[]=7694
|
|
Record ID
|
462
[ Page 8 of 23, No. 16 ]
|
|
Date
|
2014-01 |
|
Author
|
Carmen M. Reinhart and Kenneth S. Rogoff
|
|
Affiliation
|
Harvard University and National Bureau of Economic Research |
|
Title
|
Recovery from Financial Crises: Evidence from 100 Episodes |
|
Summary /
Abstract
|
We examine the evolution of real per capita GDP around 100 systemic banking crises. Part of the costs of these crises owes to the protracted nature of recovery. On average, it takes about eight years to reach the pre-crisis level of income; the median is about 6 ½ years. Five to six years after the onset of crisis, only Germany and the US (out of 12 systemic cases) have reached their 2007-2008 peaks in real income. Forty-five percent of the episodes recorded double dips. Postwar business cycles are not the relevant comparator for the recent crises in advanced economies. |
|
Keywords
|
Financial crises, recovery |
|
Record ID
|
461
[ Page 8 of 23, No. 17 ]
|
|
Date
|
2013-12 |
|
Author
|
Lukas Scheffknecht
|
|
Affiliation
|
University of Hohenheim, Department of Economics
Chair for Economic Policy |
|
Title
|
Contextualizing Systemic Risk |
|
Summary /
Abstract
|
I analyze the rapidly growing literature about systemic risk in financial markets and find an important commonality. Systemic risk is regarded to be an endogenous outcome of interactions by rational agents on imperfect markets. Market imperfections give rise to systemic externalities which cause an excessive level of systemic risk. This creates a scope for welfare-increasing government interventions. Current policy debates usually refer to them as ’macroprudential regulation’. I argue that efforts undertaken in this direction - most notably the incipient implementation of Basel III- are insufficient. The problem of endogenous financial instability and excessive systemic risk remains an unresolved issue which carries unpleasant implications for central bankers. In particular, monetary policy is in danger of persistently getting burdened with the difficult task to simultaneously ensure macroeconomic and financial stability. |
|
Keywords
|
Systemic Risk, Systemic Externalities, Macroprudential Regulation, Basel III. |
|
URL
|
http://www.rome-net.org/RePEc/rmn/wpaper/rome-wp-2013-17.pdf
|
|
Record ID
|
459
[ Page 8 of 23, No. 19 ]
|
|
Date
|
2013-11 |
|
Author
|
Fabia A. de Carvalho, Marcos R. Castro, and Silvio M. A. Costa
|
|
Affiliation
|
Banco Central do Brazil |
|
Title
|
Traditional and Matter-of-fact Financial Frictions in a DSGE Model for Brazil: the role of macroprudential instruments and monetary policy |
|
Summary /
Abstract
|
This paper investigates the transmission channel of macroprudential instruments in a closed-economy DSGE model with a rich set of financial frictions. Banks' decisions on risky retail loan concessions are based on borrowers' capacity to settle their debt with labor income. We also introduce frictions in banks' optimal choices of balance sheet composition to better reproduce banks' strategic reactions to changes in funding costs, in risk perception and in the regulatory environment. The model is able to reproduce not only price effects from macroprudential policies, but also quantity effects. The model is estimated with Brazilian data using Bayesian techniques. Unanticipated changes in reserve requirements have important quantitative effects, especially on banks' optimal asset allocation and on the choice of funding. This result holds true even for required reserves deposited at the central bank that are remunerated at the base rate. Changes in required core capital substantially impact the real economy and banks' balance sheet. When there is a lag between announcements and actual implementation of increased capital requirement ratios, agents immediately engage in anticipatory behavior. Banks immediately start to retain dividends so as to smooth the impact of higher required capital on their assets, more particularly on loans. The impact on the real economy also shifts to nearer horizons. Announcements that allow the new regulation on required capital to be anticipated also improve banks' risk positions, since banks achieve higher capital adequacy ratios right after the announcement and throughout the impact period. The effects of regulatory changes to risk weights on bank assets are not constrained to impact the segment whose risk was reassessed. We compare the model responses with those generated by models with collateral constraints traditionally used in the literature. The choice of collateral constraint is found to have important implications for the transmission of shocks to the economy. |
|
Keywords
|
DSGE models, Bayesian estimation, financial regulation, monetary policy, macroprudential policy |
|
URL
|
http://www.bcb.gov.br/pec/wps/ingl/wps336.pdf
|
|
Record ID
|
458
[ Page 8 of 23, No. 20 ]
|
|
Date
|
2013-4 |
|
Author
|
Neville Arjani and Graydon Paulin
|
|
Affiliation
|
Bank of Canada |
|
Title
|
Lessons from the Financial Crisis: Bank Performance and Regulatory Reform |
|
Summary /
Abstract
|
The financial systems of some countries fared materially better than others during the global financial crisis of 2007-09. The performance of the Canadian banking system during this period was relatively strong. Using a case study approach together with empirical analysis, we assess some of the factors that contributed to this favourable outcome with a view to drawing useful lessons for regulatory reform. We argue that an important contributor to positive bank performance was a solid approach to risk management on the part of the Canadian banking system, an approach that was actively fostered by the domestic authorities. Efforts to buttress risk management were favourably influenced by several stressful yet instructive episodes in Canadian financial history. The 2007-09 crisis experience suggests a need to make risk management a pervasive element of financial system culture and emphasizes the importance of robust liquidity management. |
|
Keywords
|
Financial institutions; Financial system regulation and policy |
|
URL
|
http://www.bankofcanada.ca/wp-content/uploads/2013/12/dp2013-04.pdf
|
|
Record ID
|
457
[ Page 8 of 23, No. 21 ]
|
|
Date
|
2013-12 |
|
Author
|
Philippe Aghion and Enisse Kharroubi
|
|
Affiliation
|
Bank for International Settlements |
|
Title
|
Cyclical macroeconomic policy, financial regulation and economic growth |
|
Summary /
Abstract
|
This paper investigates the effect of cyclical macroeconomic policy and financial sector characteristics on growth. Using cross-country, cross-industry OECD data, it yields two main findings. First, countercyclical fiscal and monetary policies foster growth disproportionately in more credit/liquidity-constrained industries. Second, while higher bank capital ratios may contribute to reducing the benefit of a countercyclical monetary policy, countercyclical credit enhances growth disproportionately in more credit/liquidity-constrained industries and this complements the growth effects of countercyclical monetary policy. Raising regulatory requirements for bank capital can therefore help achieve financial stability and preserve economic growth if complemented with more countercyclical macroeconomic and regulatory policy. |
|
Keywords
|
Growth, financial constraints, fiscal policy, monetary policy, financial regulation |
|
URL
|
http://www.bis.org/publ/work434.pdf
|
|
Record ID
|
456
[ Page 8 of 23, No. 22 ]
|
|
Date
|
2013-08 |
|
Author
|
Dennis, Richard
|
|
Affiliation
|
University of Glasgow |
|
Title
|
Imperfect Credibility and Robust Monetary Policy |
|
Summary /
Abstract
|
This paper studies the behavior of a central bank that seeks to conduct policy optimally while having imperfect credibility and harboring doubts about its model. Taking the Smets-Wouters model as the central bank.s approximating model, the paper's main findings are as follows. First, a central bank.s credibility can have large consequences for how policy responds to shocks. Second, central banks that have low credibility can bene.t from a desire for robustness because this desire motivates the central bank to follow through on policy announcements that would otherwise not be time-consistent. Third, even relatively small departures from perfect credibility can produce important declines in policy performance. Finally, as a technical contribution, the paper develops a numerical procedure to solve the decision-problem facing an imperfectly credible policymaker that seeks robustness. |
|
Keywords
|
Imperfect Credibility, Robust Policymaking, Time-consistency |
|
URL
|
http://repo.sire.ac.uk/bitstream/10943/514/1/media_292453_en.pdf
|
|
Record ID
|
455
[ Page 8 of 23, No. 23 ]
|
|
Date
|
2013-03 |
|
Author
|
Kirsanova, Tatiana; Leith, Campbell; and Chen, Xiaoshan
|
|
Affiliation
|
University of Glasgow, University of Glasgow, and University of Stirling |
|
Title
|
How Optimal is US Monetary Policy? |
|
Summary /
Abstract
|
Most of the literature estimating DSGE models for monetary policy analysis assume that policy follows a simple rule. In this paper we allow policy to be described by various forms of optimal policy - commitment, discretion and quasi-commitment. We find that, even after allowing for Markov switching in shock variances, the inflation target and/or rule parameters, the data preferred description of policy is that the US Fed operates under discretion with a marked increase in conservatism after the 1970s. Parameter estimates are similar to those obtained under simple rules, except that the degree of habits is significantly lower and the prevalence of cost-push shocks greater. Moreover, we find that the greatest welfare gains from the ‘Great Moderation’ arose from the reduction in the variances in shocks hitting the economy, rather than increased inflation aversion. However, much of the high inflation of the 1970s could have been avoided had policy makers been able to commit, even without adopting stronger anti-inflation objectives. More recently the Fed appears to have temporarily relaxed policy following the 1987 stock market crash, and has lost, without regaining, its post-Volcker conservatism following the bursting of the dot-com bubble in 2000. |
|
Keywords
|
Bayesian Estimation, Interest Rate Rules, Optimal Monetary Policy, Great Moderation, Commitment, Discretion |
|
URL
|
http://repo.sire.ac.uk/bitstream/10943/480/1/SIRE-DP-2013-53.pdf
|
|
Record ID
|
454
[ Page 8 of 23, No. 24 ]
|
|
Date
|
2013-12 |
|
Author
|
John B Taylor
|
|
Affiliation
|
Bank for International Settlements |
|
Title
|
International monetary policy coordination: past, present and future |
|
Summary /
Abstract
|
This paper examines two explanations for the recent spate of complaints about cross-border monetary policy spillovers and calls for international monetary policy coordination, a development that contrasts sharply with the monetary system in the 1980s, 1990s and until recently. The first explanation holds that deviations from rules-based policy at several central banks created incentives for other central banks to deviate from such policies. The second explanation either does not see deviations from rules or finds such deviations benign; it characterises recent unusual monetary policies as appropriate, explains the complaints as an adjustment to optimal policies, and downplays concerns about interest rate differentials and capital controls. Going forward, the goal for central banks should be an expanded rulesbased system similar to that of the 1980s and 1990s, which would operate near an international cooperative equilibrium. International monetary policy coordination – at least formal discussions of rules-based policies and the issues reviewed here – would help central banks get such equilibrium. |
|
Keywords
|
Monetary policy spillovers, unconventional monetary policy, international policy coordination |
|
URL
|
http://www.bis.org/publ/work437.pdf
|
|
Record ID
|
443
[ Page 8 of 23, No. 25 ]
|
|
Date
|
2013-12 |
|
Author
|
Athanasios Orphanides
|
|
Affiliation
|
Bank for International Settlements |
|
Title
|
Is monetary policy overburdened? |
|
Summary /
Abstract
|
Following the experience of the global financial crisis, central banks have been asked to undertake unprecedented responsibilities. Governments and the public appear to have high expectations that monetary policy can provide solutions to problems that do not necessarily fit in the realm of traditional monetary policy. This paper examines three broad public policy goals that may overburden monetary policy: full employment, fiscal sustainability and financial stability. While central banks have a crucial position in public policy, the appropriate policy mix also involves other institutions, and overreliance on monetary policy to achieve these goals is bound to disappoint. Central bank policies that facilitate postponement of needed policy actions by governments may also have longer-term adverse consequences that could outweigh more immediate benefits. Overburdening monetary policy may eventually diminish and compromise the independence and credibility of the central bank, thereby reducing its effectiveness in maintaining price stability and contributing to crisis management. |
|
Keywords
|
Global financial crisis, monetary policy, real-time output gap, fiscal dominance, financial stability, central bank independence |
|
URL
|
http://www.bis.org/publ/work435.pdf
|
|
Record ID
|
441
[ Page 8 of 23, No. 27 ]
|
|
Date
|
2013-10 |
|
Author
|
Morten L. Bech and Todd Keister
|
|
Affiliation
|
Bank for International Settlements |
|
Title
|
Liquidity regulation and the implementation of monetary policy |
|
Summary /
Abstract
|
In addition to revamping existing rules for bank capital, Basel III introduces a new global framework for liquidity regulation. One part of this framework is the liquidity coverage ratio (LCR), which requires banks to hold sufficient high-quality liquid assets to survive a 30-day period of market stress. As monetary policy typically involves targeting the interest rate on loans of one of these assets — central bank reserves — it is important to understand how this regulation may impact the efficacy of central banks’ current operational frameworks. We introduce term funding and an LCR requirement into an otherwise standard model of monetary policy implementation. Our model shows that if banks face the possibility of an LCR shortfall, then the usual link between open market operations and the overnight interest rate changes and the short end of the yield curve becomes steeper. Our results suggest that central banks may want to adjust their operational frameworks as the new regulation is implemented. |
|
Keywords
|
Basel III, Liquidity regulation, LCR, Reserves, Corridor system, Monetary policy |
|
URL
|
http://www.bis.org/publ/work432.pdf
|
|
Record ID
|
440
[ Page 8 of 23, No. 28 ]
|
|
Date
|
2013-09 |
|
Author
|
Kara, Gazi
|
|
Affiliation
|
Board of Governors of the Federal Reserve System |
|
Title
|
Systemic Risk, International Regulation, and the Limits of Coordination |
|
Summary /
Abstract
|
This paper examines the incentives of national regulators to coordinate regulatory policies in the presence of systemic risk in global financial markets. In a two-country and three-period model, correlated asset fire sales by banks generate systemic risk across national financial markets. Relaxing regulatory standards in one country increases both the cost and the severity of crises for both countries in this framework. In the absence of coordination, independent regulators choose inefficiently low levels of macro-prudential regulation. A central regulator internalizes the systemic risk and thereby can improve the welfare of coordinating countries. Symmetric countries always benefit from coordination. Asymmetric countries choose different levels of macro-prudential regulation when they act independently. Common central regulation will voluntarily emerge only between sufficiently similar countries. |
|
Keywords
|
Systemic risk; macroprudential regulation; international policy coordination |
|
URL
|
http://www.federalreserve.gov/pubs/feds/2013/201387/201387pap.pdf
|
|
Record ID
|
438
[ Page 8 of 23, No. 30 ]
|
|
Date
|
2013-10 |
|
Author
|
Dong He and Robert N McCauley
|
|
Affiliation
|
Hong Kong Monetary Authority and Hong Kong Institute for Monetary Research, and Bank for International Settlements |
|
Title
|
Transmitting Global Liquidity to East Asia: Policy Rates, Bond Yields, Currencies and Dollar Credit |
|
Summary /
Abstract
|
We review extant work on the transmission of monetary policy, both conventional and unconventional, of the major advanced economies to East Asia through monetary policy reactions, integrated bond markets and induced currency appreciation. We present new results on the growth of foreign currency credit, especially US dollar credit, as a transmission mechanism. Restrained growth of dollar credit in Korea contrasts with very rapid growth on the Chinese mainland and in Hong Kong SAR. |
|
Keywords
|
Global liquidity, East Asia, policy rates, bond yields, currencies, dollar credit |
|
URL
|
http://www.hkimr.org/uploads/publication/360/wp-no-15_2013-final-.pdf
|
|