Selected Reference and Reading Materials compiled by Dan Villanueva

Selected Reference and Reading Materials compiled by Dan Villanueva

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Record ID	689 [ Page 1 of 1, No. 1 ]
Date	2017-04
Author	Francis Vitek
Affiliation	Money and Capital Markets Department, IMF
Title	Policy, Risk and Spillover Analysis in the World Economy: A Panel Dynamic Stochastic General Equilibrium Approach
Summary / Abstract	This paper develops a structural macroeconometric model of the world economy, disaggregated into forty national economies, to facilitate multilaterally consistent macrofinancial policy, risk and spillover analysis. This panel dynamic stochastic general equilibrium model features a range of nominal and real rigidities, extensive macrofinancial linkages, and diverse spillover transmission channels. These macrofinancial linkages encompass bank and capital market based financial intermediation, with financial accelerator mechanisms linked to the values of the housing and physical capital stocks. A variety of monetary policy analysis, fiscal policy analysis, macroprudential policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated. These include quantifying the monetary, fiscal and macroprudential transmission mechanisms, accounting for business cycle fluctuations, and generating relatively accurate forecasts of inflation and output growth.
Keywords	Monetary policy analysis; Fiscal policy analysis; Macroprudential policy analysis; Spillover analysis; Forecasting; World economy; Bayesian econometrics
URL	http://www.imf.org/~/media/Files/Publications/WP/2017/wp1789.ashx

Record ID	688 [ Page 1 of 1, No. 2 ]
Date	2017-02
Author	Andersson, Fredrik N. G., and Jonung, Lars
Affiliation	Both of the Department of Economics, Lund University
Title	How Tolerant Should Inflation-Targeting Central Banks Be? Selecting the Proper Tolerance Band - Lessons from Sweden
Summary / Abstract	Should an inflation-targeting central bank have an explicit tolerance band around its inflation target? This paper provides an answer derived from the Swedish experience. The Riksbank is exceptional in the sense that it first adopted and later abolished an explicit band and is currently considering bringing it back. We conclude that the band should be explicit for several reasons. Most important, an inflation-targeting central bank should be open and transparent to the public regarding its actual ability to control inflation. We discuss how a numerical measure of the proper width of the band can be constructed to foster communication and credibility.
Keywords	Inflation targeting; tolerance band; tolerance interval; monetary policy; the Riksbank; Sweden
URL	http://project.nek.lu.se/publications/workpap/papers/wp17_2.pdf

Record ID	687 [ Page 1 of 1, No. 3 ]
Date	2016-11
Author	Kishor, N. Kundan and Koenig, Evan F.
Affiliation	University of Wisconsin and Federal Reserve Bank of Dallas
Title	The roles of inflation expectations, core inflation, and slack in real-time inflation forecasting
Summary / Abstract	Using state-space modeling, we extract information from surveys of long-term inflation expectations and multiple quarterly inflation series to undertake a real-time decomposition of quarterly headline PCE and GDP-deflator inflation rates into a common long-term trend, common cyclical component, and high-frequency noise components. We then explore alternative approaches to real-time forecasting of headline PCE inflation. We find that performance is enhanced if forecasting equations are estimated using inflation data that have been stripped of high-frequency noise. Performance can be further improved by including an unemployment-based measure of slack in the equations. The improvement is statistically significant relative to benchmark autoregressive models and also relative to professional forecasters at all but the shortest horizons. In contrast, introducing slack into models estimated using headline PCE inflation data or conventional core inflation data causes forecast performance to deteriorate. Finally, we demonstrate that forecasting models estimated using the Kishor-Koenig (2012) methodology-which mandates that each forecasting VAR be augmented with a flexible state-space model of data revisions-consistently outperform the corresponding conventionally estimated forecasting models.
Keywords	Inflation; real-time forecasting; unobserved component model; slack
URL	http://d.repec.org/n?u=RePEc:fip:feddwp:1613&r=cba

Record ID	686 [ Page 1 of 1, No. 4 ]
Date	2017-01
Author	International Monetary Fund
Title	Finland: Financial sector Assessment Program; Technical Note-Macroprudential Policy Framework
Summary / Abstract	The macroprudential policy framework in Finland has experienced major changes recently and the mandate has become shared with the ECB. First, a domestic framework was formalized in 2014. The Board of the Financial Supervisory Authority (FIN-FSA) was designated as the authority to implement a set of macroprudential instruments in Finland, and a coordination mechanism among domestic authorities for macroprudential policy, including the Bank of Finland (BoF), was established. Second, with the start of the European Single Supervisory Mechanism (SSM) in 2014, the European Central Bank (ECB) was designated as a macroprudential authority for the euro area, with the European Systemic Risk Board (ESRB) continuing to play an advisory role for all European Union (EU) countries. As a result, macroprudential policy has become a shared responsibility among the national authorities, and the European Union and euro-area level authorities.
Keywords	Financial Sector Assessment Program;Macroprudential Policy;Housing;Housing prices;Financial sector;Banks;Credit expansion;Financial risk;Financial stability;Finland
URL	http://www.imf.org/external/pubs/ft/scr/2017/cr1705.pdf

Record ID	685 [ Page 1 of 1, No. 5 ]
Date	2017-01
Author	Razin, Assaf
Title	Israel's Triumph over Inflation: The Long and Winding Road
Summary / Abstract	The paper gives an economic-history perspective of the long struggle with Inflation. It covers the early acceleration to three-digit levels, lasting 8 years; The stabilization program, based on political backing triggered sharp fall in inflationary expectation, and consequently to sharp inflation reduction to two- digit levels; The convergence to the advanced countries' levels during the "great Moderation", And Israel's resistance to the deflation-depression forces that the 2008 crisis created. The emphasis is on the forces of globalization and the building of institutions, political, regulatory, financial, budget design, and monetary, which helped stabilize prices and output.
Keywords	Deflation-Depression forces; Hyperinflation; Stabilization
URL	http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11787

Record ID	684 [ Page 1 of 1, No. 6 ]
Date	2016-12
Author	Darvas, Zsolt; Schoenmaker, Dirk; and Véron, Nicolas
Affiliation	Asian Development Bank Institute
Title	Reforms to the European Union Financial Supervisory and Regulatory Architecture and Their Implications for Asia
Summary / Abstract	European Union (EU) countries offer a unique experience of financial regulatory and supervisory integration, complementing various other European integration efforts following the Second World War. Financial regulatory and supervisory integration was a very slow process before 2008, despite significant cross-border integration, especially of wholesale financial markets. However, the policy framework proved inadequate in the context of the major financial crisis in the EU starting in 2007, and especially in the euro area after 2010. That crisis triggered major changes to European financial regulation and to the financial supervisory architecture, most prominently with the creation of three new European supervisory authorities in 2011 and the gradual establishment of European banking union starting in 2012. The banking union is a major structural institutional change for the EU, arguably the most significant since the introduction of the euro. Even in its current highly incomplete form, and with no prospects for rapid completion, the banking union has improved financial supervision in the euro area and increased the euro area’s resilience. Asian financial integration lags well behind Europe, and there is no comparable political and legal integration. Nevertheless, Asia can draw useful lessons from European experiences in multiple areas that include the harmonization of the microprudential framework, proper macroprudential structures, and participation in global financial authorities.
Keywords	Financial regulation; banking union; european union; banking crisis
URL	https://www.adb.org/sites/default/files/publication/212176/adbi-wp615.pdf

Record ID	683 [ Page 1 of 1, No. 7 ]
Date	2017-01
Author	Svensson, Lars E O
Affiliation	Centre for Economic Policy Research
Title	Cost-Benefit Analysis of Leaning Against the Wind: Are Costs Larger Also with Less Effective Macroprudential Policy?
Summary / Abstract	"Leaning against the wind" (of asset prices and credit booms) (LAW), that is, a somewhat tighter monetary policy and a higher policy interest rate, has costs in terms of a weaker economy with higher unemployment and lower inflation. It has been justified by possible benefits in terms of a lower probability or magnitude of a future financial crisis. A worse macro outcome in the near future is then considered to be an acceptable cost to be traded off against a better expected macro outcome further into the future. But a crisis can come any time, and the cost of a crisis is higher if initially the economy is weaker due to previous LAW. LAW thus has an additional cost in the form of a higher cost of a crisis when a crisis occurs. With this additional cost, for existing empirical estimates, the costs of LAW exceed by a substantial margin the possible benefits from a lower probability of a crisis. Furthermore, empirically a lower probability of a crisis is associated with lower real debt growth. But if monetary policy is neutral in the long run, it cannot affect real debt in the long run. Then, if a higher policy rate would result in lower debt growth and a lower probability of a crisis for a few years, this is followed by higher debt growth and a higher probability of a crisis in the future. This implies that the cumulated benefits over time of LAW are close to zero. But even if monetary policy is assumed to be non-neutral and permanently affect real debt, empirically the benefits are still less than the costs. Finally, somewhat surprisingly, less effective macroprudential policy, and generally a credit boom, with resulting higher probability, magnitude, or duration of a crisis, increase costs of LAW more than benefits, thus making costs exceed benefits by an even larger margin.
Keywords	Financial stability; macroprudential policy; monetary policy
URL	http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11739

Record ID	682 [ Page 1 of 1, No. 8 ]
Date	2016-12
Author	Andrew Filardo and Phurichai Rungcharoenkitkul
Affiliation	Monetary and Economic Department, Bank for International Settlements
Title	A quantitative case for leaning against the wind
Summary / Abstract	Should a monetary authority lean against the build-up of financial imbalances? We study this policy question in an environment in which there are recurring cycles of financial imbalances that develop over time and eventually collapse in a costly manner. The optimal policy reflects the trade-off between the short-run macroeconomic costs of leaning against the wind and the longer-run benefits of stabilising the financial cycle. We model the financial cycle as a nonlinear Markov regime-switching process, calibrate the model to US data and characterise the optimal monetary policy. Leaning systematically over the whole financial cycle is found to outperform policies of "benign neglect" and "late-in-the-cycle" discretionary interventions. This conclusion is robust to a wide range of alternative assumptions and supports an orientation shift in monetary policy frameworks away from narrow price stability to a joint consideration of price and financial stability.
Keywords	Monetary policy, financial stability, leaning against the wind, financial cycle, time-varying transition probability Markov regime-switching model
URL	http://www.bis.org/publ/work594.pdf

Record ID	681 [ Page 1 of 1, No. 9 ]
Date	2017-01
Author	Esteban Gómez, Angélica Lizarazo, Juan Carlos Mendoza, and Andrés Murcia
Affiliation	Banco de la República de Colombia
Title	Evaluating the Impact of Macro-prudential Policies in Colombia's Credit Growth
Summary / Abstract	Macro-prudential tools have been used around the world as a mechanism to control potential risks and imbalances in the financial sector. Colombia is a good example of a country that has employed different regulatory measures to manage systemic risks in the economy. The purpose of this paper is to evaluate the effectiveness of two policies employed in said country to increase the resilience of the system and to moderate exuberance in credit supply. The first measure, the counter-cyclical reserve requirement, was implemented in 2007 to control excessive credit growth. The second tool corresponds to the dynamic provisioning scheme for commercial loans, whose objective was to consolidate a counter-cyclical buffer through loan loss provision requirements. To perform this analysis a rich data set based on loan-by-loan information for Colombian banks during the period between 2006 and 2009 is used. A fixed effects panel model is estimated using debtors', banks' and macroeconomic characteristics as control variables. In addition, a difference in differences estimation is performed to evaluate the impact of the aforementioned policies. Findings suggest that dynamic provisions and the countercyclical reserve requirement had a negative effect on credit growth, and that said effect differs conditioned on bank-specific characteristics. Results also suggest that the aggregate macro-prudential policy stance in Colombia has worked as an effective stabilizer of credit cycles, with some preliminary evidence also pointing towards significant effects in reducing bank risk-taking. Moreover, evidence is found that macro-prudential policies have worked as a complement of monetary policy, accompanying the stabilizing effects of changes in interest rates on credit growth.
Keywords	Macroprudential policies, Reserve requirements, Credit growth, Dynamic provisioning, Credit registry data
URL	http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_980.pdf

Record ID	680 [ Page 1 of 1, No. 10 ]
Date	2017-01
Author	Svensson, Lars E O
Affiliation	Centre for Economic Policy Research
Title	Cost-Benefit Analysis of Leaning Against the Wind: Are Costs Larger Also with Less Effective Macroprudential Policy?
Summary / Abstract	"Leaning against the wind" (of asset prices and credit booms) (LAW), that is, a somewhat tighter monetary policy and a higher policy interest rate, has costs in terms of a weaker economy with higher unemployment and lower inflation. It has been justified by possible benefits in terms of a lower probability or magnitude of a future financial crisis. A worse macro outcome in the near future is then considered to be an acceptable cost to be traded off against a better expected macro outcome further into the future. But a crisis can come any time, and the cost of a crisis is higher if initially the economy is weaker due to previous LAW. LAW thus has an additional cost in the form of a higher cost of a crisis when a crisis occurs. With this additional cost, for existing empirical estimates, the costs of LAW exceed by a substantial margin the possible benefits from a lower probability of a crisis. Furthermore, empirically a lower probability of a crisis is associated with lower real debt growth. But if monetary policy is neutral in the long run, it cannot affect real debt in the long run. Then, if a higher policy rate would result in lower debt growth and a lower probability of a crisis for a few years, this is followed by higher debt growth and a higher probability of a crisis in the future. This implies that the cumulated benefits over time of LAW are close to zero. But even if monetary policy is assumed to be non-neutral and permanently affect real debt, empirically the benefits are still less than the costs. Finally, somewhat surprisingly, less effective macroprudential policy, and generally a credit boom, with resulting higher probability, magnitude, or duration of a crisis, increase costs of LAW more than benefits, thus making costs exceed benefits by an even larger margin.
Keywords	Financial stability; macroprudential policy; monetary policy
URL	http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11739

Record ID	679 [ Page 1 of 1, No. 11 ]
Date	2016-12
Author	Adrian, Tobias and Duarte, Fernando M.
Affiliation	Federal Reserve Bank of New York
Title	Financial vulnerability and monetary policy
Summary / Abstract	We present a parsimonious New Keynesian model that features financial vulnerabilities. The vulnerabilities generate time varying downside risk of GDP growth by driving the dynamics of risk premia. Monetary policy impacts the output gap directly via the IS curve, and indirectly via its impact on financial vulnerabilities. The optimal monetary policy rule always depends on financial vulnerabilities in addition to output, inflation, and the real rate. We show that a classic Taylor rule exacerbates downside risk of GDP growth relative to an optimal Taylor rule, thus generating welfare losses associated with negative skewness of GDP growth.
Keywords	Monetary policy; macro-finance; financial stability
URL	https://www.newyorkfed.org/research/staff_reports/sr804.html

Record ID	678 [ Page 1 of 1, No. 12 ]
Date	2016-10
Author	Alyssa G. Anderson and John Kandrac
Affiliation	Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.
Title	Monetary Policy Implementation and Private Repo Displacement : Evidence from the Overnight Reverse Repurchase Facility
Summary / Abstract	In recent years, the scale and scope of major central banks' intervention in financial markets has expanded in unprecedented ways. In this paper, we demonstrate how monetary policy implementation that relies on such intervention in financial markets can displace private transactions. Specifically, we examine the experience with the Federal Reserve's newest policy tool, known as the overnight reverse repurchase (ONRRP) facility, to understand its effects on the repo market. Using exogenous variation in the parameters of the ONRRP facility, we show that participation in the ONRRP comes from substitution out of private repo. However, we also demonstrate that cash lenders, when investing in the ONRRP, do not cease trading with any of their dealer counterparties, highlighting the importance of lending relationships in the repo market. Lastly, using a confidential data set of repo transactions, we find that the presence of the Fed as a borrower in the repo market increases the bargaining power of cash lenders, who are able to command higher rates in their remaining private repo transactions.
Keywords	Repo ; Money market mutual funds ; Monetary policy ; Federal Reserve
URL	https://www.federalreserve.gov/econresdata/feds/2016/files/2016096pap.pdf

Record ID	677 [ Page 1 of 1, No. 13 ]
Date	2016-12
Author	Francesco Grigoli, Gabriel Di Bella, and Evelio Paredes
Affiliation	Western Hemisphere Department, IMF
Title	Inequality and Growth : A Heterogeneous Approach
Summary / Abstract	The combination of stagnant growth and high levels of income inequality renewed the debate about whether a more even distribution of income can spur economic activity. This paper tests for crosscountry convergence in income inequality and estimates its impact on economic growth with a heterogeneous panel structural vector autoregression model, which addresses some empirical challenges plaguing the literature. We find that income inequality is converging across countries, and that its impact on economic growth is heterogeneous. In particular, while the median response of real per capita GDP growth to shocks in income inequality is negative and significant, the dispersion around the estimates is large, with at least one fourth of the countries in the sample presenting a positive effect. The results suggest that the negative effect is mainly driven by the Middle East and Central Asia and the Western Hemisphere across regions, and emerging markets across income levels. Finally, we find evidence that improved institutional frameworks can reduce the negative effect of income inequality on growth.
Keywords	Heterogeneity, Gini, income distribution, income inequality, income levels, growth, regions
URL	http://www.imf.org/external/pubs/ft/wp/2016/wp16244.pdf

Record ID	676 [ Page 1 of 1, No. 14 ]
Date	2016-12
Author	Sophia Chen and Romain Ranciere
Affiliation	Research Department, IMF
Title	Financial Information and Macroeconomic Forecasts
Summary / Abstract	We study the forecasting power of financial variables for macroeconomic variables for 62 countries between 1980 and 2013. We find that financial variables such as credit growth, stock prices and house prices have considerable predictive power for macroeconomic variables at one to four quarters horizons. A forecasting model with financial variables outperforms the World Economic Outlook (WEO) forecasts in up to 85 percent of our sample countries at the four quarters horizon. We also find that cross-country panel models produce more accurate out-of-sample forecasts than individual country models.
Keywords	Macroeconomic Forecasting, Financial Markets and the Macroeconomy, Credit Growth, Stock Price, House Price
URL	http://www.imf.org/external/pubs/ft/wp/2016/wp16251.pdf

Record ID	675 [ Page 1 of 1, No. 15 ]
Date	2016-11
Author	Joseph E. Stiglitz
Affiliation	National Bureau of Economic Research
Title	The Theory of Credit and Macro-economic Stability
Summary / Abstract	In the aftermath of the Great Recession, there is a growing consensus, even among central bank officials, concerning the limitations of monetary policy. This paper provides an explanation for the ineffectiveness of monetary policy, and in doing so provides a new framework for thinking about monetary policy and macro-economic activity. What matters is not so much the money supply or the T-bill interest rate, but the availability of credit, and the terms at which credit is made available. The latter variables may not move in tandem with the former. In particular, the spread between the T bill rate and the lending rate may increase, so even as the T bill rate decreases, the lending rate increases. An increase in credit availability may not lead to more spending on produced goods, but increased prices for land or other fixed assets; it can go to increased margins associated with increases in speculative activity; or it may go to spending abroad rather than at home. The paper explains the inadequacy of theories based on the zero low bound, and argues that the ineffectiveness of monetary policy is more related to the multiple alternative uses—beyond the purchase of domestically produced goods—of additional liquidity and to its adverse distributional consequences. The paper shows that while monetary policy is less effective than has been widely presumed, it is also more distortionary, identifying several distinct distortions.
Keywords	Credit, Macroeconomic Stability
URL	http://www.nber.org/papers/w22837.pdf

Record ID	674 [ Page 1 of 1, No. 16 ]
Date	2016-11
Author	Bianchi, Javier; Hatchondo, Juan Carlos; and Martinez, Leonardo
Affiliation	Federal Reserve Bank of Minneapolis; Indiana University; and International Monetary Fund
Title	International Reserves and Rollover Risk
Summary / Abstract	We study the optimal accumulation of international reserves in a quantitative model of sovereign default with long-term debt and a risk-free asset. Keeping higher levels of reserves provides a hedge against rollover risk, but this is costly because using reserves to pay down debt allows the government to reduce sovereign spreads. Our model, parameterized to mimic salient features of a typical emerging economy, can account for a significant fraction of the holdings of international reserves, and the larger accumulation of both debt and reserves in periods of low spreads and high income. We also show that income windfalls, improved policy frameworks, larger contingent liabilities, and an increase in the importance of rollover risk imply increases in the optimal holdings of reserves that are consistent with the upward trend in reserves in emerging economies. It is essential for our results that debt maturity exceeds one period.
Keywords	Sovereign default; international reserves; rollover risk; safe assets
URL	https://www.minneapolisfed.org/research/wp/wp735.pdf

Record ID	673 [ Page 1 of 1, No. 17 ]
Date	2016-11
Author	Ingo Fender and Ulf Lewrick
Affiliation	Bank for International Settlements
Title	Adding it all up: the macroeconomic impact of Basel II and outstanding reform issues
Summary / Abstract	As the Basel III package nears completion, the emphasis is shifting to monitoring its implementation and assessing the impact of the reforms. This paper presents a simple conceptual framework to assess the macroeconomic impact of the core Basel III reforms, including the leverage ratio surcharge that is being considered for global systemically important banks (G-SIBs). We use historical data for a large sample of major banks to generate a conservative approximation of the additional amount of capital that banks would need to raise to meet the new regulatory requirements, taking the potential impact of current efforts to enhance G-SIBs' total loss-absorbing capacity into account. To provide a high-level proxy for the effect of changes in capital allocation and bank business models on the estimated net benefits of regulatory reform, we simulate the effect of banks converging towards the "critical" average risk weights (or "density ratios") implied by the combined risk-weighted and leverage ratio-based capital requirements. While keeping in mind that quantifying the regulatory impact remains subject to caveats, the results suggest that Basel III can be expected to generate sizeable macroeconomic net benefits even after the implied changes to bank business models have been taken into account.
Keywords	Basel III, density ratio, global systemically important banks, leverage ratio, macroeconomic impact, risk-shifting
URL	http://www.bis.org/publ/work591.pdf

Record ID	672 [ Page 1 of 1, No. 18 ]
Date	2016-11
Author	Cociuba, Simona; Shukayev, Malik; and Ueberfeldt, Alexander
Affiliation	University of Western Ontario; University of Alberta; and Bank of Canada
Title	Managing Risk Taking with Interest Rate Policy and Macroprudential Regulations
Summary / Abstract	We develop a model in which a financial intermediarys investment in risky assets risk taking is excessive due to limited liability and deposit insurance, and characterize the policy tools that implement efficient risk taking. In the calibrated model, coordinating interest rate policy with state-contingent macroprudential regulations either capital or leverage regulation, and a tax on pro ts achieves efficiency. Interest rate policy mitigates excessive risk taking, by altering the return and the supply of collateralizable safe assets. In contrast to commonly-used capital regulation, leverage regulation has stronger effects on risk taking and calls for higher interest rates.
Keywords	Financial intermediation; risk taking; interest rate policy; macroprudential regulations; capital requirements; leverage ratio
URL	https://sites.ualberta.ca/~econwps/2016/wp2016-17.pdf

Record ID	671 [ Page 1 of 1, No. 19 ]
Date	2016-10
Author	Oriol Carreras, E Philip Davis, and Rebecca Piggott
Affiliation	National Institute of Economic and Social Research
Title	Macroprudential tools, Transmission and Modelling
Summary / Abstract	The purpose of this paper is twofold. First, we review the theoretical and empirical literature on macroprudential policies and tools. Second, we test empirically the effectiveness of several macroprudential policies and tools using three datasets from the IMF and BIS that cover up to 19 OECD countries during 2000-2014, thus giving wide coverage of instruments. In addition, our focus on OECD countries gives us access to a wider range of control variables whose omission may lead to excessively favourable results on the impact of macroprudential policies. We find evidence that macroprudential polices are effective at curbing house price and credit growth, albeit some tools are more effective than others. These include, in particular, taxes on financial institutions and strict loan-to-value and debt-to-income ratio limits.
Keywords	Macroprudential Policies, Transmission, and Policy Effectiveness
URL	http://www.niesr.ac.uk/sites/default/files/publications/DP470.pdf

Record ID	670 [ Page 1 of 1, No. 20 ]
Date	2016-11
Author	Bhattarai, Saroj; and Neely, Christopher J.
Affiliation	University of Texas at Austin and Federal Reserve Bank of St. Louis
Title	A Survey of the Empirical Literature on U.S. Unconventional Monetary Policy
Summary / Abstract	This paper reviews and critically evaluates the empirical literature on the effects of U.S. unconventional monetary policy on both financial markets and the real economy. In order to understand how such policies could work, we also briefly review the literature on the theory of such policies. We show that event studies provide very strong evidence that U.S. unconventional policy announcements have strongly influenced international bond yields, exchange rates, and equity prices in the desired manner. In addition, such studies indicate that such policies curtailed market perceptions of extreme events. Calibrated modeling and vector autoregressive (VAR) exercises strongly suggest that these policies significantly improved macroeconomic outcomes, raising U.S. GDP and CPI, through these changes in asset prices. Both event studies and VARs imply positive international spillovers of such policies.
Keywords	Quantitative easing; event study; unconventional monetary policy; zero lower bound
URL	https://research.stlouisfed.org/wp/2016/2016-021.pdf

Record ID	669 [ Page 1 of 1, No. 21 ]
Date	2016-09
Author	Maurice Obstfeld, Kevin Clinton, Ondra Kamenik, Douglas Laxton, Yulia Ustyugova, and Hou Wang
Affiliation	Research and Western Hemisphere Departments, IMF
Title	How to Improve Inflation Targeting in Canada
Summary / Abstract	Routine publication of the forecast path for the policy interest rate (i.e. â€œconventional forward guidanceâ€ ) would improve the transparency of monetary policy. It would also improve policy effectiveness through its influence on expectations, particularly when there is a risk of low inflation, and the policy rate is constrained by the effective lower bound. Model simulations indicate that a potent macroeconomic strategy, for returning the Canadian economy to potential, combines conventional forward guidance with a fiscal stimulus. As a response to the effective lower bound constraint, and the decline in the world equilibrium real interest rate, this strategy is preferable to raising the inflation target.
Keywords	Canada; inflation targeting; monetary policy; fiscal policy
URL	http://www.imf.org/external/pubs/ft/wp/2016/wp16192.pdf

Record ID	668 [ Page 1 of 1, No. 22 ]
Date	2016-10
Author	Philip Turner
Affiliation	Bank for International Settlements
Title	Macroprudential policies, the long-term interest rate and the exchange rate
Summary / Abstract	The Bernanke-Blinder closed economy model suggests that macroprudential policies aimed at bank lending will affect the domestic long-term interest rate. In an open economy, domestic shocks to long-term rates are likely to influence capital flows and the exchange rate. Currency movements feed back into domestic credit through several channels, which will be influenced by balance sheet positions and not only by income flows. Macroprudential policies aimed at domestic credit and at foreign currency borrowing may be the best option open to small countries facing very low global interest rates and risky domestic credit expansion.
Keywords	Bernanke-Blinder model, capital flows, interest rate policy, macroprudential policy
URL	http://www.bis.org/publ/work588.pdf

Record ID	667 [ Page 1 of 1, No. 23 ]
Date	2016-10
Author	Pierluigi Bologna and Anatoli Segura
Affiliation	Bank of Italy
Title	Integrating stress tests within the Basel III capital framework: a macroprudentially coherent approach
Summary / Abstract	In the post-crisis era banks’ capital adequacy is established by the Basel III capital standards and, in many jurisdictions, also by supervisory stress tests. In this paper we first describe the ways in which supervisory stress tests can supplement the risk-based capital framework of Basel III and how this could be codified with a stress test buffer. We then argue that in order to ensure coherence with the macroprudential objectives of Basel III, the severity of supervisory stress tests should be procyclical. In addition, to increase the transparency and predictability of the overall capital framework, severity choices should follow a constrained discretion approach based on a simple rule. Finally, we analyze supervisory stress testing practices across some jurisdictions and find that while the United States and the UK frameworks are in line with some of the elements of our proposal, including most notably the need for procyclical severity, this is not the case in the euro area.
Keywords	Stress test, capital regulation, macroprudential policy
URL	http://www.bancaditalia.it/pubblicazioni/qef/2016-0360/QEF_360_16.pdf

Record ID	666 [ Page 1 of 1, No. 24 ]
Date	2016-09
Author	Leonardo Gambacorta and Sudipto Karmakar
Affiliation	Monetary and Economic Department, BIS
Title	Leverage and Risk Weighted Capital Requirements
Summary / Abstract	The global financial crisis has highlighted the limitations of risk-sensitive bank capital ratios. To tackle this problem, the Basel III regulatory framework has introduced a minimum leverage ratio, defined as a banks Tier 1 capital over an exposure measure, which is independent of risk assessment. Using a medium sized DSGE model that features a banking sector, financial frictions and various economic agents with differing degrees of creditworthiness, we seek to answer three questions: 1) How does the leverage ratio behave over the cycle compared with the risk-weighted asset ratio? 2) What are the costs and the benefits of introducing a leverage ratio, in terms of the levels and volatilities of some key macro variables of interest? 3) What can we learn about the interaction of the two regulatory ratios in the long run? The main answers are the following: 1) The leverage ratio acts as a backstop to the risk-sensitive capital requirement: it is a tight constraint during a boom and a soft constraint in a bust; 2) the net benefits of introducing the leverage ratio could be substantial; 3) the steady state value of the regulatory minima for the two ratios strongly depends on the riskiness and the composition of bank lending portfolios.
Keywords	Bank capital buffers, regulation, risk-weighted assets, leverage
URL	http://www.bis.org/publ/work586.pdf

Record ID	665 [ Page 1 of 1, No. 25 ]
Date	2015-12
Author	Jiaqian Chen and Francesco Columba
Affiliation	IMF and Bank of Italy
Title	Macroprudential and Monetary Policies Interactions in a DSGE Model for Sweden
Summary / Abstract	We analyse the effects and the interactions of macroprudential and monetary policies with an estimated dynamic stochastic general equilibrium (DSGE) model tailored to Sweden. Households are constrained by a loan-to-value ratio and mortgages are amortized. Government grants mortgage interest payment deductions. Lending rates are affected by mortgage risk weights. We find that to curb the household debt-to-income ratio demand-side macroprudential measures are more effective and less costly in terms of foregone consumption than monetary policy. A tighter macroprudential stance is also welfare improving, by promoting lower consumption volatility in response to shock, especially when combining different instruments, whose sequence of implementation is key.
Keywords	Macroprudential Policies, Monetary Policy, Collateral Constraints
URL	https://economicdynamics.org/meetpapers/2016/paper_913.pdf

Record ID	664 [ Page 1 of 1, No. 26 ]
Date	2016-10
Author	Joshua Aizenman, Menzie D. Chinn, and Hiro Ito
Affiliation	National Bureau of Economic Research
Title	Balance Sheet Effects on Monetary and Financial Spillovers: The East Asian Crisis Plus 20
Summary / Abstract	We study how the financial conditions in the Center Economies [the U.S., Japan, and the Euro area] impact other countries over the period 1986 through 2015. Our methodology relies upon a two-step approach. We focus on five possible linkages between the center economies (CEs) and the non-Center economics, or peripheral economies (PHs), and investigate the strength of these linkages. For each of the five linkages, we first regress a financial variable of the PHs on financial variables of the CEs while controlling for global factors. Next, we examine the determinants of sensitivity to the CEs as a function of country-specific macroeconomic conditions and policies, including the exchange rate regime, currency weights, monetary, trade and financial linkages with the CEs, the levels of institutional development, and international reserves. Extending our previous work (Aizenman et al. (2016)), we devote special attention to the impact of currency weights in the implicit currency basket, balance sheet exposure, and currency composition of external debt. We find that for both policy interest rates and the real exchange rate (REER), the link with the CEs has been pervasive for developing and emerging market economies in the last two decades, although the movements of policy interest rates are found to be more sensitive to global financial shocks around the time of the emerging markets’ crises in the late 1990s and early 2000s, and since 2008. When we estimate the determinants of the extent of connectivity, we find evidence that the weights of major currencies, external debt, and currency compositions of debt are significant factors. More specifically, having a higher weight on the dollar (or the euro) makes the response of a financial variable such as the REER and exchange market pressure in the PHs more sensitive to a change in key variables in the U.S. (or the euro area) such as policy interest rates and the REER. While having more exposure to external debt would have similar impacts on the financial linkages between the CEs and the PHs, the currency composition of international debt securities does matter. Economies more reliant on dollar-denominated debt issuance tend to be more vulnerable to shocks emanating from the U.S.
Keywords	East Asian Crisis Plus 20, Monetary and Financial Spillovers
URL	http://www.nber.org/papers/w22737.pdf

Record ID	663 [ Page 1 of 1, No. 27 ]
Date	2016-10
Author	Alan S. Blinder, Michael Ehrmann, Jakob de Haan, and David-Jan Jansen
Affiliation	National Bureau of Economic Research
Title	Necessity as the Mother of Invention: Monetary Policy after the Crisis
Summary / Abstract	We ask whether recent changes in monetary policy due to the financial crisis will be temporary or permanent. We present evidence from two surveys—one of central bank governors, the other of academic specialists. We find that central banks in crisis countries are more likely to have resorted to new policies, to have had discussions about mandates, and to have communicated more. But the thinking has changed more broadly—for instance, central banks in non-crisis countries also report having implemented macro-prudential measures. Overall, we expect central banks in the future to have broader mandates, use macro-prudential tools more widely, and communicate more actively than before the crisis. While there is no consensus yet about the usefulness of unconventional monetary policies, we expect most of them will remain in central banks’ tool-kits, as governors who gain experience with a particular tool are more likely to assess that tool positively. Finally, the relationship between central banks and their governments might well have changed, with central banks “crossing the line” more often than in the past.
Keywords	Global financial crisis, monetary policy, unconventional monetary tools, macro-prudential tools, crisis vs. non-crisis countries
URL	http://www.nber.org/papers/w22735.pdf

Record ID	662 [ Page 1 of 1, No. 28 ]
Date	2016-09
Author	Simona Malovana and Jan Frait
Affiliation	Czech National Bank
Title	Monetary Policy and Macro-Prudential Policy: Rivals or Teammates?
Summary / Abstract	This paper sheds some light on situations in which monetary and macro-prudential policies may interact (and potentially get into conflict) and contributes to the discussion about the coordination of those policies. Using data for the Czech Republic and five euro area countries we show that monetary tightening has a negative impact on the credit-to-GDP ratio and the non-risk-weighted bank capital ratio (i.e. a positive impact on bank leverage), while these effects have strengthened considerably since mid-2011. This supports the view that accommodative monetary policy contributes to a build-up of financial vulnerabilities, i.e. it boosts the credit cycle. On the other hand, the effect of the higher bank capital ratio is associated with some degree of uncertainty. For these and other reasons, coordination of the two policies is necessary to avoid an undesirable policy mix preventing effective achievement of the main objectives in the two policy areas.
Keywords	Bayesian estimation, financial stability, macroprudential policy, monetary policy, time-varying panel VAR model
URL	http://www.cnb.cz/miranda2/export/sites/www.cnb.cz/en/research/research_publications/cnb_wp/download/cnbwp_2016_06.pdf

Record ID	661 [ Page 1 of 1, No. 29 ]
Date	2016-08
Author	Janet L. Yellen
Affiliation	Chair Board of Governors of the Federal Reserve System
Title	The Federal Reserve’s Monetary Policy Toolkit: Past, Present, and Future
Summary / Abstract	Remarks at “Designing Resilient Monetary Policy Frameworks for the Future”, a symposium sponsored by the Federal Reserve Bank of Kansas City Jackson Hole, Wyoming, August 26, 2016.
Keywords	Monetary policy toolkit, Federal Reserve
URL	http://d.repec.org/n?u=RePEc:fip:fedgsq:906&r=mon

Record ID	660 [ Page 1 of 1, No. 30 ]
Date	2016-08
Author	Carlos Garriga, Finn E. Kydland, and Roman Šustek
Affiliation	Federal Reserve Bank of St. Louis, University of California-Santa Barbara and NBER, and Queen Mary University of London, Centre for Macroeconomics, and CERGE-EI
Title	Nominal Rigidities in Debt and Product Markets
Summary / Abstract	Standard models used for monetary policy analysis rely on sticky prices. Recently, the literature started to explore also nominal debt contracts. Focusing on mortgages, this paper compares the two channels of transmission within a common framework. The sticky price channel is dominant when shocks to the policy interest rate are temporary, the mortgage channel is important when the shocks are persistent. The ﬁrst channel has signiﬁcant aggregate effects but small redistributive effects. The opposite holds for the second channel. Using yield curve data decomposed into temporary and persistent components, the redistributive and aggregate consequences are found to be quantitatively comparable.
Keywords	Mortgage contracts, Sticky prices, Monetary policy, Yield curve, Redistributive vs. aggregate effects.
URL	http://econpapers.repec.org/scripts/redir.pf?u=https%3A%2F%2Fresearch.stlouisfed.org%2Fwp%2F2016%2F2016-017.pdf;h=repec:fip:fedlwp:2016-017

Record ID	659 [ Page 1 of 1, No. 31 ]
Date	2016-08
Author	Mikael Juselius, Claudio Borio, Piti Disyatat, and Mathias Drehmann
Affiliation	Bank of Finland, Bank for International Settlements, Bank of Thailand, and Bank for International Settlements
Title	Monetary policy, The Financial Cycle and Ultralow Interest Rates
Summary / Abstract	Do the prevailing unusually and persistently low real interest rates reflect a decline in the natural rate of interest as commonly thought? We argue that this is only part of the story. The critical role of financial factors in influencing medium-term economic fluctuations must also be taken into account. Doing so for the United States yields estimates of the natural rate that are higher and, at least since 2000, decline by less. As a result, policy rates have been persistently and systematically below this measure. Moreover, we find that monetary policy, through the financial cycle, has a long-lasting impact on output and, by implication, on real interest rates. Therefore, a narrative that attributes the decline in real rates primarily to an exogenous fall in the natural rate is incomplete. The influence of monetary and financial factors should not be ignored. Exploiting these results, an illustrative counterfactual experiment suggests that a monetary policy rule that takes financial developments systematically into account during both good and bad times could help dampen the financial cycle, leading to higher output even in the long run.
Keywords	Natural interest rate, financial cycle, monetary policy, credit, business cycle
URL	http://d.repec.org/n?u=RePEc:bof:bofrdp:2016_024&r=fdg

Record ID	658 [ Page 1 of 1, No. 32 ]
Date	2016-08
Author	Vladimir Klyuev and To-Nhu Dao
Affiliation	Asia and Pacific Department, IMF
Title	Evolution of Exchange Rate Behavior in the ASEAN-5 Countries
Summary / Abstract	This paper examines exchange rate behavior in the ASEAN-5 countries (Indonesia, Malaysia, the Philippines, Singapore, and Thailand). It finds that for the last 10 years there is no evidence that their central banks target particular exchange rate levels against any currency or basket. Thus, contrary to some assertions, they do not belong to a U.S. dollar club, a Japanese yen club, a Chinese renminbi club, or an ASEAN club. At the same time, they clearly try to smooth short-term volatility, particularly vis-à-vis the U.S. dollar. The degree of smoothing declined noticeably after the Asian Financial Crisis and less obviously after the Global Financial Crisis, with heterogeneity across countries. Short-term smoothing without level targeting does not interfere with monetary policies aimed at price stability.
Keywords	Exchange rate regimes; exchange rate volatility; fear of floating; currency blocks; ASEAN
URL	http://www.imf.org/external/pubs/ft/wp/2016/wp16165.pdf

Record ID	657 [ Page 1 of 1, No. 33 ]
Date	2016-06
Author	Özer Karagedikli and John McDermott
Affiliation	Reserve Bank of New Zealand
Title	Inflation expectations and low inflation in New Zealand
Summary / Abstract	This paper finds that the changing behaviour of inflation expectations can explain much of the unusually low inflation in New Zealand. Across several empirical specifications of the Phillips curve, we observe that inflation expectations have become more backward-looking. We also find that the speed of adjustment in inflation expectations, proxied by the spread between short- and longer-term inflation expectations, can explain the unusually low inflation.
Keywords	Inflation expectations, low stable inflation, Phillips curve
URL	http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Discussion%20papers/2016/dp16-09.pdf

Record ID	656 [ Page 1 of 1, No. 34 ]
Date	2016-06
Author	Guglielmo Maria Caporale ; Abdurrahman Nazif Catik ; Mohamad Husam Helmi ; Faek Menla Ali ; and Coskun Akdeniz
Affiliation	Department of Economics and Finance, Brunel University London, UK; Department of Economics, Ege University, Turkey
Title	Monetary Policy Rules in Emerging Countries: Is There an Augmented Nonlinear Taylor Rule?
Summary / Abstract	This paper examines the Taylor rule in five emerging economies, namely Indonesia, Israel, South Korea, Thailand, and Turkey. In particular, it investigates whether monetary policy in these countries can be more accurately described by (i) an augmented rule including the exchange rate, as well as (ii) a nonlinear threshold specification (estimated using GMM), instead of a baseline linear rule. The results suggest that the reaction of monetary authorities to deviations from target of either the inflation or the output gap varies in terms of magnitude and/or statistical significance across the high and low inflation regimes in all countries. In particular, the exchange rate has an impact in the former but not in the latter regime. Overall, an augmented nonlinear Taylor rule appears to capture more accurately the behaviour of monetary authorities in these countries.
Keywords	Taylor rule, nonlinearities, emerging countries
URL	http://www.diw.de/documents/publikationen/73/diw_01.c.536363.de/dp1588.pdf

Record ID	655 [ Page 1 of 1, No. 35 ]
Date	2016-05
Author	William R. Cline
Affiliation	Peterson Institute for International Economics
Title	Estimates of Fundamental Equilibrium Exchange Rates, May 2016
Summary / Abstract	The US dollar is overvalued by about 7 percent, approximately the same amount as estimated last year (May and November 2015). Divergent phases of monetary policy in the United States, on one hand, and the euro area and Japan, on the other, and a collapse in commodity prices drove the stronger dollar. After rising about 5 percent from October 2015 (the base of the November 2015 assessment) to January 2016, the real effective exchange rate of the dollar fell slightly below its October level by April 2016 (the base of the current estimates). This semiannual evaluation also finds the yen is slightly undervalued (by 3 percent) despite its recent strengthening, but there is no misalignment of the other two leading currencies, the euro and Chinese renminbi.
Keywords	Fundamental Equilibrium Exchange Rates, May 2016
URL	https://piie.com/system/files/documents/pb16-6.pdf

Record ID	654 [ Page 1 of 1, No. 36 ]
Date	2015-02
Author	Christophe Blot, Jérôme Creel, Paul Hubert, Fabien Labondance, and Francesco Saraceno
Affiliation	OFCE
Title	Assessing the link between price and financial stability
Summary / Abstract	This paper aims at investigating first, the (possibly time-varying) empirical relationship between price and financial stability, and second, the effects of some macro and policy variables on this relationship in the United States and the Eurozone. Three empirical methods are used to examine the relevance of A.J. Schwartz's “conventional wisdom” that price stability would yield financial stability. Using simple correlations and VAR and Dynamic Conditional Correlations, we reject the hypotheses that price stability is positively correlated with financial stability and that the correlation is stable over time. The latter result and the analysis of the determinants of the link between price stability and financial stability cast some doubt on the appropriateness of the “leaning against the wind” monetary policy approach.
Keywords	Price stability; Financial stability; DCC-GARCH; VAR.
URL	http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/114p6m6s0395gqm0es4g7kgv3u&r=mon

Record ID	653 [ Page 1 of 1, No. 37 ]
Date	2016-05
Author	Ambrogio Cesa-Bianchi and Alessandro Rebucci
Affiliation	NBER
Title	Does Easing Monetary Policy Increase Financial Instability?
Summary / Abstract	This paper develops a model featuring both a macroeconomic and a financial friction that speaks to the interaction between monetary and macro-prudential policy and to the role of U.S. monetary and regulatory policy in the run up to the Great Recession. There are two main results. First, real interest rate rigidities in a monopolistic banking system increase the probability of a financial crisis (relative to the case of flexible interest rate) in response to contractionary shocks to the economy, while they act as automatic macro-prudential stabilizers in response to expansionary shocks. Second, when the interest rate is the only available policy instrument, a monetary authority subject to the same constraints as private agents cannot always achieve a (constrained) efficient allocation and faces a trade-off between macroeconomic and financial stability in response to contractionary shocks. An implication of our analysis is that the weak link in the U.S. policy framework in the run up to the Global Recession was not excessively lax monetary policy after 2002, but rather the absence of an effective second policy instrument aimed at preserving financial stability.
Keywords	Monetary Policy, Financial Instability
URL	http://www.nber.org/papers/w22283.pdf

Record ID	652 [ Page 1 of 1, No. 38 ]
Date	2016-05
Author	Woodford, Michael
Affiliation	CEPR
Title	Quantitative Easing and Financial Stability
Summary / Abstract	This paper compares three alternative dimensions of central-bank policy --- conventional interest-rate policy, quantitative easing, and macroprudential policy --- showing in the context of a simple intertemporal general-equilibrium model why they are logically independent dimensions of policy, and how they jointly determine financial conditions, aggregate demand, and the severity of risks to financial stability. Quantitative easing policies increase financial stability risk less than either of the other two policies, relative to the magnitude of aggregate demand stimulus; and a combination of expansion of the cental bank's balance sheet with a suitable tightening of macroprudential policy can have a net expansionary effect on aggregate demand with no increased risk to financial stability. This suggests that quantitative easing policies may be useful as an approach to aggregate demand management not only when the zero lower bound precludes further use of conventional interest-rate policy, but also when it is not desirable to further reduce interest rates because of financial stability concerns.
Keywords	Macroprudential policy; money premium; zero lower bound
URL	http://d.repec.org/n?u=RePEc:cpr:ceprdp:11287&r=mon

Record ID	651 [ Page 1 of 1, No. 39 ]
Date	2016-05
Author	Joshua Aizenman and Hiro Ito
Affiliation	National Bureau of Economic Research
Title	East Asian Economies and Financial Globalization In the Post-Crisis World
Summary / Abstract	This paper assesses the East Asian Economies’ openness to cross-border capital flows and exchange rate arrangements in the past decades, with the main focus on emerging market economies. Using Mundell’s trilemma indexes, we note that the convergence of the three policy goals in East Asia toward a “middle ground” pre-dates the convergence of these indices in other regions. Another more recent development involves the high level of international reserve (IR) holdings–a feature that is known as the most distinct characteristic of Asian EMEs. Financial globalization made asset prices and interest rates in Asian EMEs more vulnerable to global movements of capital, and to the monetary policy of the center country, the United-States. The U.S. presence in trade ties with Asian economies has been declining over the last two decades, whereas China’s has been on a rising trend. Yet, the share of trade among Asian economies with the dollar zone economies has been quite stable. China has been recently making efforts to “internationalize” its currency, the yuan (RMB). Hence, if China succeeds in its internationalization efforts and creates the RMB zone, the dynamics between the U.S. and Asia will most likely change. Recently, Chinese authorities have become more interventionist because of the slowdown of the economy and financial markets. For now, the Asian region’s international finance continues to be dollar-centric.
Keywords	East Asian Economies, Financial Globalization, Capital Flows, Exchange Rate Arrangements Mundell's Trilemma
URL	http://www.nber.org/papers/w22268.pdf

Record ID	650 [ Page 1 of 1, No. 40 ]
Date	2016-05
Author	Lindé, Jesper; Smets, Frank; and Wouters, Rafael
Affiliation	Central Bank of Sweden; ECB, KU Leuven and CEPR; and National Bank of Belgium and CEPR
Title	Challenges for Central Banks' Macro Models
Summary / Abstract	In this paper we discuss a number of challenges for structural macroeconomic models in the light of the Great Recession and its aftermath. It shows that a benchmark DSGE model that shares many features with models currently used by central banks and large international institutions has difficulty explaining both the depth and the slow recovery of the Great Recession. In order to better account for these observations, the paper analyses three extensions of the benchmark model. First, we estimate the model allowing explicitly for the zero lower bound constraint on nominal interest rates. Second, we introduce time-variation in the volatility of the exogenous disturbances to account for the non-Gaussian nature of some of the shocks. Third and finally, we extend the model with a financial accelerator and allow for time-variation in the endogenous propagation of financial shocks. All three extensions require that we go beyond the linear Gaussian assumptions that are standard in most policy models. We conclude that these extensions go some way in accounting for features of the Great Recession and its aftermath, but they do not suffice to address some of the major policy challenges associated with the use of non-standard monetary policy and macroprudential policies.
Keywords	Monetary policy; DSGE; and VAR models; Regime-Switching; Zero Lower Bound; Financial Frictions; Great Recession; Macroprudential policy; Open economy
URL	http://www.riksbank.se/Documents/Rapporter/Working_papers/2016/rap_wp323_160512.pdf

Record ID	649 [ Page 1 of 1, No. 41 ]
Date	2016-07
Author	Michelle Lewis and John McDermott
Affiliation	Reserve Bank of New Zealand
Title	New Zealand's experience with changing its inflation target and the impact on inflation expectations
Summary / Abstract	We document the experience of the Reserve Bank of New Zealand in changing its inflation target, particularly the effects on inflation expectations. Firstly, the Reserve Bank of New Zealand's DSGE model is used to highlight expectation-formation in the transmission following a change in the inflation target. Secondly, a Nelson-Siegel model is used to combine a number of inflation expectation surveys into a continuous curve where expectations can be plotted as a function of the forecast horizon. Using estimates of long-run inflation expectations derived from the Nelson-Siegel model, we find that numerical changes in the inflation target result in an immediate change in inflation expectations.
Keywords	Inflation target, inflation expectations
URL	http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Discussion%20papers/2016/dp16-07.pdf

Record ID	648 [ Page 1 of 1, No. 42 ]
Date	2016-05
Author	Nicoletta Batini, Giovanni Melina, and Stefania Villa
Affiliation	European Department, IMF, Research Department, IMF, and University of Foggia & KU Leuven
Title	Fiscal Buffers, Private Debt, and Stagnation: The Good, the Bad and the Ugly
Summary / Abstract	We revisit the empirical relationship between private/public debt and output, and build a model that reproduces it. In the model, the government provides financial assistance to credit-constrained agents to mitigate deleveraging. As we observe in the data, surges in private debt are potentially more damaging for the economy than surges in public debt. The model suggests two policy implications. First, capping leverage leads to milder recessions, but also implies more muted expansions. Second, with fiscal buffers, financial assistance to credit-constrained agents helps avoid stagnation. The growth returns from intervention decline as the government approaches the fiscal limit.
Keywords	Private debt, public debt, borrowing constraints, fiscal limits, DSGE
URL	http://www.imf.org/external/pubs/ft/wp/2016/wp16104.pdf

Record ID	647 [ Page 1 of 1, No. 43 ]
Date	2016-03
Author	Iversen, Jens; Laséen, Stefan; Lundvall, Henrik; and Söderström, Ulf
Affiliation	Monetary Policy Department, Central Bank of Sweden; International Monetary Fund; National Institute of Economic Research; Monetary Policy Department, Central Bank of Sweden
Title	Real-Time Forecasting for Monetary Policy Analysis: The Case of Sveriges Riksbank
Summary / Abstract	We evaluate forecasts made in real time to support monetary policy decisions at Sveriges Riksbank (the central bank of Sweden) from 2007 to 2013. We compare forecasts made with a DSGE model and a BVAR model with judgmental forecasts published by the Riksbank, and we evaluate the usefulness of conditioning information for the model-based forecasts. We also study the perceived usefulness of model forecasts for central bank policymakers when producing the judgmental forecasts.
Keywords	Real-time forecasting; Forecast evaluation; Monetary policy; Inflation targeting
URL	http://www.riksbank.se/Documents/Rapporter/Working_papers/2016/rap_wp318_160323.pdf

Record ID	646 [ Page 1 of 1, No. 44 ]
Date	2016-04
Author	Boyarchenko, Nina; Haddad, Valentin; and Plosser, Matthew
Affiliation	Federal Reserve Bank of New York; Princeton University; and Federal Reserve Bank of New York
Title	The Federal Reserve and market confidence
Summary / Abstract	We discover a novel monetary policy shock that has a widespread impact on aggregate financial conditions. Our shock can be summarized by the response of long-horizon yields to Federal Open Market Committee (FOMC) announcements; not only is it orthogonal to changes in the near-term path of policy rates, but it also explains more than half of the abnormal variation in the yield curve on announcement days. We find that our long-rate shock is positively related to changes in real interest rates and market volatility, and negatively related to market returns and mortgage demand, consistent with policy announcements affecting market confidence. Our results demonstrate that Federal Reserve pronouncements influence markets independent of changes in the stance of conventional monetary policy.
Keywords	Policy announcement; risk premium; uncertainty; financial conditions
URL	https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr773.pdf?la=en

Record ID	645 [ Page 1 of 1, No. 45 ]
Date	2016-03
Author	Kashiwabara, Chie
Affiliation	Institute of Developing Economies, Japan
Title	Asset composition of the Philippines' universal and commercial banks : monetary policy or self-discipline?
Summary / Abstract	The central bank of the Philippines (Bangko Sentral ng Pilipinas, BSP) has improved its monetary policy measures since the 2000s. After rationalizing the country's banking sector since late-1990s, its monetary policy and the uniiversal/commercial banks' (UCBs) behavior in allocating their assets has changed since mid-2000s. Though further and more detailed studies are nesessary, based on the results of simple correlation analyses conducted in this paper suggest a possible mixture of the country's monetary policy and their own decision-making in asset allocations, instead of a "follow-through" attitude.
Keywords	Monetary policy, Banks, Monetary policy measure, Universal and commercial banks, The Philippines
URL	http://ir.ide.go.jp/dspace/bitstream/2344/1540/1/ARRIDE_Discussion_No.586_kashiwabara.pdf

Record ID	644 [ Page 1 of 1, No. 46 ]
Date	2016-01
Author	Lars E. O. Svensson
Affiliation	Research Department, International Monetary Fund
Title	Cost-Benefit Analysis of Leaning Against the Wind : Are Costs Larger Also with Less Effective Macroprudential Policy?
Summary / Abstract	“Leaning against the wind” (LAW) with a higher monetary policy interest rate may have benefits in terms of lower real debt growth and associated lower probability of a financial crisis but has costs in terms of higher unemployment and lower inflation, importantly including a higher cost of a crisis when the economy is weaker. For existing empirical estimates, costs exceed benefits by a substantial margin, even if monetary policy is non-neutral and permanently affects real debt. Somewhat surprisingly, less effective macro-prudential policy and generally a credit boom, with resulting higher probability, severity, or duration of a crisis, increases costs of LAW more than benefits, thus further strengthening the strong case against LAW.
Keywords	Monetary policy, financial stability, macroprudential policy
URL	http://www.imf.org/external/pubs/ft/wp/2016/wp1603.pdf

Record ID	643 [ Page 1 of 1, No. 47 ]
Date	2015-12
Author	Zeyyad Mandalinci
Affiliation	Queen Mary University of London
Title	Forecasting Inflation in Emerging Markets: An Evaluation of Alternative Models
Summary / Abstract	This paper carries out a comprehensive forecasting exercise to assess out-of-sample forecasting performance of various econometric models for inflation across three dimensions; time, emerging market countries and models. The competing forecasting models include univariate and multivariate, fixed and time varying parameter, constant and stochastic volatility, small and large dataset, with and without bayesian variable selection models. Results indicate that the forecasting performance of different models change notably both across time and countries. Similar to some of the recent findings of the literature that focus on developed countries, models that account for stochastic volatility and time-varying parameters provide more accurate forecasts for inflation than alternatives in emerging markets.
Keywords	Forecasting, Bayesian Analysis, Emerging Markets, Forecast Comparison
URL	http://d.repec.org/n?u=RePEc:qmm:wpaper:3&r=mon

Record ID	642 [ Page 1 of 1, No. 48 ]
Date	2012-12
Author	Bullard, James B.
Affiliation	President and CEO, Federal Reserve Bank of St. Louis
Title	A Hat Trick for the FOMC
Summary / Abstract	At Ball State University in Muncie, Ind., St. Louis Fed President James Bullard assessed the Federal Open Market Committee's forecasts running up to 2015 and discussed implications for monetary policy. He said that the forecasts look to have missed on all three key variables—real GDP growth, unemployment and inflation—and that the misses are such that they continue to pull the committee in different directions on monetary policy.
Keywords	Forecasting growth, unemployment, and inflation; monetary policy
URL	https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard-Muncie-IN-7Dec2015.pdf

Record ID	641 [ Page 1 of 1, No. 49 ]
Date	2015-12
Author	Michael Woodford and Vasco Curdia
Affiliation	CEPR and Columbia University
Title	Credit Frictions and Optimal Monetary Policy
Summary / Abstract	We extend the basic (representative-household) New Keynesian [NK] model of the monetary transmission mechanism to allow for a spread between the interest rate available to savers and borrowers, that can vary for either exogenous or endogenous reasons. We find that the mere existence of a positive average spread makes little quantitative difference for the predicted effects of particular policies. Variation in spreads over time is of greater significance, with consequences both for the equilibrium relation between the policy rate and aggregate expenditure and for the relation between real activity and inflation. Nonetheless, we find that the target criterion—a linear relation that should be maintained between the inflation rate and changes in the output gap—that characterizes optimal policy in the basic NK model continues to provide a good approximation to optimal policy, even in the presence of variations in credit spreads. Such a flexible inflation target" can be implemented by a central-bank reaction function that is similar to a forward-looking Taylor rule, but adjusted for changes in current and expected future credit spreads.
Keywords	Credit spreads; flexibllation targeting; policy rules; quadratic loss function; target criterion
URL	http://d.repec.org/n?u=RePEc:cpr:ceprdp:11016&r=cba

Record ID	640 [ Page 1 of 1, No. 50 ]
Date	2015-10
Author	Claude Lopez, Donald Markwardt, and Keith Savard
Affiliation	Milken Institute
Title	Macroprudential Policy: What Does It Really Mean
Summary / Abstract	As many central banks contemplate the normalization of monetary policy, their focus is turning to the promise of macroprudential policy as a tool to manage possible future systemic risk in financial markets. Janet Yellen and Mario Draghi, among others, are pinning much of their hopes for managing financial stability in the context of Basel III on macroprudentialism. Despite central banks’ clear intention that this policy will play a significant role in developed economies, few policymakers or financial players know what macroprudential policy is, much less how to assess its efficacy or necessity. The paper is a shorter version of a report on the same subject. It aims to clarify the concept of macroprudential policy for a broader audience, cultivating a better understanding of these tools and their implications for broader monetary policy going forward.
Keywords	Macroprudential, Systemic Risk
URL	https://mpra.ub.uni-muenchen.de/68157/1/MPRA_paper_68157.pdf

Record ID	639 [ Page 1 of 1, No. 51 ]
Date	2015-12
Author	Ambrogio Cesa-Bianchi and Alessandro Rebucci
Affiliation	Bank of England and Johns Hopkins University
Title	Does easing monetary policy increase financial instability?
Summary / Abstract	This paper develops a model featuring both a macroeconomic and a financial friction that speaks to the interaction between monetary and macroprudential policy and to the role of US monetary and regulatory policy in the run up to the Great Recession. There are two main results. First, real interest rate rigidities in a monopolistic banking system increase the probability of a financial crisis (relative to the case of flexible interest rate) in response to contractionary shocks to the economy, while they act as automatic macroprudential stabilizers in response to expansionary shocks. Second, when the interest rate is the only available policy instrument, a monetary authority subject to the same constraints as private agents cannot always achieve a (constrained) efficient allocation and faces a trade-off between macroeconomic and financial stability in response to contractionary shocks. An implication of our analysis is that the weak link in the US policy framework in the run up to the Global Recession was not excessively lax monetary policy after 2002, but rather the absence of an effective second policy instrument aimed at preserving financial stability.
Keywords	Macroprudential policies; monetary policy; financial crises; frictions; interest rate rigidities.
URL	http://www.bankofengland.co.uk/research/Documents/workingpapers/2015/swp570.pdf

Record ID	638 [ Page 1 of 1, No. 52 ]
Date	2015-12
Author	Ali Alichi, Olivier Bizimana, Silvia Domit, Emilio Fernandez Corugedo, Douglas Laxton, Kadir Tanyeri, Hou Wang, and Fan Zhang
Affiliation	Research Department, IMF
Title	Multivariate Filter Estimation of Potential Output for the Euro Area and the United States
Summary / Abstract	Estimates of potential output are an important component of a structured forecasting and policy analysis system. Using information on consensus forecasts, this paper extends the multivariate filter developed by Laxton and Tetlow (1992) and modified by Benes and others (2010) and Blagrave and others (2015). We show that, although still fairly uncertain, the real time estimates from this approach are more accurate relative to those of naïve univariate statistical filters. The paper presents estimates for the euro area and the United States and discusses how the filtered estimates at the end of the sample period can be improved with additional information.
Keywords	Macroeconomic Modeling, Potential Output
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15253.pdf

Record ID	637 [ Page 1 of 1, No. 53 ]
Date	2015-11
Author	Kaplan, Robert Steven
Affiliation	President and CEO, Federal Reserve Bank of Dallas Remarks before the University of Houston, November 18, 2015.
Title	A discussion of economic conditions and Federal Reserve policy
Summary / Abstract	The Fed has a dual mandate given to it by Congress -- fostering full employment and price stability. Further, the Fed has set 2 percent as its longer run target rate for inflation. At this stage, it appears that we are well on our way to meeting our full - employment objective, although there is still some question as to the rate of unemployment that constitutes full employment in a more global world. As I mentioned earlier, a critical question I am focusing on is: What is the unemployment rate at which we have depleted excess capacity in the labor force? This rate may be lower than we would have previously thought. Inflation continues to run below our 2 percent long-run target. However, as the labor market tightens and certain transitory factors ultimately pass through the data, our economic team in Dallas still expects to see inflation gradually rising to 2 percent over the medium term. Our economic team is continuing to consider how overcapacity, demographic trends, high degrees of leverage in some sectors and other secular issues in countries outside the U.S. (particularly China) might adversely affect GDP, unemployment and inflation within the U.S. In light of all these factors, it will likely be appropriate that U.S. monetary policy remain accommodative for some time. Moreover, a lower-than-usual federal funds rate may well be needed to achieve any given desired level of accommodation. Accordingly, it is probable that the return to “normal” interest rates will be gradual. As a business manager or as an investor, I think these are key messages I would be taking from our FOMC statements. However, accommodative policy does not necessarily mean a zero fed funds rate. There are various costs to maintaining a zero fed funds rate for too long particularly in terms of potential distortions in investment and business decisions. These distortions can create imbalances in investments, inventory and hiring decisions that may later need to be (painfully) unwound when policy normalizes. My experience is that these imbalances are sometimes tough to see in real time but often relatively easier to recognize in hindsight. In thinking about these potential imbalances, we are sensitive to the fact that monetary policy affects the economy with a lag. These are all issues that will have to be assessed and reassessed as the economic outlook unfolds. In my view, the FOMC in the previous two meetings has been prudent in waiting for more data before taking policy action.
Keywords	Full employment, price stability, Federal funds rate, liftoff
URL	http://www.dallasfed.org/assets/documents/news/speeches/kaplan/2015/rsk151118.pdf

Record ID	636 [ Page 1 of 1, No. 54 ]
Date	2015-11
Author	Olivier J. Blanchard, Eugenio Cerutti and Lawrence Summers
Affiliation	Research Department, International Monetary Fund
Title	Inflation and Activity – Two Explorations and their Monetary Policy Implications
Summary / Abstract	We explore two issues triggered by the crisis. First, in most advanced countries, output remains far below the pre-recession trend, suggesting hysteresis. Second, while inflation has decreased, it has decreased less than anticipated, suggesting a breakdown of the relation between inflation and activity. To examine the first, we look at 122 recessions over the past 50 years in 23 countries. We find that a high proportion of them have been followed by lower output or even lower growth. To examine the second, we estimate a Phillips curve relation over the past 50 years for 20 countries. We find that the effect of unemployment on inflation, for given expected inflation, decreased until the early 1990s, but has remained roughly stable since then. We draw implications of our findings for monetary policy.
Keywords	Recessions; Hysteresis; Phillips Curve; Monetary Policy
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15230.pdf

Record ID	635 [ Page 1 of 1, No. 55 ]
Date	2014-09
Author	Scott Davis and Ignacio Presno
Affiliation	Federal Reserve Bank of Dallas and Universidad de Montevideo
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 makers 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; credit constraints; small open economy
URL	https://www.economicdynamics.org/meetpapers/2015/paper_1167.pdf

Record ID	634 [ Page 1 of 1, No. 56 ]
Date	2015-10
Author	Anton Korinek and Damiano Sandri
Affiliation	Research Department, IMF
Title	Capital Controls or Macroprudential Regulation?
Summary / Abstract	International capital flows can create significant financial instability in emerging economies because of pecuniary externalities associated with exchange rate movements. Does this make it optimal to impose capital controls or should policymakers rely on domestic macroprudential regulation? This paper presents a tractable model to show that it is desirable to employ both types of instruments: Macroprudential regulation reduces overborrowing, while capital controls increase the aggregate net worth of the economy as a whole by also stimulating savings. The two policy measures should be set higher the greater an economy's debt burden and the higher domestic inequality. In our baseline calibration based on the East Asian crisis countries, we find optimal capital controls and macroprudential regulation in the magnitude of 2 percent. In advanced countries where the risk of sharp exchange rate depreciations is more limited, the role for capital controls subsides. However, macroprudential regulation remains essential to mitigate booms and busts in asset prices.
Keywords	Financial stability, pecuniary externalities, capital controls, macroprudential regulation, inequality
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15218.pdf

Record ID	633 [ Page 1 of 1, No. 57 ]
Date	2015-09
Author	C. A. E. Goodhart and Miguel A. Segoviano
Affiliation	Money and Capital Markets Department, IMF
Title	Optimal Bank Recovery
Summary / Abstract	Banks’ living wills involve both recovery and resolution. Since it may not always be clear when recovery plans or actions should be triggered, there is a role for an objective metric to trigger recovery. We outline how such a metric could be constructed meeting criteria of (i) adequate loss absorption; (ii) distinguishing between weak and sound banks; (iii) little susceptibility to manipulation; (iv) timeliness; (v) scalable from the individual bank to the system. We show how this would have worked in the U.K., during 2007–11. This approach has the added advantage that it could be extended to encompass a whole ladder of sanctions of increasing severity as capital erodes.
Keywords	Bank Recovery, Bank Resolution, Metrics for Triggers, Loss Absorption, Probability of Distress, Loan Default
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15217.pdf

Record ID	632 [ Page 1 of 1, No. 58 ]
Date	2015-09
Author	Julian T. S. Chow
Affiliation	Money and Capital Markets Department, IMF
Title	Stress Testing Corporate Balance Sheets in Emerging Economies
Summary / Abstract	In recent years, firms in emerging market countries have increased borrowing, particularly in foreign currency, owing to easy access to global capital markets, prolonged low interest rates and good investment opportunities. This paper discusses the trends in emerging market corporate debt and leverage, and illustrates how those firms are vulnerable to interest rate, exchange rate and earnings shocks. The results of a stress test show that while corporate sector risk remains moderate in most emerging economies, a combination of macroeconomic and financial shocks could significantly erode firms’ ability to service debt and lead to higher debt at risk, especially in countries with high shares of foreign currency debt and low natural hedges.
Keywords	Emerging market corporate debt, leverage, debt at risk
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15216.pdf

Record ID	631 [ Page 1 of 1, No. 59 ]
Date	2015-09
Author	Carolina Osorio Buitron and Esteban Vesperoni
Affiliation	Research Department, IMF
Title	Big Players Out of Synch: Spillovers Implications of US and Euro Area Shocks
Summary / Abstract	Given the prospects of asynchronous monetary conditions in the United States and the euro area, this paper analyzes spillovers among these two economies, as well as the implications of asynchronicity for spillovers to other advanced economies and emerging markets. Through a structural vector autoregression analysis, country-specific shocks to economic activity and monetary conditions since the early 1990s are identified, and are used to draw implications about spillovers. The empirical findings suggest that real and monetary conditions in the United States and the euro area have oftentimes been asynchronous. The results also point to significant spillovers among them, in particular since early 2014—with spillovers from the euro area to the United States being particularly large. Against the backdrop of asynchronous conditions in these two economies, spillovers from real and money shocks to emerging markets and non-systemic advanced economies could be dampened.
Keywords	Spillovers, Monetary Policy, Economic News, Emerging Economies
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15215.pdf

Record ID	630 [ Page 1 of 1, No. 60 ]
Date	2015-06
Author	Orphanides, Athanasios
Affiliation	MIT Sloan School of Management
Title	Fear of liftoff: Uncertainty, rules and discreation in monetary policy normalization
Summary / Abstract	The Federal Reserve's muddled mandate to attain simultaneously the incompatible goals of maximum employment and price stability invites short-term-oriented discretionary policymaking inconsistent with the systematic approach needed for monetary policy to contribute best to the economy over time. Fear of liftoff-the reluctance to start the process of policy normalization after the end of a recession-serves as an example. Causes of the problem are discussed, drawing on public choice and cognitive psychology perspectives. The Federal Reserve could adopt a framework that relies on a simple policy rule subject to periodic reviews and adaptation. Replacing meeting-by-meeting discretion with a simple policy rule would eschew discretion in favor of systematic policy. Periodic review of the rule would allow the Federal Reserve the flexibility to account for and occasionally adapt to the evolving understanding of the economy. Congressional legislation could guide the Federal Reserve in this direction. However the Federal Reserve may be best placed to select the simple rule and could embrace this improvement on its own, within its current mandate, with the publication of a simple rule along the lines of its statement of longer-run goals.
Keywords	Federal Reserve, liftoff, discretion, policy rules, policy normalization
URL	http://econstor.eu/bitstream/10419/118612/1/834807947.pdf
Remarks	This article is based on the author’s Homer Jones lecture at the Federal Reserve Bank of St Louis on June 3, 2015.

Record ID	629 [ Page 1 of 1, No. 61 ]
Date	2015-01
Author	Charles Evans, Jonas Fisher, Francois Gourio, and Spencer Krane
Affiliation	Federal Reserve Bank of Chicago
Title	Risk Management for Monetary Policy at the Zero Lower Bound
Summary / Abstract	As labor markets improve and projections have inflation heading back toward target, the Fed has begun to contemplate lifting the federal funds rate from its zero lower bound (ZLB). Under what conditions should the Fed start raising rates? We lay out an argument that calls for caution. It is founded on a risk management principle that says policy should be formulated taking into account the dispersion of outcomes around the mean forecast. On the one hand, raising rates early increases the likelihood of adverse shocks driving a fragile economy back to the ZLB. On the other hand, delaying lift-off when the economy turns out to be resilient could lead to an unwelcome bout of inflation. Since the tools available to counter the first scenario are hard to implement and may be less effective than the traditional tool of raising rates to counter the second scenario, the costs of premature lift-o exceed those of delay. This article shows in a canonical framework that uncertainty about being constrained by the ZLB in the future implies an optimal policy of delayed lift-o. We present evidence that such a risk manage- ment policy is consistent with past Fed actions and that unconventional tools will be hard to implement if the economy were to be constrained by the ZLB after a hasty exit.
Keywords	Monetary policy, risk management, zero lower bound
URL	https://www.economicdynamics.org/meetpapers/2015/paper_665.pdf

Record ID	628 [ Page 1 of 1, No. 62 ]
Date	2015-07
Author	Olivier Blanchard, Gustavo Adler and Irineu de Carvalho Filho
Affiliation	Research Department, International Monetary Fund
Title	Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?
Summary / Abstract	Many emerging market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. In this paper, we study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, we look at the response of different countries to plausibly exogenous gross inflows, and explore the cross country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, we find that larger FXI leads to less exchange rate appreciation in response to gross inflows.
Keywords	Foreign exchange intervention, exchange rate, capital flows, gross capital flows
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15159.pdf

Record ID	627 [ Page 1 of 1, No. 63 ]
Date	2015-06
Author	Ali Alichi, Kevin Clinton, Charles Freedman, Ondra Kamenik, Michel Juillard, Douglas Laxton, Jarkko Turunen, and Hou Wang
Affiliation	Research Department, International Monetary Fund
Title	Avoiding Dark Corners: A Robust Monetary Policy Framework for the United States
Summary / Abstract	The Fed has taken several steps towards strengthening its monetary framework over the past several years. Those steps have supported the Fed's efforts to stimulate the economy through forward guidance despite being constrained by having policy rates at zero. We show that an optimal control approach to monetary policy, which includes the publication of a baseline forecast and a description of the uncertainties around that outlook, combined with an improvement in the Fed's communications toolkit, could further enhance the effectiveness of Fed policy. In the current conjuncture, such a risk management approach to monetary policy would result in both a later liftoff of policy rates and a modest, but planned, overshooting of inflation.
Keywords	Inflation Targeting, Monetary Policy, Optimal Control
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15134.pdf

Record ID	626 [ Page 1 of 1, No. 64 ]
Date	2015-06
Author	Stefan Laseen, Andrea Pescatori, and Jarkko Turunen
Affiliation	WHD, International Monetary Fund
Title	Systemic Risk : A New Trade-off for Monetary Policy?
Summary / Abstract	We introduce time-varying systemic risk in an otherwise standard New-Keynesian model to study whether a simple leaning-against-the-wind policy can reduce systemic risk and improve welfare. We find that an unexpected increase in policy rates reduces output, inflation, and asset prices without fundamentally mitigating financial risks. We also find that while a systematic monetary policy reaction can improve welfare, it is too simplistic: (1) it is highly sensitive to parameters of the model and (2) is detrimental in the presence of falling asset prices. Macroprudential policy, similar to a countercyclical capital requirement, is more robust and leads to higher welfare gains.
Keywords	Monetary Policy, Endogenous Financial Risk, DSGE models, Non-Linear Dynamics, Policy Evaluation
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15142.pdf

Record ID	625 [ Page 1 of 1, No. 65 ]
Date	2015-07
Author	Troy Davig and Refet S. Gurkaynak
Affiliation	Federal Reserve Bank of Kansas City and Bilkent University
Title	Is optimal monetary policy always optimal?
Summary / Abstract	No. And not only for the reason you think. In a world with multiple inefficiencies the single policy tool the central bank has control over will not undo all inefficiencies; this is well understood. We argue that the world is better characterized by multiple ineﬃciencies and multiple policy makers with various objectives. Asking the policy question only in terms of optimal monetary policy effectively turns the central bank into the residual claimant of all policy and gives the other policymakers a free hand in pursuing their own goals. This further worsens the tradeoffs faced by the central bank. The optimal monetary policy literature and the optimal simple rules often labeled ﬂexible inﬂation targeting assign all of the cyclical policymaking duties to central banks. This distorts the policy discussion and narrows the policy choices to a suboptimal set. We highlight this issue and call for a broader thinking of optimal policies.
Keywords	Monetary policy, optimality, social welfare, fiscal policy, time consistency, inflation targeting, tax policy, inefficiencies
URL	https://www.kansascityfed.org/~/media/files/publicat/reswkpap/pdf/rwp15-05.pdf

Record ID	624 [ Page 1 of 1, No. 66 ]
Date	2014-09
Author	Javier Bianchi and Enrique Mendoza
Affiliation	University of Wisconsin & NBER, and University of Pennsylvania & NBER
Title	Optimal Time-Consistent Macroprudential Policy
Summary / Abstract	Collateral constraints widely used in models of financial crises feature a pecuniary externality, because agents do not internalize how collateral prices respond to collective borrowing decisions, particularly when binding collateral constraints trigger a crisis. We study a production economy in which physical assets serve as collateral for debt and working capital loans, and show that agents in a competitive equilibrium borrow ``too much" during credit expansions compared with a financial regulator who internalizes this externality. Under commitment, however, this regulator faces a time inconsistency problem: It promises low future consumption to prop up current asset prices when collateral constraints bind, but this is not optimal ex post. Instead, we examine the optimal, time-consistent policy of a regulator who cannot commit to future policies. Quantitative analysis shows that this policy reduces the incidence and magnitude of crises, removes fat tails from the distribution of returns and reduces risk premia. A key element of this policy is a state-contingent macro-prudential debt tax (i.e. a tax imposed in normal times when a financial crisis has positive probability next period) of about 1 percent on average. Constant debt taxes also reduce the frequency of crises but are less effective at reducing their severity and reduce welfare when credit constraints bind.
Keywords	Financial crises, macroprudential policy, systemic risk, collateral constraints
URL	https://www.economicdynamics.org/meetpapers/2015/paper_289.pdf

Record ID	623 [ Page 1 of 1, No. 67 ]
Date	2015-07
Author	Leeper, Eric M.; and Nason, James M.
Affiliation	Indiana University and NBER; and North Carolina State University and CAMA
Title	Bringing Financial Stability into Monetary Policy (SVERIGES RIKSBANK Working Paper Series)
Summary / Abstract	This paper arms central bank policy makers with ways to think about interactions between financial stability and monetary policy. We frame the issue of whether to integrate financial stability into monetary policy operating rules by appealing to the observation that in actual economies financial markets are incomplete. Incomplete markets create financial market frictions that prevent economic agents from perfectly sharing risk; in the absence of frictions, financial (in)stability would be of no concern. Overcoming these frictions to improve risk sharing across economic agents is, in our view, the intent of policies geared toward ensuring financial stability. There are many definitions of financial stability. Although the definitions share the notion that financial stability becomes an issue for policy makers when a breakdown in risk-sharing arrangements in financial markets has a negative effect on real economic activity, we give several examples that show this notion is too general for thinking about the role monetary policy might have in smoothing shocks to financial stability. Examples include statistical models that seek to separate “good” from “bad” changes in private-sector debt aggregates, new Keynesian policy prescriptions grounded in neo-Wicksellian natural rate rules, and a historical episode involving the 1920s Federal Reserve. These examples raise a cautionary flag for policy attempts to control the growth and the composition of debt that financial markets produce. We conclude with some advice for revising central banks’ Monetary Policy Reports.
Keywords	Financial frictions; incomplete markets; crises; new Keynesian; natural rate; monetary transmission mechanism
URL	http://www.riksbank.se/Documents/Rapporter/Working_papers/2015/rap_wp305_150714.pdf

Record ID	622 [ Page 1 of 1, No. 68 ]
Date	2015-07
Author	Carlos Góes
Affiliation	Western Hemisphere Department, IMF
Title	Institutions and Growth : a GMM/IV Panel VAR Approach
Summary / Abstract	Both sides of the institutions and growth debate have resorted largely to microeconometric techniques in testing hypotheses. In this paper, I build a panel structural vector autoregression (SVAR) model for a short panel of 119 countries over 10 years and find support for the institutions hypothesis. Controlling for individual fixed effects, I find that exogenous shocks to a proxy for institutional quality have a positive and statistically significant effect on GDP per capita. On average, a 1 percent shock in institutional quality leads to a peak 1.7 percent increase in GDP per capita after six years. Results are robust to using a different proxy for institutional quality. There are different dynamics for advanced economies and developing countries. This suggests diminishing returns to institutional quality improvements.
Keywords	Institutions, Panel VAR, Economic Development
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15174.pdf

Record ID	621 [ Page 1 of 1, No. 69 ]
Date	2015-07
Author	Tamim Bayoumi
Affiliation	Strategy, Policy, and Review Department, IMF
Title	The Dog That Didn’t Bark : The Strange Case of Domestic Policy Cooperation in the “New Normal”
Summary / Abstract	This paper examines domestic policy cooperation, a curiously neglected issue. Both international and domestic cooperation were live issues in the 1970s when the IS/LM model predicted very different external outcomes from monetary and fiscal policies. Interest in domestic policy cooperation has since fallen on hard intellectual times—with knock-ons to international cooperation—as macroeconomic policy roles became highly compartmentalized. I first discuss the intellectual and policy making undercurrents behind this neglect, and explain why they are less relevant after the global crisis. This is followed by a discussion of: macroeconomic policy cooperation in a world of more fiscal activism; coordination across financial agencies and with macroeconomic policies; and how structural policies fit into this. The paper concludes with a proposal for a “grand bargain” across principle players to create a “new domestic cooperation.”
Keywords	Domestic Policy Cooperation, Ce ntral Bank Independence, Macroprudential Policy
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15156.pdf

Record ID	620 [ Page 1 of 1, No. 70 ]
Date	2015-06
Author	Stergios Skaperdas
Affiliation	University of California, Irvine
Title	Myths and Self-Deceptions about the Greek Debt Crisis
Summary / Abstract	The long-running Greek public debt crisis has been accompanied by an information war that has obscured what has occurred. The misconceptions, self-deceptions, and myths associated with the crisis have been at least partly responsible for the obviously inadequate response to the crisis and for the damage to the economies and societies of primarily Greece but also of other Eurozone countries. I argue against seven such myths about the effects of default, the primary cause of the crisis, the likely effects of an exit from the Eurozone, the bargaining power of the Greek government in its negotiations with the EU/ECB/IMF troika, and others. I also discuss the context of the wider slippage of democracy in the European Union and future prospects.
Keywords	Eurozone, Greece, debt, default.
URL	http://www.economics.uci.edu/files/docs/workingpapers/2014-15/14-15-11.pdf

Record ID	619 [ Page 1 of 1, No. 71 ]
Date	2015-07
Author	Michal Andrle ; Michael Kumhof ; Douglas Laxton ; Dirk Muir
Affiliation	Research Department, IMF
Title	Banks in The Global Integrated Monetary and Fiscal Model
Summary / Abstract	The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region DSGE model developed by the Economic Modeling Division of the IMF for policy and scenario analysis. This paper compares two versions of GIMF, GIMF with a conventional financial accelerator, where bank balance sheets do not play a prominent role, and GIMF with both a financial accelerator and a fully specified banking sector that can make lending losses, and that is regulated according to Basel-III. We illustrate the comparative macroeconomic properties of both models by presenting their responses to a wide range of fiscal, demand, supply and financial shocks.
Keywords	Multi-Region DSGE Models, Financial Accelerator, Macro-Financial Linkages, Macroprudential Policy
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15150.pdf

Record ID	618 [ Page 1 of 1, No. 72 ]
Date	2015-07
Author	Elsie Addo Awadzi
Affiliation	Legal Department, IMF
Title	Designing Legal Frameworks for Public Debt Management
Summary / Abstract	Sustainable public debt has gained renewed attention as countries implement fiscal consolidation measures in the aftermath of the global financial crisis. Sound public debt policies and debt management practices require robust legal underpinnings. Complex legal issues however arise in the design of the legal framework, and tradeoffs are required in many instances. This paper analyzes key features of modern public debt management legal frameworks, drawing from examples in advanced, emerging, and frontier markets. It aims to provide guidance for countries that seek to review and strengthen their public debt management legal frameworks.
Keywords	National Debt; Government loans and guarantees; Sovereign Debt ; Debt management, Legal framework for Public Debt Management
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15147.pdf

Record ID	617 [ Page 1 of 1, No. 73 ]
Date	2015-04
Author	Prepared by staff from the Fiscal Affairs Department supervised by Sanjeev Gupta, comprising a team led by Bernardin Akitoby and Abdelhak Senhadji, and including Eva Jenkner, Rossen Rozenov, Mark De Broeck, Todd Mattina, Santiago Acosta - Ormaechea, David Amaglobeli, Mai Anh Bui, Serhan Cevik, Carolina Correa, Valerio Crispolti, Jeff Danforth, Salvatore De ll’Erba, Andrew Hodge, Takuji Komatsuzaki, Jimmy McHugh, Jeta Menkulasi, Florian Misch, Tigran Poghosyan, Ivohasina Razafimahefa, John Ricco, Nancy Tinoza, Andreas Tudyka. Production assistance was provided by Juliana Peña, Patricia Quiros, Macarena Torres Girao, and Maria Tramuttola
Affiliation	Fiscal Affairs Department, IMF
Title	IMF Policy Paper: Fiscal Policy and Long-Term Growth
Summary / Abstract	This paper explores how fiscal policy can affect medium- to long-term growth. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. The particular mix of policy measures, however, will depend on country-specific conditions, capacities, and preferences. The paper draws on the Fund’s extensive technical assistance on fiscal reforms as well as several analytical studies, including a novel approach for country studies, a statistical analysis of growth accelerations following fiscal reforms, and simulations of an endogenous growth model.
Keywords	Fiscal Policy, Long-Term Growth
URL	http://www.imf.org/external/np/pp/eng/2015/042015.pdf

Record ID	616 [ Page 1 of 1, No. 74 ]
Date	2015-06
Author	Dimitri G. Demekas
Affiliation	Money and Capital Markets Department, IMF
Title	Designing Effective Macroprudential Stress Tests: Progress So Far and the Way Forward
Summary / Abstract	Giving stress tests a macroprudential perspective requires (i) incorporating general equilibrium dimensions, so that the outcome of the test depends not only on the size of the shock and the buffers of individual institutions but also on their behavioral responses and their interactions with each other and with other economic agents; and (ii) focusing on the resilience of the system as a whole. Progress has been made toward the first goal: several models are now available that attempt to integrate solvency, liquidity, and other sources of risk and to capture some behavioral responses and feedback effects. But building models that measure correctly systemic risk and the contribution of individual institutions to it while, at the same time, relating the results to the established regulatory framework has proved more difficult. Looking forward, making macroprudential stress tests more effective would entail using a variety of analytical approaches and scenarios, integrating non-bank financial entities, and exploring the use of agent-based models. As well, macroprudential stress tests should not be used in isolation but be treated as complements to other tools and—crucially—be combined with microprudential perspectives.
Keywords	Banks, financial stability , contagion, stress tests, systemic risk, solvency, liquidity
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15146.pdf

Record ID	615 [ Page 1 of 1, No. 75 ]
Date	2015-05
Author	Roberto Cardarelli and Lusine Lusinyan
Affiliation	Western Hemisphere Department, IMF
Title	U.S. Total Factor Productivity Slowdown: Evidence from the U.S. States
Summary / Abstract	Working Paper No. 15/116: Author/Editor: Summary: Total factor productivity (TFP) growth began slowing in the United States in the mid-2000s, before the Great Recession. To many, the main culprit is the fading positive impact of the information technology (IT) revolution that took place in the 1990s. But our estimates of TFP growth across the U.S. states reveal that the slowdown in TFP was quite widespread and not particularly stronger in IT-producing states or in those with a relatively more intensive usage of IT. An alternative explanation offered in this paper is that the slowdown in U.S. TFP growth reflects a loss of efficiency or market dynamism over the last two decades. Indeed, there are large differences in production efficiency across U.S. states, with the states having better educational attainment and greater investment in R&D being closer to the production “frontier.”
Keywords	Productivity, growth, stochast ic frontier analys is, U.S. states
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15116.pdf

Record ID	614 [ Page 1 of 1, No. 76 ]
Date	2015-05
Author	Wojciech Maliszewski and Longmei Zhang
Affiliation	Asia and Pacific Department, IMF
Title	China’s Growth: Can Goldilocks Outgrow Bears?
Summary / Abstract	The paper analyzes the recent growth dynamics in China, evaluating both cyclical positions and long-term growth prospects. The analysis shows that financial cycles play a more important role than traditional inflation-based cycles in shaping the dynamics of growth. Currently, the ‘finance-neutral’ gap—our measure of the financial cycle—is large and positive, reflecting imbalances accumulated in the economy since the Global Financial Crisis. A period of slower growth is therefore both likely and needed in the near term to restore the economy to equilibrium. In the medium term, growth will slow as China moves closer to the technology frontier, but a steadfast implementation of reforms can ensure that China follows the path of the “Asia Tigers” and achieves successful convergence to high-income status.
Keywords	China, potential growth, total factor productivity, output gap
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15113.pdf

Record ID	613 [ Page 1 of 1, No. 77 ]
Date	2015-05
Author	Estelle X. Liu, Todd Mattina, and Tigran Poghosyan
Affiliation	Fiscal Affairs Department, IMF
Title	Correcting “Beyond the Cycle:” Accounting for Asset Prices in Structural Fiscal Balances
Summary / Abstract	This paper outlines an operational approach for incorporating the impact of asset price cycles in the calculation of structural fiscal balances (SFBs). The global financial crisis demonstrated that movements in asset prices can have an important fiscal impact. Failing to account for the fiscal impact of asset price cycles can encourage a pro-cyclical policy stance if temporarily high revenues are passed through into expenditures. In addition, over-estimating the SFB may lead to inadequate fiscal buffers when cyclical revenues eventually dissipate. The paper proposes an empirical approach to correct for asset prices and provides illustrative country results for selected OECD countries. We find that asset price cycles are imperfectly synchronized with the business cycle and are quantitatively significant with an average pre-crisis fiscal impact ranging from about ½ to 2 percent of GDP in the sample. For a number of countries, the pre-crisis fiscal impact of high asset prices was larger at about 4 percent of GDP.
Keywords	Structural fiscal balance, financial crisis, asset price, equity market, housing market, panel data econometrics
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp15109.pdf

Record ID	612 [ Page 1 of 1, No. 78 ]
Date	2015-01
Author	Tarullo, Daniel K.
Affiliation	Member, Board of Governors of the Federal Reserve System
Title	Advancing Macroprudential Policy Objectives : a speech At the Office of Financial Research and Financial Stability Oversight Council's 4th Annual Conference on Evaluating Macroprudential Tools: Complementarities and Conflicts, Arlington, Virginia, January 30, 2015
Summary / Abstract	Good afternoon. I would like to start by thanking Charlie Steindel and the Forecasters Club of New York for their invitation to speak today. It is a particular pleasure for me to address your group: first, because I have known Charlie for many years – we both grew up as economists in the Federal Reserve System – but also because I know I won’t have to explain to you what a difficult task economic forecasting can be, even in the best of times. Still, forecasting is something economists and policymakers must do, so today I will discuss my outlook for the economy and monetary policy. As always, the views I’ll present are my own and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee.
Keywords	Macroprudential Policy Objectives
URL	http://www.federalreserve.gov/newsevents/speech/tarullo20150130a.pdf

Record ID	611 [ Page 1 of 1, No. 79 ]
Date	2015-02
Author	Stanley Fischer
Affiliation	Vice Chairman, Board of Governors, Federal Reserve System
Title	Conducting Monetary Policy with a Large Balance Sheet
Summary / Abstract	A speech at the 2015 U.S. Monetary Policy Forum, Sponsored by the University of Chicago Booth School of Business, New York, New York, February 27, 2015.
Keywords	Monetary Policy, Large Balance Sheet
URL	http://www.federalreserve.gov/newsevents/speech/fischer20150227a.pdf

Record ID	610 [ Page 1 of 1, No. 80 ]
Date	2015-03
Author	Stanley Fischer
Affiliation	Vice Chairman, Board of Governors of the Federal Reserve System
Title	Nonbank Financial Intermediation, Financial Stability, and the Road Forward
Summary / Abstract	A speech at the "Central Banking in the Shadows: Monetary Policy and Financial Stability Post-Crisis," 20th Annual Financial Markets Conference sponsored by the Federal Reserve Bank of Atlanta, Stone Mountain, Georgia, March 30, 2015.
Keywords	Nonbank financial intermediation, Financial Stability, Post-Crisis, Shadow Banking
URL	http://www.federalreserve.gov/newsevents/speech/fischer20150330a.pdf

Record ID	609 [ Page 1 of 1, No. 81 ]
Date	2015-03
Author	Janet L. Yellen
Affiliation	Chair, Board of Governors of the Federal Reserve System
Title	Normalizing Monetary Policy: Prospects and Perspectives
Summary / Abstract	“The New Normal Monetary Policy,” A research conference sponsored by the Federal Reserve Bank of San Francisco, San Francisco, CA.
Keywords	Monetary Policy Normalization, Prospects, Perspectives
URL	http://www.federalreserve.gov/newsevents/speech/yellen20150327a.pdf

Record ID	608 [ Page 1 of 1, No. 82 ]
Date	2015-04
Author	Robert M. Heath
Affiliation	Statistics Department, IMF
Title	What has Capital Liberalization Meant for Economic and Financial Statistics?
Summary / Abstract	The liberalization of capital flows both in the domestic economy and cross-border has been among the most important policies adopted by IMF member countries over recent decades. The impact has been wide-ranging. This paper looks at the impact on the field of economic and financial statistics in the past two decades, as statisticians have responded to the changing policy needs. The paper considers the historical context of changes that have occurred, draws out the key trends, and asks where these trends might lead statisticians in the foreseeable future. The paper considers that there has been nothing short of a revolution in the field of economic and financial statistics over the past two decades led by a need for greater transparency; greater standardization; new data sets to support understanding of financial interconnections and financial sector risks; and the strengthening of the governance of the statistical function through greater independence of statistical agencies.
Keywords	Capital account liberalization, transparency, data dissemination standards, Group of Twenty, financial sector, financial interconnections
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1588.pdf

Record ID	607 [ Page 1 of 1, No. 83 ]
Date	2015-04
Author	Cem Karayalcin and Mihaela Pintea
Affiliation	Research Department and Strategy and Policy Review Department, IMF
Title	The Role of Productivity, Transportation Costs, and Barriers to Intersectoral Mobility in Structural Transformation
Summary / Abstract	The process of economic development is characterized by substantial re-allocations of resources across sectors. In this paper, we construct a multi-sector model in which there are barriers to the movement of labor from low-productivity traditional agriculture to modern sectors. With the barrier in place, we show that improvements in productivity in modern sectors (including agriculture) or reductions in transportation costs may lead to a rise in agricultural employment and through terms-of-trade effects may harm subsistence farmers if the traditional subsistence sector is larger than a critical level. This suggests that policy advice based on the earlier literature needs to be revised. Reducing barriers to mobility (through reductions in the cost of skill acquisition and institutional changes) and improving the productivity of subsistence farmers needs to precede policies designed to increase the productivity of , modern sectors or decrease transportation costs.
Keywords	Structural transformation, subsistence agriculture, multi-sector models, economic development, transportation costs
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1591.pdf

Record ID	606 [ Page 1 of 1, No. 84 ]
Date	2005-05
Author	Sohrab Rafiq
Affiliation	Asia and Pacific Department, IMF
Title	How Important are Debt and Growth Expectations for Interest Rates?
Summary / Abstract	This paper uses a dataset on private-sector risk aversion as well as expectations of long-run growth and debt to explain trends in implied forward rates on government bonds in the G-7 countries. The results show, consistent with the literature, that a one-percent rise in the long-run projected debt-to-GDP ratio causes an increase in bond yields of a relatively modest 1-to-6 basis points. Shocks to growth expectations and risk aversion have been comparatively more successful in explaining the behavior of long-term rates. The findings imply that growth policies rather than long-run projections of fiscal outcomes may be more important in helping influence long-term borrowing costs.
Keywords	Public debt, economic growth, expectations, time-variation
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1594.pdf

Record ID	605 [ Page 1 of 1, No. 85 ]
Date	2015-04
Author	William C. Dudley
Affiliation	President and Chief Executive Officer, Federal Reserve Bank of New York
Title	The U.S. Monetary Policy Outlook and its Global Implications Remarks at the Bloomberg Americas Monetary Summit, New York City April 20, 2015
Summary / Abstract	U.S. Economic Outlook for 2015 and beyond Monetary Policy (Timing and Magnitude) Global Implications of U.S. Monetary Policy Normalization
Keywords	Economic outlook, monetary policy normalization, global consequences
URL	http://www.newyorkfed.org/newsevents/speeches/2015/dud150420.html

Record ID	604 [ Page 1 of 1, No. 86 ]
Date	2015-04
Author	Prepared by an interdepartmental staff team from the Asia & Pacific; Legal; Monetary and Capital Markets; Research; and Strategy, Policy and Review departments, comprising V. Arora, K. Kochhar, J. Ostry, K. Habermeier, M. Goodman, N. Rendak, V. Chensavasdijai, A. Kokenyne-Ivanics, K. Kwak, and S. Sanya.
Affiliation	IMF
Title	IMF Policy Paper: Group of Twenty - Measures Which are Both Macroprudential and Capital Flow Management Measures: IMF Approach
Summary / Abstract	The global financial crisis underscored the costs of systemic instability at both the national and global levels and highlighted the importance of dedicated macroprudential and capital flow management policies. The IMF has been assisting its members with policy advice as well as developing and making operational their policy frameworks. Multilateral aspects of both policies need to be fully considered, including the interaction with other domestic and international legal frameworks. To the extent that capital flows are the source of systemic financial sector risks, the tools used to address those risks can be seen as both capital flow management measures (CFMs) and macroprudential measures (MPMs).
Keywords	Financial stability, macroprudential measures, capital flow management measures, financial sector risks.
URL	http://www.imf.org/external/np/pp/eng/2015/041015.pdf

Record ID	603 [ Page 1 of 1, No. 87 ]
Date	2015-04
Author	Qianying Chen, Andrew Filardo, Dong He, and Feng Zhu
Affiliation	European Department, IMF
Title	Financial Crisis, US Unconventional Monetary Policy and International Spillovers
Summary / Abstract	Working Paper No. 15/85: Summary: We study the impact of the US quantitative easing (QE) on both the emerging and advanced economies, estimating a global vector error-correction model (GVECM) and conducting counterfactual analyses. We focus on the effects of reductions in the US term and corporate spreads. First, US QE measures reducing the US corporate spread appear to be more important than lowering the US term spread. Second, US QE measures might have prevented episodes of prolonged recession and deflation in the advanced economies. Third, the estimated effects on the emerging economies have been diverse but often larger than those recorded in the US and other advanced economies. The heterogeneous effects from US QE measures indicate unevenly distributed benefits and costs.
Keywords	Emerging economies; financial crisis; global VAR; in ternational monetary policy spillovers; quantitative easing; unconventional monetary policy
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1585.pdf

Record ID	602 [ Page 1 of 1, No. 88 ]
Date	2015-01
Author	Emmanuel Farhi and Ivan Werning
Affiliation	Harvard University and MIT
Title	A Theory of Macroprudential Policies in the Presence of Nominal Rigidities
Summary / Abstract	We provide a unifying foundation for monetary policy and macroprudential policies in financial markets for economies with nominal rigidities in goods and labor markets and constraints on monetary policy such as the zero lower bound or fixed exchange rates. Macroprudential interventions in financial markets are beneficial because of an aggregate demand externality. Ex post, the distribution of wealth across agents affects aggregate demand and output through Keynesian channels. However, ex ante, these effects are not privately internalized in the financial decisions agents make. We obtain a simple formula that characterizes the size and direction for optimal financial market interventions as a function of a small number of empirically measurable sufficient statistics. We also characterize optimal monetary policy. We then show how to extend our framework to also incorporate financial markets frictions giving rise to pecuniary externalities. Finally, we provide a number of relevant concrete applications of our general theory.
Keywords	Monetary policy, macroprudential policy, nominal rigidities, externalities
URL	http://scholar.harvard.edu/files/farhi/files/generic_inefficiency_macroprudential_2.pdf

Record ID	601 [ Page 1 of 1, No. 89 ]
Date	2015-02
Author	Frost, Joshua; Logan, Lorie; Martin, Antoine; McCabe, Patrick E.; Natalucci, Fabio M.; Remache, Julie
Affiliation	Federal Reserve Bank of New York and Board of Governors of the Federal Reserve System
Title	Overnight RRP Operations as a Monetary Policy Tool: Some Design Considerations
Summary / Abstract	We review recent changes in monetary policy that have led to development and testing of an overnight reverse repurchase agreement (ON RRP) facility, an innovative tool for implementing monetary policy during the normalization process. Making ON RRPs available to a broad set of investors, including nonbank institutions that are significant lenders in money markets, could complement the use of the interest on excess reserves (IOER) and help control short-term interest rates. We examine some potentially important secondary effects of an ON RRP facility, both positive and negative, including impacts on the structure of short-term funding markets and financial stability. We also investigate design features of an ON RRP facility that could mitigate secondary effects deemed undesirable. Finally, we discuss tradeoffs that policymakers may face in designing an ON RRP facility, as they seek to balance the objectives of setting an effective floor on money market rates during t he normalization process and limiting any adverse secondary effects.
Keywords	Federal Reserve Board and Federal Reserve System; monetary policy; interest on excess reserves; money market funds; overnight RRP; repo; reverse repo
URL	http://www.federalreserve.gov/econresdata/feds/2015/files/2015010pap.pdf

Record ID	600 [ Page 1 of 1, No. 90 ]
Date	2015-04
Author	Potter, Simon M.
Affiliation	Executive Vice President, Federal Reserve Bank of New York
Title	Money markets and monetary policy normalization
Summary / Abstract	My comments today will focus on the Federal Reserve's readiness to implement policy firming when directed to do so by the FOMC. In this context, I will discuss the Federal Reserve's ongoing refinement of its approach to policy normalization, with a focus on initial steps to leave the zero lower bound and some of the considerations that have directed the Committee away from a fixed-rate, full-allotment ON RRP facility. I will then review results of our testing, which inform our confidence in that approach. I will also discuss the Federal Reserve's flexibility to adapt its operational and analytical tools to the dynamic nature of the markets in which we operate.
Keywords	Policy normalization: System Open Market Account (SOMA); Open Market Trading Desk; overnight reverse repurchase agreement (ON RRP); interest on excess reserve balances (IOER); desk; flexibility; investment capacity; testing; data collection; liftoff
URL	http://www.newyorkfed.org/newsevents/speeches/2015/pot150415.html

Record ID	599 [ Page 1 of 1, No. 91 ]
Date	2015-03
Author	James Bullard
Affiliation	President and CEO, FRB, St. Louis
Title	U.S. Monetary Policy Normalization
Summary / Abstract	I considered five factors weighing on the decision to begin normalizing monetary policy: Labor markets are likely to continue to improve. Real GDP growth will likely continue apace despite a first-quarter slowdown. Current low inflation in the U.S. is likely temporary. A standard Taylor-type rule suggests liftoff should already have occurred. The risks of remaining at zero too long may be substantial.
Keywords	Normalization of U.S. monetary policy
URL	https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard-OMFIF-City-Lecture-Frankfurt-26-March-2015.pdf

Record ID	598 [ Page 1 of 1, No. 92 ]
Date	2015-04
Author	Andrés Fernández, Michael W. Klein, Alessandro Rebucci, Martin Schindler, and Martin Uribe
Affiliation	Institute for Capacity Development, IMF
Title	Capital Control Measures: A New Dataset
Summary / Abstract	This paper presents a new dataset of capital control restrictions on both inflows and outflows of 10 categories of assets for 100 countries over the period 1995 to 2013. Building on the data in Schindler (2009) and other datasets based on the analysis of the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), this dataset includes additional asset categories, more countries, and a longer time period. The paper discusses in detail the construction of the dataset and characterizes the data with respect to the prevalence and correlation of controls across asset categories and between controls on inflows and controls on outflows, the aggregation of the separate categories into broader indicators, and the comparison of this dataset with other indicators of capital controls.
Keywords	Capital control measures, capital flows; international financial integration
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1580.pdf

Record ID	597 [ Page 1 of 1, No. 93 ]
Date	2014-10
Author	John C. Williams
Affiliation	Federal Reserve Bank of San Francisco
Title	Inflation targeting and the global financial crisis: successes and challenges
Summary / Abstract	Inflation targeting has become the predominant monetary approach across the globe. In a very real sense, “we are all inflation targeters now.” Before, during, and after the financial crisis, nearly all central banks following an inflation-targeting approach—whether explicit or implicit—have been highly successful at achieving price stability and anchoring inflation expectations. Recent events, however, highlighted two critical issues for inflation targeting going forward: the constraint of the zero lower bound on nominal interest rates and the appropriate role of monetary policy in supporting financial stability. This has led to the development of alternative approaches to inflation targeting that offer, in theory, potential advantages with respect to the zero lower bound and financial stability.
Keywords	Inflation targeting, global financial crisis, zero lower bound on nominal interest rates, financial stability
URL	http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2014/october/inflation-targeting-global-financial-crisis/SARB-2014-Williams_Web_PDF-final.pdf

Record ID	596 [ Page 1 of 1, No. 94 ]
Date	2015-04
Author	Ravi Balakrishnan, Mai Dao, Juan Sole, and Jeremy Zook
Affiliation	Western Hemisphere Department, IMF
Title	Recent U.S. Labor Force Dynamics: Reversible or not?
Summary / Abstract	The U.S. labor force participation rate (LFPR) fell dramatically following the Great Recession and has yet to start recovering. A key question is how much of the post-2007 decline is reversible, something which is central to the policy debate. The key finding of this paper is that while around ¼–? of the post-2007 decline is reversible, the LFPR will continue to decline given population aging. This paper’s measure of the “employment gap” also suggests that labor market slack remains and will only decline gradually, pointing to a still important role for stimulative macro-economic policies to help reach full employment. In addition, given the continued downward pressure on the LFPR, labor supply measures will be an essential component of the strategy to boost potential growth. Finally, stimulative macroeconomic and labor supply policies should also help reduce the scope for further hysteresis effects to develop (e.g., loss of skills, discouragement).
Keywords	Labor force participation; unemployment; employment gap; macro-economic policy
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1576.pdf

Record ID	595 [ Page 1 of 1, No. 95 ]
Date	2015-03
Author	Serhan Cevik and Carolina Correa-Caro
Affiliation	Fiscal Affairs Department, IMF
Title	Growing (Un)equal: Fiscal Policy and Income Inequality in China and BRIC+
Summary / Abstract	This paper investigates the empirical characteristics of income inequality in China and a panel of BRIC+ countries over the period 1980–2013, with a focus on the redistributive contribution of fiscal policy. Using instrumental variable techniques to deal with potential endogeneity, we find evidence supporting the hypothesis of the existence of a Kuznets curve—an inverted Ushaped relationship between income inequality and economic development—in China and the panel of BRIC+ countries. In the case of China, the empirical results indicate that government spending and taxation have opposing effects on income inequality. While government spending appears to have a worsening impact, taxation improves income distribution. Even though the redistributive effect of fiscal policy in China appears to be stronger than what we identify in the BRIC+ panel, it is not large enough to compensate for the adverse impact of other influential factors.
Keywords	Income distribution, income inequality, fiscal policy
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1568.pdf

Record ID	594 [ Page 1 of 1, No. 96 ]
Date	2014-05
Author	Sinclair, Peter and Sun, Lixn
Affiliation	University of Birmingham and Shandong University
Title	A DSGE Model for China’s Monetary and Macroprudential Policies
Summary / Abstract	This paper develops a calibrated DSGE model for simulating China’s monetary policy and macroprudential policy. The empirical results show, first, that the interest rate is a better instrument for China’s monetary policy than the required reserve ratio when the central bank is solely concerned by the price stability; second, that the loan-to-value (LTV) ratio is a very useful macroprudential tool for China’s financial stability, and the required reserve ratio could be used as an instrument for both objectives. Whether macroprudential policy complements or conflicts with monetary policy depends upon the instruments choices of two policies. Our policy experiments suggest three combination choices of instruments for China’s monetary and macroprudential policies.
Keywords	DSGE Model, Monetary Policy, Macroprudental Policy, China’s Economy
URL	http://mpra.ub.uni-muenchen.de/62580/1/MPRA_paper_62580.pdf

Record ID	593 [ Page 1 of 1, No. 97 ]
Date	2015-03
Author	Michal Andrle, Patrick Blagrave, Keiko Honjo, Ben Hunt, Mika Kortelainen, René Lalonde, Douglas Laxton, Dirk Muir, Susanna Mursula, and Stephen Snudden
Affiliation	Research Department, IMF
Title	The Flexible System of Global Models – FSGM
Summary / Abstract	The Flexible System of Global Models (FSGM) is a group of models developed by the Economic Modeling Division of the IMF for policy analysis. A typical module of FSGM is a multi-region, forward-looking semi-structural global model consisting of 24 regions. Using the three core modules focused on the G-20, the euro area, and emerging market economies, this paper outlines the theory under-pinning the model, and illustrates its macroeconomic properties by presenting its responses under a wide range of experiments, including monetary, financial, demand, supply, fiscal and international shocks.
Keywords	Monetary policy; fiscal policy; dynamic stochastic general equilibrium models; macroeconomic interdependence
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1564.pdf

Record ID	592 [ Page 1 of 1, No. 98 ]
Date	2015-03
Author	Policy Development and Review Department
Affiliation	International Monetary Fund
Title	IMF Review Weighs How to Harness Trade for Growth
Summary / Abstract	This review follows the Board-endorsed recommendation by the Independent Evaluation Office (IEO) in 2009 to have an assessment of the Fund’s work on trade every five years. In addition to reviewing past work, this paper discusses key issues going forward towards a future trade agenda for the next five years. This reflects the need to operationalize the implications of the changing trade landscape, including the changing drivers of trade — such as global value chains (GVCs) — and the movement of the fulcrum of trade policy from multilateral rounds to regional and plurilateral deals.
Keywords	Trade, global, regional, plurilateral, multilateral.
URL	http://www.imf.org/external/np/pp/eng/2015/020215.pdf

Record ID	591 [ Page 1 of 1, No. 99 ]
Date	2014-02
Author	Hürtgen, Patrick and Cloyne, James
Affiliation	Bank of England
Title	The macroeconomic effects of monetary policy: A new measure for the United Kingdom
Summary / Abstract	This paper estimates the effects of monetary policy on the UK economy based on a new, extensive real-time forecast data set. Employing the Romer Romer identification approach we first construct a new measure of monetary policy innovations for the UK economy. We find that a one percentage point increase in the policy rate reduces output by up to 0.6 per cent and inflation by up to 1.0 percentage point after two to three years. Our approach resolves the price puzzle for the UK and we show that forecasts are crucial for this result. Finally, we show that the response of policy after the initial innovation is crucial for interpreting estimates of the effect of monetary policy. We can then reconcile differences across empirical specifications, with the wider VAR literature and between our UK results and the larger narrative estimates for the US.
Keywords	Monetary policy, narrative identification, real-time forecasts, business cycles
URL	http://econstor.eu/bitstream/10419/100304/1/VfS_2014_pid_401.pdf

Record ID	590 [ Page 1 of 1, No. 100 ]
Date	2015-01
Author	Mauricio Villamizar-Villegas and David Perez-Reyna
Affiliation	Banco de la Republica Colombia
Title	A Survey on the Effects of Sterilized Foreign Exchange Intervention
Summary / Abstract	In this paper we survey prominent theories that have shaped the literature on sterilized foreign exchange interventions. We identify three main strands of literature: 1) that which advocates the use of sterilized interventions; 2) that which deems sterilized interventions futile; and 3) that which requires some market friction in order for sterilized interventions to be effective. We contribute to the literature in three important ways. First, by reviewing new theoretical models that have surfaced within the last decade. Second, by further penetrating into the theory of interventions in order to analyze the key features that make each model distinct. And third, by only focusing on sterilized operations, which allows us to sidestep the effects induced by changes in the stock of money supply. Additionally, the models that we present comprise both a macro and micro-structure approach so as to provide a comprehensive view of the theory behind exchange rate intervention.
Keywords	Sterilized foreign exchange intervention, impossible trinity, portfolio balance channel, signaling channel, uncovered interest rate parity.
URL	http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_862.pdf

Record ID	589 [ Page 1 of 1, No. 101 ]
Date	2014-12
Author	Mariano Kulish, James Morley, and Tim Robinson
Affiliation	School of Economics, Australian School of Business, the University of New South Wales); School of Economics, Australian School of Business, the University of New South Wales; and Melbourne Institute of Applied Economics and Social Research, University of Melbourne
Title	Estimating DSGE models with forward guidance
Summary / Abstract	Motivated by the use of forward guidance, we propose a method to estimate DSGE models in which the central bank holds the policy rate ﬁxed for an extended period. Private agents’ beliefs about how long the ﬁxed-rate regime will last inﬂuences, among other observable variables, current output, inﬂation and interest rates of longer maturities. We estimate the shadow policy rate and construct counterfactual scenarios to quantify the severity of the zero lower bound constraint. Using the Smets and Wouters (2007) model, we ﬁnd that the expected duration of the zero interest rate policy has been around 2 years, that the shadow rate has been around -3 per cent and that the zero lower bound has imposed a signiﬁcant output loss.
Keywords	Zero lower bound, forward guidance
URL	http://research.economics.unsw.edu.au/RePEc/papers/2014-32.pdf

Record ID	588 [ Page 1 of 1, No. 102 ]
Date	2015-01
Author	Sebastian Edwards
Affiliation	National Bureau of Economic Research
Title	Monetary Policy Independence under Flexible Exchange Rates: An Illusion?
Summary / Abstract	I analyze whether countries with flexible exchange rates are able to pursue an independent monetary policy, as suggested by traditional theory. I use data for three Latin American countries with flexible exchange rates, inflation targeting, and capital mobility – Chile, Colombia and Mexico – to investigate the extent to which Federal Reserve actions are translated into local central banks’ policy rates. The results indicate that there is significant “policy contagion,” and that these countries tend to “import” Fed policies. The degree of monetary policy independence is lower than what traditional models suggest.
Keywords	Monetary policy independence, flexible exchange rates
URL	http://www.nber.org/papers/w20893.pdf
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Record ID	587 [ Page 1 of 1, No. 103 ]
Date	2015-01
Author	Pranjul Bhandari and Jeffrey A. Frankel
Affiliation	National Bureau of Economic Research
Title	Nominal GDP Targeting for Developing Countries
Summary / Abstract	The revival of interest in nominal GDP (NGDP) targeting has come in the context of large advanced economies. We consider the case for NGDP targeting for mid-sized developing countries, in light of their susceptibility to supply shocks and terms of trade shocks. For India, in particular, one major exogenous supply shock is the monsoon rains. NGDP targeting splits the impact of supply shocks automatically between inflation and real GDP growth. In the case of annual inflation targeting (IT), by contrast, the full impact of an adverse supply shock or terms of trade shock is felt as a loss in real GDP alone. NGDP targeting automatically accommodates supply shocks as most central banks with discretion would do anyway, while retaining the advantage of anchoring expectations as rules are designed to do. We outline a simple theoretical model and derive the condition under which an NGDP targeting regime would dominate other regimes such as annual IT for achieving objectives of output and price stability. We go on to estimate for the case of India the parameters needed to ascertain whether the condition holds, particularly the slope of the aggregate supply curve. Estimates suggest that the condition may indeed hold.
Keywords	Nominal GDP Targeting, developing countries
URL	http://www.nber.org/papers/w20898.pdf
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.

Record ID	586 [ Page 1 of 1, No. 104 ]
Date	2015-01
Author	Francesco Grigoli, Alexander Herman, Andrew Swiston, and Gabriel Di Bella
Affiliation	Western Hemisphere Department, IMF
Title	Output Gap Uncertainty and Real-Time Monetary Policy
Summary / Abstract	Output gap estimates are subject to a wide range of uncertainty owing to data revisions and the difficulty in distinguishing between cycle and trend in real time. This is important given the central role in monetary policy of assessments of economic activity relative to capacity. We show that country desks tend to overestimate economic slack, especially during recessions, and that uncertainty in initial output gap estimates persists several years. Only a small share of output gap revisions is predictable ex ante based on characteristics like output dynamics, data quality, and policy frameworks. We also show that for a group of Latin American inflation targeters the prescriptions from typical monetary policy rules are subject to large changes due to output gap revisions. These revisions explain a sizable proportion of the deviation of inflation from target, suggesting this information is not accounted for in real-time policy decisions.
Keywords	Output gap; monetary policy; policy rule; data revisions; real-time; uncertainty; Brazil; Chile; Colombia; Mexico; Peru; inflation target; business cycle.
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1514.pdf

Record ID	585 [ Page 1 of 1, No. 105 ]
Date	2013-12
Author	Carlos Garriga, Finn E. Kydland, and Roman Šustek
Affiliation	Federal Reserve Bank of St. Louis, University of California–Santa Barbara and NBER, and Queen Mary, University of London and Centre for Macroeconomics, London School of Economics sustek19@gmail.com.
Title	Mortgages and monetary policy
Summary / Abstract	Mortgage loans are a striking example of a persistent nominal rigidity. As a result, under incomplete markets, monetary policy affects decisions through the cost of new mortgage borrowing and the value of payments on outstanding debt. Observed debt levels and payment to income ratios suggest the role of such loans in monetary transmission may be important. A general equilibrium model is developed to address this question. The transmission is found to be stronger under adjustable- than fixed-rate contracts. The source of impulse also matters: persistent inflation shocks have larger effects than cyclical fluctuations in inflation and nominal interest rates.
Keywords	Mortgages; debt servicing costs; monetary policy; transmission mechanism; housing investment
URL	http://eprints.lse.ac.uk/58248/1/__lse.ac.uk_storage_LIBRARY_Secondary_libfile_shared_repository_Content_Centre%20For%20Macroeconomics%20discussion%20papers_Mortgages%20monetary%20policy_Garriga_Mortgages%20monetary%20policy_2014.pdf

Record ID	584 [ Page 1 of 1, No. 106 ]
Date	2015-02
Author	Till Cordes, Tidiane Kinda, Priscilla S. Muthoora, and Anke Weber
Affiliation	Fiscal Affairs Department, IMF
Title	Expenditure Rules: Effective Tools for Sound Fiscal Policy?
Summary / Abstract	This paper provides new evidence on the effectiveness of expenditure rules. The analysis is based on a unique dataset covering all countries with national and supranational fiscal rules, including 33 expenditure rules, between 1985 and 2013. It contributes to the existing literature on fiscal rules in two main ways. First, it is the most comprehensive assessment of compliance with rules and of the potential role of expenditure rules, in particular regarding long-term sustainability. Second, it analyzes whether expenditure rules are associated with changes in public investment and its efficiency.
Keywords	Expenditure rules, Fiscal governance, Fiscal policy, Rules versus discretion, Stabilization
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1529.pdf

Record ID	583 [ Page 1 of 1, No. 107 ]
Date	2014-12
Author	Eidenberger, Judith, Neudorfer, Benjamin, Sigmund, Michael, and Stein, Ingrid
Affiliation	Deutsche Bundesbank, EuroSystem
Title	What predicts financial (in)stability? A Bayesian approach
Summary / Abstract	This paper contributes to the literature on early warning indicators by applying a Bayesian model averaging approach. Our analysis, based on Austrian data, is carried out in two steps: First, we construct a quarterly financial stress index (AFSI) quantifying the level of stress in the Austrian financial system. Second, we examine the predictive power of various indicators, as measured by their ability to forecast the AFSI. Our approach allows us to investigate a large number of indicators. The results show that excessive credit growth and high returns of banks' stocks are the best early warning indicators. Unstable funding (as measured by the loan to deposit ratio) also has a high predictive power.
Keywords	Financial crisis, early warning indicators, government policy and regulation, financial stress index
URL	http://econstor.eu/bitstream/10419/106175/1/813252709.pdf

Record ID	582 [ Page 1 of 1, No. 108 ]
Date	2015-01
Author	Gurnain Pasricha, Matteo Falagiarda, Martin Bijsterbosch, and Joshua Aizenman
Affiliation	National Bureau of Economic Research
Title	Domestic and Multilateral Effects of Capital Controls in Emerging Markets
Summary / Abstract	This paper assesses the effects of capital controls in emerging market economies (EMEs) during 2001-2011, focusing on cross-country spillovers of changes in these controls. We use a novel dataset on weighted changes in capital controls (and currency-based measures) in 18 major EMEs. We first use panel VARs to test for effectiveness of own capital controls which take into account the endogeneity of such controls. Next, using near-VARs, we provide new evidence of multilateral effects of capital controls of the BRICS. Our results suggest a limited domestic impact of capital controls. Outflow easing measures do not have a significant impact on any of the variables in the model. Inflow tightening measures increase monetary policy autonomy (measured by the covered interest differential), but at the cost of a more appreciated exchange rate. These measures are therefore not effective in allowing EMEs to choose a trilemma configuration with a de-facto closed capital account, larger monetary policy autonomy and a weaker exchange rate. We do not find a clear difference between countries with extensive and long-standing capital controls (India and China) and other countries. Capital control actions in BRICS (Brazil, Russia, India, China and South Africa) had significant spillovers to other EMEs during the 2000s in particular via exchange rates. Multilateral effects were more important among the BRICS than between the BRICS and other, smaller EMEs, particularly in the pre-global financial crisis period. They were more significant in the aftermath of the global financial crisis than before the crisis. This change stems in particular from the fact that spillovers from capital flow policies in BRICS countries to non-BRICS became more significant in the post-global financial crisis period. These results are robust to various specifications of our models.
Keywords	Capital controls, emerging markets
URL	http://www.nber.org/papers/w20822.pdf
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. If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

Record ID	581 [ Page 1 of 1, No. 109 ]
Date	2015-01
Author	Alvaro Ortiz Vidal-Abarca and Alfonso Ugarte Ruiz
Affiliation	BBVA
Title	Introducing a New Early Warning System Indicator (EWSI) of banking crises
Summary / Abstract	We introduce a new Early Warning System Indicator (EWSI) of banking crises based on a non-linear (Gomperzt curve) panel data model of credit deepening. The capability of our estimated credit-gap measure relative to alternative credit gaps computed through ad hoc procedures (linear or Hodrick Prescott trends) is tested in the context of alternative univariate and multivariate Early Warning Systems (EWS). Our new EWSI proves to be an outperforming and reliable leading indicator of banking crises while overcoming most of the problems of linear and stochastic procedures. The estimated credit gap outperforms the rest of indicators in both in-sample and out–of-sample forecasting accuracy (e.g. AUROC statistics) in a univariate comparison. Furthermore, we also test the importance of our EWSI in a multivariate framework through a Bayesian Model Average (BMA) technique, confirming our initial positive results. Finally, we estimate an Early Warning System for 68 developed and emerging countries based on our credit gap which can be used to compute Banking Crises Probabilities and to estimate dynamic thresholds for the EWSI indicators.
Keywords	Credit gap, Early warning indicators, Bayesian model averaging, macro-prudential policies
URL	https://www.bbvaresearch.com/wp-content/uploads/2015/01/WP_EWS-SystemVersion-Sep2014_i.pdf

Record ID	580 [ Page 1 of 1, No. 110 ]
Date	2014-02
Author	Tim Hursey, Alexander Wolman, and Andreas Hornstein
Affiliation	University of Pennsylvania, Federal Reserve Bank of Richmond, and Federal Reserve Bank of Richmond
Title	Monetary Policy and Global Equilibria in an Economy with Capital
Summary / Abstract	Short-term interest rates in the United States have been near their lower bound since late 2008. Treasury rates out to a two-year maturity have been close to zero since mid-2011, and over this same period, inflation has been declining. This combination of low interest rates and declining inflation has lead some observers to point to the "perils of Taylor rules," for example, Bullard (2010), when a monetary policy that actively targets a positive inflation rate leads to an outcome with much lower inflation, and possibly even deflation. The possibility of equilibria with persistent deviations of inflation from the target set by the policy maker has been investigated for model economies without state variables. Quantitative representations of the U.S. economy as embodied by DSGE models include as an essential element capital accumulation. In this paper we study the possibility for persistent low inflation outcomes for a monetary model with capital.
Keywords	Monetary policy, inflation targeting, Taylor rule
URL	https://www.economicdynamics.org/meetpapers/2014/paper_733.pdf

Record ID	579 [ Page 1 of 1, No. 111 ]
Date	2015-01
Author	Maurice Obstfeld
Affiliation	University of California, Berkely and BIS
Title	Trilemmas and trade-offs: living with financial globalisation
Summary / Abstract	This paper evaluates the capacity of emerging market economies (EMEs) to moderate the domestic impact of global financial and monetary forces through their own monetary policies. Those EMEs that are able to exploit a flexible exchange rate are far better positioned than those that devote monetary policy to fixing the rate - a reflection of the classical monetary policy trilemma. However, exchange rate changes alone do not insulate economies from foreign financial and monetary shocks. While potentially a potent source of economic benefits, financial globalisation does have a downside for economic management. It worsens the trade-offs monetary policy faces in navigating among multiple domestic objectives. This drawback of globalisation raises the marginal value of additional tools of macroeconomic and financial policy. Unfortunately, the availability of such tools is constrained by a financial policy trilemma that is distinct from the monetary trilemma. This second trilemma posits the incompatibility of national responsibility for financial policy, international financial integration and financial stability.
Keywords	Policy trilemma, financial stability, financial globalisation, international policy transmission
URL	http://www.bis.org/publ/work480.pdf

Record ID	578 [ Page 1 of 1, No. 112 ]
Date	2015-01
Author	Karim Barhoumi and Laurent Ferrara
Affiliation	IMF and Banque de France
Title	A World Trade Leading Index (WTLI)
Summary / Abstract	This paper develops a new monthly World Trade Leading Indicator (WTLI) that relies on nonparametric and parametric approaches. Compared to the CPB World Trade Monitor’s benchmark indicator for global trade the WTLI captures turning points in global trade with an average lead between 2 and 3 months. We also show that this cyclical indicator is able to track the annual growth rate in global trade, suggesting that the recent slowdown is due in part to certain cyclical factors. This new tool can provide policy makers with valuable foresight into the future direction of economic activity by tracking world trade more efficiently.
Keywords	World trade, leading indicators, factor models
URL	http://www.imf.org/external/pubs/ft/wp/2015/wp1520.pdf

Record ID	577 [ Page 1 of 1, No. 113 ]
Date	2014-12
Author	Luis Eduardo Arango, Ximena Chavarro and Eliana González
Affiliation	Banco de la Republica Colombia
Title	Commodity price shocks and inflation within an optimal monetary policy framework: the case of Colombia
Summary / Abstract	A small open macroeconomic model, in which an optimal interest rate rule emerges to drive the inflation behavior, is used to model inflation within an inflation targeting framework. This set up is used to estimate the relationship between commodity prices shocks and the inflation process in a country that both export and import commodities. We found evidence of a positive, yet small, impact from food international price shocks to inflation. However, these effects are no longer observable once the sample is split in the periods before and after the boom. The lack of effect from oil and energy price shocks we obtain supports the recent findings in the literature of a substantial decrease in the pass-through from oil prices to headline inflation. Thus, our interpretation is that monetary authority has faced rightly the shocks to commodity prices. Inflation expectations are the main determinant of inflation during the inflation targeting regime. Commodity prices movements are to a great extent included in the information set to form expectations.
Keywords	commodity prices, inflation targeting
URL	http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_858.pdf

Record ID	576 [ Page 1 of 1, No. 114 ]
Date	2014-12
Author	Tobias Adrian and Nellie Liang
Affiliation	Federal Reserve Bank of New York and Board of Governors of the Federal Reserve System
Title	Monetary Policy, Financial Conditions, and Financial Stability
Summary / Abstract	In the conduct of monetary policy, there exists a risk-return tradeoff between financial conditions and financial stability, which complements the traditional inflation-real activity tradeoff of monetary policy. The tradeoff exists even if monetary policy does not target financial stability considerations independently of its inflation and real activity goals, as the buildup of financial vulnerabilities from persistent accommodative monetary policy when the economy is close to potential increases risks to future financial stability. We review monetary policy transmission channels and financial frictions that give rise to this tradeoff 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 policies' risk- return tradeoff including (i) pricing of risk, (ii) leverage, (iii) maturity and liquidity mismatch, and (iv) 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 tradeoff.
Keywords	Risk taking channel of monetary policy, monetary policy transmission, monetary policy rules, financial stability, financial conditions, macroprudential policy
URL	http://www.imes.boj.or.jp/research/papers/english/14-E-13.pdf

Record ID	575 [ Page 1 of 1, No. 115 ]
Date	2014-12
Author	Lars E.O. Svensson
Affiliation	Riksbank
Title	Forward Guidance
Summary / Abstract	Forward guidance about future policy settings, in the form of a published policy-rate path, has for many years been a natural part of normal monetary policy for several central banks, including the Reserve Bank of New Zealand and the Swedish Riksbank. The Swedish and New Zealand experience of a published policy-rate path is examined, especially to what extent the market has anticipated the path (the predictability of the path) and to what extent market expectations line up with the path after publication (the credibility of the path). The recent Swedish experience is very dramatic. In particular, it shows a case with a large discrepancy between a high and rising Riksbank path and a low and falling market path, with the market path providing a good forecast of the future policy rate. The discrepancy is explained by the Riksbank’s leaning against the wind in recent years and related circumstances. The New Zealand experience is less dramatic, but shows cases where the market implements either a substantially tighter or easier policy than intended by the RBNZ. There are also cases of the market being ahead of the RBNZ and the RBNZ later following the market.
Keywords	Forward guidance, monetary policy
URL	http://www.nber.org/papers/w20796.pdf
Remarks	You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery. 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. If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

Record ID	574 [ Page 1 of 1, No. 116 ]
Date	2014-10
Author	John B. Taylor
Affiliation	Stanford University
Title	Inflation Targeting In Emerging Markets: The Global Experience
Summary / Abstract	This paper assesses the emerging market experience with inflation targeting in recent years. It places this experience in the broader context of global monetary policy. It shows that a shift away from rules based policy by many developed country central banks has adversely affected the inflation targeting performance of the emerging market countries. First, it has created direct economic spillovers, which have blurred the good effects of inflation targeting. Second, it has led to policy spillovers in which emerging market central banks have been driven to deviate from their inflation targeting rules. The implication of this research is that emerging market countries should stick to the type of inflation targeting they adopted a decade or more ago with macroprudential policy simply focused on getting the overall risk environment right.
Keywords	Inflation targeting, global experience, emerging markets, monetary policy
URL	http://www.hoover.org/sites/default/files/14112_-_taylor_-_inflation_targeting_in_emerging_markets_-_the_global_experience.pdf

Record ID	573 [ Page 1 of 1, No. 117 ]
Date	2014-11
Author	Elisabetta Gualandri and Mario Noera
Affiliation	Center for Research in Banking and Finance and Bocconi University, Milan
Title	MONITORING SYSTEMIC RISK: A SURVEY OF THE AVAILABLE MACROPRUDENTIAL TOOLKIT
Summary / Abstract	Understanding the nature of systemic risk and identifying the channels of diffusion of the shocks are the necessary prerequisite to anticipate and manage successfully the insurgence of financial crises. In order to prevent financial distress and manage instability, the macroprudential regulator needs to track and measure systemic risks ex-ante. The aim of the paper is twofold: on one side, it reviews the theoretical frameworks which allow to assess the different dimensions of systemic risk and, on the other, it classifies accordingly and analyzes the methodologies available to assess in advance the occurrence of systemic distress. The paper classifies the different definitions of systemic risk and discusses their significance during the 2007-08 crisis. It presents the tools available to extract real time information on market perception of risk from market prices of securities and derivatives (i.e. CDS and equity options). The analysis is extended to the methods focused on the measurement of the financial fragility due to the networks linkages within the financial system. On the basis of the available empirical research, the paper also reviews the capacity of the different methods to spot in advance the insurgence of the crisis prior to 2007-08 and draws some preliminary conclusions on the completeness and consistency of the toolkit available to policy makers.
Keywords	Systemic risk, financial crisis, prudential regulation, financial institutions.
URL	http://www.cefin.unimore.it/new/wp-content/uploads/2014/11/Cefin_WP_50.pdf

Record ID	572 [ Page 1 of 1, No. 118 ]
Date	2014-12
Author	Frederic S. Mishkin and Eugene N. White
Affiliation	NBER
Title	Unprecedented Actions: The Federal Reserve’s Response to the Global Financial Crisis in Historical Perspective
Summary / Abstract	Interventions by the Federal Reserve during the financial crisis of 2007-2009 were generally viewed as unprecedented and in violation of the rules—notably Bagehot’s rule—that a central bank should follow to avoid the time-inconsistency problem and moral hazard. Reviewing the evidence for central banks’ crisis management in the U.S., the U.K. and France from the late nineteenth century to the end of the twentieth century, we find that there were precedents for all of the unusual actions taken by the Fed. When these were successful interventions, they followed contingent and target rules that permitted pre-emptive actions to forestall worse crises but were combined with measures to mitigate moral hazard.
Keywords	Federal Reserve, Global Financial Crisis
URL	http://www.nber.org/papers/w20737.pdf
Remarks	You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery. 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. If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

Record ID	571 [ Page 1 of 1, No. 119 ]
Date	2014-11
Author	Luis F. Melo Velandia, Rubén A. Loaiza Maya and Mauricio Villamizar-Villegas
Affiliation	Banco de la Republica Colombia
Title	Bayesian Combination for Inflation Forecasts: The Effects of a Prior Based on Central Banks’ Estimates
Summary / Abstract	Typically, central banks use a variety of individual models (or a combination of models) when forecasting inflation rates. Most of these require excessive amounts of data, time, and computational power; all of which are scarce when monetary authorities meet to decide over policy interventions. In this paper we use a rolling Bayesian combination technique that considers inflation estimates by the staff of the Central Bank of Colombia during 2002-2011 as prior information. Our results show that: 1) the accuracy of individual models is improved by using a Bayesian shrinkage methodology, and 2) priors consisting of staff's estimates outperform all other priors that comprise equal or zero-vector weights. Consequently, our model provides readily available forecasts that exceed all individual models in terms of forecasting accuracy at every evaluated horizon.
Keywords	Bayesian shrinkage, inflation forecast combination, internal forecasts, rolling window estimation
URL	http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_853.pdf

Record ID	570 [ Page 1 of 1, No. 120 ]
Date	2014-10
Author	Truman, Edwin M.
Affiliation	Peterson Institute for International Economics
Title	The Federal Reserve engages the world (1970-2000): an insider's narrative of the transition to managed floating and financial turbulence
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.
Keywords	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
URL	http://www.dallasfed.org/assets/documents/institute/wpapers/2014/0210.pdf

Record ID	569 [ Page 1 of 1, No. 121 ]
Date	2014-10
Author	Aladangady, Aditya
Affiliation	Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, Washington, D.C.
Title	Homeowner Balance Sheets and Monetary Policy
Summary / Abstract	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.
Keywords	Consumption; housing; wealth effects; collateral; home equity; monetary policy
URL	http://www.federalreserve.gov/econresdata/feds/2014/files/201498pap.pdf

Record ID	568 [ Page 1 of 1, No. 122 ]
Date	2014-12
Author	Dudley, William
Affiliation	President and CEO, Federal Reserve Bank of New York
Title	The 2015 economic outlook and the implications for monetary policy
Summary / Abstract	Remarks at Bernard M. Baruch College, New York City.
Keywords	2015 outlook, monetary policy
URL	http://www.newyorkfed.org/newsevents/speeches/2014/dud141201.html

Record ID	567 [ Page 1 of 1, No. 123 ]
Date	2013-12
Author	Michael D. Bordo
Affiliation	Bank for International Settlements
Title	The Federal Reserve's Role: Actions Before, During, and After the 2008 Panic in the Historical Context of the Great Contraction
Summary / Abstract	This paper examines the Federal Reserve's actions before, during and after the 2008 financial crisis. It looks to the Great Contraction of 1929-1933 for historical context of the Federal Reserve’s actions.
Keywords	Monetary policy, 2008 panic, historical context
URL	http://www.hoover.org/sites/default/files/13111_-_bordo_-_the_federal_reserves_role_-_actions_before_during_and_after_the_2008_panic_in_the_historical_context_of_the_great_contraction.pdf

Record ID	566 [ Page 1 of 1, No. 124 ]
Date	2013-03
Author	John B. Taylor
Affiliation	Department of Economics, Stanford University
Title	Remarks on Monetary Policy Challenges
Summary / Abstract	This talk is the written version of remarks, given at a conference marking the retirement of Mervyn King from the Bank of England. It argues that economic performance deteriorated in recent years because of a change in policy rather than because of a shift in the tradeoff between inflation stability and output stability.
Keywords	Monetary policy, challenges, inflation targeting
URL	http://www.hoover.org/sites/default/files/13105_-_taylor_-_remarks_on_monetary_policy_challenges.pdf

Record ID	565 [ Page 1 of 1, No. 125 ]
Date	2014-11
Author	Michael Bordo and Pierre Siklos
Affiliation	National Bureau of Economic Research
Title	Central Bank Credibility, Reputation and Inflation Targeting in Historical Perspective
Summary / Abstract	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.
Keywords	Credibility, Inflation Targeting, Monetary Policy
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. If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

Record ID	564 [ Page 1 of 1, No. 126 ]
Date	2013-03
Author	John B. Taylor
Affiliation	Department of Economics, Stanford University
Title	A Review of Recent Monetary Policy
Summary / Abstract	This testimony before the Subcommittee on Monetary Policy and Trade of the United States House of Representatives reviews the conduct of the Federal Reserve before, during, and after the 2008 financial crisis.
Keywords	U.S. monetary policy, global financial crisis
URL	http://www.hoover.org/sites/default/files/13103_-_taylor_a_review_of_recent_monetary_policy.pdf

Record ID	563 [ Page 1 of 1, No. 127 ]
Date	2014-11
Author	Del Negro, Marco and Sims, Christopher A.
Affiliation	Federal Reserve Bank of New York
Title	When does a central bank’s balance sheet require fiscal support?
Summary / Abstract	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.
Keywords	Central bank’s balance sheet; solvency; monetary policy
URL	http://www.newyorkfed.org/research/staff_reports/sr701.pdf

Record ID	562 [ Page 1 of 1, No. 128 ]
Date	2014-11
Author	Vikram Rai and Lena Suchanek
Affiliation	Bank of Canada
Title	The Effect of the Federal Reserve’s Tapering Announcements on Emerging Markets
Summary / Abstract	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.
Keywords	International financial markets; Transmission of monetary policy; International topics
URL	http://www.bankofcanada.ca/wp-content/uploads/2014/11/wp2014-50.pdf

Record ID	561 [ Page 1 of 1, No. 129 ]
Date	2014-12
Author	Jiaqian Chen, Tommaso Mancini-Griffoli, and Ratna Sahay
Affiliation	Money and Capital Markets Department, IMF
Title	Spillovers from United States Monetary Policy on Emerging Markets: Different This Time?
Summary / Abstract	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.
Keywords	Monetary policy announcements, unconventional monetary policies, spillovers, capital flows, equity markets, bond markets, exchange rates, emerging markets.
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp14240.pdf

Record ID	560 [ Page 1 of 1, No. 130 ]
Date	2014-10
Author	Nikolaos Antonakakis
Affiliation	Department of Economics, Vienna University of Economics and Business
Title	Sovereign Debt and Economic Growth Revisited: The Role of (Non-)Sustainable Debt Thresholds
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.
Keywords	Government debt, growth, sustainability, threshold, government budget constraint
URL	https://epub.wu.ac.at/4321/1/wp187.pdf

Record ID	559 [ Page 1 of 1, No. 131 ]
Date	2014-05
Author	Marco Pagano
Affiliation	Center for Financial Studies (CFS), Goethe University Frankfurt
Title	Dealing with financial crises: How much help from research?
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.
Keywords	Financial crisis, risk taking, systemic risk, financial regulation, monetary policy, politics
URL	http://econstor.eu/bitstream/10419/102957/1/798409630.pdf

Record ID	558 [ Page 1 of 1, No. 132 ]
Date	2014-10
Author	Richard Clarida
Affiliation	NBER
Title	Monetary Policy in Open Economies: Practical Perspectives for Pragmatic Central Bankers
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.
Keywords	Monetary policy, inflation targeting
URL	http://www.nber.org/papers/w20545.pdf
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Record ID	557 [ Page 1 of 1, No. 133 ]
Date	2014-09
Author	Martin Bodenstein, Luca Guerrieri, and Joe LaBriola
Affiliation	National University of Singapore, Board of Governors of the Federal Reserve System, and University of California, Berkeley
Title	Macroeconomic Policy Games
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.
Keywords	Optimal policy; strategic interaction; welfare analysis; monetary policy cooperation; marcroprudential regulation
URL	http://www.federalreserve.gov/econresdata/feds/2014/files/201487pap.pdf

Record ID	556 [ Page 1 of 1, No. 134 ]
Date	2014-10
Author	Fernando López Vicente and José María Serena Garralda
Affiliation	Banco de España
Title	Macroeconomic policy in Brazil: inflation targeting, public debt structure and credit policies
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.
Keywords	Public debt, central banking, credit policies, Brazil.
URL	http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/14/Fich/do1405.pdf

Record ID	555 [ Page 1 of 1, No. 135 ]
Date	2014-11
Author	Jesús A. Bejarano and Luisa F. Charry
Affiliation	Banco de la Republica de Colombia
Title	Financial Frictions and Optimal Monetary Policy in a Small Open Economy
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.
Keywords	Financial frictions, optimal interest rate rules, interest rate spreads, welfare, small open economy, second order approximation
URL	http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_852.pdf

Record ID	554 [ Page 1 of 1, No. 136 ]
Date	2014-11
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.
Keywords	Inflation targeting, Performance, Macroeconomic Dimensions, Monetary Policy, Panel Analysis.
URL	http://mpra.ub.uni-muenchen.de/60108/1/MPRA_paper_60108.pdf

Record ID	553 [ Page 1 of 1, No. 137 ]
Date	2014-12
Author	Stijn Claessens
Affiliation	Research Department, IMF
Title	An Overview of Macroprudential Policy Tools
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.
Keywords	Financial stability, financial intermediation, externalities, market failures, procyclicality, systemic risk
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp14214.pdf

Record ID	552 [ Page 1 of 1, No. 138 ]
Date	2014-11
Author	Bradley Jones
Affiliation	Monetary and Capital Markets Department, IMF
Title	Identifying Speculative Bubbles: A Two-Pillar Surveillance Framework
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.
Keywords	Asset bubbles, Market efficiency, Financial stability, Financial crises
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp14208.pdf

Record ID	551 [ Page 1 of 1, No. 139 ]
Date	2014-09
Author	Manai Daboussi, Olfa
Affiliation	University of Tunis
Title	Inflation Targeting As a Monetary Policy Rule: Experience and Prospects
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.
Keywords	Monetary policy, Inflation targeting, Macroeconomic performance, Developing economies
URL	http://mpra.ub.uni-muenchen.de/59336/1/MPRA_paper_59336.pdf

Record ID	550 [ Page 1 of 1, No. 140 ]
Date	2005-05
Author	Thórarinn G. Pétursson
Affiliation	Central Bank of Iceland and Reykjavík University
Title	INFLATION TARGETING AND ITS EFFECTS ON MACROECONOMIC PERFORMANCE
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.
Keywords	Inflation Targeting, Monetary Policy
URL	http://press.suerf.org/download/studies/study20055.pdf

Record ID	549 [ Page 1 of 1, No. 141 ]
Date	2014-09
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.
Keywords	Inflation targeting, Brazil, monetary policy
URL	http://ecomod.net/sites/default/files/document-conference/ecomod2003/Minella.pdf

Record ID	548 [ Page 1 of 1, No. 142 ]
Date	2014-09
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.
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 1 of 1, No. 143 ]
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.
Keywords	Loan supply; capital requirements; monetary policy; macroprudential regulation
URL	http://www.bankofengland.co.uk/research/Documents/workingpapers/2014/wp508.pdf

Record ID	546 [ Page 1 of 1, No. 144 ]
Date	2014-08
Author	William Tayler and Roy Zilberman
Affiliation	Lancaster University Management School
Title	Macroprudential Regulation and the Role of Monetary Policy
Summary / Abstract	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.
Keywords	Bank Capital Regulation, Macroprudential Policy, Basel III, Monetary Policy, Borrowing Cost Channel
URL	http://eprints.lancs.ac.uk/70632/1/MacroprudentialRegulation.pdf

Record ID	545 [ Page 1 of 1, No. 145 ]
Date	2014-08
Author	S. Boragan Aruoba
Affiliation	Federal Reserve Bank of Minneapolis
Title	Term Structures of Inflation Expectations and Real Interest Rates: The Effects of Unconventional Monetary Policy
Summary / Abstract	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.
Keywords	Inflation expectations; Real interest rate; Unconventional policies
URL	http://www.minneapolisfed.org/research/sr/sr502.pdf

Record ID	544 [ Page 1 of 1, No. 146 ]
Date	2014-06
Author	Plosser, Charles I.
Affiliation	Federal Reserve Bank of Philadelphia
Title	Systematic Monetary Policy and Communication
Summary / Abstract	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.
Keywords	Monetary policy; FOMC
URL	http://www.philadelphiafed.org/publications/speeches/plosser/2014/06-24-14-economicclubny.pdf

Record ID	543 [ Page 1 of 1, No. 147 ]
Date	2014-07
Author	Marlene Amstad, Simon Potter and Robert Rich
Affiliation	Bank for International Settlements
Title	The FRBNY Staff Underlying Inflation Gauge: UIG
Summary / Abstract	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.
Keywords	Inflation, Dynamic Factor Models, Core Inflation, Monetary Policy, Forecasting
URL	http://www.bis.org/publ/work453.pdf

Record ID	542 [ Page 1 of 1, No. 148 ]
Date	2014-07
Author	Fabio Verona, Manuel M. F. Martins, and Inês Drumond
Affiliation	Bank of Finland, Monetary Policy and Research Department; Banco de Portugal, Financial Stability Department; and University of Porto
Title	Financial Shocks and Optimal Monetary Policy Rules
Summary / Abstract	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.
Keywords	Financial shocks, optimal monetary policy, Taylor rules, DSGE models, bond market, loan market
URL	http://cefup.fep.up.pt/uploads/WorkingPapers/wp1402.pdf

Record ID	541 [ Page 1 of 1, No. 149 ]
Date	2014-07
Author	Fabio Verona, Manuel M. F. Martins, and Inês Drumond
Affiliation	Bank of Finland, University of Porto, and Banco de Portugal
Title	Financial Shocks and Optimal Monetary Policy Rules
Summary / Abstract	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.
Keywords	Financial shocks, optimal monetary policy, Taylor rules, DSGE models, bond market, loan market
URL	http://cefup.fep.up.pt/uploads/WorkingPapers/wp1402.pdf

Record ID	540 [ Page 1 of 1, No. 150 ]
Date	2014-08
Author	Matteo Ghilardi and Shanaka J. Peiris
Affiliation	Asia Pacific Department, Research Department and Strategy, Policy and Review Department, IMF
Title	Capital Flows, Financial Intermediation and Macroprudential Policies
Summary / Abstract	This paper develops an open-economy DSGE model with an optimizing banking sector to assess the role of capital flows, macro-financial linkages, and macroprudential policies in emerging Asia. The key result is that macro-prudential measures can usefully complement monetary policy. Countercyclical macroprudential polices can help reduce macroeconomic volatility and enhance welfare. The results also demonstrate the importance of capital flows and financial stability for business cycle fluctuations as well as the role of supply side financial accelerator effects in the amplification and propagation of shocks.
Keywords	Financial Frictions, Capital Regulation, Monetary Policy
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp14157.pdf

Record ID	539 [ Page 1 of 1, No. 151 ]
Date	2014-08
Author	Ray C. Fair
Affiliation	Cowles Foundation, Department of Economics, Yale University
Title	How Might a Central Bank Report Uncertainty?
Summary / Abstract	An important question for central banks is how they should report the uncertainty of their forecasts. This paper discusses a way in which a central bank could report the uncertainty of its forecasts in a world in which it used a single macroeconometric model to make its forecasts and guide its policies. Suggestions are then made as to what might be feasible for a central bank to report given that it is unlikely to be willing to commit to a single model. A particular model is used as an illustration.
Keywords	Central bank; uncertainty; stochastic simulation
URL	http://www.economics-ejournal.org/economics/journalarticles/2014-27/version_1/count

Record ID	538 [ Page 1 of 1, No. 152 ]
Date	2014-07
Author	Irina Balteanu and Aitor Erce
Affiliation	Banco de España
Title	Banking crises and sovereign defaults in emerging markets: exploring the links
Summary / Abstract	This paper provides a set of stylised facts on the mechanisms through which banking and sovereign distress feed into each other, using a large sample of emerging economies over three decades. We first define “twin crises” as events where banking crises and sovereign defaults combine, and further distinguish between those banking crises that end in sovereign debt crises, and vice-versa. We then assess what differentiates “single” episodes from “twin” ones. Using an event analysis methodology, we study the behaviour around crises of variables describing the balance sheet interconnection between the banking and public sectors, the characteristics of the banking sector, the state of public finances and the macroeconomic context. We find that there are systematic differences between “single” and “twin” crises across all these dimensions. Additionally, we find that “twin” crises are heterogeneous events: taking into account the proper time sequence of crises within “twin” episodes is important for understanding their drivers, transmission channels and economic consequences. Our results shed light on the mechanisms surrounding feedback loops of sovereign and banking stress.
Keywords	Banking crises, sovereign defaults, feedback loops, balance sheets
URL	http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/14/Fich/dt1414e.pdf

Record ID	537 [ Page 1 of 1, No. 153 ]
Date	2014-06
Author	IMF Policy Paper
Affiliation	IMF
Title	Update on the Fiscal Transparency Initiative
Summary / Abstract	This paper provides an update on staff’s work on a new Fiscal Transparency Code (FTC) and experiences with the initial pilot Fiscal Transparency Evaluations (FTE), the ground work for which was laid in a 2012 paper “Fiscal Transparency, Accountability, and Risk.” Both are part of ongoing efforts by the Fiscal Affairs Department, in cooperation with other departments, to strengthen the Fund’s fiscal surveillance and capacity building. The new FTC and FTE reflect the lessons of the recent crisis, incorporate developments in international standards, and build on feedback from consultations with stakeholders. The new FTC addresses the weaknesses of the existing FTC from 2007 and focuses on information needed for effective fiscal management and surveillance. Its 36 principles (i) concentrate on outputs rather than processes; (ii) differentiate between basic, good, and advanced practices to provide less developed countries with clear milestones toward international standards; (iii) stress the analysis and management of fiscal risks; and (iv) better complement other fiscal standards and diagnostics. The FTC has a four-pillar structure: (i) Pillar I on fiscal reporting calls for fiscal statistics and accounts to provide relevant, comprehensive, timely, and reliable information on the government’s financial position and performance; (ii) Pillar II on fiscal forecasting and budgeting emphasizes the need for budget documentation to provide a clear statement of the government’s fiscal and policy objectives, and timely and credible forecasts for the evolution of public finances; (iii) Pillar III on fiscal risk analysis and management stresses the importance of comprehensive disclosure, analysis, and control of the key risks to the public finances; and (iv) Pillar IV on resource revenue management addresses transparency issues related to natural resource endowments and revenues. Work on the first three Pillars has been completed, with Pillar IV scheduled for completion later this year. A Fiscal Transparency Manual (FTM) will provide detailed guidance on implementation of FTC principles and practices. Eight pilot FTEs have been conducted, of which four have been published so far. FTEs replace the traditional fiscal ROSCs and provide more rigorous and quantified analyses of the quality of published information and sources of fiscal vulnerability, an accessible summary of the strengths and weaknesses of country practices, and more targeted recommendations. FTEs also offer countries the option of a sequenced reform action plan and allow for modular assessments of individual pillars. Feedback from authorities, area departments, and stakeholders on FTEs has been very positive. The Board is asked to approve the first three pillars of the new FTC and the replacement of the fiscal ROSC with the FTE. On this basis, the Fund will undertake up to five FTEs in FY 2015, finalize the fourth pillar of the FTC, and finalize the FTM.
Keywords	Fiscal Transparency
URL	http://www.imf.org/external/np/pp/eng/2014/061614.pdf

Record ID	536 [ Page 1 of 1, No. 154 ]
Date	2014-08
Author	Atish R. Ghosh, Mahvash Saeed Qureshi, and Charalambos G. Tsangarides
Affiliation	Research Department, IMF
Title	Friedman Redux: External Adjustment and Exchange Rate Flexibility
Summary / Abstract	Milton Friedman argued that flexible exchange rates would facilitate external adjustment. Recent studies find surprisingly little robust evidence that they do. We argue that this is because they use composite (or aggregate) exchange rate regime classifications, which often mask very heterogeneous bilateral relationships between countries. Constructing a novel dataset of bilateral exchange rate regimes that differentiates by the degree of exchange rate flexibility, as well as by direct and indirect exchange rate relationships, for 181 countries over 1980–2011, we find a significant and empirically robust relationship between exchange rate flexibility and the speed of external adjustment. Our results are supported by several “natural experiments” of exogenous changes in bilateral exchange rate regimes.
Keywords	External dynamics, exchange rate regimes, global imbalances
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp14146.pdf

Record ID	534 [ Page 1 of 1, No. 155 ]
Date	2014-06
Author	Hashem Pesaran and Ron Smith
Affiliation	University of Cambridge
Title	Tests of Policy Ineffectiveness in Macroeconometrics
Summary / Abstract	This paper proposes tests of policy ineffectiveness in the context of macroeconometric rational expectations models. It is assumed that there is a policy intervention that takes the form of changes in the parameters of a policy rule, and that there are sufficient observations before and after the intervention. The test is based on the difference between the realisations of the outcome variable of interest and counterfactuals based on no policy intervention, using only the pre-intervention parameter estimates, and in consequence the Lucas Critique does not apply. The paper develops tests of policy ineffectiveness for a full structural model, with and without exogenous, policy or non-policy, variables. Asymptotic distributions of the proposed tests are derived both when the post intervention sample is fixed as the pre-intervention sample expands, and when both samples rise jointly but at different rates. The performance of the test is illustrated by a simulated policy analysis of a three equation New Keynesian Model, which shows that the test size is correct but the power may be low unless the model includes exogenous variables, or if the policy intervention changes the steady states, such as the inflation target.
Keywords	Counterfactuals, policy analysis, policy ine¤ectiveness test, macroeconomics
URL	http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe1415.pdf

Record ID	533 [ Page 1 of 1, No. 156 ]
Date	2014-04
Author	Jaromir Benes, Michael Kumhof, and Douglas Laxton
Affiliation	Research Department, IMF
Title	Financial Crises in DSGE Models: A Prototype Model
Summary / Abstract	This paper presents the theoretical structure of MAPMOD, a new IMF model designed to study vulnerabilities associated with excessive credit expansions, and to support macroprudential policy analysis. In MAPMOD, bank loans create purchasing power that facilitates adjustments in the real economy. But excessively large and risky loans can impair balance sheets and sow the seeds of a financial crisis. Banks respond to losses through higher spreads and rapid credit cutbacks, with adverse effects for the real economy. These features allow the model to capture the basic facts of financial cycles. A companion paper studies the simulation properties of MAPMOD.
Keywords	Financial crisis; Credit expansion; Bank credit; Credit risk; Banks;Loa ns; Macroprudential Policy; Monetary policy; Economic models; lending boom, credit crunch, financial crisis, financialy cycle, asset price bubble, macroprudential policy
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp1457.pdf

Record ID	532 [ Page 1 of 1, No. 157 ]
Date	2014-06
Author	Prachi Mishra, Kenji Moriyama, Papa M'B. P. N'Diaye, and Lam Nguyen
Affiliation	Money and Capital Markets and Strategy and Policy Review Departments, IMF
Title	Impact of Fed Tapering Announcements on Emerging Markets
Summary / Abstract	This paper analyzes market reactions to the 2013–14 Fed announcements relating to tapering of asset purchases and their relationship to macroeconomic fundamentals and country economic and financial structures. The study uses daily data on exchange rates, government bond yields, and stock prices for 21 emerging markets. It finds evidence of markets differentiating across countries around volatile episodes. Countries with stronger macroeconomic fundamentals, deeper financial markets, and a tighter macroprudential policy stance in the run-up to the tapering announcements experienced smaller currency depreciations and smaller increases in government bond yields. At the same time, there was less differentiation in the behavior of stock prices based on fundamentals.
Keywords	Monetary policy; United States; Unconventional monetary policy instruments; Announcements; Emerging markets; Financial markets; Bond yields; Stock prices; Emerging markets, tapering, Fed policy announcements, vulnerability.
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp14109.pdf

Record ID	531 [ Page 1 of 1, No. 158 ]
Date	2014-05
Author	Jean-Louis Combes, Xavier Debrun, Alexandru Minea, and Rene Tapsoba
Affiliation	African and Fiscal Affairs Departments, IMF
Title	Inflation Targeting and Fiscal Rules: Do Interactions and Sequencing Matter?
Summary / Abstract	The paper examines the joint impact of inflation targeting (IT) and fiscal rules (FR) on fiscal behavior and inflation in a broad panel of advanced and developing economies over the period 1990-2009. The main contribution of the paper is to show that, as suggested by the theoretical literature, interactions between FR and IT matter a great deal for policy outcomes. Specifically, the combination of FR and IT appears to deliver more disciplined macroeconomic policies than each of these institutions in isolation. In addition, the sequencing of the monetary and fiscal reforms plays a role: adopting FR before IT delivers stronger results than the reverse sequence.
Keywords	Inflation targeting; Fiscal rules; Fiscal policy; Macroprudential Policy; Monetary policy; Economic models; Inflation targeting, Fiscal rules, Institutional reform sequencing.
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp1489.pdf

Record ID	530 [ Page 1 of 1, No. 159 ]
Date	2014-06
Author	F. Gulcin Ozkan and D. Filiz Unsal
Affiliation	Strategy, Policy, and Review Department
Title	On the use of Monetary and Macroprudential Policies for Small Open Economies
Summary / Abstract	We explore optimal monetary and macroprudential policy rules for a small open economy. Delegating 'lean against the wind' squarely to macroprudential policy provides a more robust policy mix to shock uncertainty--(i) if macroprudential measures exist, there are no significant welfare gains from monetary policy reacting to credit growth under a financial shock; and (ii) monetary responses to financial markets could generate bigger welfare losses than macroprudential responses under different shocks. The source of outstanding liabilities also plays a role in the choice of policy instrument--macroprudential policies are particularly effective for emerging markets where foreign borrowing is sizeable.
Keywords	Macroprudential Policy; Monetary policy; Small open economies; Emerging markets; Entrepreneurship; External borrowing; Financial stability; Econometric models;Financial instability; monetary policy; macroprudential measures; emerging markets
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp14112.pdf

Record ID	529 [ Page 1 of 1, No. 160 ]
Date	2014-02
Author	Juan Pablo Medina Guzman and Jorge Roldos
Affiliation	IMF Institute for Capacity Development
Title	Monetary and Macroprudential Policies to Manage Capital Flows
Summary / Abstract	We study interactions between monetary and macroprudential policies in a model with nominal and financial frictions. The latter derive from a financial sector that provides credit and liquidity services that lead to a financial accelerator-cum-fire-sales amplification mechanism. In response to fluctuations in world interest rates, inflation targeting dominates standard Taylor rules, but leads to increased volatility in credit and asset prices. The use of a countercyclical macroprudential instrument in addition to the policy rate improves welfare and has important implications for the conduct of monetary policy. “Leaning against the wind” or augmenting a standard Taylor rule with an argument on credit growth may not be an effective policy response.
Keywords	Monetary policy; Macroprudential Policy; Capital flows; Business cycles; Financial sector; Economic models; Capital Inflows, Monetary Policy, Macroprudential Policy, Welfare Analysis
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp1430.pdf

Record ID	528 [ Page 1 of 1, No. 161 ]
Date	2014-04
Author	Tamim Bayoumi, Giovanni Dell'Ariccia, Karl Friedrich Habermeier, Tommaso Mancini Griffoli, and Fabian Valencia
Affiliation	Research, Monetary and Capital Markets, and Strategy and Policy Review Departments, IMF
Title	Monetary Policy in the New Normal
Summary / Abstract	The proposed Staff Discussion Note would take stock of the current debate on the shape that monetary policy should take after the crisis. It revisits the pros and cons of expanding the objectives of monetary policy, the merits of turning unconventional policies into conventional ones, how to make monetary policy frameworks more resilient to the risk of being constrained by the zero-lower bound going forward, and the institutional challenges to preserve central bank independence with regards to monetary policy, while allowing adequate government oversight over central banks’ new responsibilities. It will draw policy conclusions where consensus has been reached, and highlight the areas where more work is needed to get more granular policy advice.
Keywords	Monetary policy;Central banks;Central bank autonomy;Macroprudential Policy;Financial stability;Cross country analysis;Monetary Policy, Financial Stability, Central Bank Independence
URL	http://www.imf.org/external/pubs/ft/sdn/2014/sdn1403.pdf

Record ID	527 [ Page 1 of 1, No. 162 ]
Date	2014-07
Author	Elva Bova, Nathalie Carcenac, and Martine Guerguil
Affiliation	Fiscal Affairs Department, IMF
Title	Fiscal Rules and the Procyclicality of Fiscal Policy in the Developing World
Summary / Abstract	This paper documents the spread of fiscal rules in the developing world and investigates the relation between fiscal rules and procyclical fiscal policy. We find that, since the early 2000s, developing countries outnumbered advanced economies as users of fiscal rules. Rules were adopted either as part of the toolkit to join currency unions or to strengthen fiscal frameworks during and after large stabilization and policy reform episodes. The paper also finds that the greater use of fiscal rules has not shielded these countries from procyclicality, since fiscal policy remains procyclical following the adoption of a fiscal rule. We find partial evidence that some features of “second generation” rules, such as the use of cyclically-adjusted targets, well-defined escape clauses, together with stronger legal and enforcement arrangements, may be associated with less procyclicality.
Keywords	Fiscal rules, fiscal policty, cyclicality, emerging markets, developing economies

Record ID	526 [ Page 1 of 1, No. 163 ]
Date	2014-04
Author	DeGroot, Oliver
Affiliation	Board of Governors of the Federal Reserve System
Title	The Risk Channel of Monetary Policy
Summary / Abstract	This paper examines how monetary policy affects the riskiness of the financial sector's aggregate balance sheet, a mechanism referred to as the risk channel of monetary policy. I study the risk channel in a DSGE model with nominal frictions and a banking sector that can issue both outside equity and debt, making banks' exposure to risk an endogenous choice, and dependent on the (monetary) policy environment. Banks' equilibrium portfolio choice is determined by solving the model around a risk-adjusted steady state. I find that banks reduce their reliance on debt finance and decrease leverage when monetary policy shocks are prevalent. A monetary policy reaction function that responds to movements in bank leverage or to movements in credit spreads can incentivize banks to increase their use of debt finance and increase leverage, ceteris paribus, increasing the riskiness of the financial sector for the real economy.
Keywords	Financial intermediation; portfolio choice; debt and equity; monetary policy; risk-adjusted steady state
URL	http://www.federalreserve.gov/pubs/feds/2014/201431/201431pap.pdf

Record ID	525 [ Page 1 of 1, No. 164 ]
Date	2014-06
Author	Christoph E. Boehm and Christopher L. House
Affiliation	University of Michigan and NBER
Title	Optimal Taylor Rules in New Keynesian Models
Summary / Abstract	We analyze the optimal Taylor rule in a standard New Keynesian model. If the central bank can observe the output gap and the inflation rate without error, then it is typically optimal to respond infinitely strongly to observed deviations from the central bank’s targets. If it observes inflation and the output gap with error, the central bank will temper its responses to observed deviations so as not to impart unnecessary volatility to the economy. If the Taylor rule is expressed in terms of estimated output and inflation then it is optimal to respond infinitely strongly to estimated deviations from the targets. Because filtered estimates are based on current and past observations, such Taylor rules appear to have an interest smoothing component. Under such a Taylor rule, if the central bank is behaving optimally, the estimates of inflation and the output gap should be perfectly negatively correlated. In the data, inflation and the output gap are weakly correlated, suggesting that the central bank is systematically underreacting to its estimates of inflation and the output gap.
Keywords	Optimal Taylor Rules, New Keynesian Models
URL	http://www.nber.org/papers/w20237.pdf

Record ID	524 [ Page 1 of 1, No. 165 ]
Date	2014-03
Author	Rogers, John H.; Scotti, Chiara; and Wright, Jonathan H.
Affiliation	Board of Governors of the Federal Reserve System (first two authors), and Johns Hopkins University
Title	Evaluating Asset-Market Effects of Unconventional Monetary Policy: A Cross-Country Comparison
Summary / Abstract	This paper examines the effects of unconventional monetary policy by the Federal Reserve, Bank of England, European Central Bank and Bank of Japan on bond yields, stock prices and exchange rates. We use common methodologies for the four central banks, with daily and intradaily asset price data. We emphasize the use of intradaily data to identify the causal effect of monetary policy surprises. We find that these policies are effective in easing financial conditions when policy rates are stuck at the zero lower bound, apparently largely by reducing term premia.
Keywords	Large scale asset purchases; quantitative easing; zero bound; term premium
URL	http://www.federalreserve.gov/pubs/ifdp/2014/1101/ifdp1101.pdf

Record ID	523 [ Page 1 of 1, No. 166 ]
Date	2014-06
Author	Mark Gertler and Peter Karadi
Affiliation	New York University, European Central Bank, NBER
Title	Monetary Policy Surprises, Credit Costs and Economic Activity
Summary / Abstract	We provide evidence on the nature of the monetary transmission mechanism. To identify policy shocks in a setting with both economic and financial variables, we combine traditional monetary vector autoregression (VAR) analysis with high frequency identification (HFI) of monetary policy shocks. We first show that the shocks identified using HFI surprises as external instruments produce responses in output and inflation consistent with both textbook theory and conventional monetary VAR analysis. We also find, however, that monetary policy surprises typically produce "modest movements" in short rates that lead to "large" movements in credit costs and economic activity. The large movements in credit costs are mainly due to the reaction of both term premia and credit spreads that are typically absent from the standard model of monetary policy transmission. Finally, we show that forward guidance is important to the overall strength of the transmission mechanism.
Keywords	Monetary Policy, Credit Costs, Economic Activity
URL	http://www.nber.org/papers/w20224.pdf

Record ID	522 [ Page 1 of 1, No. 167 ]
Date	2014-06
Author	Guillermo J. Escudé
Affiliation	Central Bank of Argentina
Title	The Possible Trinity: Optimal Interest Rate, Exchange Rate, and Taxes on Capital Flows in a DSGE Model for a Small Open Economy
Summary / Abstract	A traditional way of thinking about the exchange rate (XR) regime and capital account openness has been framed in terms of the 'impossible trinity' or 'trilemma', in which policymakers can only have 2 of 3 possible outcomes: open capital markets, monetary independence and pegged XRs. This paper is an extension of Escude (A DSGE Model for a SOE with Systematic Interest and Foreign Exchange Policies in Which Policymakers Exploit the Risk Premium for Stabilization Purposes, 2013), which focused on interest rate and XR policies, since it introduces the third vertex of the 'trinity' in the form of taxes on private foreign debt. These affect the risk-adjusted uncovered interest parity equation and hence influence the SOE's international financial flows. A useful way to illustrate the range of policy alternatives is to associate them with the faces of a triangle. Each of 3 possible government intervention policies taken individually (in the domestic currency bond market, in the FX market, and in the foreign currency bonds market) corresponds to one of the vertices of the triangle, each of the 3 possible pairs of intervention policies corresponds to one of its 3 edges, and the 3 simultaneous intervention policies taken jointly correspond to its interior. This paper shows that this interior, or 'possible trinity' is quite generally not only possible but optimal, since the CB obtains a lower loss when it implements a policy with all three interventions.
Keywords	DSGE models; small open economy; monetary and exchange rate policy; capital controls; optimal policy
URL	http://www.economics-ejournal.org/economics/journalarticles/2014-25/version_1/count

Record ID	521 [ Page 1 of 1, No. 168 ]
Date	2014-05
Author	Laurence M. Ball
Affiliation	Johns Hopkins University, NBER
Title	Long-Term Damage from the Great Recession in OECD Countries
Summary / Abstract	This paper estimates the long-term effects of the global recession of 2008-2009 on output in 23 countries. I measure these effects by comparing current estimates of potential output from the OECD and IMF to the path that potential was following in 2007, according to estimates at the time. The losses in potential output range from almost nothing in Australia and Switzerland to more than 30% in Greece, Hungary, and Ireland; the average loss, weighted by economy size, is 8.4%. Most countries have experienced strong hysteresis effects: shortfalls of actual output from pre-recession trends have reduced potential output almost one-for-one. In the hardest-hit economies, the current growth rate of potential is depressed, implying that the level of lost potential is growing over time.
Keywords	Great Recession, Potential Output
URL	http://www.nber.org/papers/w20185.pdf

Record ID	520 [ Page 1 of 1, No. 169 ]
Date	2014-06
Author	Ray C. Fair
Affiliation	Yale University
Title	How Might a Central Bank Report Uncertainty?
Summary / Abstract	An important question for central banks is how they should report the uncertainty of their forecasts. This paper discusses a way in which a central bank could report the uncertainty of its forecasts in a world in which it used a single macroeconometric model to make its forecasts and guide its policies. Suggestions are then made as to what might be feasible for a central bank to report given that it is unlikely to be willing to commit to a single model. A particular model is used as an illustration.
Keywords	Central bank, uncertainty, stochastic simulation
URL	http://www.economics-ejournal.org/economics/discussionpapers/2014-25/count

Record ID	519 [ Page 1 of 1, No. 170 ]
Date	2014-05
Author	Rudebusch, Glenn D. and Williams, John C.
Affiliation	Federal Reserve Bank of San Francisco
Title	A wedge in the dual mandate: monetary policy and long-term unemployment
Summary / Abstract	In standard macroeconomic models, the two objectives in the Federal Reserve’s dual mandate—full employment and price stability—are closely intertwined. We motivate and estimate an alternative model in which long-term unemployment varies endogenously over the business cycle but does not affect price inflation. In this new model, an increase in long-term unemployment as a share of total unemployment creates short-term tradeoffs for optimal monetary policy and a wedge in the dual mandate. In particular, faced with high long-term unemployment following the Great Recession, optimal monetary policy would allow inflation to overshoot its target more than in standard models.
Keywords	Monetary Policy, Long-term Unemployment, Inflation Target, Short-Term Tradeoffs
URL	http://www.frbsf.org/economic-research/publications/working-papers/wp2014-14.pdf

Record ID	518 [ Page 1 of 1, No. 171 ]
Date	2014-02
Author	Dimas M. Fazio, Benjamin M. Tabak, and Daniel O. Cajueiro
Affiliation	Banco Central do Brazil
Title	Inflation Targeting and Banking System Soundness: A Comprehensive Analysis
Summary / Abstract	Several specialists and authorities blame inflation targeting (IT) regime for not responding to the increasing systemic risk and the development of asset bubbles. Nevertheless, we employ a database with commercial banks from 71 countries between 1998 and 2012, and we present evidence that: banks from IT countries: (i) are, on average, more stable; (ii) have sounder systemically important banks; and (iii) are less affected in times of global liquidity shortage. These results are in line with the existence of a price stability channel towards financial stability. Our conclusions are robust to whether we compare banks from countries that have the same legal origins, whether we control for the responsibility of bank supervision being delegated to other bodies rather than the Central Bank.
Keywords	Inﬂation targeting, ﬁnancial crisis, ﬁnancial stability, bank’s risk.
URL	http://www.bcb.gov.br/pec/wps/ingl/wps347.pdf

Record ID	517 [ Page 1 of 1, No. 172 ]
Date	2014-06
Author	Tamim Bayoumi
Affiliation	Strategy, Policy, and Review Department, IMF
Title	After the Fall: Lessons for Policy Cooperation from the Global Crisis
Summary / Abstract	A crisis is a terrible thing to waste, and nowhere is this truer than in the arena of international economic policy cooperation. With the world facing the largest and most synchronized plunge in output of the postwar era, policy makers banded together to find solutions. This paper looks at the lessons from what did—and did not—occur in the area of policy cooperation since the crisis. Outcomes seem to be weaker over time in areas such as macroeconomic policies, where institutional procedures were less well defined and there were disagreements over spillovers. By contrast, cooperation seems to have been most effective where there was a consensus that such policies could avoid the risk of highly detrimental outcomes and institutional arrangements were more concrete. Principle amongst these was trade, but bank capital buffers, IMF resources, and derivatives exchanges also fall into this category. Lessons for those interested in promoting cooperation seems to be: it may be more fruitful to: focus on the potential for major costs from a lack of cooperation, rather than the minor gains from fuller coordination; strive for more consensus estimated spillovers; convince policy-makers costs of loss of cooperation are large; and focus on building better and more enduring institutional arrangements.
Keywords	Policy cooperation, institutuinal coarregements; policy spillovers
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp1497.pdf

Record ID	516 [ Page 1 of 1, No. 173 ]
Date	2014-05
Author	Curdia, Vasco; Ferrero, Andrea; Ng, Ging Cee; and Tambalotti, Andrea
Affiliation	Federal Reserve Bank of San Francisco, University of Oxford, University of Chicago and Federal Reserve Bank of New York
Title	Has U.S. monetary policy tracked the efficient interest rate?
Summary / Abstract	Interest rate decisions by central banks are universally discussed in terms of Taylor rules, which describe policy rates as responding to inflation and some measure of the output gap. We show that an alternative specification of the monetary policy reaction function, in which the interest rate tracks the evolution of a Wicksellian efficient rate of return as the primary indicator of real activity, fits the U.S. data better than otherwise identical Taylor rules. This surprising result holds for a wide variety of specifications of the other ingredients of the policy rule and of approaches to the measurement of the output gap. Moreover, it is robust across two different models of private agents’ behavior.
Keywords	U.S. monetary policy; Interest rate rules; DSGE models; Bayesian model comparison
URL	http://www.frbsf.org/economic-research/files/wp2014-12.pdf

Record ID	515 [ Page 1 of 1, No. 174 ]
Date	2014-05
Author	Thierry Tressel and Thierry Verdier
Affiliation	European Department, IMF
Title	Optimal Prudential Regulation of Banks and the Political Economy of Supervision
Summary / Abstract	We consider a moral hazard economy in banks and production to study how incentives for risk taking are affected by the quality of supervision. We show that low interest rates may generate excessive risk taking. Because of a pecuniary externality, the market equilibrium may not be optimal and there is a need for prudential regulation. We show that the optimal capital ratio depends on the macro-financial cycle, and that, in presence of production externalities, it should be complemented by a constraint on asset allocation. We show that the political process tends to exacerbate excessive risk taking and credit cycles.
Keywords	Banking Regulation, Regulatory Forbearance, Political Economy
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp1490.pdf

Record ID	514 [ Page 1 of 1, No. 175 ]
Date	2014-05
Author	Ales Bulir, Jaromír Hurník, and Katerina Smidkova
Affiliation	Institute for Capacity Development, IMF
Title	Inflation Reports and Models: How Well Do Central Banks Really Write?
Summary / Abstract	We offer a novel methodology for assessing the quality of inflation reports. In contrast to the existing literature, which mostly evaluates the formal quality of these reports, we evaluate their economic content by comparing inflation factors reported by the central banks with ex-post model-identified factors. Regarding the former, we use verbal analysis and coding of inflation reports to describe inflation factors communicated by central banks in real time. Regarding the latter, we use reduced-form, new Keynesian models and revised data to approximate the true inflation factors. Positive correlations indicate that the reported inflation factors were similar to the true, model-identified ones and hence mark high-quality inflation reports. Although central bank reports on average identify inflation factors correctly, the degree of forward-looking reporting varies across factors, time, and countries.
Keywords	Inflation targeting, Kalman filter, monetary policy communication
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp1491.pdf

Record ID	513 [ Page 1 of 1, No. 176 ]
Date	2014-05
Author	Jean-Louis Combes, Xavier Debrun, Alexandru Minea, and Rene Tapsoba
Affiliation	African and Fiscal Affairs Departments, IMF
Title	Inflation Targeting and Fiscal Rules: Do Interactions and Sequencing Matter?
Summary / Abstract	The paper examines the joint impact of inflation targeting (IT) and fiscal rules (FR) on fiscal behavior and inflation in a broad panel of advanced and developing economies over the period 1990-2009. The main contribution of the paper is to show that, as suggested by the theoretical literature, interactions between FR and IT matter a great deal for policy outcomes. Specifically, the combination of FR and IT appears to deliver more disciplined macroeconomic policies than each of these institutions in isolation. In addition, the sequencing of the monetary and fiscal reforms plays a role: adopting FR before IT delivers stronger results than the reverse sequence.
Keywords	Inflation targeting, fiscal rules, institutional reform sequencing
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp1489.pdf

Record ID	512 [ Page 1 of 1, No. 177 ]
Date	2013-12
Author	Sir Christopher Pissarides
Affiliation	Co-recipient of the 2010 Nobel Memorial Prize in Economic Sciences, is the Regius Professor of Economics at LSE, European Studies Professor at the University of Cyprus and Chairman of the Council of National Economy of the Republic of Cyprus. Between 1999 and 2007, he was director of CEP’s macroeconomics research programme; and he is now Chairman of the new Centre for Macroeconomics at LSE.
Title	Tough choices for a troubled euro
Summary / Abstract	Nobel laureate Christopher Pissarides was once a passionate believer in the benefits of European monetary union. He now thinks that either the euro should be dismantled or the direction of economic policy dramatically reversed so as to promote growth and jobs and avoid creating a lost generation of educated young people.
Keywords	Euro, monetary union, inflation, growth, unemployment
URL	http://cep.lse.ac.uk/pubs/download/cp409.pdf

Record ID	511 [ Page 1 of 1, No. 178 ]
Date	2014-05
Author	Benjamin M. Friedman
Affiliation	William Joseph Maier Professor of Political Economy, Harvard University
Title	Has the Financial Crisis Permanently Changed the Practice of Monetary Policy? Has It Changed the Theory of Monetary Policy?
Summary / Abstract	I argue in this paper that one of the two forms of hitherto unconventional monetary policy that many central banks have implemented in response to the 2007 financial crisis – large-scale asset purchases, or to put the matter more generically, use of the central bank’s balance sheet as a distinct tool of monetary policy – is likely to become part of the standard toolkit of monetary policymaking in normal times as well. As intended, these purchases have lowered long-term interest rates relative to short-term rates, and lowered interest rates on more-risky compared to less-risky obligations. Moreover, their introduction fills a conceptual vacuum that has long stood at the heart of monetary policy analysis and implementation. By contrast, forward guidance on the future trajectory of monetary policy has been less successful. Public statements by central banks about their actions and intentions will no doubt continue, but transparency for the sake of transparency is not the same as the deliberate attempt to shape market expectations for purposes of achieving specific monetary policy objectives. Finally, there is a conceptual component to all this as well. In contrast to the last century or more of monetary theory, which has focused on central banks’ liabilities, the basis for the effectiveness of central bank asset purchases turns on the role of the asset side of the central bank’s balance sheet. The implications for monetary theory are profound.
Keywords	Financial Crisis, Monetary Policy, Monetary Theory
URL	http://www.nber.org/papers/w20128.pdf

Record ID	510 [ Page 1 of 1, No. 179 ]
Date	2014-05
Author	Neslihan Kaya
Affiliation	Central Bank of the Republic of Turkey
Title	A Comparison of Optimal Policy Rules for Pre and Post Inflation Targeting Eras : Empirical Evidence from Bank of Canada
Summary / Abstract	In this paper, we derive policy rules of Bank of Canada for different preferences over the goal variables in their loss functions. The optimal rules are derived for the pre and post inflation-targeting eras. According to the results, the monetary policy rule of the Bank of Canada for the pre inflation-targeting era is best described with a loss function that attaches equal weight to inflation, interest rate smoothing incentive and the output gap in the loss function. In the post-inflation targeting era the optimal interest rate attaches the highest weight to inflation rate in the loss function; followed by the interest rate smoothing incentive and then the output gap. The inclusion of the exchange rate as another goal variable in the loss function does not significantly alter the results in approximating the actual policy rate of Bank of Canada. Next, simulations of demand (positive) and supply (negative) shocks are carried out for the post-IT period for two cases where the monetary policy rule is mimicked by (i) an ad-hoc Taylor rule and (ii) the derived optimal rule. The results indicate that the ad-hoc Taylor rule brings down inflation rates more quickly compared to the derived optimal rule, but only at the cost of higher contraction in output and more volatile interest rates.
Keywords	Inflation targeting, optimal monetary policy rule, linear-quadratic regulator problem
URL	http://www.tcmb.gov.tr/research/discus/2014/WP1413.php

Record ID	509 [ Page 1 of 1, No. 180 ]
Date	2014-03
Author	Alexander J. Gill
Affiliation	Duke University
Title	Ben Bernanke: Theory and Practice
Summary / Abstract	Ben Bernanke researched monetary policy for over 25 years prior to becoming a policymaker, and his two-term career as Chairman of the Federal Reserve featured a severe recession coupled with a financial crisis, a chief subject of Bernanke's research. His reaction to economic events is noteworthy in its originality and breadth, but its intellectual underpinnings are, with a few exceptions discussed in the paper, not without written precedent. This paper will summarize and connect Bernanke's research and policymaking and show that the two are closely aligned.
Keywords	Economic thought, history of economic thought, central banking, Fed, Bernanke
URL	http://hope.econ.duke.edu/sites/default/files/Ben_Bernanke_Theory_and_Practice%20WP.pdf

Record ID	508 [ Page 1 of 1, No. 181 ]
Date	2014-05
Author	Marco Pagano
Affiliation	Centre for Studies in Economics and Finance, University of Naples
Title	Dealing with Financial Crises: How Much Help from Research
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.
Keywords	Financial crisis, risk taking, systemic risk, financial regulation, monetary policy, politics
URL	http://www.csef.it/WP/wp361.pdf

Record ID	507 [ Page 1 of 1, No. 182 ]
Date	2014-04
Author	Todd B. Walker, Alexander W. Richter, and Nathaniel A. Throckmorton
Affiliation	Auburn University and Indiana University
Title	Accuracy, Speed and Robustness of Policy Function Iteration
Summary / Abstract	Policy function iteration methods for solving and analyzing dynamic stochastic general equilibrium models are powerful from a theoretical and computational perspective. Despite obvious theoretical appeal, significant startup costs and a reliance on grid-based methods have limited the use of policy function iteration as a solution algorithm. We reduce these costs by providing a user-friendly suite of MATLAB functions that introduce multi-core processing and Fortran via MATLAB's executable function. Within the class of policy function iteration methods, we advocate using time iteration with linear interpolation. We examine a canonical real business cycle model and a new Keynesian model that features regime switching in policy parameters, Epstein-Zin preferences, and monetary policy that occasionally hits the zero-lower bound on the nominal interest rate to highlight the attractiveness of our methodology. We compare our advocated approach to other familiar iteration and approximation methods, highlighting the tradeoffs between accuracy, speed and robustness.
Keywords	Policy function iteration; Zero lower bound; Epstein-Zin preferences; Markov switching; Chebyshev polynomials; Real business cycle model; New Keynesian model
URL	http://cla.auburn.edu/econwp/Archives/2014/2014-08.pdf

Record ID	506 [ Page 1 of 1, No. 183 ]
Date	2014-04
Author	Akio Hattori, Kentaro Kikuchi, Fuminori Niwa and Yoshihiko Uchida
Affiliation	All of Bank of Japan
Title	A Survey of Systemic Risk Measures: Methodology and Application to the Japanese Market
Summary / Abstract	The recent financial crisis has prompted academia, country authorities, and international bodies to study quantitative tools to monitor the financial system, especially systemic risk measures. This paper aims to outline these measures and apply them to Japan's financial system. The paper demonstrates that they are effective tools for monitoring the robustness of financial system on a real-time basis, although there are some caveats.
Keywords	Systemic risk, Risk measure, Early warning indicators, Stress test, Scenario analysis, Macro-prudence, Financial crisis
URL	http://www.imes.boj.or.jp/research/papers/english/14-E-03.pdf

Record ID	505 [ Page 1 of 1, No. 184 ]
Date	2013-09
Author	Camilo González, Luisa F. Silva, Carmiña O. Vargas, and Andrés M. Velasco
Affiliation	Banco de la Republica Colombia
Title	An exploration on interbank markets and the operational framework of monetary policy in Colombia
Summary / Abstract	We set up a dynamic stochastic model for the interbank daily market for funds in Colombia. The framework features exogenous reserve requirements and requirement period, competitive trading among heterogeneous commercial banks, daily open market operations held by the Central Bank (auctions and window facilities), and idiosyncratic demand shocks and uncertainty in the daily auction. The model highlights the institutional framework and the money supply mechanisms for the interbank market. We construct a data base for the Colombian case that incorporates the principal variables of the model and give us some insights about the behavior of them in a typical requirement period. We corroborate the Martingale hypothesis for the interbank interest rate.
Keywords	Interbank Market; Overnight Rates; Reserve Demand
URL	http://d.repec.org/n?u=RePEc:col:000094:010982&r=cba

Record ID	504 [ Page 1 of 1, No. 185 ]
Date	2014-04
Author	Dongho Song
Affiliation	University of Pennsylvania
Title	Bond Market Exposures to Macroeconomic and Monetary Policy Risks
Summary / Abstract	I provide empirical evidence of changes in the U.S. Treasury yield curve and related macroeconomic factors, and investigate whether the changes are brought about by external shocks, monetary policy, or by both. To explore this, I characterize bond market exposures to macroeconomic and monetary policy risks, using an equilibrium term structure model with recursive preferences in which inflation dynamics are endogenously determined. In my model, the key risks that affect bond market prices are changes in the correlation between growth and inflation and changes in the conduct of monetary policy. Using a novel estimation technique, I find that the changes in monetary policy affect the volatility of yield spreads, while the changes in the correlation between growth and inflation affect both the level as well as the volatility of yield spreads. Consequently, the changes in the correlation structure are the main contributor to bond risk premia and to bond market volatility. The time variations within a regime and risks associated with moving across regimes lead to the failure of the Expectations Hypothesis and to the excess bond return predictability regression of Cochrane and Piazzesi (2005), as in the data.
Keywords	Monetary Policy Risks, Regime-Switching Macroeconomic Risks, Stochastic Volatility, Taylor-Rule, Term Structure
URL	http://d.repec.org/n?u=RePEc:pen:papers:14-017&r=cba

Record ID	503 [ Page 1 of 1, No. 186 ]
Date	2014-04
Author	Amstad, Marlene; Potter, Simon M.; and Rich, Robert W.
Affiliation	All of Federal Reserve Bank of New York
Title	The FRBNY staff underlying inflation gauge: UIG
Summary / Abstract	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 “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 sub-components 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.
Keywords	Expectations; survey forecasts; imperfect information; term structure of disagreement
URL	http://www.newyorkfed.org/research/staff_reports/sr672.pdf

Record ID	502 [ Page 1 of 1, No. 187 ]
Date	2014-04
Author	Thorsten Beck, Andrea Colciago, and Damjan Pfajfar
Affiliation	Cass Business School, City University London, and CEPR; De Nederlandsche Bank and University of Milano Bicocca; and EBC, CentER and Economics Department, Tilburg University
Title	The role of financial intermediaries in monetary policy transmission
Summary / Abstract	The recent financial crisis has stimulated theoretical and empirical research on the propagation mechanisms underlying business cycles, in particular on the role of financial frictions. Many issues concerning the interactions between banking and monetary policy forced policy makers to redefine economic policies, and motivated macroeconomists to focus on the implications of financial intermediation constraints on asset price fluctuations, the behavior of non-financial firms, households, governments and in turn for real macroeconomic performance. This paper surveys research on the role of financial intermediaries and financial frictions in the transmission of monetary policy and discusses how to design both the new banking regulatory and supervisory structures and monetary policy in order to stabilize the economy. It also serves as an introduction to this special issue.
Keywords	Financial Intermediation; DSGE models; Financial Frictions
URL	http://www.dnb.nl/en/binaries/Working%20Paper%20420_tcm47-306757.pdf

Record ID	501 [ Page 1 of 1, No. 188 ]
Date	2014-04
Author	Pejman Bahramian, Mehmet Balcilar, Rangan Gupta and Patrick T. Kanda
Affiliation	Eastern Mediterranean University, and University of Pretoria
Title	Forecasting South African Inflation Using Non-Linear Models: A Weighted Loss-Based Evaluation
Summary / Abstract	The conduct of inflation targeting is heavily dependent on accurate inflation forecasts. Non-linear models have increasingly featured, along with linear counterparts, in the forecasting literature. In this study, we focus on forecasting South African infl ation by means of non-linear models and using a long historical dataset of seasonally-adjusted monthly inflation rates spanning from 1921:02 to 2013:01. For an emerging market economy such as South Africa, non-linearities can be a salient feature of such long data, hence the relevance of evaluating non-linear models' forecast performance. In the same vein, given the fact that 1969:10 marks the beginning of a protracted rising trend in South African inflation data, we estimate the models for an in-sample period of 1921:02-1966:09 and evaluate 24 step-ahead forecasts over an out-of-sample period of 1966:10-2013:01. In addition, using a weighted loss function specification, we evaluate the forecast performance of different non-linear models across various extreme economic environments and forecast horizons. In general, we find that no competing model consistently and significantly beats the LoLiMoT's performance in forecasting South African inflation.
Keywords	Inflation, forecasting, non-linear models, weighted loss function, South Africa
URL	http://web.up.ac.za/sitefiles/file/40/677/WP_2014_16.pdf

Record ID	500 [ Page 1 of 1, No. 189 ]
Date	2014-02
Author	Pablo Pincheira and Andrés Gatty
Affiliation	Banco Central de Chile
Title	Forecasting Chilean Inflation with International Factors
Summary / Abstract	In this paper we build forecasts for Chilean year-on-year inflation using simple time-series models augmented with different measures of international inflation. Broadly speaking, we construct two families of international inflation factors. The first family is built using year-on-year inflation of 18 Latin American (LA) countries (excluding Chile). The second family is built using year-on-year inflation of 30 OECD countries (excluding Chile). We show sound in-sample and pseudo out-ofsample evidence indicating that these international factors do help forecast Chilean inflation at several horizons. Incorporating the international factors reduce the Root Mean Squared Prediction Error of pure univariate SARIMA models statistically speaking. We also show that the predictive pass-through from international to local inflation has increased in the recent years. As a final exercise we construct another international inflation factor as an average of the inflation of fifteen countries from which Chile gets a high percentage of its imports. With the aid of this factor the models outperform our univariate benchmarks but also underperform the results obtained with the broader factors built with LA or OECD countries, suggesting that imported inflation is not the only channel explaining our findings.
Keywords	Inflation forecasting for IT central banks, international inflation factors
URL	http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc723.pdf

Record ID	499 [ Page 1 of 1, No. 190 ]
Date	2014-01
Author	Keiichiro Kobayashi and Tomoyuki Nakajima
Affiliation	Keio University/The Canon Institute for Global Studies and Institute of Economic Research, Kyoto University/The Canon Institute for Global Studies
Title	A macroeconomic model of liquidity crises
Summary / Abstract	We develop a simple macroeconomic model that captures key features of a liquidity crisis. During a crisis, the supply of short-term loans vanishes, the interest rate rises sharply, and the level of economic activity declines. A crisis may be caused either by self-fulfilling beliefs or by fundamental shocks. It occurs as a result of market failure due to debt overhang in short-term loans. The government's commitment to deposit guarantee reduces the likelihood of self-fulfilling crisis but increases that of fundamental crisis.
Keywords	Debt overhang, liquidity, systemic crisis
URL	http://www.canon-igs.org/en/column/140203_nakajima_02.pdf

Record ID	498 [ Page 1 of 1, No. 191 ]
Date	2014-04
Author	Huw Dixon, Jeremy Franklin, and Stephen Millard
Affiliation	Cardiff Business School and Bank of England
Title	Sectoral shocks and monetary policy in the United Kingdom
Summary / Abstract	In this paper, we use an open economy model of the United Kingdom to examine the extent to which monetary policy should respond to movements in sectoral inflation rates. To do this we construct a Generalised Taylor model that takes specific account of the sectoral make up of the consumer price index (CPI), where the sectors are based on the COICOP classification the UK CPI microdata. We calibrate the model for each sector using the UK CPI microdata and model the sectoral shocks that drive sectoral inflation rates as white noise processes, as in the UK data. We find that a policy rule that allows for different responses to inflation in different sectors outperforms a rule which just targets aggregate CPI. However, the gain is small and comes from partially looking through movements in aggregate inflation driven by movements in petrol price inflation, which is volatile and tends not to reflect underlying inflationary pressure.
Keywords	CPI inflation; Sectoral inflation rates; Generalised Taylor economy
URL	http://www.bankofengland.co.uk/research/Documents/workingpapers/2014/wp499.pdf

Record ID	497 [ Page 1 of 1, No. 192 ]
Date	2014-03
Author	Thomas Barnebeck Andersen, Nikolaj Malchow-Møller, and Jens Nordvig
Affiliation	CEPS
Title	Inflation-Targeting, Flexible Exchange Rates and Macroeconomic Performance since the Great Recession
Summary / Abstract	Has inflation targeting (IT) conferred benefits in terms of economic growth on countries that followed this particular monetary policy strategy during the crisis period 2007-12? This paper answers this question in the affirmative. Countries with an IT monetary regime with flexible exchange rates weathered the crisis much better than countries with other monetary regimes, predominantly countries with fixed exchange rates. Part of this difference in growth performance reflects differences in export performance during the initial years of the crisis, which in turn can be explained by real exchange rate depreciations. However, IT seems also to confer other benefits on the countries above and beyond the effects from currency depreciation.
Keywords	Inflation targeting, flexible exchange rates, economic growth, Great Recession
URL	http://d.repec.org/n?u=RePEc:eps:cepswp:9116&r=cba

Record ID	496 [ Page 1 of 1, No. 193 ]
Date	2013-06
Author	Nidia Ruth Reyes, José Eduardo Gómez G. and Jair Ojeda Joya
Affiliation	Banco de la Republica Colombia
Title	Bank Lending, Risk Taking, and the Transmission of Monetary Policy: New Evidence for Colombia
Summary / Abstract	We study the existence of a monetary policy transmission mechanism through banks in Colombia, using monthly banks’ balance sheet data for the period 1996:4 – 2012:12. We obtain results which are consistent with the basic postulates of the bank lending channel (and the risk-taking channel) literature. The impact of short-term interest rates on the growth rate of loans is negative, indicating that increases in these rates lead to reductions in the growth rate of loans. This impact is stronger for consumer loans than for commercial loans. We find important heterogeneity in the monetary policy transmission across banks depending on banks-specific characteristics.
Keywords	Monetary policy transmission, Bank lending channel, Risk taking channel, Colombia
URL	http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_772.pdf?__utma=1.1731840165.1386797159.1397161236.1398087920.16&__utmb=1.7.10.1398087920&__utmc=1&__utmx=-&__utmz=1.1398087920.16.12.utmcsr=google\|utmccn=(organic)\|utmcmd=organic\|utmct

Record ID	495 [ Page 1 of 1, No. 194 ]
Date	2014-03
Author	Willi Semmler and Pu Chen
Affiliation	New School for Social Research and Melbourne Institute of Technology
Title	Financial Stress, Regime Switching and Macrodynamics: Theory and Empirics for the US, the EU and Non-EU Countries
Summary / Abstract	Over-borrowing and financial stress has recently become an important issue in macroeconomic and policy discussions in the US as well as in the EU. In this paper the authors study two regimes of financial stress. In a regime of high financial stress, stress shocks can have large and persistent impacts on the real side of the economy whereas in regimes of low stress, shocks can easily dissipate having no lasting effects. In order to study the macroeconomic dynamics, with alternative paths resulting from financial stress shocks, the authors introduce a macromodel with a finance-macro link which uses a multi-period decision framework of economic agents. The agents can, in a finite horizon context, borrow and accumulate assets where however the above two scenarios may occur. The model is solved through nonlinear model predictive control (NMPC). Empirically the authors use a multi-regime VAR (MRVAR) to study the impact of financial stress shocks on the macroeconomy in a large number of countries.
Keywords	Financial Stress, Macro dynamics, MRVAR
URL	http://www.economics-ejournal.org/economics/journalarticles/2014-20

Record ID	494 [ Page 1 of 1, No. 195 ]
Date	2014-04
Author	Benjamin Käfer
Affiliation	University of Kassel, Germany
Title	The Taylor Rule and Financial Stability: A Literature Review with Application for the Eurozone
Summary / Abstract	The question of whether central banks should bear responsibility for financial stability is still unanswered. Regarding interest rate implementation, it is thus not clear if and how the Taylor rule should be augmented by an additional financial stability term. This paper reviews the normative and positive literature on Taylor rules augmented with exchange rates, asset prices, credit, and spreads. These measures have developed as common indicators of financial (in)stability in the Taylor rule literature. In addition, our own analysis describes the development of these indicators for the core and the periphery of the Eurozone. Given the large degree of heterogeneity between euro area countries, the conclusion here is that an interest rate reaction to instability by the European Central Bank would be inappropriate in times of crisis. However, this conclusion is somewhat weakened if there is no crisis.
Keywords	Taylor rule, financial stability, sovereign debt crisis, Eurozone heterogeneity, exchange rates, asset prices, credit spreads
URL	http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/30-2014_kaefer.pdf

Record ID	493 [ Page 1 of 1, No. 196 ]
Date	2014-05
Author	Paolo Gelain and Pelin Ilbas
Affiliation	Norges Bank and National Bank of Belgium
Title	Monetary and macroprudential policies in an estimated model with financial intermediation
Summary / Abstract	We estimate the Smets and Wouters (2007) model augmented with the Gertler and Karadi (2011) financial intermediation sector on US data by using real and financial observables. Given the framework of the estimated model, we address the question whether and how standard monetary policy should interact with macroprudential policy in order to safeguard real and financial stability. For this purpose, monetary policy is described by a flexible inflation targeting regime using the interest rate as instrument, while the macroprudential regulator adopts a tax/subsidy on bank capital in a countercyclical manner in order to stabilize nominal credit growth and the output gap. We look at the gains from coordination between the central bank and the macroprudential regulator under alternative assumptions regarding the degree of importance assigned to output gap fluctuations in the macroprudential mandate. The results suggest that there can be considerable gains from coordination if the macroprudential regulator has been assigned a sufficiently high weight on output gap stabilization, i.e. the common objective with monetary policy. If, on the other hand, the main focus of the macroprudential mandate is on credit growth, the macroprudential policy maker can reach better outcomes, while the central bank does worse, in the absence of coordination. Therefore, whether and to which extent monetary policy gains from coordination with the macroprudential regulator depends on the relative weight assigned to output fluctuations in the macroprudential mandate. Our counterfactual analysis further confirms the effectiveness of the countercyclical macroprudential tax/subsidy in containing the amplification effects triggered by a financial shock, and suggests that having a macroprudential regulatory tool at work could have successfully avoided the massive drop in credit such as the one observed at the onset of the Great Recession.
Keywords	Monetary policy, financial frictions, macroprudential policy, policy coordination, capital tax/subsidy
URL	http://www.nbb.be/doc/oc/repec/reswpp/wp258En.pdf

Record ID	492 [ Page 1 of 1, No. 197 ]
Date	2014-05
Author	J. Scott Davis and Ignacio Presno
Affiliation	Federal Reserve Bank of Dallas and Federal Reserve Bank of Boston
Title	Inflation targeting and the anchoring of inflation expectations: cross-country evidence from consensus forecasts
Summary / Abstract	Using survey data of inflation expectations across a 36 developed and developing countries, this paper examines whether the adoption of inflation targeting has helped to anchor inflation expectations. We examine the response of inflation expectations following a shock to inflation, inflation expectations, and oil prices. For the 13 countries that adopted inflation targeting midway through the time period used in this study, there is a significant difference in the responses between the earlier and the later subperiods. A shock leads to a positive, significant, and persistent increase inflation expectations in the earlier, pre-targeting subperiod, but the same response is much less significant and persistent in the later, posttargeting subperiod. For the control group of 23 countries that did not adopt inflation targeting during this time period, there is no difference between responses in the earlier and the later sub-periods.
Keywords	Price levels, inflation, deflation, monetary policy
URL	http://www.dallasfed.org/assets/documents/institute/wpapers/2014/0174.pdf

Record ID	490 [ Page 1 of 1, No. 198 ]
Date	2014-03
Author	Franz Hamann, Marc Hofstetter, and Miguel Urrutia
Affiliation	Universidad de los Andes
Title	Inflation Targeting in Colombia, 2002-2012
Summary / Abstract	After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflation-targeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange rate, and the short-term interest rate as the main instrument. We examine the experience of the Colombian Central Bank over the last decade, a period of consolidation and innovation of its IT strategy. We study the increasing number of instruments used by the CB, including systematic foreign exchange interventions, announcements, and, sporadically, macro-prudential policies, capital controls, and changes in reserve requirements, among others. The study also examines some political economy dimensions that help explain the behavior of the CB during this period. To guide the discussion, we estimate a small-scale open-economy-policy-model.
Keywords	Inflation Targeting, Monetary Policy, Exchange Rate, Taylor Rule, Colombia
URL	file:///C:/Users/Dan/Downloads/dcede2014-09.pdf

Record ID	488 [ Page 1 of 1, No. 199 ]
Date	2014-05
Author	Charles I. Plosser
Affiliation	President and CEO, Federal Reserve Bank of Philadelphia
Title	Communication and Transparency in the Conduct of Monetary Policy
Summary / Abstract	President Plosser outlines his views that policy transparency and forward guidance could be enhanced if the central bank would be more explicit about its reaction function. President Plosser notes that one way to be more explicit would be to indicate the likely behavior of the policy rate based on a few different Taylor-like rules that have been consistent with past conduct of monetary policy and are robust to our uncertainties regarding the true economic model. President Plosser believes that the Federal Reserve Board staff’s model, called FRB/US, seems to be a reasonable starting point for providing economic forecasts based on those rule-based policies.
Keywords	Monetary policy, communications, transparency
URL	http://philadelphiafed.org/publications/speeches/plosser/2014/05-08-14-cfr.pdf

Record ID	487 [ Page 1 of 1, No. 200 ]
Date	2014-05
Author	Peter Sarlin
Affiliation	Goethe University Frankfurt and RiskLab Finland
Title	Macroprudential oversight, risk communication and visualization
Summary / Abstract	This paper discusses the role of risk communication in macroprudential oversight and of visualization in risk communication. Beyond the soar in availability and precision of data, the transition from firm-centric to system-wide supervision imposes obvious data needs. Moreover, broad and effective communication of timely information related to systemic risks is a key mandate of macroprudential supervisors, which further stresses the importance of simple representations of complex data. Risk communication comprises two tasks: internal and external dissemination of information about systemic risks. This paper focuses on the background and theory of information visualization and visual analytics, as well as techniques provided within these fields, as potential means for risk communication. We define the task of visualization in internal and external risk communication, and provide a discussion of the type of available macroprudential data and an overview of visualization techniques applied to systemic risk. We conclude that two essential, yet rare, features for supporting the analysis of big data and communication of risks are analytical visualizations and interactive interfaces. This is illustrated with implementations of three analytical visualizations and five web-based interactive visualizations to systemic risk indicators and models.
Keywords	Macroprudential oversight, risk communication, visualization, analytical visualization, interactive visualization
URL	http://arxiv.org/pdf/1404.4550.pdf

Record ID	486 [ Page 1 of 1, No. 201 ]
Date	2014-03
Author	Michal Skorepa and Jakub Seidler
Affiliation	Czech National Bank
Title	Capital Buffers Based on Banks' Domestic Systemic Importance: Selected Issues
Summary / Abstract	Regulators in many countries are currently considering ways to impose domestic systemic importance-based capital requirements on banks. Aiming to assist these considerations, this article discusses a number of issues concerning the calculation of a bank's systemic importance to the domestic banking sector, such as the choice of indicators used and the pros and cons of focusing on an individual or consolidated level. Also, the 'equal expected impact' procedure for determining adequate additional capital requirements is presented in detail and some of its properties are discussed. As an illustrative example of the practical use of the procedures presented, systemic importance scores and implied capital buffers are calculated for banks in the Czech Republic. The article also stresses the crucial role of public communication of the motivation for the buffers: regulators should make every effort to explain that the imposition of a non-zero systemic importance-based capital buffer on a bank is not to be interpreted by the markets as a signal that the bank is too big to fail and would therefore be guaranteed a public bail-out if it got into difficulties.
Keywords	Bank failure, Basel III, capital adequacy, consolidation, systemic importance, public support
URL	http://www.cnb.cz/miranda2/export/sites/www.cnb.cz/en/research/research_publications/irpn/download/rpn_1_2014.pdf

Record ID	485 [ Page 1 of 1, No. 202 ]
Date	2014-04
Author	Tayler, William and Zilberman, Roy
Affiliation	Lancaster University Management School, Department of Economics, United Kingdom
Title	Macroprudential Regulation and the Role of Monetary Policy
Summary / Abstract	This paper examines the macro-prudential roles of bank capital regulation and monetary policy in a Dynamic Stochastic General Equilibrium model with endogenous financial frictions and a borrowing cost channel. We identify various transmission channels through which credit risk, commercial bank losses, monetary policy and bank capital requirements affect the real economy. These mechanisms generate significant financial accelerator effects, thus providing a rationale for a macro-prudential toolkit. Following credit shocks, counter-cyclical bank capital regulation is more effective than monetary policy in promoting financial, price and overall macroeconomic stability. For supply shocks, macro-prudential regulation combined with a strong response to inflation in the central bank policy rule yield the lowest welfare losses. The findings emphasize the importance of the Basel III regulatory accords and cast doubt on the desirability of conventional Taylor rules during periods of financial distress.
Keywords	Bank Capital Regulation; Macroprudential Policy; Basel III; Monetary Policy; Borrowing Cost Channel
URL	http://www.dynare.org/wp-repo/dynarewp037.pdf

Record ID	484 [ Page 1 of 1, No. 203 ]
Date	2014-04
Author	Fabio Comelli
Affiliation	Institute for Capacity Development, IMF
Title	Comparing the Performance of Logit and Probit Early Warning Systems for Currency Crises in Emerging Market Economies
Summary / Abstract	We compare how logit (fixed effects) and probit early warning systems (EWS) predict insample and out-of-sample currency crises in emerging markets (EMs). We look at episodes of currency crises that took place in 29 EMs between January 1995 and December 2012. Stronger real GDP growth rates and higher net foreign assets significantly reduce the probability of experiencing a currency crisis, while high levels of credit to the private sector increase it. We find that the logit and probit EWS out-of-sample performances are broadly similar, and that the EWS performance can be very sensitive both to the size of the estimation sample, and to the crisis definition employed. For macroeconomic policy purposes, we conclude that a currency crisis definition identifying more rather than less crisis episodes should be used, even if this may lead to the risk of issuing false alarms.
Keywords	Early warning systems, currency crises, out-of-sample performance
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp1465.pdf

Record ID	483 [ Page 1 of 1, No. 204 ]
Date	2014-04
Author	Rahul Anand, Volodymyr Tulin, and Naresh Kumar
Affiliation	Asia and Pacific Department, IMF
Title	India: Defining and Explaining Inclusive Growth and Poverty Reduction
Summary / Abstract	We document the evolution of poverty and inequality across Indian states during the recent period of rapid growth (2004-09), and examine the role of growth and distribution in reducing poverty. Robust economic growth has been a major driver of poverty reduction and inclusiveness in India. We explore the role of economic policies and macro-financial conditions in explaining inclusive growth and its components, using a new measure of inclusive growth. Social expenditures, spending on education, and educational attainment rates are important for fostering inclusive growth. Macro-financial stability, with particular attention to inflation risks, is also critical for promoting inclusive growth.
Keywords	India, state le vel growth, poverty, inequa lity, inclusive growth
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp1463.pdf

Record ID	482 [ Page 1 of 1, No. 205 ]
Date	2014-04
Author	Jaromir Benes, Michael Kumhof, and Douglas Laxton
Affiliation	Research Department, IMF
Title	Financial Crises in DSGE Models: A Prototype Model
Summary / Abstract	This paper, together with a technical companion paper, presents MAPMOD, a new IMF model designed to study vulnerabilities associated with excessive credit expansions, and to support macroprudential policy analysis. In MAPMOD, bank loans create purchasing power that facilitates adjustments in the real economy. But excessively large and risky loans can impair balance sheets and sow the seeds of a financial crisis. Banks respond to losses through higher spreads and rapid credit cutbacks, with adverse effects for the real economy. These features allow the model to capture the basic facts of both the pre-crisis and crisis phases of financial cycles.
Keywords	Lending boom, credit crunch, financial crisis, financialy cycle, asset price bubble, macroprudential policy
URL	http://www.imf.org/external/pubs/ft/wp/2014/wp1457.pdf

Record ID	481 [ Page 1 of 1, No. 206 ]
Date	2014-03
Author	IMF Policy Paper
Affiliation	International Monetary Fund
Title	Conditionality in Evolving Monetary Policy Regimes
Summary / Abstract	With single-digit inflation and substantial financial deepening, developing countries are adopting more flexible and forward-looking monetary policy frameworks and ascribing a greater role to policy interest rates and inflation objectives. While some countries have adopted formal inflation targeting regimes, others have developed frameworks with greater target flexibility to accommodate changing money demand, use of policy rates to signal the monetary policy stance, and implicit inflation targets.
Keywords	Conditionality, Monetary Policy Regimes
URL	http://www.imf.org/external/np/pp/eng/2014/030514b.pdf

Record ID	480 [ Page 1 of 1, No. 207 ]
Date	2014-02
Author	Seitz, Franz and Schmidt, Markus A.
Affiliation	Weiden Technical University of Applied Sciences and Deutsche Bundesbank
Title	Money in modern macro models: A review of the argument
Summary / Abstract	This paper provides an overview of the role of money in modern macro models. In particular, we are focusing on New Keynesian and New Monetarist models to investigate their main findings and most significant shortcomings in considering money properly. As a further step, we ask about the role of financial intermediaries in this respect. In dealing with these issues, we distinguish between narrow and broad monetary aggregates. We conclude that for theoretical as well as practical reasons a periodic review of the definition of monetary aggregates is advisable. Despite the criticism brought forward by the recent New Keynesian literature, we argue that keeping an eye on money is important to monetary policy decision-makers in order to safeguard price stability as well as, as a side-benefit, ensure financial market stability. In a nutshell: money still matters.
Keywords	Money, New Keynesian model, New Monetarist model, financial intermediaries
URL	http://econstor.eu/bitstream/10419/94190/1/779971914.pdf

Record ID	479 [ Page 1 of 1, No. 208 ]
Date	2014-03
Author	Federico Ravenna
Affiliation	HEC Montréal, Institute of Applied Economics and CIRPÉE
Title	How Central Banks Learn the True Model of the Economy
Summary / Abstract	Policy decisions affect economic outcomes, and the likelihood of observing a given state of the world. We investigate how policy choices affect learning of the true model of the economy when the policymaker’s model is mis-specified. We ask under what conditions can the central bank learn the correct specification of the model describing the economy, and what is the impact of exogenous shocks and of adopting an optimal monetary policy on the speed of learning. Slow learning can occur simply because identifying the correct model at standard confidence levels requires a long data sample. We show that neither real-time learning by the policymaker or the private sector, nor the adoption of an optimal policy, affect the speed of detection of model misspecification. Detection speed depends instead on the relative volatility of supply and demand shocks.
Keywords	Learning, Optimal policy, Model misspecification
URL	http://www.cirpee.org/fileadmin/documents/Cahiers_2014/CIRPEE14-09.pdf

Record ID	478 [ Page 1 of 1, No. 209 ]
Date	2014-03
Author	Bernd Hayo and Britta Niehof
Affiliation	University of Marburg
Title	Analysis of Monetary Policy Responses After Financial Market Crises in a Continuous Time New Keynesian Model
Summary / Abstract	We develop a dynamic stochastic full equilibrium New Keynesian model of two open economies based on stochastic differential equations to analyse the interdependence between monetary policy and financial markets in the context of the recent Financial crisis. The effect of bubbles on stock and housing markets and their transmission to the domestic real economy and the contagious effects on foreign markets are studied. We simulate adjustment paths for the economies under two monetary policy rules: an open-economy Taylor rule and a modified Taylor rule, which takes into account stabilisation of financial markets as a monetary policy objective. We find that for the price of a strong hike in inflation a severe economic recession can be avoided under the modified rule. Using Bayesian estimation techniques, we calibrate the model to the case of the United States and Canada and find that the resulting economic adjustment paths are similar to those of the theoretical model.
Keywords	New Keynesian Model, Financial Crisis, Stochastic Differential Equation, Monetary Policy, Taylor Rule
URL	http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/21-2014_hayo.pdf

Record ID	477 [ Page 1 of 1, No. 210 ]
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 1 of 1, No. 211 ]
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 1 of 1, No. 212 ]
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 1 of 1, No. 213 ]
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 1 of 1, No. 214 ]
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 1 of 1, No. 215 ]
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 1 of 1, No. 216 ]
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 1 of 1, No. 217 ]
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 1 of 1, No. 218 ]
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 1 of 1, No. 219 ]
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 1 of 1, No. 220 ]
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 1 of 1, No. 221 ]
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 1 of 1, No. 222 ]
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 1 of 1, No. 223 ]
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 1 of 1, No. 224 ]
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 1 of 1, No. 225 ]
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 1 of 1, No. 226 ]
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	460 [ Page 1 of 1, No. 227 ]
Date	2013-12
Author	Simon Potter, Executive Vice President
Affiliation	Federal Reserve Bank of New York
Title	Recent developments in monetary policy implementation
Summary / Abstract	Remarks before the Money Marketeers of New York University, New York City.
Keywords	The Desk; dual mandate; primary dealers; counterparties; IOER; reverse repos; interest on excess reserves; System Open Market Account (SOMA)
URL	http://www.newyorkfed.org/newsevents/speeches/2013/pot131202.html

Record ID	459 [ Page 1 of 1, No. 228 ]
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 1 of 1, No. 229 ]
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 1 of 1, No. 230 ]
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 1 of 1, No. 231 ]
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 1 of 1, No. 232 ]
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 1 of 1, No. 233 ]
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 1 of 1, No. 234 ]
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	442 [ Page 1 of 1, No. 235 ]
Date	2013-12
Author	Mark Setterfield
Affiliation	Trinity College
Title	Using Interest Rates as the Instrument of Monetary Policy: Beware Real effects, Positive Feedbacks, and Discontinuities
Summary / Abstract	This paper discusses central banks’ use of the interest rate as the instrument of monetary policy, in light of a reconsideration of macroeconomic theory induced by the financial crisis and Great Recession. Three main guiding principles for the future conduct of interest rate policy are identified: beware real effects; beware positive feedbacks; and beware discontinuities. The paper also reflects on the use of policy targets as a “quasi-instrument” of stabilization policy.
Keywords	Interest rates, monetary policy, central banking, New Consensus, Post Keynesian Economics
URL	http://internet2.trincoll.edu/repec/WorkingPapers2013/WP13-20.pdf

Record ID	441 [ Page 1 of 1, No. 236 ]
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 1 of 1, No. 237 ]
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	439 [ Page 1 of 1, No. 238 ]
Date	2013-12
Author	Philip Lane
Affiliation	Trinity College Dublin
Title	International Capital Flows and Domestic Financial Conditions: Lessons for Emerging Asia
Summary / Abstract	This paper provides an empirical review of the dynamics of international capital áows, with a focus on emerging Asia. Next, it outlines the various channels by which international capital flows affect domestic financial conditions in the host economies. Finally, it explores the implications for the design of policy frameworks that can deliver macro-financial stability.
Keywords	International capital flows, financial stability, emerging Asia
URL	http://www.tcd.ie/iiis/documents/discussion/pdfs/iiisdp438.pdf

Record ID	438 [ Page 1 of 1, No. 239 ]
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

Record ID	437 [ Page 1 of 1, No. 240 ]
Date	2013-12
Author	Christensen, Jens H.E. Lopez, Jose A., and Rudebusch, Glenn D.
Affiliation	Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, and Federal Reserve Bank of San Francisco
Title	A probability-based stress test of Federal Reserve assets and income
Summary / Abstract	To support the economy, the Federal Reserve amassed a large portfolio of long-term bonds. We assess the Fed’s associated interest rate risk — including potential losses to its Treasury securities holdings and declines in remittances to the Treasury. Unlike past examinations of this interest rate risk, we attach probabilities to alternative interest rate scenarios. These probabilities are obtained from a dynamic term structure model that respects the zero lower bound on yields. The resulting probability-based stress test finds that the Fed’s losses are unlikely to be large and remittances are unlikely to exhibit more than a brief cessation.
Keywords	Term structure modeling; zero lower bound; monetary policy; quantitative easing
URL	http://www.frbsf.org/economic-research/files/wp2013-38.pdf

Record ID	436 [ Page 1 of 1, No. 241 ]
Date	2013-12
Author	Andersen, Thomas Barnebeck, Malchow-Møller, Nikolaj, and Nordvig, Jens
Affiliation	Department of Business and Economics, Faculty of Business and Social Sciences University of Southern Denmark, and Nomura Securities
Title	Inflation targeting, flexible exchange rates, and macroeconomic performance since the Great Recession
Summary / Abstract	Has inflation targeting (IT) conferred benefits in terms of economic growth on countries that followed this particular monetary policy strategy during the crisis period 2007-12? Analyzing the sample of all OECD countries, we answer this question in the affirmative: Countries with an IT monetary regime with flexible exchange rates weathered the crisis much better than countries with other regimes. This includes in particular countries with fixed exchange rate regimes, but also countries with flexible exchange rates without IT. The result holds in the full sample; it holds when we exclude the so-called peripheral Eurozone countries (Greece, Italy, Ireland, Portugal, and Spain); and it holds when we exclude all Eurozone countries. It is, in other words, a robust empirical finding. We demonstrate that part of the explanation for this difference in growth performance is found in differences in export performance during the initial years of the crisis, which in turn is explained by real exchange rate depreciations. However, this cannot explain the entire difference in performance between countries with flexible and fixed exchange rates in the aftermath of the Great Recession. IT seems also to confer other benefits on the countries above and beyond the effect from currency depreciation.
Keywords	Inflation targeting; flexible exchange rates; economic growth; OEDC; Great Recession
URL	http://static.sdu.dk/mediafiles//D/9/3/%7BD93AC229-823C-46B7-B56D-B0B361C25AF7%7Ddpbe22_2013_.pdf

Record ID	435 [ Page 1 of 1, No. 242 ]
Date	2013-12
Author	Gavin, William T., Keen, Benjamin D., Richter, Alexander, and Throckmorton, Nathaniel
Affiliation	Federal Reserve Bank of St. Louis, University of Oklahoma, Auburn University, and Indiana University
Title	The stimulative effect of forward guidance
Summary / Abstract	This article quantifies the stimulative effect of central bank forward guidance—the public announcement of the intended path for monetary policy in the future—when the nominal interest rate is stuck at its zero lower bound (ZLB). We use a global solution to a conventional nonlinear New Keynesian model to show how the forward guidance horizon impacts the stimulative effect. Forward guidance enters our model as news shocks to the monetary policy rule, which commits the central bank to a lower policy rate than its policy rule suggests. The success of forward guidance depends on whether households expect the economy to recover. When households expect a recovery, forward guidance about a future expansionary monetary policy shock lowers the expected nominal interest rate and increases current consumption. A longer forward guidance horizon strengthens this effect, but at a decreasing rate.
Keywords	Monetary Policy; Forward Guidance; Zero Lower Bound; Global Solution Method
URL	http://research.stlouisfed.org/wp/2013/2013-038.pdf

Record ID	434 [ Page 1 of 1, No. 243 ]
Date	2013-12
Author	Matthias Neuenkirch and Peter Tillmann
Affiliation	University of Trier and University of Giessen
Title	Superstar Central Bankers
Summary / Abstract	The personalities of central bankers moved center stage during the recent financial crisis. Some central bankers even gained “superstar” status. In this paper, we evaluate the pivotal role of superstar central bankers by assessing the difference an outstanding governor makes to economic performance. We employ school grades given to central bankers by the financial press. A superstar central banker is one receiving the top grade. In a probit estimation we first relate the grades to measures of economic performance, institutional features, and personal characteristics. We then employ a nearest neighbor matching approach to identify the central bankers which are closest to those receiving the top grade and compare the economic performance across both groups. The results suggest that a superstar governor indeed matters: a topgraded central banker faces a significantly more favorable output-inflation trade-off than his peers.
Keywords	Central banking, inflation expectations, monetary policy, nearest neighbor matching
URL	http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/54-2013_neuenkirch.pdf

Record ID	433 [ Page 1 of 1, No. 244 ]
Date	2013-10
Author	Emmanuel Farhi and Ivan Werning
Affiliation	Harvard University
Title	Dilemma not Trilemma? Capital Controls and Exchange Rates with Volatile Capital Flows
Summary / Abstract	We consider a standard New Keynesian model of a small open economy with nominal rigidities and study optimal capital controls. Consistent with the Mundellian view, we find that the exchange rate regime is key. However, in contrast with the Mundellian view, we find that capital controls are desirable even when the exchange rate is flexible. Optimal capital controls lean against the wind and help smooth out capital flows.
Keywords	Capital flows, capital controls, exchange rates, trilemma
URL	http://scholar.harvard.edu/files/farhi/files/dilemma_not_trilemma_copy.pdf

Record ID	432 [ Page 1 of 1, No. 245 ]
Date	2000
Author	Maurice Obstfeld, Kenneth Rogoff, and Ben Bernanke
Affiliation	University of California, Berkeley, Harvard University, Board of Governors, Federal Reserve System
Title	The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?
Summary / Abstract	The central claim in this paper is that by explicitly introducing costs of international trade (narrowly, transport costs but more broadly, tariffs, nontariff barriers and other trade costs), one can go far toward explaining a great number of the main empirical puzzles that international macroeconomists have struggled with over twenty-five years. Our approach elucidates J. McCallum's home bias in trade puzzle, the Feldstein-Horioka saving-investment puzzle, the French-Poterba equity home bias puzzle, and the Backus-Kehoe- Kydland consumption correlations puzzle. That one simple alteration to an otherwise canonical international macroeconomic model can help substantially to explain such a broad arrange of empirical puzzles, including some that previously seemed intractable, suggests a rich area for future research. We also address a variety of international pricing puzzles, including the purchasing power parity puzzle emphasized by Rogoff, and what we term the exchange-rate disconnect puzzle.' The latter category of riddles includes both the Meese-Rogoff exchange rate forecasting puzzle and the Baxter-Stockman neutrality of exchange rate regime puzzle. Here although many elements need to be added to our extremely simple model, we can still show that trade costs play an essential role.
Keywords	International Macroeconomics, Major Puzzles, International Trade
URL	http://scholar.harvard.edu/files/rogoff/files/nber2000.pdf

Record ID	431 [ Page 1 of 1, No. 246 ]
Date	2013-11
Author	Bianca De Paoli and Matthias Paustian
Affiliation	Federal Reserve Bank of New York
Title	Coordinating monetary and macroprudential policies
Summary / Abstract	The financial crisis has prompted macroeconomists to think of new policy instruments that could help ensure financial stability. Policymakers are interested in understanding how these should be set in conjunction with monetary policy. We contribute to this debate by analyzing how monetary and macroprudential policy should be conducted to reduce the costs of macroeconomic fluctuations. We do so in a model in which such costs are driven by nominal rigidities and credit constraints. We find that, if faced with cost-push shocks, policy authorities should cooperate and commit to a given course of action. In a world in which monetary and macroprudential tools are set independently and under discretion, our findings suggest that assigning conservative mandates (á la Rogoff [1985]) and having one of the authorities act as a leader can mitigate coordination problems. At the same time, choosing monetary and macroprudential tools that work in a similar fashion can increase such problems.
Keywords	Monetary policy ; Financial stability ; Macroeconomics ; Financial market regulatory reform
URL	http://www.newyorkfed.org/research/staff_reports/sr653.pdf

Record ID	430 [ Page 1 of 1, No. 247 ]
Date	2013-11
Author	Silva Buston
Affiliation	Tilburg University
Title	Essays on risk management and systematic risk
Summary / Abstract	Through the creation of the Financial Stability Board (FSB), G20 members have committed to regulate the financial sector across the globe in order to enhance the resilience of the system. Two important points in this agenda are the regulation of OTC derivatives, such as Credit Default Swaps (CDS) and the regulation of Systemically Important Financial Institutions (SIFIs). The first two chapters of this thesis relate to the first point. These papers study the effects of the use of CDS at banks on banks' behavior and stability. The last chapter of the thesis addresses the second point. This chapter discusses the proper assessment of systemic risk, and the characteristics and performance of systemically important banks based on this assessment.
Keywords	Risk management, systemic risk, CDS, SIFIs, Financial Stability Board
URL	http://arno.uvt.nl/show.cgi?fid=132205

Record ID	429 [ Page 1 of 1, No. 248 ]
Date	2013-10
Author	Peter Conti-Brown and Simon Johnson
Affiliation	Stanford Law School's Rock Center for Corporate Governance and Peterson Institute for International Economics
Title	Governing the Federal Reserve System after the Dodd-Frank Act
Summary / Abstract	The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act increased the powers of the Board of Governors of the Federal Reserve System along almost all dimensions pertaining to the supervision and operation of systemically important financial institutions. The authors argue that in light of these changes, the process of considering and choosing governors should also be changed. In nominating and confirming new governors, the president and Congress should make greater efforts to appoint only highly qualified people familiar with both regulatory and monetary matters. They should ensure that governors can work effectively with staff and engage on an equal basis with the chair. This is a pressing matter given that within the next 12 months there may be as many as four appointments to the Board, reflecting an unusually high degree of turnover at a critical moment for the development of regulatory policy, including rules on equity capital funding for banks, the ratio of debt-to-equity (leverage) they are permitted, the funding structure of bank holding companies, and whether and how much banks should be allowed to engage in commodity-related activities.
Keywords	Federal Reserve System, Governance, Dodd-Frank Act, Board of Governors
URL	http://www.piie.com/publications/pb/pb13-25.pdf

Record ID	428 [ Page 1 of 1, No. 249 ]
Date	2013-11
Author	Joseph E. Gagnon
Affiliation	Peterson Institute for International Economics
Title	Stabilizing Properties of Flexible Exchange Rates: Evidence from the Global Financial Crisis
Summary / Abstract	Inflation targeting countries with flexible exchange rates performed better during the global financial crisis and its aftermath than countries with a fixed exchange rate. Countries that maintained a hard fixed exchange rate throughout the past six years performed somewhat better than those that abandoned it. But, abandoning a hard fix during a crisis is itself evidence of the economic costs of fixed rates. It is particularly telling that no inflation targeting country with a flexible exchange rate abandoned its regime during the crisis. Policymakers in many countries are averse to volatile exchange rates—they have a "fear of floating." Gagnon's results strongly suggest that flexible exchange rates enable countries to weather crises better than fixed rates and that the benefits of flexible rates are not limited to large countries. Policymakers should replace their fear of floating with a fear of fixing.
Keywords	Flexible exchange rates, Inflation Targeting, Fear of floating, Fear of fixing
URL	http://www.piie.com/publications/pb/pb13-28.pdf

Record ID	427 [ Page 1 of 1, No. 250 ]
Date	2013-10
Author	Emmanuel Carré, Jézabel Couppey-Soubeyran, Dominique Plihon, and Marc Pourroy
Affiliation	CEPN - Centre d'Economie de l'Université Paris Nord, CES - Centre d'économie de la Sorbonne, CEPN, and CES
Title	Central Banking after the Crisis: Brave New World or Back to the Future? Replies to a questionnaire sent to central bankers and economists
Summary / Abstract	This paper provides a snapshot of the current state of central banking doctrine in the aftermath of the crisis, using data from a questionnaire produced in 2011 and sent to central bankers (from 13 countries plus the euro zone) and economists (31) for a report by the French Council of Economic Analysis to the Prime Minister. The results of our analysis of the replies to the questionnaire are twofold. First, we show that the financial crisis has led to some amendments of pre-crisis central banking. We highlight that respondents to the questionnaire agree on the general principle of a 'broader' view of central banking extended to financial stability. Nevertheless, central bankers and economists diverge or give inconsistent answers about the details of implementation of this 'broader' view. Therefore, the devil is once again in the details. We point out that because of central bankers' conservatism, a return to the status quo cannot be excluded.
Keywords	Central banking; macroprudential policy; financial stability
URL	http://halshs.archives-ouvertes.fr/docs/00/88/13/44/PDF/13073.pdf

Record ID	426 [ Page 1 of 1, No. 251 ]
Date	2013-10
Author	John C. Williams
Affiliation	President and CEO, Federal Reserve Bank of San Francisco
Title	Lessons from the Financial Crisis for Unconventional Monetary Policy
Summary / Abstract	Panel discussion at the NBER Conference
Keywords	Financial crisis, unconventional monetary policy
URL	http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/october/research-unconventional-monetary-policy-financial-crisis/Williams-Lessons-from-the-Financial-Crisis-for-Unconventional-Monetary-Policy.pdf

Record ID	425 [ Page 1 of 1, No. 252 ]
Date	2013-03
Author	Eric S. Rosengren
Affiliation	President and Chief Executive Officer, Federal Reserve Bank of Boston
Title	Monetary policy and financial stability
Summary / Abstract	Remarks by Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston, to the Business and Industry Association of New Hampshire and the New Hampshire Bankers Association, Saint Anselm College, Manchester, New Hampshire, March 27, 2013.
Keywords	Monetary policy, financial stability
URL	http://www.bostonfed.org/news/speeches/rosengren/2013/032713/032713text.pdf

Record ID	424 [ Page 1 of 1, No. 253 ]
Date	2013-09
Author	Pierre-Richard Agénor and Luiz A. Pereira da Silva
Affiliation	Banco Central do Brasil
Title	Inflation Targeting and Financial Stability: A Perspective from the Developing World
Summary / Abstract	This paper discusses recent experiences with inflation targeting (IT), the challenges that it faces since the global financial crisis, and ways to address them. The discussion is conducted from the perspective of upper middle-income countries (MICs). As background for the analysis, the second part provides a review of financial systems in MICs (with a focus on the role of bank credit), the extent to which exposure to capital flows affect economic stability in these countries, and the link between excessive credit growth and financial crises. The third and fourth parts review the main features and evidence on the performance of IT regimes in MICs. The fifth part discusses a number of challenges that IT faces, including fiscal dominance, fear of floating, imperfect credibility, and with respect to an explicit financial stability objective assigned to monetary policy. The issue of complementarity between macroprudential regulation and monetary policy, in the context of an “integrated” IT (or IIT) regime, is taken up next. The nature of monetary policy rules in an IIT regime, and their practical implementation, is also discussed. Our analysis suggests that there are robust arguments to support the view that in an IIT regime monetary policy should react in a state contingent fashion to a credit gap measure – and possibly to the real exchange rate – to address the time-series dimension of systemic risk. However, monetary policy and macroprudential policy are largely complementary instruments. They must be calibrated jointly, in the context of macroeconomic models that account for the type of credit market imperfections observed in MICs and for the fact that macroprudential regimes may affect in substantial ways the monetary transmission mechanism.
Keywords	Inflation targeting; Monetary policy; International finance; Developing countries
URL	http://www.bcb.gov.br/pec/wps/ingl/wps324.pdf

Record ID	423 [ Page 1 of 1, No. 254 ]
Date	2013-09
Author	Greene, William H.; Gillman, Max; Harris, Mark; and Spencer, Christopher
Affiliation	New York University, University of Missouri, Curtin University, and Loughborough University
Title	The Tempered Ordered Probit (TOP) Model with an Application to Monetary Policy
Summary / Abstract	We propose a Tempered Ordered Probit (TOP) model. Our contribution lies not only in explicitly accounting for an excessive number of observations in a given choice category - as is the case in the standard literature on inflated models; rather, we introduce a new econometric model which nests the recently developed Middle Inflated Ordered Probit (MIOP) models of Bagozzi and Mukherjee (2012) and Brooks, Harris, and Spencer (2012) as a special case, and further, can be used as a specification test of the MIOP, where the implicit test is described as being one of symmetry versus asymmetry. In our application, which exploits a panel data-set containing the votes of Bank of England Monetary Policy Committee (MPC) members, we show that the TOP model affords the econometrician considerable flexibility with respect to modeling the impact of different forms of uncertainty on interest rate decisions. Our findings, we argue, reveal MPC members. asymmetric attitudes towards uncertainty and the changeability of interest rates.
Keywords	Monetary policy committee, voting, discrete data, uncertainty, tempered equations
URL	http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/25891/1/wp2013-4.pdf

Record ID	422 [ Page 1 of 1, No. 255 ]
Date	2013-11
Author	Dave Reifschneider, William Wascher and David Wilcox
Affiliation	Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board
Title	Aggregate supply in the United States: recent developments and implications for the conduct of monetary policy
Summary / Abstract	The recent financial crisis and ensuing recession appear to have put the productive capacity of the economy on a lower and shallower trajectory than the one that seemed to be in place prior to 2007. Using a version of an unobserved components model introduced by Fleischman and Roberts (2011), we estimate that potential GDP is currently about 7 percent below the trajectory it appeared to be on prior to 2007. We also examine the recent performance of the labor market. While the available indicators are still inconclusive, some indicators suggest that hysteresis should be a more present concern now than it has been during previous periods of economic recovery in the United States. We go on to argue that a significant portion of the recent damage to the supply side of the economy plausibly was endogenous to the weakness in aggregate demand—contrary to the conventional view that policymakers must simply accommodate themselves to aggregate supply conditions. Endogeneity of supply with respect to demand provides a strong motivation for a vigorous policy response to a weakening in aggregate demand, and we present optimal-control simulations showing how monetary policy might respond to such endogeneity in the absence of other considerations. We then discuss how other considerations--such as increased risks of financial instability or inflation instability--could cause policymakers to exercise restraint in their response to cyclical weakness.
Keywords	Aggregate supply, monetary policy
URL	http://www.federalreserve.gov/pubs/feds/2013/201377/201377pap.pdf

Record ID	421 [ Page 1 of 1, No. 256 ]
Date	2013-11
Author	William B. English, J. David López-Salido and Robert J. Tetlow
Affiliation	Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board
Title	The Federal Reserve's framework for monetary policy - recent changes and new questions
Summary / Abstract	In recent years, the Federal Reserve has made substantial changes to its framework for monetary policymaking by providing greater clarity regarding its objectives, its intentions regarding the use of monetary policy--including nontraditional policy tools such as forward guidance and asset purchases--in the pursuit of those objectives, and its broader policy strategy. These changes reflected both a response to changes in economists' understanding of the most effective way to implement monetary policy and a response to specific challenges posed by the financial crisis and its aftermath, particularly the effective lower bound on nominal interest rates. We trace the recent evolution of the Federal Reserve's framework, and use a small-scale macro model and a simple static model to help illuminate the approaches taken with nontraditional monetary policy tools. A number of foreign central banks have made similar innovations in response to similar developments. On balance, the Federal Reserve has moved closer to "flexible inflation targeting," but the Federal Reserve's approach includes a balanced focus on two objectives and the use of a flexible horizon over which policy aims to foster those objectives. Going forward, further changes in central banks' frameworks may be needed to address issues raised by the financial crisis. For example, some have suggested that the sustained period at the effective lower bound points to the need for central banks to establish a different policy objective, such as a higher inflation target or a nominal income target. We use our small-scale model of the U.S. economy to examine the potential benefits and costs of such changes. We also discuss the broad issue of how central banks should integrate financial stability policy and monetary policy.
Keywords	Forward guidance, asset purchase. flexible inflation targeting
URL	http://www.federalreserve.gov/pubs/feds/2013/201376/201376pap.pdf

Record ID	420 [ Page 1 of 1, No. 257 ]
Date	2013-11
Author	Dennis P. J. Botman, Irineu E. Carvalho Filho, and Raphael W. Lam
Affiliation	Asia and Pacific Department, IMF
Title	The Curious Case of the Yen as a Safe Haven Currency: A Forensic Analysis
Summary / Abstract	During risk-off episodes, the yen is a safe haven currency and on average appreciates against the U.S. dollar. We investigate the proximate causes of yen risk-off appreciations. We find that neither capital inflows nor expectations of the future monetary policy stance can explain the yen’s safe haven behavior. In contrast, we find evidence that changes in market participants’ risk perceptions trigger derivatives trading, which in turn lead to changes in the spot exchange rate without capital flows. Specifically, we find that risk-off episodes coincide with forward hedging and reduced net short positions or a buildup of net long positions in yen. These empirical findings suggest that offshore and complex financial transactions should be part of spillover analyses and that the effectiveness of capital flow management measures or monetary policy coordination to address excessive exchange rate volatility might be limited in certain cases.
Keywords	Safe Haven, Yen Volatility, Capital Flows, Derivatives
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13228.pdf

Record ID	419 [ Page 1 of 1, No. 258 ]
Date	2013-10
Author	Dominic Quint and Pau Rabanal
Affiliation	Institute for Capacity Development, IMF
Title	Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area
Summary / Abstract	In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policy can play a role. We find that the introduction of a macroprudential rule would help in reducing macroeconomic volatility, improve welfare, and partially substitute for the lack of national monetary policies. Macroprudential policy would always increase the welfare of savers, but their effects on borrowers depend on the shock that hits the economy. In particular, macroprudential policy may entail welfare costs for borrowers under technology shocks, by increasing the countercyclical behavior of lending spreads.
Keywords	Monetary Policy, EMU, Basel III, Financial Frictions.
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13209.pdf

Record ID	418 [ Page 1 of 1, No. 259 ]
Date	2013-10
Author	Daniela Prates and Barbara Fritz
Affiliation	Instituto de Economia, Universidade de Campinas, Brasil and Institute for Latin American Studies, FreieUniversität Berlin, Germany
Title	Beyond capital controls: the regulation of foreign currency derivatives markets in South Korea and Brazil after the global financial crisis
Summary / Abstract	Besides the management of capital flows, some emerging economies have been facing policy dilemmas related to foreign (nonresident) and domestic (residents) operations of Foreign Currency (FX) derivatives in the post-global crisis setting. In a context of abundant liquidity and historical low interest rates in the advanced economies, searching for yield foreign investors as well as domestic agents generally obtain huge profits, through these markets, from the interest rate differentials between advanced and emerging economies. Yet, the regulation of FX derivatives in the emerging economies has not received due attention both in the academic literature and in the international financial institutions, even though these could be crucial for the emerging economies with high degree of financial openness and liquid as well as deep FX derivatives markets, such as Brazil and South Korea. The paper aims at analyzing the Brazilian and Korean approach for FX derivatives regulation after the global financial crisis. Therefore, it seeks to contribute to the debate on financial regulation brought about by the global crisis. The two cases show the relevance of the institutional features of FX derivatives market for the drawing of the financial regulatory toolkit. In the case of Brazil we found that a third type of financial regulation, which we have labeled as FX derivative regulation, was needed to curb the currency appreciation trend, along with capital controls and traditional prudential financial regulations.
Keywords	Foreign Currency derivatives regulation, capital flows, capital controls, prudential regulation
URL	http://finance-and-trade.htw-berlin.de/fileadmin/working_paper_series/wp_07_2013_Prates_Fritz_Beyond_Capital_Controls.pdf

Record ID	417 [ Page 1 of 1, No. 260 ]
Date	2013-06
Author	Valentina Bruno and Hyun Song Shin
Affiliation	American University and Princeton University
Title	Assessing Macroprudential Policies: Case of Korea
Summary / Abstract	This paper develops methods for assessing the sensitivity of capital flows to global financial conditions, and applies the methods in assessing the impact of macroprudential policies introduced by Korea in 2010. Relative to a comparison group of countries, we find that the sensitivity of capital flows into Korea to global conditions decreased in the period following the introduction of macroprudential policies.
Keywords	Capital flows, credit booms, macroprudential policy
URL	http://www.tcmb.gov.tr/yeni/konferans/Required_Reserves/Reserve_Requirements_files/Hyun_Song_Shin-paper2.pdf

Record ID	416 [ Page 1 of 1, No. 261 ]
Date	2013-10
Author	Anton Korinek and Jonathan Kreamer
Affiliation	National Bureau of Economic Research
Title	THE REDISTRIBUTIVE EFFECTS OF FINANCIAL DEREGULATION
Summary / Abstract	Financial regulation is often framed as a question of economic efficiency. This paper, by contrast, puts the distributive implications of financial regulation center stage. We develop a model in which the financial sector benefits from risk-taking by earning greater expected returns. However, risk-taking also increases the incidence of large losses that lead to credit crunches and impose negative externalities on the real economy. Assuming incomplete risk markets between the financial sector and the real economy, we describe a Pareto frontier along which different levels of risk-taking map into different levels of welfare for the two parties. A regulator has to trade off efficiency in the financial sector, which is aided by deregulation, against efficiency in the real economy, which is aided by tighter regulation and a more stable supply of credit. We also show that financial innovation, asymmetric compensation schemes, concentration in the banking system, and bailout expectations enable or encourage greater risk-taking and allocate greater surplus to the financial sector at the expense of the rest of the economy.
Keywords	Financial deregulation, economic efficiency, risk-taking, financial innovation, asymmetric compensation schemes, concentration in the banking system, and bailout expectations
URL	http://www.nber.org/papers/w19572.pdf

Record ID	415 [ Page 1 of 1, No. 262 ]
Date	2012-10
Author	Martin Ellison and Andreas Tischbirek
Affiliation	University of Oxford
Title	Unconventional government debt purchases as a supplement to conventional monetary policy
Summary / Abstract	In response to the Great Financial Crisis, the Federal Reserve, the Bank of England and many other central banks have adopted unconventional monetary policy instruments. We investigate if one of these, purchases of long-term government debt, could be a valuable addition to conventional short-term interest rate policy even if the main policy rate is not constrained by the zero lower bound. To do so, we add a stylised financial sector and central bank asset purchases to an otherwise standard New Keynesian DSGE model. Asset quantities matter for interest rates through a preferred habitat channel. If conventional and unconventional monetary policy instruments are coordinated appropriately, then the central bank is better able to stabilise both output and inflation.
Keywords	Quantitative Easing, Large-Scale Asset Purchases, Preferred Habitat, Optimal Monetary Policy
URL	http://www.economics.ox.ac.uk/materials/papers/13054/paper679.pdf

Record ID	414 [ Page 1 of 1, No. 263 ]
Date	2013-08
Author	José A Carrasco-Gallego and Margarita Rubio
Affiliation	Centre for Finance and Credit Markets School of Economics, Sir Clive Granger Building, University of Nottingham
Title	Macroprudential and Monetary Policies: Implications for Financial Stability and Welfare
Summary / Abstract	In this paper, we analyse the implications of macroprudential and monetary policies for business cycles, welfare, and financial stability. We consider a dynamic stochastic general equilibrium (DSGE) model with housing and collateral constraints. A macroprudential rule on the loan-to-value ratio (LTV), which responds to output and house price deviations, interacts with a traditional Taylor rule for monetary policy. From a positive perspective, introducing a macroprudential tool mitigates the effects of booms in the economy by restricting credit. However, monetary and macroprudential policies may enter in conflict when shocks come from the supply-side of the economy. From a normative point of view, results show that the introduction of this macroprudential measure is welfare improving. Then, we calculate the combination of policy parameters that maximizes welfare and find that the optimal LTV rule should respond relatively more aggressively to house prices than to output deviations. Finally, we study the efficiency of the policy mix. We propose a tool that includes not only the variability of output and inflation but also the variability of borrowing, to capture the effects of policies on financial stability: a three-dimensional policy frontier (3DPF). We find that both policies acting together unambiguously improve the stability of the system.
Keywords	Macroprudential, monetary policy, welfare, financial stability, three-dimensional policy frontier, loan-to-value, Taylor curve
URL	http://www.nottingham.ac.uk/cfcm/documents/papers/13-04.pdf

Record ID	413 [ Page 1 of 1, No. 264 ]
Date	2013-09
Author	Antoine Martin, James McAndrews, Ali Palida, and David Skeie
Affiliation	Federal Reserve Bank of New York
Title	Federal Reserve tools for managing rates and reserves
Summary / Abstract	Monetary policy measures taken by the Federal Reserve as a response to the 2007-09 financial crisis and subsequent economic conditions led to a large increase in the level of outstanding reserves. The Federal Open Market Committee (FOMC) has a range of tools to control short-term market rates in this situation. We study several of these tools, namely, interest on excess reserves (IOER), reverse repurchase agreements (RRPs), and the term deposit facility (TDF). We find that overnight RRPs (ON RRPs) may provide a better floor on rates than term RRPs because they are available to absorb daily liquidity shocks. Whether the TDF or RRPs best support equilibrium rates depends on the intensity of interbank monitoring costs versus balance sheet costs, respectively, that banks face. In our model, using the RRP and TDF concurrently may most effectively stabilize short-term rates close to the IOER rate when such costs are rapidly increasing.
Keywords	Federal Open Market Committee; Monetary policy ; Bank reserves ; Bank liquidity ; Interest rates ; Repurchase agreements
URL	http://www.newyorkfed.org/research/staff_reports/sr642.pdf

Record ID	412 [ Page 1 of 1, No. 265 ]
Date	2013-09
Author	William R. White
Affiliation	Chairman, Economic Development and Review Committee, OECD, Paris.
Title	Is monetary policy a science? the interaction of theory and practice over the last 50 years
Summary / Abstract	In recent decades, the declarations of “independent” central banks and the conduct of monetary policy have been assigned an ever increasing role in the pursuit of economic and financial stability. This is curious since there is, in practice, no body of scientific knowledge (evidence based beliefs) solid enough to have ensured agreement among central banks on the best way to conduct monetary policy. Moreover, beliefs pertaining to every aspect of monetary policy have also changed markedly and repeatedly. This paper documents how the objectives of monetary policy, the optimal exchange rate framework, beliefs about the transmission mechanism, the mechanism of political oversight, and many other aspects of domestic monetary frameworks have all been subject to great flux over the last fifty years. The paper also suggests ways in which the current economic and financial crisis seems likely to affect the conduct of monetary policy in the future. One possibility is that it might lead to yet another fundamental reexamination of our beliefs about how best to conduct monetary policy in an increasingly globalized world. The role played by money and credit, the interactions between price stability and financial stability, the possible medium term risks generated by “ultra easy” monetary policies, and the facilitating role played by the international monetary (non) system all need urgent attention. The paper concludes that, absent the degree of knowledge required about its effects, monetary policy is currently being relied on too heavily in the pursuit of “strong, balanced and sustainable growth.
Keywords	National security
URL	http://www.dallasfed.org/assets/documents/institute/wpapers/2013/0155.pdf

Record ID	411 [ Page 1 of 1, No. 266 ]
Date	2013-04
Author	Olivier Blanchard, Giovanni Dell'Ariccia, Paolo Mauro
Affiliation	Research Department, IMF
Title	Rethinking Macro Policy II: Getting Granular
Summary / Abstract	The 2008–09 global economic and financial crisis shook the consensus on how to run macroeconomic policy. It reminded us of the dangers associated with financial sector imbalances; showed the limitations of monetary policy and cast doubt on some of the tenets of its intellectual foundations; and led to a reevaluation of what levels of public debt can be considered safe. This prompted a healthy reconsideration of what worked and what did not, and a debate on how to fix things, ranging from nitty-gritty technical points to broad-based institutional design questions. Five years from the beginning of the crisis, the contours of a new macroeconomic policy consensus remain unclear. But policies have been tried and progress has been made, both theoretical and empirical. This paper updates the status of the debate. The crisis rekindled old debates and raised new questions about monetary policy and the role of central banks. The large costs of busts and doubts about the effectiveness of new regulatory tools reopened the “lean versus clean” debate on how to deal with asset-price and credit bubbles. The extension of liquidity to non-deposit-taking institutions, specific market segments, and (indirectly) sovereigns raised questions about what the scope of central banks’ traditional lender-of-last-resort function should be. The recourse to unconventional measures in the face of the zero lower bound on interest rates brought about a discussion of the relative role of interest rate policy, forward guidance, and open market operations going forward. The increasing disconnect between activity and inflation triggered a reevaluation of the appropriate intermediate target of monetary policy. On fiscal policy, the crisis in the euro area periphery (with the associated risk of self-fulfilling runs and multiple equilibria) raised new doubts about what levels of public debt are safe in advanced economies. The widespread need for major fiscal adjustment and the difficulties associated with austerity programs rekindled a debate on fiscal multipliers, the optimal speed of fiscal consolidation, and the design of medium-term adjustment programs to reassure market participants and the public at large. The simultaneous presence of fiscal needs and large asset-purchase programs by central banks led to a discussion about the role of financial repression in past consolidation episodes, set off concerns about a possible shift to fiscal dominance, and induced consideration of ways to support central bank independence. Macroprudential tools may provide a new policy lever to curb dangerous booms and contain imbalances. But evidence about their effectiveness is mixed and we are a long way from knowing how to use them reliably. Their relation with other policies is not yet fully understood; they are fraught with complicated political economy issues; and there is little consensus on how to organize their governance.
Keywords	Monetary policy, Inflation targets, Zero lower bound, Fiscal consolidation, Fiscal multipliers, Financial stability, Macroprudential policy
URL	http://www.imf.org/external/pubs/ft/sdn/2013/sdn1303.pdf

Record ID	410 [ Page 1 of 1, No. 267 ]
Date	2013-08
Author	David Greenlaw, James D. Hamilton, Peter Hooper and Frederic S. Mishkin
Affiliation	National Bureau of Economic Research
Title	Crunch Time: Fiscal Crises and the Role of Monetary Policy
Summary / Abstract	Countries with high debt loads are vulnerable to an adverse feedback loop in which doubts by lenders lead to higher sovereign interest rates which in turn make the debt problems more severe. We analyze the recent experience of advanced economies using both econometric methods and case studies and conclude that countries with debt above 80% of GDP and persistent current-account deficits are vulnerable to a rapid fiscal deterioration as a result of these tipping-point dynamics. Such feedback is left out of current long-term U.S. budget projections and could make it much more difficult for the U.S. to maintain a sustainable budget course. A potential fiscal crunch also puts fundamental limits on what monetary policy is able to achieve. In simulations of the Federal Reserve’s balance sheet, we find that under our baseline assumptions, in 2017-18 the Fed will be running sizable income losses on its portfolio net of operating and other expenses and therefore for a time will be unable to make remittances to the U.S. Treasury. Under alternative scenarios that allow for an emergence of fiscal concerns, the Fed’s net losses would be more substantial.
Keywords	Fiscal crises, monetary policy, sovereign interest rates, central bank net losses
URL	http://www.nber.org/papers/w19297.pdf

Record ID	409 [ Page 1 of 1, No. 268 ]
Date	2013-10
Author	Roger Farmer and Vadim Khramov
Affiliation	Office of Executive Director for the Russian Federation, IMF
Title	Solving and Estimating Indeterminate DSGE Models
Summary / Abstract	We propose a method for solving and estimating linear rational expectations models that exhibit indeterminacy and we provide step-by-step guidelines for implementing this method in the Matlab-based packages Dynare and Gensys. Our method redefines a subset of expectational errors as new fundamentals. This redefinition allows us to treat indeterminate models as determinate and to apply standard solution algorithms. We provide a selection method, based on Bayesian model comparison, to decide which errors to pick as fundamental and we present simulation results to show how our procedure works in practice.
Keywords	Indeterminacy, DSGE Models, Expectational Errors.
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13200.pdf

Record ID	408 [ Page 1 of 1, No. 269 ]
Date	2013-09
Author	Ajay Pratap Singh and Michael Nikolaou
Affiliation	University of Houston
Title	Optimal Rules for Central Bank Interest Rates Subject to Zero Lower Bound
Summary / Abstract	The celebrated Taylor rule provides a simple formula that aims to capture how the central bank interest rate is adjusted as a linear function of inflation and output gap. However, the rule does not take explicitly into account the zero lower bound on the interest rate. Prior studies on interest rate selection subject to the zero lower bound have not produced rigorous derivations of explicit rules. In this work, Taylor-like rules for central bank interest rates bounded below by zero are derived rigorously using a multi-parametric model predictive control (mpMPC) framework. Rules with or without inertia are included in the derivation. The proposed approach is illustrated through simulation on US economy data. A number of issues for future study are proposed.
Keywords	Taylor rule; zero lower bound; liquidity trap; model predictive control; multiparametric programming
URL	http://www.economics-ejournal.org/economics/discussionpapers/2013-49/count

Record ID	407 [ Page 1 of 1, No. 270 ]
Date	2013-06
Author	Staff Team from FAD, RES, and EUR
Affiliation	International Monetary Fund
Title	IMF Policy Paper: Reassessing the Role and Modalities of Fiscal Policy in Advanced Economies
Summary / Abstract	This paper investigates how developments during and after the 2008–09 crisis have changed economists’ and policymakers’ views on: (i) fiscal risks and fiscal sustainability; (ii) the effectiveness of fiscal policy as a countercyclical tool; (iii) the appropriate design of fiscal adjustment programs; and (iv) the role of fiscal institutions. Advanced economies have experienced much larger shocks than was previously thought possible and sovereign-bank feedback loops have amplified sovereign debt crises. This has led to reassessing what constitutes “safe” sovereign debt levels for advanced economies and has prompted a more risk-based approach to analyzing debt sustainability. Pre-crisis views about the interaction between monetary and fiscal policy have also been challenged by the surge in central bank purchases of government debt. This has helped restore financial market functioning, but, to minimize the risk of fiscal dominance, it is critical that central bank support is a complement to, not a substitute for, fiscal adjustment.
Keywords	Fiscal riks, solvency, sustainability, transparency, rules, institutions, adjustment
URL	http://www.imf.org/external/np/pp/eng/2013/072113.pdf

Record ID	406 [ Page 1 of 1, No. 271 ]
Date	2013-06
Author	IMF Staff Team from MCM, FAD, RES, SPR, and STA
Affiliation	International Monetary Fund
Title	IMF Policy Paper: Key Aspects of Macroprudential Policy
Summary / Abstract	The crisis has underscored the costs of systemic instability at both the national and the global levels and highlighted the need for dedicated macroprudential policies to achieve financial stability. Building on recent advances, this paper provides a framework to inform the IMF’s country-specific advice on macroprudential policy. It recognizes that developing macroprudential policy is a work in progress, and addresses key issues to help ensure its effectiveness.
Keywords	Financial stability, systemic risk, macroprudential policies
URL	http://www.imf.org/external/np/pp/eng/2013/061013b.pdf

Record ID	405 [ Page 1 of 1, No. 272 ]
Date	2013-07
Author	Yuki Teranishi
Affiliation	Department of Business and Commerce, Keio University and Centre for Applied Macroeconomic Analysis (CAMA), Australian National University
Title	Smoothed Interest Rate Setting by Central Banks and Staggered Loan Contracts
Summary / Abstract	We investigate a new source of economic stickiness: namely, staggered loan interest rate contracts under monopolistic competition. The paper introduces this mechanism into a standard New Keynesian model. Simulations show that a response to a financial shock is greatly amplified by the staggered loan contracts though a response to a productivity, cost-push or monetary policy shock is not much affected. We derive an approximated loss function and analyse optimal monetary policy. Unlike other models, the function includes a quadratic loss of the first-order difference in loan rates. Thus, central banks have an incentive to smooth the policy rate.
Keywords	Staggered loan interest rate, economic fluctuation, optimal monetary policy
URL	https://cama.crawford.anu.edu.au/pdf/working-papers/2013/452013.pdf

Record ID	404 [ Page 1 of 1, No. 273 ]
Date	2013-08
Author	Manmohan Singh
Affiliation	Research Department, IMF
Title	Collateral and Monetary Policy
Summary / Abstract	Financial lubrication in markets is indifferent to margin posting via money or collateral; the relative price(s) of money and collateral matter. Some central banks are now a major player in the collateral markets. Analogous to a coiled spring, the larger the quantitative easing (QE) efforts, the longer the central banks will impact the collateral market and associated repo rate. This may have monetary policy and financial stability implications since the repo rates map the financial landscape that straddles the bank/nonbank nexus.
Keywords	Velocity of collateral; IS/LM; quantitative easing; central banks; repo rate.
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13186.pdf

Record ID	403 [ Page 1 of 1, No. 274 ]
Date	2013-08
Author	John C Bluedorn, Rupa Duttagupta, Jaime Guajardo, and Petia Topalova
Affiliation	Research Department, IMF
Title	Capital Flows are Fickle: Anytime, Anywhere
Summary / Abstract	Has the unprecedented financial globalization of recent years changed the behavior of capital flows across countries? Using a newly constructed database of gross and net capital flows since 1980 for a sample of nearly 150 countries, this paper finds that private capital flows are typically volatile for all countries, advanced or emerging, across all points in time. This holds true across most types of flows, including bank, portfolio debt, and equity flows. Advanced economies enjoy a greater substitutability between types of inflows, and complementarity between gross inflows and outflows, than do emerging markets, which reduces the volatility of their total net inflows despite higher volatility of the components. Capital flows also exhibit low persistence, across all economies and across most types of flows. Inflows tend to rise temporarily when global financing conditions are relatively easy. These findings suggest that fickle capital flows are an unavoidable fact of life to which policymakers across all countries need to continue to manage and adapt.
Keywords	International capital flows; volatility; persistence; comovement; global factors.
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13183.pdf

Record ID	402 [ Page 1 of 1, No. 275 ]
Date	2013-08
Author	Ran Bi, Haonan Qu, and James Roaf
Affiliation	Strategy, Policy, and Review Department, IMF
Title	Assessing the Impact and Phasing of Multi-year Fiscal Adjustment: A General Framework
Summary / Abstract	This paper provides a general framework to assess the output and debt dynamics of an economy undertaking multi-year fiscal adjustment. The framework allows country-specific assumptions about the magnitude and persistence of fiscal multipliers, hysteresis effects, and endogenous financing costs. In addition to informing macro projections, the framework can also shed light on the appropriate phasing of fiscal consolidation—in particular, on whether it should be front- or back-loaded. The framework is applied to stylized advanced and emerging economy examples. It suggests that for a highly-indebted economy undertaking large multi-year fiscal consolidation, high multipliers do not always argue against front-loaded adjustment. The case for more gradual or back-loaded adjustment is strongest when hysteresis effects are in play, but it needs to be balanced against implications for debt sustainability. Application to actual country examples tends to cast doubt on claims that very large multipliers have been operating post-crisis. It seems that the GDP forecast errors for Greece may have been due more to over-optimism on potential growth estimates than to underestimating fiscal multipliers.
Keywords	Fiscal Multiplier, Hysteresis Effect, Phasing of Fiscal Consolidation
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13182.pdf

Record ID	401 [ Page 1 of 1, No. 276 ]
Date	2013-04
Author	Prepared by a team led by Toshiyuki Miyoshi and comprising Stephanie Segal, Preya Sharma, and Anish Tailor, with inputs provided by Mali Chivakul, Lorenzo Giorgianni, Gavin Gray, Bikas Joshi, Ben Kelmanson, Sergi Lanau, Martin Mühleisen, Uma Ramakrishnan, and Edouard Vidon. Overall guidance was provided by James Roaf (all SPR).
Affiliation	Strategy, Policy, and Review Department, IMF
Title	Stocktaking the Fund’s Engagement with Regional Financing Arrangements
Summary / Abstract	Following the global financial crisis of 2008-09, regional financing arrangements (RFAs) have been recognized as an important layer of the global financial safety net. This paper summarizes the current landscape of RFAs, and discusses IMF-RFA coordination to date and options for enhancing cooperation going forward. In so doing, it intends to contribute to discussions underway at international fora and solicit views from the Fund and RFA memberships on how to enhance cooperation.
Keywords	International monetary system, Financial safety nets, External financing, International cooperation, Fund role
URL	http://www.imf.org/external/np/pp/eng/2013/041113b.pdf

Record ID	400 [ Page 1 of 1, No. 277 ]
Date	2013-08
Author	Bas B. Bakker and Li Zeng
Affiliation	European Department, IMF
Title	Dismal Employment Growth in EU Countries: The Role of Corporate Balance Sheet Repair and Dual Labor Markets
Summary / Abstract	This paper argues that the large differences among EU countries in post-crisis employment performance are to a large extent driven by the need to adjust corporate balance sheets, which had greatly deteriorated during the boom years in some countries but not in others. To close the large gaps between saving and investment, firms reduced investment and cut costs to boost profits. With much of the cost adjustment falling on firms’ wage bills, employment losses were largest in countries under the most intense pressures to improve corporate profitability and with limited wage flexibility due to labor market duality.
Keywords	Employment, saving, debt, firms
URL	http://www.imf.org/external/pubs/ft/wp/2013/wp13179.pdf

Record ID	399 [ Page 1 of 1, No. 278 ]
Date	2012-02
Author	Leonardo Martinez, Juan Hatchondo, and Javier Bianchi
Affiliation	International Monetary Fund, Federal Reserve Bank of Richmond, and New York University and University of Wisconsin
Title	Sovereign Defaults and Optimal Reserves Management
Summary / Abstract	A long-standing puzzle of international capital flows is why countries hold large amount of external debt and foreign reserves at the same time. To address this puzzle, we propose a sovereign default model where the government decides jointly over the accumulation of long-duration bonds and foreign reserves. When calibrated to the data, the model can successfully explain the simultaneous holdings of debt and foreign reserves. We also show that the relationship between reserves and default risk may be non-monotonic.
Keywords	Sovereign default, optimal reserves management, international capital flows, external debt, foreign reserves
URL	http://www.economicdynamics.org/meetpapers/2012/paper_1125.pdf

Record ID	398 [ Page 1 of 1, No. 279 ]
Date	2013-07
Author	Serkan Arslanalp and Yin Liao
Affiliation	International Monetary Fund and Australian National University
Title	Contingent Liabilities and Sovereign Risk: Evidence from Banking Sectors
Summary / Abstract	This paper proposes a simple method to estimate contingent liabilities that arise from (implicit and explicit) government guarantees to the banking sector. This method allows us to construct cross-country estimates on potential costs of bank failures. Furthermore, we empirically test whether the contingent liabilities from the banking sector is a significant determinant of sovereign risk based on the data from 32 countries. Our results suggest that a 1% of GDP increase in contingent liabilities is associated with an increase in sovereign CDS spreads of 24 basis points in advanced countries and 75 basis points in emerging economies.
Keywords	Contingent Liabilities, Sovereign Risk, Banking Sector
URL	http://cama.crawford.anu.edu.au/pdf/working-papers/2013/432013.pdf

Record ID	397 [ Page 1 of 1, No. 280 ]
Date	2013-07
Author	Ricardo Reis
Affiliation	National Bureau of Economic Research
Title