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Record ID
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549
[ Page 15 of 68, No. 1 ]
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Date
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2014-09 |
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Author
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André Minella, Paulo Springer de Freitas, Ilan Goldfajn, and Marcelo Kfoury Muinhos
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Affiliation
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Central Bank of Brazil |
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Title
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Inflation Targeting in Brazil: Constructing Credibility under Exchange Rate Volatility |
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Summary /
Abstract
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This paper assesses the challenges faced by the inflation-targeting regime in Brazil. The confidence crisis in the future performance of the Brazilian economy and the increase in risk aversion in international markets were responsible for a sudden stop of capital inflows in 2002 that caused a significant depreciation of the exchange rate. The inflation-targeting framework has played a critical role in macroeconomic stabilization. We stress two important challenges: construction of credibility and exchange rate volatility. The estimations indicate the following results: i) the inflation targets have worked as an important coordinator of expectations; ii) the Central Bank has reacted strongly to inflation expectations; iii) there has been a reduction in the degree of inflation persistence; and iv) the exchange rate pass-through for "administered or monitored" prices is two times higher than for "market" prices. |
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Keywords
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Inflation targeting, Brazil, monetary policy |
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URL
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http://ecomod.net/sites/default/files/document-conference/ecomod2003/Minella.pdf
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Record ID
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548
[ Page 15 of 68, No. 2 ]
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Date
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2014-09 |
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Author
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Adrian, Tobias and Liang, J. Nellie
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Affiliation
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Federal Reserve Bank of New York |
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Title
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Monetary policy, financial conditions, and financial stability |
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Summary /
Abstract
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In the conduct of monetary policy, there exists a risk-return trade-off between financial conditions and financial stability, which complements monetary policy’s traditional trade-off between inflation and real activity. The trade-off exists even if monetary policy does not target financial stability considerations independently of its inflation and real activity goals, because risks to future financial stability are increased by the buildup of financial vulnerabilities from persistent accommodative monetary policy when the economy is close to potential. We review monetary policy transmission channels and financial frictions that give rise to this trade-off between financial conditions and financial stability, within a monitoring program across asset markets, banking firms, shadow banking, and the nonfinancial sector. We focus on vulnerabilities that affect monetary policy’s risk-return trade-off, including 1) pricing of risk, 2) leverage, 3) maturity and liquidity mismatch, and 4) interconnectedness and complexity. We also discuss the extent to which structural and time-varying macroprudential policies can counteract the buildup of vulnerabilities, thus mitigating monetary policy’s risk-return trade-off. |
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Keywords
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Risk-taking channel of monetary policy; monetary policy transmission; monetary policy rules; financial stability; financial conditions; macroprudential policy |
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URL
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http://www.newyorkfed.org/research/staff_reports/sr690.pdf
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Record ID
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547
[ Page 15 of 68, No. 3 ]
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Date
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2014-09 |
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Author
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Aiyar, Shekhar; Calomiris, Charles; and Wieladek, Tomasz
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Affiliation
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International Monetary Fund, Columbia Business School, and Bank of England |
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Title
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How does credit supply respond to monetary policy and bank minimum capital requirements? |
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Summary /
Abstract
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We use data on UK banks’ minimum capital requirements to study the interaction of monetary policy and capital requirement regulation. UK banks were subject to both time-varying capital requirements and changes in interest rate policy. Tightening of either capital requirements or monetary policy reduces the supply of lending. Lending by large banks reacts substantially to capital requirement changes, but not to monetary policy changes. Lending by small banks reacts to both. There is little evidence of interaction between these two policy instruments. The differences in the responses of small and large banks, and the lack of interaction between capital requirement changes and monetary policy, have important policy implications. Our results confirm the theoretical consensus view that monetary policy should focus on price stability objectives and that capital requirement changes are a more effective tool to achieve financial stability objectives related to loan supply. We also identify important distributional consequences within the financial system of these two policy instruments. Finally, our findings do not corroborate theoretical models that raise concerns about complex interactions between monetary policy and macroprudential variation in capital requirements. |
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Keywords
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Loan supply; capital requirements; monetary policy; macroprudential regulation |
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URL
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http://www.bankofengland.co.uk/research/Documents/workingpapers/2014/wp508.pdf
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Record ID
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546
[ Page 15 of 68, No. 4 ]
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Date
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2014-08 |
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Author
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William Tayler and Roy Zilberman
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Affiliation
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Lancaster University Management School |
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Title
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Macroprudential Regulation and the Role of Monetary Policy |
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Summary /
Abstract
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We study the macroprudential roles of bank capital regulation and monetary policy in a borrowing cost channel model with endogenous financial frictions, driven by credit risk, bank losses and bank capital costs. These frictions induce financial accelerator mechanisms and motivate the examination of a macroprudential toolkit. Following credit shocks, countercyclical regulation is more effective than monetary policy in promoting price, financial and macroeconomic stability. For supply shocks, combining macroprudential regulation with a stronger anti-inflationary policy stance is optimal. The findings emphasize the importance of the Basel III accords and cast doubt on the desirability of conventional Taylor rules during periods of financial distress. |
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Keywords
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Bank Capital Regulation, Macroprudential Policy, Basel III, Monetary Policy, Borrowing Cost Channel |
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URL
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http://eprints.lancs.ac.uk/70632/1/MacroprudentialRegulation.pdf
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Record ID
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545
[ Page 15 of 68, No. 5 ]
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Date
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2014-08 |
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Author
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S. Boragan Aruoba
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Affiliation
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Federal Reserve Bank of Minneapolis |
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Title
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Term Structures of Inflation Expectations and Real Interest Rates: The Effects of Unconventional Monetary Policy |
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Summary /
Abstract
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Inflation expectations have recently received increased interest because of the uncertainty created by the Federal Reserve’s unprecedented reaction to the Great Recession. The effect of this reaction on the real economy is also an important topic. In this paper I use various surveys to produce a term structure of inflation expectations – inflation expectations at any horizon from 3 to 120 months – and an associated term structure of real interest rates. Inflation expectations extracted from this model track actual (ex-post) realizations of inflation quite well, and in terms of forecast accuracy they are at par with or superior to some popular alternatives obtained from financial variables. Looking at the period 2008–2013, I conclude that the unconventional policies of the Federal Reserve kept long-run inflation expectations anchored and provided a large level of monetary stimulus to the economy. |
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Keywords
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Inflation expectations; Real interest rate; Unconventional policies |
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URL
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http://www.minneapolisfed.org/research/sr/sr502.pdf
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Record ID
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544
[ Page 15 of 68, No. 6 ]
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Date
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2014-06 |
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Author
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Plosser, Charles I.
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Affiliation
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Federal Reserve Bank of Philadelphia |
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Title
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Systematic Monetary Policy and Communication |
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Summary /
Abstract
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President Plosser gives his views on the economy and the FOMC’s most recent policy decisions. He also discusses the benefits of rule-like, systematic behavior in the design and conduct of monetary policy and how this behavior combined with greater transparency leads to more effective communication. He explains how a detailed monetary policy report could promote the
FOMC to conduct policy in a more systematic manner, which he believes will lead to better decisions and better economic outcomes over the longer run. When policymakers deviate, it would require that they explain why. He uses five widely recognized simple rules to explore their implications for the future path of policy and highlights the real uncertainties that policymakers face making policy. |
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Keywords
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Monetary policy; FOMC |
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URL
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http://www.philadelphiafed.org/publications/speeches/plosser/2014/06-24-14-economicclubny.pdf
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Record ID
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543
[ Page 15 of 68, No. 7 ]
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Date
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2014-07 |
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Author
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Marlene Amstad, Simon Potter and Robert Rich
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Affiliation
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Bank for International Settlements |
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Title
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The FRBNY Staff Underlying Inflation Gauge: UIG |
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Summary /
Abstract
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Monetary policymakers and long-term investors would benefit greatly from a measure of underlying inflation that uses all relevant information, is available in real-time, and forecasts inflation better than traditional underlying inflation measures such as core inflation measures. This paper presents the "Federal Reserve Bank of New York (FRBNY) Staff Underlying Inflation Gauge (UIG)" for CPI and PCE. Using a dynamic factor model approach, the UIG is derived from a broad data set that extends beyond price series to include a wide range of nominal, real, and financial variables. It also considers the specific and time-varying persistence of individual subcomponents of an inflation series. An attractive feature of the UIG is that it can be updated on a daily basis, which allows for a close monitoring of changes in underlying inflation. This capability can be very useful when large and sudden economic fluctuations occur, as at the end of 2008. In addition, the UIG displays greater forecast accuracy than traditional measures of core inflation. |
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Keywords
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Inflation, Dynamic Factor Models, Core Inflation, Monetary Policy, Forecasting |
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URL
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http://www.bis.org/publ/work453.pdf
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Record ID
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542
[ Page 15 of 68, No. 8 ]
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Date
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2014-07 |
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Author
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Fabio Verona, Manuel M. F. Martins, and Inês Drumond
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Affiliation
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Bank of Finland, Monetary Policy and Research Department; Banco de Portugal, Financial Stability Department; and University of Porto |
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Title
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Financial Shocks and Optimal Monetary Policy Rules |
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Summary /
Abstract
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We assess the performance of optimal Taylor-type interest rate rules, with and without reaction to financial variables, in stabilizing the macroeconomy following financial shocks. We use a DSGE model that comprises both a loan and a bond market, which best suits the contemporary structure of the U.S. financial system and allows for a wide set of financial shocks and transmission mechanisms. Overall, we find that targeting financial stability – in particular credit growth, but in some cases also financial spreads and asset prices – improves macroeconomic stabilization. The specific policy implications depend on the policy regime, and on the origin and the persistence of the financial shock. |
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Keywords
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Financial shocks, optimal monetary policy, Taylor rules, DSGE models, bond market, loan market |
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URL
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http://cefup.fep.up.pt/uploads/WorkingPapers/wp1402.pdf
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Record ID
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541
[ Page 15 of 68, No. 9 ]
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Date
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2014-07 |
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Author
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Fabio Verona, Manuel M. F. Martins, and Inês Drumond
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Affiliation
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Bank of Finland, University of Porto, and Banco de Portugal |
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Title
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Financial Shocks and Optimal Monetary Policy Rules |
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Summary /
Abstract
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We assess the performance of optimal Taylor-type interest rate rules, with and without reaction to financial variables, in stabilizing the macroeconomy following financial shocks. We use a DSGE model that comprises both a loan and a bond market, which best suits the contemporary structure of the U.S. financial system and allows for a wide set of financial shocks and transmission mechanisms. Overall, we find that targeting financial stability – in particular credit growth, but in some cases also financial spreads and asset prices – improves macroeconomic stabilization. The specific policy implications depend on the policy regime, and on the origin and the persistence of the financial shock. |
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Keywords
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Financial shocks, optimal monetary policy, Taylor rules, DSGE models, bond market, loan market |
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URL
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http://cefup.fep.up.pt/uploads/WorkingPapers/wp1402.pdf
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Record ID
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540
[ Page 15 of 68, No. 10 ]
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Date
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2014-08 |
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Author
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Matteo Ghilardi and Shanaka J. Peiris
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Affiliation
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Asia Pacific Department, Research Department and Strategy, Policy and Review Department, IMF |
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Title
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Capital Flows, Financial Intermediation and Macroprudential Policies |
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Summary /
Abstract
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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. |
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Keywords
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Financial Frictions, Capital Regulation, Monetary Policy |
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URL
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http://www.imf.org/external/pubs/ft/wp/2014/wp14157.pdf
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