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Record ID
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377
[ Page 16 of 34, No. 1 ]
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Date
|
2013-05 |
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Author
|
William R. Cline
|
|
Affiliation
|
Peterson Institute for International Economics |
|
Title
|
Estimates of Fundamental Equilibrium Exchange Rates |
|
Summary /
Abstract
|
In this semiannual update, William R. Cline presents new estimates of fundamental equilibrium exchange rates (FEERs). Once again it is found that the key cases of the United States and China involve only modest over- and undervaluation, respectively. However, the Japanese yen is found to have fallen substantially below its FEER as a consequence of the aggressive quantitative easing policy, and Cline suggests that if the currency continues much further along a downward path, the G-7 may need to consider joint intervention to curb its decline. The study concludes by adding a variant of the calculations in which rich countries are set a floor target of at least a zero current account balance, and emerging market economies are set a ceiling target of zero balance. In this "aggressive rebalancing" in which capital would no longer flow "uphill" from poor to rich countries, the US dollar would require a much larger depreciation and the Chinese renminbi a much larger appreciation. |
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Keywords
|
FEERs, G-7, zero current account balance, capital flows |
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URL
|
http://www.piie.com/publications/pb/pb13-15.pdf
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Record ID
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376
[ Page 16 of 34, No. 2 ]
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Date
|
2012-09 |
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Author
|
Florina-Cristina Badarau and Alexandra Popescu
|
|
Affiliation
|
Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu and LEO - Laboratoire d'économie d'Orleans - Université d'Orléans |
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Title
|
Monetary Policy and Credit Cycles: A DSGE Analysis |
|
Summary /
Abstract
|
The recent financial crisis revealed several flaws in both monetary and financial regulation. Contrary to what was believed, price stability is not a sufficient condition for financial stability. At the same time, micro-prudential regulation alone becomes insufficient to ensure the financial stability objective. In this paper, we propose an ex-post analysis of what a central bank could have done to improve the reaction of the economy to the financial bubble. We study by means of a financial accelerator DSGE model the dynamics of our economy when the central bank has, first, only traditional objectives, and second, when an additional financial stability objective is added. Overall, results indicate that a more aggressive monetary policy would have had little success in improving the response of the economy to the financial bubble, as the actions of the central bank would have remained limited by the use of a single instrument, the interest rate. |
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Keywords
|
Bank capital channel, credit cycles, financial stability, monetary policy. |
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URL
|
http://halshs.archives-ouvertes.fr/docs/00/82/80/74/PDF/dr201214.pdf
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|
Remarks
|
The above analytical paper concludes that raising the interest rate to counter an asset price bubble makes matters worse, assuming that the central bank uses only this single policy instrument in an augmented Taylor rule (augmented to include a credit-to-GDP ratio as a third argument besides inflation and unemployment--all three variables measured as deviations from their steady-state values). The reason is that raising the interest rate "fails to discourage speculative investors. Actually, higher interest rates attract only risky agents (Stiglitz and Weiss, 1981, reference by the authors)." This is the same argument I used in my recent paper,"Should Policymakers Respond Directly to Financial Stability in Their Interest-Rate Rule?" in The Future of Inflation Targeting (http://www.seacen.org/products/702001-100305-PDF.pdf).
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Record ID
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375
[ Page 16 of 34, No. 3 ]
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|
Date
|
2013-06 |
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Author
|
Poirson, Hélène ; and Schmittmann, Jochen M.
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|
Affiliation
|
European Department and Monetary and Capital Markets Department, IMF |
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Title
|
Risk Exposures and Financial Spillovers in Tranquil and Crisis Times: Bank-Level Evidence |
|
Summary /
Abstract
|
For a sample of 83 financial institutions during 2003–2011, this paper attempts to answer three questions: first, what is the evolution of banks’ stock price exposure to country-level and global risk factors as approximated by equity indices; second, which bank-specific characteristics explain these risk exposures; third, are there clusters of banks with equity price linkages beyond market risk factors. The paper finds a rise in sensitivities to both country and global risk factors in 2011, although on average to levels still below those of the subprime crisis. The average sensitivity to European risk, specifically, has been steadily rising since 2008. Banks that are reliant on wholesale funding, have weaker capital levels and low valuations, and higher exposures to crisis countries are found to be the most vulnerable to shocks. The analysis of bank-to-bank linkages suggests that any “globalization” of the euro area crisis is likely to be channelled through U.K. and U.S. banks, with little evidence of direct spillover effects to other regions. |
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Keywords
|
Financial sector; financial institutions; banks; Europe; financial crisis; spillovers |
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URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13142.pdf
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Record ID
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374
[ Page 16 of 34, No. 4 ]
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|
Date
|
2013-06 |
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Author
|
Dell'Ariccia, Giovanni ; Laeven, Luc ; and Suarez, Gustavo
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|
Affiliation
|
Research Department, IMF |
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Title
|
Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States |
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Summary /
Abstract
|
We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally. |
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Keywords
|
Interest rates, monetary policy, banks, leverage, risk |
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URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13143.pdf
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Record ID
|
372
[ Page 16 of 34, No. 6 ]
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|
Date
|
2013-03 |
|
Author
|
Guillermo Escudé
|
|
Affiliation
|
Central Bank of Argentina |
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Title
|
A DSGE Model for a Small, Open Economy with Systematic Interest and Foreign Exchange Policies in Which Policymakers Exploit the Risk Premium for Stabilization Purposes |
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Summary /
Abstract
|
This paper builds a DSGE model for a SOE in which the central bank systematically intervenes in both the domestic currency bond and the FX markets using two policy rules: a Taylor-type rule and a second rule in which the operational target is the rate of nominal currency depreciation. For this, the instruments used by the central bank (bonds and international reserves) must be included in the model, as well as the institutional arrangements that determine the total amount of resources the central bank can use. The "corner" regimes in which only one of the policy rules is used are particular cases of the model. The model is calibrated and implemented in Dynare for 1) simple policy rules, 2) optimal simple policy rules, and 3) optimal policy under commitment. Numerical losses are obtained for ad-hoc loss functions for different sets of central bank preferences (styles). The results show that the losses are systematically lower when both policy rules are used simultaneously, and much lower for the usual preferences (in which only inflation and/or output stabilization matter). It is shown that this result is basically due to the central bank´s enhanced ability, when it uses the two policy rules, to influence capital flows through the effects of its actions on the endogenous risk premium in the (risk-adjusted) interest parity equation. |
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Keywords
|
DSGE models, exchange rate policy, optimal policy, Small Open Economy |
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URL
|
http://www.bcra.gov.ar/pdfs/investigaciones/WP_61_2013.pdf
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Record ID
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371
[ Page 16 of 34, No. 7 ]
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Date
|
2012-03 |
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Author
|
Orphanides, Athanasios and Wieland, Volker
|
|
Affiliation
|
Massachusetts Institute of Technology and University of Frankfurt |
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Title
|
Complexity and monetary policy* |
|
Summary /
Abstract
|
The complexity resulting from intertwined uncertainties regarding model misspecification and mismeasurement of the state of the economy defines the monetary policy landscape. Using the euro area as laboratory this paper explores the design of robust policy guides aiming to maintain stability in the economy while recognizing this complexity. We document substantial output gap mismeasurement and make use of a new model data base to capture the evolution of model specification. A simple interest rate rule is employed to interpret ECB policy since 1999. An evaluation of alternative policy rules across 11 models of the euro area confirms the fragility of policy analysis optimized for any specific model and shows the merits of model averaging in policy design. Interestingly, a simple difference rule with the same coefficients on inflation and output growth as the one used to interpret ECB policy is quite robust as long as it responds to current outcomes of these variables. |
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Keywords
|
Financial Crisis, Complexity, Monetary Policy, Model Uncertainty, Robust Simple Rules, ECB |
|
URL
|
http://econstor.eu/bitstream/10419/71149/1/726555479.pdf
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|
Remarks
|
*Prepared for the Federal Reserve Board conference on Central Banking: Before, During, and After the Crisis, Washington, DC, 23-24 March 2012. |
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Record ID
|
370
[ Page 16 of 34, No. 8 ]
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|
Date
|
2012-08 |
|
Author
|
Klaus Schmidt-Hebbel and Francisco Muñoz
|
|
Affiliation
|
Catholic University of Chile |
|
Title
|
Monetary policy decisions by the world's central banks using real-time data |
|
Summary /
Abstract
|
This paper contributes to the empirical understanding of monetary policy in five dimensions. First, specifiying a generalized Taylor equation that nests backward and forward-looking inflation and activity variables in setting policy rates. Second, using real-time data. Third, estimating the model on a world panel of monthly 1994-2011 data for 28 advanced and emerging economies. Fourth, using alternative panel data estimators to test for robustness. Fifth, testing for differences in monetary policy over time and across country groups. The findings are very supportive of the nested model and generally show that the Taylor principle is satisfied by the world's central banks. |
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Keywords
|
Monetary policy, Taylor rule, Taylor principle, heterogeneous panels |
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URL
|
http://www.economia.puc.cl/docs/dt_426.pdf
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Record ID
|
369
[ Page 16 of 34, No. 9 ]
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|
Date
|
2013-06 |
|
Author
|
Adedeji, Olumuyiwa ; Du, Huancheng ; Opoku-Afari, Maxwell
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|
Affiliation
|
African Department, IMF |
|
Title
|
Inclusive Growth: An Application of the Social Opportunity Function to Selected African Countries |
|
Summary /
Abstract
|
The inclusiveness of growth depends on the extent of access to economic and social opportunities. This paper applies the concept of social opportunity function to ascertain the inclusiveness of growth episodes in selected African countries. Premised on the concept of social welfare function, inclusive growth is associated with increased average opportunities available to the population and improvement in their distribution. The paper establishes that the high growth episodes in the last decade in the selected countries came with increased average opportunities in education and health; but distribution of such opportunities varied across countries, depending on the country-specific policies underpining the growth episodes.
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|
Keywords
|
Inclusive growth, social opportunity curve, and equity |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13139.pdf
|
|
Record ID
|
368
[ Page 16 of 34, No. 10 ]
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|
Date
|
2013-05 |
|
Author
|
Rahul Anand, David Coady, Adil Mohommad, Vimal Thakoor, and James P. Walsh
|
|
Affiliation
|
Asia and Pacific Department, IMF |
|
Title
|
The Fiscal and Welfare Impacts of Reforming Fuel Subsidies in India |
|
Summary /
Abstract
|
Rising fuel subsidies have contributed to fiscal pressures in India. A key policy concern regarding subsidy reform is the adverse welfare impact on households, in particular poor households. This paper evaluates the fiscal and welfare implications of fuel subsidy reform in India. Fuel subsidies are found to be badly targeted, with the richest ten percent of households receiving seven times more in benefits than the poorest ten percent. Although subsidy reform would generate substantial fiscal savings, the associated increases in fuel and other prices would lower household real incomes of all income groups. Better targeting of fuel subsidies would fully protect lower income households while still generating substantial net fiscal savings. Lessons from subsidy reforms in other countries are identified and discussed.
|
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Keywords
|
Fuel pricing, subsidy reform, distributional impact, compensating transfers, India |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13128.pdf
|
|
Record ID
|
367
[ Page 16 of 34, No. 11 ]
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|
Date
|
2013-02 |
|
Author
|
Paul Hubert
|
|
Affiliation
|
Ofce sciences-po |
|
Title
|
ECB projections as a tool for understanding policy decisions |
|
Summary /
Abstract
|
The European Central Bank publishes inflation projections quarterly. This paper aims at establishing whether they influence private forecasts and whether they may be considered as an enhanced means of implementing policy decisions by facilitating private agents’ information processing. We provide original evidence that ECB inflation projections do influence private inflation expectations. We also find that ECB projections give information about future ECB rate movements, and that the ECB rate has different effects if complemented or not with the publication of ECB projections. We conclude that ECB projections enable private agents to correctly interpret and predict policy decisions. |
|
Keywords
|
Monetary policy, ECB, Private forecasts, Influence, Structural Var |
|
URL
|
http://www.ofce.sciences-po.fr/pdf/dtravail/WP2013-04.pdf
|
|
Record ID
|
366
[ Page 16 of 34, No. 12 ]
|
|
Date
|
2013-02 |
|
Author
|
Paul Hubert
|
|
Affiliation
|
OFCE – SciencesPo |
|
Title
|
The influence and policy signaling role of FOMC forecasts |
|
Summary /
Abstract
|
Policymakers at the Federal Open Market Committee (FOMC) publish forecasts since 1979. We examine the effects of publishing FOMC inflation forecasts in two steps using a structural VAR model. We assess whether they influence private inflation expectations and the underlying mechanism at work: do they convey policy signals for forward guidance or help interpreting current policy decisions? We provide original evidence that FOMC inflation forecasts are able to influence private ones. We also find that FOMC forecasts give information about future Fed rate movements and affect private expectations in a different way than Fed rate shocks. This body of evidence supports the use of central bank forecasts to affect inflation expectations especially while conventional policy instruments are at the zero lower bound. |
|
Keywords
|
Monetary policy, Forecasts, FOMC, influence, Policy signals, structural Var |
|
URL
|
http://www.ofce.sciences-po.fr/pdf/dtravail/WP2013-03.pdf
|
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Record ID
|
365
[ Page 16 of 34, No. 13 ]
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|
Date
|
2007-04 |
|
Author
|
Gerhard Illing
|
|
Affiliation
|
University of Munich |
|
Title
|
Financial Stability and Monetary Policy – A Framework |
|
Summary /
Abstract
|
The paper presents a stylised framework to analyse conditions under which monetary policy contributes to amplified movements in the housing market. Extending work by Hyun Shin (2005), the paper analyses self enforcing feedback mechanisms resulting in amplifier effects in a credit constrained economy. The paper characterizes conditions for asymmetric effects, causing systemic crises. By injecting liquidity, monetary policy can prevent a meltdown. Anticipating such a response, private agents are encouraged to take higher risks. Provision of liquidity works as a public good, but it may create potential conflicts with other policy objectives and may give incentives to build up leverage with a high systemic exposure to small probability events. |
|
Keywords
|
Financial stability, monetary policy, interactions |
|
URL
|
http://www.cesifo-group.de/DocDL/cesifo1_wp1971.pdf
|
|
Record ID
|
364
[ Page 16 of 34, No. 14 ]
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|
Date
|
2011-12 |
|
Author
|
Deniz Igan and Heedon Kang
|
|
Affiliation
|
Research Department and Monetary and Capital Markets Department, IMF |
|
Title
|
Do Loan-to-Value and Debt-to-Income Limits Work? Evidence from Korea |
|
Summary /
Abstract
|
With another real estate boom-bust bringing woes to the world economy, a quest for a better policy toolkit to deal with these boom-busts has begun. Macroprudential measures could be in such a toolkit. Yet, we know
very little about their impact. This paper takes a step to fill this gap by analyzing the Korean experience with
these measures. We find that loan-to-value and debt-to-income limits are associated with a decline in house price appreciation and transaction activity. Furthermore, the limits alter expectations, which play a key role in bubble dynamics. |
|
Keywords
|
Housing markets, mortgage, macroprudential regulation |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2011/wp11297.pdf
|
|
Record ID
|
363
[ Page 16 of 34, No. 15 ]
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|
Date
|
2009-03 |
|
Author
|
Vasco Cúrdia and Michael Woodford
|
|
Affiliation
|
Federal Reserve Bank of New York 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 characterises 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. We also consider a "spread-adjusted Taylor rule", in which the intercept of the Taylor rule is adjusted in proportion to changes in credit spreads. We show that while such an adjustment can improve upon an unadjusted Taylor rule, the optimal degree of adjustment is less than 100 percent; and even with the correct size of adjustment, such a rule of thumb remains inferior to the targeting rule.
This is part of a series of BIS Working Papers (273 to 278) collecting papers presented at the BIS's Seventh Annual Conference on "Whither monetary policy? Monetary policy challenges in the decade ahead" in Luzern, Switzerland, on 26-27 June 2008. The event brought together senior representatives of central banks and academic institutions to exchange views on this topic. BIS Paper 45 contains the opening address of William R White (BIS), the contributions of the policy panel on "Beyond price stability - the challenges ahead" and speeches by Edmund Phelps (Columbia University) and Martin Wolf (Financial Times). The participants in the policy panel discussion chaired by Malcolm D Knight (BIS) were Martin Feldstein (Harvard University), Stanley Fischer (Bank of Israel), Mark Carney (Bank of Canada) and Jean-Pierre Landau (Banque de France). This Working Paper includes comments by Olivier Blanchard and Charles Goodhart. |
|
Keywords
|
Financial Frictions, Interest Rate Spreads |
|
URL
|
http://www.bis.org/publ/work278.pdf
|
|
Record ID
|
362
[ Page 16 of 34, No. 16 ]
|
|
Date
|
2012-12 |
|
Author
|
Working Group chaired by José-Manuel González-Páramo, formerly European Central Bank
|
|
Affiliation
|
Committee on the Global Financial System. BIS |
|
Title
|
Operationalising the selection and application of macroprudential instruments |
|
Summary /
Abstract
|
This report aims to help policymakers in operationalising macroprudential policies. Specifically, it draws out three high-level criteria that are key in determining the selection and application of macroprudential instruments:
1. the ability to determine the appropriate timing for the activation or deactivation of the instrument;
2. the effectiveness of the instrument in achieving the stated policy objective; and
3. the efficiency of the instrument in terms of a cost-benefit assessment.
In trying to operationalise these criteria, this report proposes a number of practical tools. First, to help determine the appropriate timing for the activation and deactivation of instruments, it lays out stylised scenarios. Their identification is facilitated by two alternative approaches that seek to link systemic risk analysis and instrument selection. Second, to support the evaluation of the effectiveness and efficiency of macroprudential tools for a range of macroprudential instruments, the report proposes "transmission maps" - stylised presentations of how changes in individual instruments are expected to contribute to the objectives of macroprudential policy. |
|
Keywords
|
Macroprudential instruments, selection criteria |
|
URL
|
http://www.bis.org/publ/cgfs48.pdf
|
|
Record ID
|
361
[ Page 16 of 34, No. 17 ]
|
|
Date
|
2013-05 |
|
Author
|
Ceyhun Elgin and Tolga Umut Kuzubas
|
|
Affiliation
|
Bogazici University, Istanbul, Turkey |
|
Title
|
Wage-Productivity Gap in OECD Economies |
|
Summary /
Abstract
|
The Walrasian theory of labor market equilibrium predicts that in the absence of any market frictions, workers earn a wage rate equal to their marginal productivity. In this paper, based on the neoclassical tradition, the authors define the ratio of the marginal product of labor to real wages as the Pigouvian exploitation rate and then construct a panel dataset of this specific wage-productivity gap for the manufacturing sector in OECD economies. Next, they investigate its relationship with the unemployment rate along with various other variables such as the government taxation, capital expansion, unionization, inflation. Their findings suggest that the wage-productivity gap gives a robust and significantly positive response to shocks to unemployment rate and a negative response to shocks to unionization.
|
|
Keywords
|
Wages; marginal productivity of labor; panel-VAR; OECD economies |
|
URL
|
http://www.economics-ejournal.org/economics/journalarticles/2013-21/version_1/count
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|
Record ID
|
360
[ Page 16 of 34, No. 18 ]
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|
Date
|
2013-05 |
|
Author
|
Valentina Bruno and Hyun Song Shin
|
|
Affiliation
|
National Bureau of Economic Research |
|
Title
|
Capital Flows, Cross-Border Banking and Global Liquidity |
|
Summary /
Abstract
|
We investigate global factors associated with cross-border capital flows. We formulate a model of gross capital flows through the international banking system and derive a closed form solution that highlights the leverage cycle of global banks as being a prime determinant of the transmission of financial conditions across borders. We then test the predictions of our model in a panel study of 46 countries and find that global factors dominate local factors as determinants of banking sector capital flows. |
|
Keywords
|
Capital Flows, Cross-Border Banking, Global Liquidity |
|
URL
|
http://www.nber.org/papers/w19038.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. |
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Record ID
|
359
[ Page 16 of 34, No. 19 ]
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|
Date
|
2013-04 |
|
Author
|
Simone Meier
|
|
Affiliation
|
Swiss National Bank |
|
Title
|
Financial Globalization and Monetary Transmission |
|
Summary /
Abstract
|
This paper analyzes the way in which international financial integration affects the transmission of monetary policy in a New Keynesian open economy framework. It extends Woodford’s (2010) analysis to a model with a richer financial markets structure, allowing for international trading in multiple assets and subject to financial intermediation costs. Two different forms of financial integration are considered, in particular an increase in the level of gross foreign asset holdings and a decrease in the costs of international asset trading. The simulations in the calibrated model show that none of the analyzed forms of financial integration undermine the effectiveness of monetary policy in influencing domestic output and inflation. Under realistic parameterizations, monetary policy is more, rather than less, effective as the positive impact of strengthened exchange rate and wealth channels more than offsets the negative impact of weakened interest rate channels. The paper also analyzes the interaction of financial integration with trade integration, varying both the importance of trade linkages and the degree of exchange rate pass-through. These interactions show that the positive effects of financial integration are amplified by trade integration. Overall, monetary policy is most effective in parameterizations with the highest degree of both financial and real integration. |
|
Keywords
|
Globalization, Monetary Policy, Monetary Transmission |
|
URL
|
http://www.dallasfed.org/assets/documents/institute/wpapers/2013/0145.pdf
|
|
Record ID
|
358
[ Page 16 of 34, No. 20 ]
|
|
Date
|
2013-05 |
|
Author
|
Ivailo Arsov, Elie Canetti, Laura Kodres and Srobona Mitra
|
|
Affiliation
|
Money and Capital Markets Department, IMF |
|
Title
|
"Near-Coincident" Indicators of Systemic Stress |
|
Summary /
Abstract
|
The G-20 Data Gaps Initiative has called for the IMF to develop standard measures of tail risk, which we identify in this paper with systemic risk. To understand the conditions under which tail risk is present, it is first necessary to develop a measure of what constitutes a systemic stress, or tail, event. We develop such a measure and uses it to assess the performance of eleven near-term systemic risk indicators as ‘early’ warning of distress among top financial institutions in the United States and the euro area. Two indicators perform particularly well in both regions, and a couple of other simple indicators do well across a number of criteria. We also find that the sizes of institutions do not necessarily correspond with their contribution to spillover risk. Some practical guidance for policies is provided. |
|
Keywords
|
Coincident Indicator; Early Warning; Financial Stress; Systemic Risk; Tail Risk |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13115.pdf
|
|