Record ID

297     [ Page 20 of 34, No. 1 ]

Date

2013-01

Author

Beechey, Meredith and Österholm, Pär

Affiliation

Sveriges Riksbank and National Institute of Economic Research

Title

Central Bank Forecasts of Policy Interest Rates: An Evaluation of the First Years

Summary /
Abstract

In recent years the central banks of Norway and Sweden have published their endogenous policy interest-rate forecasts. In this paper, we evaluate those forecasts alongside policy-rate expectations inferred from market pricing. We find that for both economies there are only small differences in relative forecasting precision between the central bank and market-implied measures. However, both types of forecast fail tests for unbiasedness and efficiency at longer horizons.

Keywords

Monetary policy; Market expectations; Norges Bank; Sveriges Riksbank

URL

http://www.konj.se/download/18.11e05f6313b817f634fdb1/WP128.pdf

Record ID

296     [ Page 20 of 34, No. 2 ]

Date

2013-02

Author

Paul Hubert

Affiliation

OFCE – Sciences Po, France

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

Remarks

This research was conducted while the author was visiting the Monetary Policy Strategy Division at the European Central Bank. The research project benefited from funding from the European Union Seventh Framework Programme.

Record ID

295     [ Page 20 of 34, No. 3 ]

Date

2012-11

Author

Michael Joyce, David Miles, Andrew Scott and Dimitri Vayanos

Affiliation

Bank of England

Title

QUANTITATIVE EASING AND UNCONVENTIONAL MONETARY POLICY – AN INTRODUCTION

Summary /
Abstract

This article assesses the impact of Quantitative Easing and other unconventional monetary policies
followed by central banks in the wake of the financial crisis that began in 2007. We consider the
implications of theoretical models for the effectiveness of asset purchases and look at the evidence
from a range of empirical studies. We also provide an overview of the contributions of the other
articles in this Feature.

URL

http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0297.2012.02551.x/pdf

Record ID

294     [ Page 20 of 34, No. 4 ]

Date

2013-01

Author

Katalin Szilágyi, Dániel Baksa, Jaromir Benes, Ágnes Horváth, Csaba Köber, and Gábor D. Soós

Affiliation

Magyar Nemzeti Bank (Central bank of Hungary) and IMF

Title

The Hungarian Monetary Policy Model

Summary /
Abstract

March 2011 marked the introduction of the Magyar Nemzeti Bank’s Monetary Policy Model (MPM), representing a paradigm shift in both macroeconomic projection and monetary policy decision support. In contrast to previous conditional projections, the MPM provides an endogenous definition of both the projected policy rate and the projected exchange rate. Given the forward-looking nature of the model, expectations of economic agents play a key role in the monetary transmission process; therefore, the future achievement of the inflation target is guaranteed by the projected path of the interest rate over the forecast horizon. In this paper, we discuss the underlying structure and logic behind the MPM, describe the key behavioural equations and examine how the channels of monetary transmission appear in the model. In addition, we present the empirical validation process in detail from calibration, through Bayesian estimation and discussion of the economic properties of the model to the historical projection exercise. Finally, we discuss the main challenges we faced during the first year of application.

Keywords

Model projection, simulation, central banking, monetary policy

URL

http://www.mnb.hu/Root/Dokumentumtar/ENMNB/Kiadvanyok/mnben_mnbfuzetek/WP_2013-01.pdf

Record ID

293     [ Page 20 of 34, No. 5 ]

Date

2013-02

Author

Jordi Galí

Affiliation

NBER

Title

Monetary Policy and Rational Asset Price Bubbles

Summary /
Abstract

I examine the impact of alternative monetary policy rules on a rational asset price bubble, through the lens of an overlapping generations model with nominal rigidities. A systematic increase in interest rates in response to a growing bubble is shown to enhance the fluctuations in the latter, through its positive effect on bubble growth. The optimal monetary policy seeks to strike a balance between stabilization of the bubble and stabilization of aggregate demand. The paper's main findings call into question the theoretical foundations of the case for "leaning against the wind" monetary policies.

URL

http://www.nber.org/papers/w18806.pdf

Remarks

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

292     [ Page 20 of 34, No. 6 ]

Date

2013-02

Author

Hector Zarate and Angelina Rengifo

Affiliation

Banco de la Republica de Colombia

Title

Forecasting annual inflation with power transformations: the case of inflation targeting countries

Summary /
Abstract

This paper investigates whether transforming the Consumer Price Index with a class of power transformations lead to an improvement of inflation forecasting accuracy. We use one of the prototypical models to forecast short run inflation which is known as the univariate time series ARIMA . This model is based on past inflation which is traditionally approximated by the difference of logarithms of the underlying consumer price index. The common practice of applying the logarithm could damage the forecast precision if this transformation does not stabilize the variance adequately. In this paper we investigate the benefits of incorporating these transformations using a sample of 28 countries that has adopted the inflation targeting framework. An appropriate transformation reduces problems with estimation, prediction and inference. The choice of the parameter is done by Bayesian grounds.

Keywords

ARIMA models, power transformations, seasonality, Bayesian analysis

URL

http://www.banrep.gov.co/docum/ftp/be_756.pdf

Record ID

291     [ Page 20 of 34, No. 7 ]

Date

2013-02

Author

Hernando Vargas Herrera, Andrés González, and Diego Rodríguez

Affiliation

Banco de la Republica de Colombia

Title

Foreign Exchange Intervention in Colombia

Summary /
Abstract

Banco de la República’s FX intervention policy is described, with a focus on its objectives and main features. Then, based on a survey of the effectiveness of sterilized intervention in Colombia, it is argued that this tool is not useful to cope with the challenges posed by medium term external factors such as quantitative easing in advanced economies, reduced risk premiums in emerging economies or high international commodity prices. The duration of the impact of sterilized intervention on the exchange rate (if any) is much shorter than the effects of those factors. Finally, it is argued that if sterilized FX intervention is effective due to the operation of the portfolio balance channel, it may also have an expansionary effect on credit supply and aggregate demand. In this case, the macroeconomic outcomes of intervention depend on the monetary policy response. This issue is studied with a small open economy DSGE. In general, FX intervention implies a volatility of credit and consumption that is higher than under a more efficient allocation and under alternative monetary regimes without intervention. Furthermore, the more inclined the central bank is to meet an inflation target, the stronger its response to the expansionary effects of the intervention and, consequently, the lower the impact of the intervention on the exchange rate.

Keywords

Monetary Policy, Foreign Exchange Intervention

URL

http://www.banrep.gov.co/docum/ftp/be_757.pdf

Record ID

290     [ Page 20 of 34, No. 8 ]

Date

2013-02

Author

Anna Scherbina

Affiliation

Institute for Capacity Development, IMF

Title

Asset Price Bubbles: A Selective Survey

Summary /
Abstract

Why do asset price bubbles continue to appear in various markets? This paper provides an overview of recent literature on bubbles, with significant attention given to behavioral models and rational models with frictions. Unlike the standard rational models, the new literature is able to model the common characteristics of historical bubble episodes and offer insights for how bubbles are initiated and sustained, the reasons they burst, and why arbitrage forces do not routinely step in to squash them. The latest U.S. real estate bubble
is described in the context of this literature.

Keywords

Bubbles, Limits to Arbitrage, Financial Crisis

URL

http://www.imf.org/external/pubs/ft/wp/2013/wp1345.pdf

Record ID

289     [ Page 20 of 34, No. 9 ]

Date

2013-01

Author

Fabian Fink and Yves S. Schüler

Affiliation

Department of Economics, University of Konstanz, Germany

Title

The Transmission of US Financial Stress: Evidence for Emerging Market Economies

Summary /
Abstract

We provide empirical evidence that US financial stress shocks (US-FSSs) are an important driver for economic dynamics and fluctuations in emerging market economies (EMEs). Applying a structural vector auto regression, we analyze the international transmission of US-FSSs to eight EMEs using monthly data from 1999 to 2012. US-FSSs are identified as unexpected changes in the financial conditions index of the Federal Reserve Bank of Chicago. Findings indicate that a typical EME experiences similar negative effects as the US economy in response to US-FSSs. Our results emphasize that the transmission through international financial interconnections is dominant, while contagion through trade is inessential. Further, with regard to fluctuations in real economic activity, US-FSSs are as important as all other external factors jointly. In general, US-FSSs represent a crucial driver for volatility in the emerging world; also at business cycle frequencies.

Keywords

Financial Stress Shocks, International Transmission, Emerging Markets, SVAR

URL

http://www.uni-konstanz.de/FuF/wiwi/workingpaperseries/WP_01-Fink-Schueler_2013.pdf

Record ID

288     [ Page 20 of 34, No. 10 ]

Date

2013-01

Author

Robert N. McCauley

Affiliation

Asian Development Bank Institute

Title

Risk-On/Risk-Off, Capital Flows, Leverage, and Safe Assets

Summary /
Abstract

This paper describes the international flow of funds associated with calm and volatile global equity markets. During calm periods, portfolio investment by real money and leveraged investors in advanced countries flows into emerging markets, leading to an asymmetric asset swap (risky emerging market assets against safe reserve currency assets) and leveraging up by emerging market central banks. In declining and volatile global equity markets, these flows reverse, and, contrary to some claims, emerging market central banks draw down reserves substantially. In effect emerging market central banks then release safe assets from their reserves, supplying safe havens to global investors.

Keywords

Capital flows; safe assets; international flow funds; global liquidity

URL

http://www.adbi.org/files/2013.01.25.wp405.risk.on.risk.off.capital.flows.pdf

Record ID

287     [ Page 20 of 34, No. 11 ]

Date

2013-01

Author

Christina D. Romer and David H. Romer

Affiliation

National Bureau of Economic Research (NBER)

Title

The Missing Transmission Mechanism in the Monetary Explanation of the Great Depression

Summary /
Abstract

This paper examines an important gap in the monetary explanation of the Great Depression: the lack of a well-articulated and documented transmission mechanism of monetary shocks to the real economy. It begins by reviewing the challenge to Friedman and Schwartz’s monetary explanation provided by the decline in nominal interest rates in the early 1930s. We show that the monetary explanation requires not just that there were expectations of deflation, but that those expectations were the result of monetary contraction. Using a detailed analysis of Business Week magazine, we find evidence that monetary contraction and Federal Reserve policy contributed to expectations of deflation during the central years of the downturn. This suggests that monetary shocks may have depressed spending and output in part by raising real interest rates.

URL

http://d.repec.org/n?u=RePEc:nbr:nberwo:18746&r=cba

Remarks

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

286     [ Page 20 of 34, No. 12 ]

Date

2012-10

Author

Runchana Pongsaparn, Panda Ketruangroch and Dhanaporn Hirunwong

Affiliation

Bank of Thailand

Title

Monetary Policy Conduct in Review: The Appropriate Choice of Instruments

Summary /
Abstract

In achieving price stability, central banks can choose different ways to conduct monetary policy. The difference in the conduct of monetary policy lies in the instrument they use not in the monetary policy regime per se. The paper finds that the higher the level of financial development, the higher degree of monopoly power (uniqueness) in exports and the stronger the institution, the more likely a country will use interest rate as the main monetary policy instrument. Furthermore, based on three criteria: (1) controllability of policy instrument and monetary conditions (2) the degree of counter-cyclicality and (3) the effectiveness of instrument in influencing inflation and output, interest rate appears to be an appropriate monetary policy instrument for Thailand. So far, performance of the current monetary policy framework in Thailand has been fine, with transparency through communication with the general public being one of the key factors contributing to the performance and policy effectiveness.

Keywords

Economic Rationales for Central Banking

URL

http://www.bot.or.th/Thai/EconomicConditions/Publication/DiscussionPaper/dp052012_eng.pdf

Record ID

285     [ Page 20 of 34, No. 13 ]

Date

2012-10

Author

Pornpinun Chantapacdepong, Nuttathum Chutasripanich, and Bovonvich Jindarak

Affiliation

Bank of Thailand

Title

Central Bank Balance Sheet and Policy Implications

Summary /
Abstract

Recently, weak central bank financial positions, especially of emerging economies, have brought into the public spotlight whether or not such weakness will constrain or obstruct the policy implementation in the long run. The country case studies and statistical performance show that the central bank capital erosion does not directly relate to the policy effectiveness, but creates the vulnerabilities to the monetary policy process. The key factor helping to achieve the policy objectives, even with the losses or negative capital, is “central bank credibility”. The policy choices to reduce such vulnerabilities are discussed in this paper.

Keywords

Central Bank Balance Sheet and Policy Implications

URL

http://www.bot.or.th/Thai/EconomicConditions/Publication/DiscussionPaper/dp072012_eng.pdf

Record ID

284     [ Page 20 of 34, No. 14 ]

Date

2012-10

Author

Wanvimol Sawangngoenyuang, Sukrita Sa-nguanpan, and Worawut Sabborriboon

Affiliation

Bank of Thailand

Title

Financial Systemic Stability: Challenging Aspects of Central Banks

Summary /
Abstract

Since 2007 global financial crisis, many central banks have tended to focus on financial stability much more than ever. Lessons learned from recent crises witness that in a period of sustained economic growth with low and stable inflation, financial imbalances could adversely affect financial system and real economy, which eventually leads to financial crises. In addition, the cost of crises becomes increasingly expensive over time because crises themselves have been more systemic. Risk from one financial institution can easily transfer to others and then to the whole financial market. Thus, current crises highlight the importance of financial stability role of central banks in two main aspects, crisis prevention and crisis management. The paper indicates that in recent financial crises, many central banks have stepped beyond their traditional roles in order to ensure financial system stability. Some instruments and measures that central banks have implemented can be considered as unconventional ones. Looking forward, these practices then lead to new challenges for central banks in three main aspects: risk identification, risk mitigation, and policy issuance process. Eventually, this paper also provides policy implications to Bank of Thailand, based on international experiences and lessons learned from recent crises.

Keywords

Financial Systemic Stability

URL

http://www.bot.or.th/Thai/EconomicConditions/Publication/DiscussionPaper/dp062012_eng.pdf

Record ID

283     [ Page 20 of 34, No. 15 ]

Date

2012-12

Author

Fabrice Collard, Harris Dellas, Behzad Diba, and Olivier Loisel

Affiliation

University of Bern, Georgetown University, and CREST(ENSAE)

Title

Optimal Monetary and Prudential Policies

Summary /
Abstract

The recent financial crisis has highlighted the interconnectedness between macroeconomic and financial stability and has raised the question of whether and how to combine the corresponding main policy instruments (interest rate and bank-capital requirements). This paper offers a characterization of the jointly optimal setting of monetary and prudential policies and discusses its implications for the business cycle. The source of financial fragility is the socially excessive risk-taking by banks due to limited liability and deposit insurance. We characterize the conditions under which locally optimal (Ramsey) policy dedicates the prudential instrument to preventing inefficient risk-taking by banks; and the monetary instrument to dealing with the business cycle, with the two instruments co-varying negatively. Our analysis thus identifies circumstances that can validate the prevailing view among central bankers that standard interest-rate policy cannot serve as the first line of defense against financial instability. In addition, we also provide conditions under which the two instruments might optimally co-move positively and countercyclically.

Keywords

Prudential policy, Capital requirements, Monetary policy, Ramsey-optimal policies

URL

http://www.crest.fr/images/doctravail/doctravail2012/2012-34.pdf

Record ID

282     [ Page 20 of 34, No. 16 ]

Date

2012-12

Author

IMF staff team led by Erlend Nier, comprising Heedon Kang, Tommaso Mancini, Heiko Hesse (all MCM), Francesco Columba (WHD), Robert Tchaidze (EUR), and Jerome Vandenbussche (EUR).

Affiliation

IMF

Title

The Interaction of Monetary and Macroprudential Policies - Background Paper (IMF Policy Paper)

Summary /
Abstract

This paper provides background material to support the Board paper on the interaction of monetary and macroprudential policies. It analyzes the scope for and evidence on interactions between monetary and macroprudential policies. It first reviews a recent conceptual literature on interactive effects that arise when both macroprudential and monetary policy are employed. It goes on to explore the “side effects” of monetary policy on financial stability and their implications for macroprudential policy. It finally addresses the strength of possible effects of macroprudential policies on output and price stability, and draws out implications for the conduct of monetary policy.

Keywords

Monetary policies, macroprudential policies

URL

http://www.imf.org/external/np/pp/eng/2013/012713.pdf

Record ID

281     [ Page 20 of 34, No. 17 ]

Date

2013-01

Author

Pelin Ilbas, Øistein Røisland, and Tommy Sveen

Affiliation

National Bank of Belgium, Norges Bank, and BI Norwegian Business School

Title

The Influence of the Taylor rule on US monetary policy

Summary /
Abstract

We analyze the influence of the Taylor rule on US monetary policy by estimating the policy preferences of the Fed within a DSGE framework. The policy preferences are represented by a standard loss function, extended with a term that represents the degree of reluctance to letting the interest rate deviate from the Taylor rule. The empirical support for the presence of a Taylor rule term in the policy preferences is strong and robust to alternative specifications of the loss function. Analyzing the Fed's monetary policy in the period 2001-2006, we find no support for a decreased weight on the Taylor rule, contrary to what has been argued in the literature. The large deviations from the Taylor rule in this period are due to large, negative demand-side shocks, and represent optimal deviations for a given weight on the Taylor rule.

Keywords

Optimal monetary policy, simple rules, central bank preferences

URL

http://www.nbb.be/doc/oc/repec/reswpp/wp241En.pdf

Record ID

280     [ Page 20 of 34, No. 18 ]

Date

2013-01

Author

John B. Taylor

Affiliation

Stanford University, Stanford Institute for Economic Policy Research

Title

The Effectiveness of Central Bank Independence Versus Policy Rules

Summary /
Abstract

This paper assesses the relative effectiveness of central bank independence versus policy rules for the policy instruments in bringing about good economic performance. It examines historical changes in (1) macroeconomic performance, (2) the adherence to rules-based monetary policy, and (3) the degree of central bank independence. Macroeconomic performance is defined in terms of both price stability and output stability. Factors other than monetary policy rules are examined. Both de jure and de facto central bank independence at the Fed are considered. The main finding is that changes in macroeconomic performance during the past half century were closely associated with changes the adherence to rules-based monetary policy and in the degree of de facto monetary independence at the Fed. But changes in economic performance were not associated with changes in de jure central bank independence. Formal central bank independence alone has not generated good monetary policy outcomes. A rules-based framework is essential.

Keywords

Central bank independence, rules-based monetary policy, macroeconomic performance

URL

http://www-siepr.stanford.edu/repec/sip/12-009.pdf

Record ID

279     [ Page 20 of 34, No. 19 ]

Date

2013-01

Author

Stijn Claessens and M. Kose

Affiliation

Research Department, IMF

Title

Financial Crises Explanations, Types, and Implications

Summary /
Abstract

This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.

Keywords

Sudden stops, debt crises, banking crises, currency crises, defaults, policy implications, financial restructuring, asset booms, credit booms, crises prediction

URL

http://www.imf.org/external/pubs/ft/wp/2013/wp1328.pdf

Record ID

278     [ Page 20 of 34, No. 20 ]

Date

2013-01

Author

Mikael Apel, Carl Andreas Claussen, Petra Gerlach-Kristen, Petra Lennartsdotter, and Øistein Røisland

Affiliation

Norges Bank (Central Bank of Norway)

Title

Monetary policy decisions – comparing theory and “inside” information from MPC members

Summary /
Abstract

How do monetary policy committee (MPC) members form their views about the appropriate interest rate? To what extent do they change their minds during the deliberations in the interest rate meeting? How important is the Chairman? The theoretical literature makes assumptions about these issues. We have asked actual MPC members in Sweden and Norway. This paper reports the results from this unique survey and discusses how well existing theories on monetary policy by committee capture the reality.

Keywords

Monetary Policy Committee, Sveriges Riksbank, Norges Bank, Decision Making, Questionnaire Study.

URL

http://www.norges-bank.no/pages/92821/Norges_Bank_Working_Paper_2013_03.pdf