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Record ID
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186
[ Page 50 of 68, No. 1 ]
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Date
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2011-09 |
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Author
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Hiona Balfoussia, Sophocles N. Brissimis, and Manthos D. Delis
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Affiliation
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Bank of Greece, Eurosystem, and City University |
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Title
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The theoretical framework of monetary policy revisited |
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Summary /
Abstract
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The three-equation New-Keynesian model advocated by Woodford (2003) as a self-contained system on which to base monetary policy analysis is shown to be inconsistent in the sense that its long-run static equilibrium solution implies that the interest rate is determined from two of the system’s equations, while the price level is left undetermined. The inconsistency is remedied by replacing the Taylor rule with a standard money demand equation. The modified system is seen to possess the key properties of monetarist theory for the long run, i.e. monetary neutrality with respect to real output and the real interest rate and proportionality between money and prices. Both the modified and the original New-Keynesian models are estimated on US data and their dynamic properties are examined by impulse response analysis. Our research suggests that the economic and monetary analysis of the European Central Bank could be unified into a single framework. |
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Keywords
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Monetary theory; Central banking; New-Keynesian model; Impulse response analysis |
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URL
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http://www.bankofgreece.gr/BogEkdoseis/Paper2011138.pdf
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Record ID
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185
[ Page 50 of 68, No. 2 ]
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Date
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2011-11 |
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Author
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Lam, W. Raphael
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Affiliation
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Asia and Pacific Department, IMF |
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Title
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Bank of Japan’s Monetary Easing Measures: Are They Powerful and Comprehensive? |
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Summary /
Abstract
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With policy rates near the zero bound, the Bank of Japan (BoJ) has introduced a series of unconventional monetary easing measures since late 2009 in response to lingering deflation and a weakening economy. These measures culminated in a new Asset Purchase Program under the Comprehensive Monetary Easing (CME) which differs from typical quantitative easing in other central banks by including purchases of risky asset in an effort to reduce term and risk premia. This note assesses the impact of monetary easing measures on financial markets using an event study approach. It finds that the BoJ’s monetary easing measures has had a statistically significant impact on lowering bond yields and improving equity prices, but no notable impact on inflation expectations. |
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Keywords
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Monetary and Credit Easing, Quantitative Easing, Large-scale Asset Purchases |
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URL
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http://www.imf.org/external/pubs/ft/wp/2011/wp11264.pdf
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Record ID
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184
[ Page 50 of 68, No. 3 ]
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Date
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2011-11 |
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Author
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Schumacher, Liliana and Barnhill, Theodore M.
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Affiliation
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Money and Capital Markets, IMF |
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Title
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Modeling Correlated Systemic Liquidity and Solvency Risks in a Financial Environment with Incomplete Information |
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Summary /
Abstract
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This paper proposes and demonstrates a methodology for modeling correlated systemic solvency and liquidity risks for a banking system. Using a forward looking simulation of many risk factors applied to detailed balance sheets for a 10 bank stylized United States banking system, we analyze correlated market and credit risk and estimate the probability that multiple banks will fail or experience liquidity runs simultaneously. Significant systemic risk factors are shown to include financial and economic environment regime shifts to stressful conditions, poor initial loan credit quality, loan portfolio sector and regional concentrations, bank creditors’ sensitivity to and uncertainties regarding solvency risk, and inadequate capital. Systemic banking system solvency risk is driven by the correlated defaults of many borrowers, other market risks, and inter-bank defaults. Liquidity runs are modeled as a response to elevated solvency risk and uncertainties and are shown to increase correlated bank failures. Potential bank funding outflows and contractions in lending with significant real economic impacts are estimated. Increases in equity capital levels needed to reduce bank solvency and liquidity risk levels to a target confidence level are also estimated to range from 3 percent to 20 percent of assets. For a future environment that replicates the 1987-2006 volatilities and correlations, we find only a small risk of U.S. bank failures focused on thinly capitalized and regionally concentrated smaller banks. For the 2007-2010 financial environment calibration we find substantially elevated solvency and liquidity risks for all banks and the banking system. |
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Keywords
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Solvency risk; systemic liquidity; stress tests. |
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URL
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http://www.imf.org/external/pubs/ft/wp/2011/wp11263.pdf
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Record ID
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183
[ Page 50 of 68, No. 4 ]
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Date
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2011-06 |
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Author
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Michel DE VROEY and Pierre MALGRANGE
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Affiliation
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UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES), and
CEPREMAP, Paris |
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Title
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The History of Macroeconomics from Keynes’s General Theory to the Present |
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Summary /
Abstract
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This paper is a contribution to the forthcoming Edward Elgar Handbook of the History of Economic Analysis volume edited by Gilbert Faccarello and Heinz Kurz. Its aim is to introduce the reader to the main episodes that have marked the course of modern macroeconomics: its emergence after the publication of Keynes’s General Theory, the heydays of Keynesian macroeconomics based on the IS-LM model, disequilibrium and non-Walrasian equilibrium modelling, the invention of the natural rate of unemployment notion, the new classical attack against Keynesian macroeconomics, the first wave of new Keynesian models, real business cycle modelling and, finally, the second wave of new Keynesian models, i.e. DSGE models. A main thrust of the paper is the contrast we draw between Keynesian macroeconomics and stochastic dynamic general equilibrium macroeconomics. We hope that our paper will be useful for teachers of macroeconomics wishing to complement their technical material with a historical addendum. |
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Keywords
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Keynes, Lucas, IS-LM model, DSGE models |
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URL
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http://sites-final.uclouvain.be/econ/DP/IRES/2011028.pdf
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Record ID
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182
[ Page 50 of 68, No. 5 ]
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Date
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2011-10 |
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Author
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Matthias Neuenkirch
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Affiliation
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University of Marburg |
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Title
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Monetary Policy Transmission in Vector Autoregressions: A New Approach Using Central Bank Communication |
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Summary /
Abstract
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In this paper, we study the role central bank communication plays in the monetary policy transmission mechanism. We employ the Swiss Economic Institute’s Monetary Policy Communicator to measure the future stance of the European Central Bank’s monetary policy. Our results indicate that, first, communication influences prices and output. Second, communication partly crowds out the effects of the short-term interest rate as the latter’s influence is lower and its implementation lag increases compared to a benchmark model without central bank communication. Future work on monetary policy transmission should incorporate both a short-term interest rate and a communication indicator. |
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Keywords
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Central Bank Communication, European Central Bank, Monetary Policy Shocks, Monetary Policy Transmission, Vector Autoregression |
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URL
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http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/43-2011_neuenkirch.pdf
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Record ID
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181
[ Page 50 of 68, No. 6 ]
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Date
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2011-10 |
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Author
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Kuttner, Kenneth and Posen, Adam
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Affiliation
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Monetary Policy Committee Unit, Bank of England |
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Title
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How flexible can inflation targeting be and still work? |
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Summary /
Abstract
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This paper takes up the issue of the flexibility of inflation targeting regimes, with the specific goal of determining whether the monetary policy of the Bank of England, which has a formal inflation target, has been any less flexible than that of the Federal Reserve, which does not have such a target. The empirical analysis uses the speed of inflation forecast convergence, estimated from professional forecasters' predictions at successive forecast horizons, to gauge the perceived flexibility of the central bank's response to macroeconomic shocks. Based on this criterion, these is no evidence to suggest that the Bank of England's inflation target has compelled it to be more aggressive in pursuit of low inflation than the Federal Reserve. |
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Keywords
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Inflation targeting; inflation expectations; monetary policy |
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URL
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http://www.bankofengland.co.uk/publications/externalmpcpapers/extmpcpaper0034.pdf
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Record ID
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180
[ Page 50 of 68, No. 7 ]
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Date
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2011-10 |
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Author
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Melecky, Ales and Melecky, Martin
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Affiliation
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Technical University of Ostrava |
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Title
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Analyzing the Impact of Macroeconomic Shocks on Public Debt Dynamics: An Application to the Czech Republic |
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Summary /
Abstract
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The global financial crisis and its ramification into the fiscal area have demonstrated the importance of regular assessment and monitoring of fiscal vulnerabilities, including the sustainability of sovereign debt. This paper extends the analytical framework of Favero and Giavazzi (2007) to facilitate the analysis of the effects of macroeconomic shocks on public debt dynamics in an open economy. It then applies this framework using the data for the Czech Republic and derives some policy implications from such an analysis. The modeling framework nests a linear structural vector auto-regression (SVAR) model estimated with short-run identifying restrictions and a non-linear equation describing the public debt dynamics. The main variables of the system include GDP growth, inflation, the effective interest rate on government debt, government expenditures and revenues, the exchange rate and government debt. The utilized estimation method is the Bayesian approach. |
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Keywords
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Macroeconomic Shocks, Non-linear Public Debt Dynamics, Open Economy, Czech Republic, Structural Vector Autoregression Model, Bayesian Estimation. |
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URL
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http://mpra.ub.uni-muenchen.de/34114/1/MPRA_paper_34114.pdf
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Record ID
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179
[ Page 50 of 68, No. 8 ]
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Date
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2011-09 |
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Author
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Burcu Aydin and Engin Volkan
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Affiliation
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Asia and Pacific Department, IMF |
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Title
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Incorporating Financial Stability in Inflation Targeting Frameworks |
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Summary /
Abstract
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The global financial crisis has exposed the limitations of a conventional inflation targeting (IT) framework in insulating an economy from shocks, and demonstrated that its rigid application may aggravate the effect of shocks on output and inflation. Accordingly, we investigate possible refinements to the IT framework by incorporating financial stability considerations. We propose a small open economy DSGE model, calibrated for Korea during the period of 2003 - 07, with real and financial frictions. The findings indicate that incorporating financial stability considerations can help smooth business cycle fluctuations more effectively than a conventional IT framework. |
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Keywords
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DSGE, financial accelerator, monetary policy, financial stability |
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URL
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http://d.repec.org/n?u=RePEc:imf:imfwpa:11/224&r=mon
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Record ID
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178
[ Page 50 of 68, No. 9 ]
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Date
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2010-11 |
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Author
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Hirose, Yasuo
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Affiliation
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Keio University |
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Title
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Monetary policy and sunspot fluctuation in the U.S. and the Euro area |
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Summary /
Abstract
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We estimate a two-country open economy version of the New Keynesian DSGE model for the U.S. and the Euro area, using Bayesian techniques that allow for both determinacy and indeterminacy of the equilibrium. Our empirical analysis shows that the worldwide equilibrium is indeterminate due to a passive monetary policy in the Euro area, even if U.S. policy is aggressive enough. We demonstrate that the impulse responses under indeterminacy exhibit different dynamics than those under determinacy and that sunspot shocks affect the Euro economy to a substantial degree, while the transmission of sunspots to the U.S. is limited. |
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Keywords
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Monetary Policy, Indeterminacy, Sunspot Shock, Open Economy Model, Bayesian Analysis. |
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URL
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http://mpra.ub.uni-muenchen.de/33693/1/MPRA_paper_33693.pdf
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Record ID
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177
[ Page 50 of 68, No. 10 ]
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Date
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2011-09 |
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Author
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Kenneth N. Kuttner and Adam S. Posen
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Affiliation
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Oberlin College, Department of Economics and Peterson Institute for International Economics |
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Title
|
How Flexible Can Inflation Targeting Be and Still Work? |
|
Summary /
Abstract
|
This paper takes up the issue of the flexibility of inflation targeting regimes, with the specific goal of determining whether the monetary policy of the Bank of England, which has a formal inflation target, has been any less flexible than that of the Federal Reserve, which does not have such a target. The empirical analysis uses the speed of inflation forecast convergence, estimated from professional forecasters’ predictions at successive forecast horizons, to gauge the perceived flexibility of the central bank’s response to macroeconomic shocks. Based on this criterion, there is no evidence to suggest that the Bank of England’s inflation target has compelled it to be more aggressive in pursuit of low inflation than the Federal Reserve. |
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Keywords
|
Inflation targeting, inflation expectations, monetary policy. |
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URL
|
http://d.repec.org/n?u=RePEc:iie:wpaper:wp11-15&r=mon
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