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Record ID
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146
[ Page 54 of 68, No. 1 ]
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Date
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2011-04 |
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Author
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Otmar Issing
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Affiliation
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President, Center for Financial Studies and Chairman of the Advisory Board of the House of Finance, Goethe University Frankfurt. |
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Title
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Lessons for Monetary Policy: What Should the Consensus Be? |
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Summary /
Abstract
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This paper outlines important lessons for monetary policy. In particular, the role of inflation targeting, which was much acclaimed prior to the financial crisis and since then has not lost much of its endorsement, is critically reviewed. Ignoring the relation between monetary policy and asset prices, as is the case in this monetary policy approach, can lead to financial instability. In contrast, giving, inter alia, monetary factors a role in central banks’ policy decisions, as is done in the ECB’s encompassing approach, helps prevent these potentially harmful side effects and thus allows for fostering financial stability. Finally, this paper makes a case against increasing the central banks’ inflation target. |
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Keywords
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Inflation targeting, asset prices, financial stability, ECB |
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URL
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http://d.repec.org/n?u=RePEc:imf:imfwpa:11/97&r=mon
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Record ID
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145
[ Page 54 of 68, No. 2 ]
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Date
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2011-04 |
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Author
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Jagjit S. Chadha and Luisa Corrado
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Affiliation
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University of Kent |
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Title
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Macro-prudential Policy on Liquidity: What does a DSGE Model tell us? |
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Summary /
Abstract
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The financial crisis has led to the development of an active debate on the use of macro-prudential instruments for regulating the banking system, in particular for liquidity and capital holdings. Within the context of a micro-founded macroeconomic model, we allow commercial banks to choose their optimal mix of assets, apportioning these either to reserves or private sector loans. We examine the implications for quantities, relative non-financial and financial prices from standard macroeconomic shocks alongside shocks to the expected liquidity of banks and to the efficiency of the banking sector. We focus on the response by the monetary sector, in particular the optimal reserve-deposit ratio adopted by commercial banks over the business cycle. Overall we find some rationale for Basel III in providing commercial banks with an incentive to hold a greater stock of liquid assets, such as reserves, but also to provide incentives to increase the cyclical variation in reserves holdings as this acts to limit excessive procyclicality of lending to the private sector. |
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Keywords
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Liquidity, interest on reserves, policy instruments, Basel |
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URL
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http://d.repec.org/n?u=RePEc:ukc:ukcedp:1108&r=mon
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Record ID
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144
[ Page 54 of 68, No. 3 ]
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Date
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2011-01 |
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Author
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Evren Caglar, Jagjit S. Chadha, Jack Meaning, James Warren and Alex Waters
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Affiliation
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University of Kent |
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Title
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Non-Conventional Monetary Policies: QE and the DSGE literature |
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Summary /
Abstract
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At the zero lower bound, the scale and scope of non-conventional monetary policies have become the key decision variables for monetary policy makers. In the UK, quantitative easing has involved the creation of a fund to purchase medium term dated government bonds with borrowed central bank reserves and so has increased the liquidity of the non-bank financial sector and temporarily eased the budget constraint of HMT. Some of these reserves have been used to increase the extent of capital held by banks and there have also been direct injections of capital into the banking system. We assess some of the issues arising from the three policies by using three separate DSGE models, which take seriously the role of financial frictions. We find that it is possible to correct the effects of a lower zero bound in DSGE models, by (i) offsetting the liquidity premium embedded in long term bonds and/or (ii) adopting countercyclical subsidies to bank capital able and/or (iii) the creation of central bank reserves that reduce the costs of loan supply. But the correct quantitative response and ongoing interaction with standard monetary policy remains an open question. |
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Keywords
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Zero bound, open-market operations, quantitative easing, monetary policy |
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URL
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http://d.repec.org/n?u=RePEc:ukc:ukcedp:1110&r=mon
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Record ID
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143
[ Page 54 of 68, No. 4 ]
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Date
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2011-01 |
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Author
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Jagjit S. Chadha and Sean Holly
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Affiliation
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University of Kent |
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Title
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New Instruments of Monetary Policy |
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Summary /
Abstract
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We assess recent developments in monetary policy practice following the financial crisis drawing on papers from a specially convened conference in March 2010. In particular, we consider why central banks throughout the world have injected substantial quantities of liquidity into the financial system and seen their balance sheets expand to multiples of GDP. We outline the rationale for balance sheet operations: (i) portfolio balance of the non-bank financial sector; (ii) an offset for the zero bound; (iii) signalling mechanism about medium term inflation expectations and (iv) the alleviation of the government's budget constraint. We briefly outline the recent experience with QE and draw a distinction between liquidity and macroeconomic stabilisation operations. |
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Keywords
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Zero bound, open-market operations, quantitative easing, monetary policy |
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URL
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http://d.repec.org/n?u=RePEc:ukc:ukcedp:1109&r=mon
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Record ID
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142
[ Page 54 of 68, No. 5 ]
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Date
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2011-05 |
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Author
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Arbatli, Elif C ; Moriyama, Kenji
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Affiliation
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Middle East and Central Asia Department, IMF |
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Title
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Estimating a Small Open-Economy Model for Egypt: Spillovers, Inflation Dynamics, and Implications for Monetary Policy |
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Summary /
Abstract
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This paper estimates a small open economy model for Egypt to analyze inflation, output dynamics and monetary policy during 2005-2010. The interest rate channel is found to be relatively weak in Egypt, complicating the use of interest rates as the immediate target of monetary policy. However, the paper also finds a significant level of persistence in the policy rate, making monetary policy pro-cyclical. More active use of interest rate policy, measures to improve domestic debt markets and a gradual move towards inflation targeting can help support a successful disinflation strategy for Egypt. |
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Keywords
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Small open economy model, monetary policy, transmission mechanism |
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URL
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http://www.imf.org/external/pubs/ft/wp/2011/wp11108.pdf
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Record ID
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141
[ Page 54 of 68, No. 6 ]
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Date
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2011-05 |
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Author
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Roger, Scott ; Vlcek, Jan
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Affiliation
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Money and Capital Markets Department, IMF |
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Title
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Macroeconomic Costs of Higher Bank Capital and Liquidity Requirements |
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Summary /
Abstract
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This paper uses a DSGE model with banks and financial frictions in credit markets to assess the medium-term macroeconomic costs of increasing capital and liquidity requirements. The analysis indicates that the macroeconomic costs of such measures are sensitive to the length of the implementation period as well as to the adjustment strategy used by banks, and the scope for monetary policy to respond to the regulatory changes. |
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Keywords
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Capital and liquidity requirements, financial frictions, macro-financial linkages |
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URL
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http://www.imf.org/external/pubs/ft/wp/2011/wp11103.pdf
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Record ID
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140
[ Page 54 of 68, No. 7 ]
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Date
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2011-04 |
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Author
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Issing, Otmar
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Affiliation
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Research Department, IMF |
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Title
|
Lessons for Monetary Policy: What Should the Consensus Be? |
|
Summary /
Abstract
|
This paper outlines important lessons for monetary policy. In particular, the role of inflation targeting, which was much acclaimed prior to the financial crisis and since then has not lost much of its endorsement, is critically reviewed. Ignoring the relation between monetary policy and asset prices, as is the case in this monetary policy approach, can lead to financial instability. In contrast, giving, inter alia, monetary factors a role in central banks’ policy decisions, as is done in the ECB’s encompassing approach, helps prevent these potentially harmful side effects and thus allows for fostering financial stability. Finally, this paper makes a case against increasing the central banks’ inflation target. |
|
Keywords
|
Inflation targeting, asset prices, financial stability, ECB |
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URL
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http://www.imf.org/external/pubs/ft/wp/2011/wp1197.pdf
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Record ID
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139
[ Page 54 of 68, No. 8 ]
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Date
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2011-04 |
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Author
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Baldacci, Emanuele ; McHugh, James ; Petrova, Iva
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Affiliation
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Fiscal Affairs Department, IMF |
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Title
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Measuring Fiscal Vulnerability and Fiscal Stress: A Proposed Set of Indicators |
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Summary /
Abstract
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This paper proposes a set of fiscal indicators to assess rollover risks using the conceptual framework developed by Cottarelli (2011). These indicators provide early warning signals about the manifestation of these risks, giving policymakers the opportunity to adjust policies before extreme fiscal stress events. Two aggregate indices are calculated: an index of fiscal vulnerability and an index of fiscal stress. Results show that both indices are elevated for advanced economies, reflecting unfavorable medium-term debt dynamics and aging-related spending pressures. In emerging economies, solvency risks are lower, but the composition of public debt remains a source of risk and the fiscal position is weaker than before the crisis. |
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Keywords
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Fiscal vulnerability, fiscal stress, fiscal indicators |
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URL
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http://www.imf.org/external/pubs/ft/wp/2011/wp1194.pdf
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Record ID
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138
[ Page 54 of 68, No. 9 ]
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Date
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2010-03 |
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Author
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Carlos Montoro
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Affiliation
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BIS |
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Title
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Oil shocks and optimal monetary policy |
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Summary /
Abstract
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In practice, central banks have been confronted with a trade-off between stabilising inflation and output when dealing with rising oil prices. This contrasts with the result in the standard New Keynesian model that ensuring complete price stability is the optimal thing to do, even when an oil shock leads to large output drops. To reconcile this apparent contradiction, this paper investigates how monetary policy should react to oil shocks in a microfounded model with staggered price-setting and with oil as an input in a CES production function. In particular, we extend Benigno and Woodford (2005) to obtain a second order approximation to the expected utility of the representative household when the steady state is distorted and the economy is hit by oil price shocks. The main result is that oil price shocks generate an endogenous trade-off between inflation and output stabilisation when oil has low substitutability in production. Therefore, it becomes optimal for the monetary authority to stabilise partially the effects of oil shocks on inflation and some inflation is desirable. We also find, in contrast to Benigno and Woodford (2005), that this trade-of is reduced, but not eliminated, when we get rid of the effects of monopolistic distortions in the steady state. Moreover, the size of the endogenous “cost-push” shock generated by fluctuations in the oil price increases when oil is more difficult to substitute by other factors. |
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Keywords
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Optimal Monetary Policy, Welfare, Second Order Solution, Oil Price Shocks, Endogenous Trade-off |
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URL
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http://www.bis.org/publ/work307.pdf
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Record ID
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137
[ Page 54 of 68, No. 10 ]
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Date
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2011-04 |
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Author
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Acosta Ormaechea, Santiago ; Coble Fernandez, David O
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Affiliation
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WHD, IMF |
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Title
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Monetary Transmission in Dollarized and Non-Dollarized Economies: The Cases of Chile, New Zealand, Peru and Uruguay |
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Summary /
Abstract
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The paper conducts a comparative study of the monetary policy transmission in two economies that run a well-established IT regime, Chile and New Zealand, vis-à-vis two economies operating under relatively newer IT regimes, and which are exposed to a significant degree of dollarization, Peru and Uruguay. It is shown that the traditional interest rate channel is effective in Chile and New Zealand. For Peru and Uruguay, the exchange rate channel is instead more relevant in the transmission of monetary policy. This latter result follows from the limited impact of the policy rate in curbing inflationary pressures in these two countries, in combination with the fact that they have a relatively large and persistent exchange rate pass through. Finally, it is shown that the on-going de-dollarization process of Peru and Uruguay has somewhat strengthened their monetary transmission through the interest rate channel. |
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Keywords
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Monetary Policy Transmission; IT Regimes; Dollarization |
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URL
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http://www.imf.org/external/pubs/ft/wp/2011/wp1187.pdf
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