|
Record ID
|
377
[ Page 7 of 14, No. 1 ]
|
|
Date
|
2013-05 |
|
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. |
|
Keywords
|
FEERs, G-7, zero current account balance, capital flows |
|
URL
|
http://www.piie.com/publications/pb/pb13-15.pdf
|
|
Record ID
|
376
[ Page 7 of 14, No. 2 ]
|
|
Date
|
2012-09 |
|
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 |
|
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. |
|
Keywords
|
Bank capital channel, credit cycles, financial stability, monetary policy. |
|
URL
|
http://halshs.archives-ouvertes.fr/docs/00/82/80/74/PDF/dr201214.pdf
|
|
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).
|
|
Record ID
|
375
[ Page 7 of 14, No. 3 ]
|
|
Date
|
2013-06 |
|
Author
|
Poirson, Hélène ; and Schmittmann, Jochen M.
|
|
Affiliation
|
European Department and Monetary and Capital Markets Department, IMF |
|
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. |
|
Keywords
|
Financial sector; financial institutions; banks; Europe; financial crisis; spillovers |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13142.pdf
|
|
Record ID
|
374
[ Page 7 of 14, No. 4 ]
|
|
Date
|
2013-06 |
|
Author
|
Dell'Ariccia, Giovanni ; Laeven, Luc ; and Suarez, Gustavo
|
|
Affiliation
|
Research Department, IMF |
|
Title
|
Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States |
|
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. |
|
Keywords
|
Interest rates, monetary policy, banks, leverage, risk |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13143.pdf
|
|
Record ID
|
372
[ Page 7 of 14, No. 6 ]
|
|
Date
|
2013-03 |
|
Author
|
Guillermo Escudé
|
|
Affiliation
|
Central Bank of Argentina |
|
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 |
|
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. |
|
Keywords
|
DSGE models, exchange rate policy, optimal policy, Small Open Economy |
|
URL
|
http://www.bcra.gov.ar/pdfs/investigaciones/WP_61_2013.pdf
|
|
Record ID
|
371
[ Page 7 of 14, No. 7 ]
|
|
Date
|
2012-03 |
|
Author
|
Orphanides, Athanasios and Wieland, Volker
|
|
Affiliation
|
Massachusetts Institute of Technology and University of Frankfurt |
|
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. |
|
Keywords
|
Financial Crisis, Complexity, Monetary Policy, Model Uncertainty, Robust Simple Rules, ECB |
|
URL
|
http://econstor.eu/bitstream/10419/71149/1/726555479.pdf
|
|
Remarks
|
*Prepared for the Federal Reserve Board conference on Central Banking: Before, During, and After the Crisis, Washington, DC, 23-24 March 2012. |
|
Record ID
|
370
[ Page 7 of 14, No. 8 ]
|
|
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. |
|
Keywords
|
Monetary policy, Taylor rule, Taylor principle, heterogeneous panels |
|
URL
|
http://www.economia.puc.cl/docs/dt_426.pdf
|
|
Record ID
|
369
[ Page 7 of 14, No. 9 ]
|
|
Date
|
2013-06 |
|
Author
|
Adedeji, Olumuyiwa ; Du, Huancheng ; Opoku-Afari, Maxwell
|
|
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.
|
|
Keywords
|
Inclusive growth, social opportunity curve, and equity |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13139.pdf
|
|
Record ID
|
368
[ Page 7 of 14, No. 10 ]
|
|
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.
|
|
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 7 of 14, No. 11 ]
|
|
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 7 of 14, 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
|
|
Record ID
|
365
[ Page 7 of 14, No. 13 ]
|
|
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 7 of 14, No. 14 ]
|
|
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 7 of 14, No. 15 ]
|
|
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 7 of 14, 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 7 of 14, 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
|
|
Record ID
|
360
[ Page 7 of 14, No. 18 ]
|
|
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. |
|
Record ID
|
359
[ Page 7 of 14, No. 19 ]
|
|
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 7 of 14, 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
|
|
Record ID
|
357
[ Page 7 of 14, No. 21 ]
|
|
Date
|
2013-05 |
|
Author
|
Catão, Luis and Chang, Roberto
|
|
Affiliation
|
Research Department, IMF |
|
Title
|
World Food Prices, the Terms of Trade-Real Exchange Rate Nexus, and Monetary Policy |
|
Summary /
Abstract
|
How should monetary policy respond to large fluctuations in world food prices? We study this question in an open economy model in which imported food has a larger weight in domestic consumption than abroad and international risk sharing can be imperfect. A key novelty is that the real exchange rate and the terms of trade can move in opposite directions in response to world food price shocks. This exacerbates the policy trade-off between stabilizing output prices vis a vis the real exchange rate, to an extent that depends on risk sharing and the price elasticity of exports. Under perfect risk sharing, targeting the headline CPI welfare-dominates targeting the PPI if the variance of food price shocks is not too small and the export price elasticity is realistically high. In such a case, however, targeting forecast CPI is a superior choice. With incomplete risk sharing, PPI targeting is clearly a winner. |
|
Keywords
|
Commodity Price Shoc ks, Inflation Targeting, Taylor rules, Incomplete Markets |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13114.pdf
|
|
Record ID
|
356
[ Page 7 of 14, No. 22 ]
|
|
Date
|
2013-04 |
|
Author
|
Under the guidance of Karl Habermeier, prepared by a team led by Tommaso Mancini-Griffoli, and
comprising Jiaqian Chen, Simon Gray, Tomas Mondino, Tahsin Saadi Sedik, Hideyuki Tanimoto,
Nico Valckx (MCM), Andrea Pescatori (RES), Silvia Sgherri (SPR), in collaboration with Bernardin
Akitoby, Takuji Komatsuzaki, and Ariel Binder (FAD)
|
|
Affiliation
|
MCM, SPR, and FAD, International Monetary Fund |
|
Title
|
Unconventional Monetary Policies - Recent Experiences and Prospects - Background Paper
|
|
Summary /
Abstract
|
This paper provides background information to the main Board paper, “The Role and Limits of Unconventional Monetary Policy.” This paper is divided in five distinct sections, each focused on a different topic covered in the main paper, though most relate to bond purchase programs. As a result, this paper centers on the experience of the United States Federal Reserve (Fed), the Bank of England (BOE) and the Bank of Japan (BOJ), mostly leaving the European Central Bank (ECB) aside given its focus on restoring the functioning of financial markets and intermediation. Section A explores whether bond purchase programs were effective at decreasing bond yields and, if so, through which channels. Section B goes one step further in evaluating whether bond purchase programs had—or can be expected to have—significant effects on real growth and inflation. Section C studies the spillover effects of bond purchases on both advanced and emerging market economies, using very similar methods as introduced in the first section. Section D breaks from the immediate focus on bond purchases to discuss how inflation might decrease the debt burden in advanced economies, in light of possible pressures that could fall (or be perceived to fall) on central banks. Finally, Section E discusses the possible risks of exiting given the very large central bank balance sheets. |
|
Keywords
|
Monetary policy | United Kingdom | United States | Japan | European Central Bank | Central banks, Bonds, Capital markets, Spillovers, Inflation, Economic growth |
|
URL
|
http://www.imf.org/external/np/pp/eng/2013/041813.pdf
|
|
Record ID
|
355
[ Page 7 of 14, No. 23 ]
|
|
Date
|
2013-04 |
|
Author
|
Karl Habermeier and Tommaso Mancini Griffoli
|
|
Affiliation
|
Money and Capital Markets Department, IMF |
|
Title
|
SUMMARY OF INFORMAL DISCUSSIONS WITH CENTRAL BANKERS AND OTHER OFFICIALS ON UNCONVENTIONAL MONETARY POLICIES |
|
Summary /
Abstract
|
A series of conference calls was held in March 2013 with selected representatives of central banks and
other official agencies in advanced and emerging market economies to seek views on unconventional
monetary policies (UMP).
The key points raised during the discussions are summarized below. No views have been attributed to individual participants , and Fund staff is ultimately responsible for the contents of this summary. |
|
Keywords
|
Unconventional monetary policies, zero bound, financial markets, monetary policy accommodation. |
|
URL
|
http://www.imf.org/external/np/pp/eng/2013/042913.pdf
|
|
Record ID
|
354
[ Page 7 of 14, No. 24 ]
|
|
Date
|
2013-04 |
|
Author
|
Karl Habermeier, Luis Jacome, Tommaso Mancini-Griffoli, Chikako Baba, Jiaqian Chen, Simon Gray, Tomas Mondino, Tahsin Saadi Sedik, Hideyuki Tanimoto, Kenichi Ueda, Nico Valckx (MCM), Giovanni Dell’Ariccia, Andrea Pescatori, Fabian Valencia (RES), Tamim Bayoumi, Silvia Sgherri, and Manju Ismael (SPR), with contributions from Raphael Lam (APD), Bernardin Akitoby, Takuji Komatsuzaki, and Ariel Binder (FAD), Kelly Eckhold, Frederic Lambert, and Erik Oppers (MCM), as well as Ben Hunt
and Dirk Muir (RES). Helpful comments were provided by a group of external advisors comprising Vittorio Corbo, Charles Goodhart, David Longworth, Lucas Papademos, and Charles Wyplosz. The paper also benefitted from discussions with representatives of central banks and other official agencies, summarized in a supplement to this paper.
|
|
Affiliation
|
International Monetary Fund |
|
Title
|
UNCONVENTIONAL MONETARY POLICIES—RECENT EXPERIENCE AND PROSPECTS |
|
Summary /
Abstract
|
This paper addresses three questions about unconventional monetary policies. First, what policies were tried, and with what objectives? Second, were policies effective? And third, what role might these policies continue to play in the future?
Central banks in the United States, United Kingdom, Japan, and euro area adopted a series of unconventional monetary policies with two broad goals. The first was to restore the functioning of financial markets and intermediation. The second was to provide further monetary policy accommodation at the zero lower bound. These two goals are clearly related, as both ultimate
ly aim to ensure macroeconomic stability. But each relies on different instruments: the first on targeted liquidity provision and private asset purchases, and the second on forward guidance and bond purchases.
These policies largely succeeded at achieving their domestic goals, and were especially effective at the time of greatest financial turmoil. Market functioning was broadly restored, and tail risks declined significantly. Policies also decreased long-term bond yields, and in some cases credit spreads. Growth and price stability also benefited, although findings are less clear cut, given the long lags and unstable
relations between variables, and the unresolved question of counterfactuals.
Unconventional monetary policies had a mixed effect on the rest of the world. Early announcements buoyed asset prices globally, and likely benefited trade. Later announcements had smaller effects and increased capital flows to emerging markets, with a shift to Latin America and Asia. Sound macroeconomic policies can help manage these capital flows. Yet, when flows become excessive, with the risk of sudden reversals, they can give rise to policy strains in recipient countries.
Looking ahead, unconventional monetary policies may continue to be warranted if economic conditions do not improve or even worsen. Yet, their growing scale raises risks. Some of these can be mitigated with macroprudential policies. A key concern is that monetary policy is called on to do too much, and that the breathing space it offers is not used to engage in needed fiscal, structural, and financial sector reforms. These reforms are essential to ensuring macroeconomic stability and entrenching the recovery, eventually allowing for the unwinding of unconventional monetary
policies. |
|
Keywords
|
Unconventional monetary policies, zero bound, financial markets, monetary policy accommodation. |
|
URL
|
http://www.imf.org/external/np/pp/eng/2013/041813a.pdf
|
|
Record ID
|
353
[ Page 7 of 14, No. 25 ]
|
|
Date
|
2013-02 |
|
Author
|
ANTOINE MARTIN and BRUNO M. PARIGI
|
|
Affiliation
|
Federal Reserve Bank of New York and University of Padova |
|
Title
|
Bank Capital Regulation and Structured Finance |
|
Summary /
Abstract
|
We model the interaction between bank capital regulation and financial innovation. Innovation takes the form of structured finance, namely, pooling and tranching of assets and the creation of separate structures with different seniority, different risk, and different capital charges. Structured finance can improve welfare by manufacturing safer securities, saving on the capital that the structures with different seniority need to satisfy incentive constraints. The divergence between private and social interests in future profits motivates regulation. Regulation lowers profits and may induce banks to innovate to evade the regulation itself, even if this decreases welfare. |
|
Keywords
|
Bank regulation; financial innovation; structured finance |
|
URL
|
http://onlinelibrary.wiley.com/doi/10.1111/j.1538-4616.2012.00563.x/pdf
|
|
Record ID
|
352
[ Page 7 of 14, No. 26 ]
|
|
Date
|
2012-12 |
|
Author
|
CHIH-NAN CHEN, TSUTOMU WATANABE, and TOMOYOSHI YABU
|
|
Affiliation
|
National Taipei University, University of Tokyo, and Keio University |
|
Title
|
A New Method for Identifying the Effects of Foreign Exchange Interventions |
|
Summary /
Abstract
|
Central banks react even to intraday changes in the exchange rate; however, in most cases, intervention data are available only at a daily frequency. This temporal aggregation makes it difficult to identify the effects of interventions on the exchange rate. We apply the Bayesian Markov-chain Monte Carlo (MCMC) approach to this endogeneity problem. We use “data augmentation” to obtain intraday intervention amounts and estimate the efficacy of interventions using the augmented data. Applying this new method to Japanese data, we find that an intervention of 1 trillion yen moves the yen/dollar rate by 1.8%, which is more than twice as much as the magnitude reported in previous studies applying ordinary least squares to daily observations. This shows the quantitative importance of the endogeneity problem due to temporal aggregation. |
|
Keywords
|
Foreign exchange intervention; intraday data; Markov-chain Monte Carlo method; endogeneity problem; temporal aggregation |
|
URL
|
http://onlinelibrary.wiley.com/doi/10.1111/j.1538-4616.2012.00542.x/pdf
|
|
Record ID
|
351
[ Page 7 of 14, No. 27 ]
|
|
Date
|
2013-03 |
|
Author
|
Lanzafame, Matteo and Nogueira, Reginaldo
|
|
Affiliation
|
Universita degli Studi di Messina, Italy, and IBMEC Business School, Brazil |
|
Title
|
Inflation targeting and interest rates |
|
Summary /
Abstract
|
Inflation Targeting (IT) can be expected to play a role in structurally reducing nominal interest rates, by lowering a country’s inflation expectations and risk premium. Relying on a panel of 52 advanced and emerging economies over the 1975-2009 years, we carry out a formal investigation of this hypothesis. Our econometric strategy adopts a flexible and efficient panel estimation framework, controlling for a number of issues usually neglected in the literature, such as parameter heterogeneity and cross-section dependence. Our findings are supportive of the optimistic view on IT, indicating that adoption of this monetary regime leads to lower nominal interest rates.
|
|
Keywords
|
Inflation targeting; Interest rates; panel data; multifactor modeling. |
|
URL
|
http://mpra.ub.uni-muenchen.de/46153/1/MPRA_paper_46153.pdf
|
|
Record ID
|
350
[ Page 7 of 14, No. 28 ]
|
|
Date
|
2013-04 |
|
Author
|
Carlos de Resende, Ali Dib, René Lalonde and Nikita Perevalov
|
|
Affiliation
|
Bank of Canada |
|
Title
|
Countercyclical Bank Capital Requirement
and Optimized Monetary Policy Rules |
|
Summary /
Abstract
|
Using BoC-GEM-Fin, a large-scale DSGE model with real, nominal and financial frictions featuring a banking sector, we explore the macroeconomic implications of various types of countercyclical bank capital regulations. Results suggest that countercyclical capital requirements have a significant stabilizing effect on key macroeconomic variables, but mostly after financial shocks. Moreover, the bank capital regulatory policy and monetary policy interact, and this interaction is contingent on the type of shocks that drive the economic cycle. Finally, we analyze loss functions based on macroeconomic and financial variables to arrive at an optimal countercyclical regulatory policy in a class of simple implementable Taylor-type rules. Compared to bank capital regulatory policy, monetary policy is able to stabilize the economy more efficiently after real shocks. On the other hand, financial shocks require the regulator to be more aggressive in loosening/tightening capital requirements for banks, even as monetary policy works to counter the deviations of inflation from the target. |
|
Keywords
|
Economic models; Financial institutions; Financial stability |
|
URL
|
http://www.bankofcanada.ca/wp-content/uploads/2013/04/wp2013-08.pdf
|
|
Record ID
|
349
[ Page 7 of 14, No. 29 ]
|
|
Date
|
2013-05 |
|
Author
|
Hansen, Niels-Jakob Harbo and Sulla, Olga
|
|
Affiliation
|
Western Hemisphere Department, IMF |
|
Title
|
Credit Growth in Latin America: Financial Development or Credit Boom? |
|
Summary /
Abstract
|
Banking credit to the private sector in Latin America has on average increased by 7 percent of GDP from primo 2004 to ultimo 2011, with real credit in some countries growing by up to 20 percent per year. This paper documents and analyzes the patterns of credit growth in 18 countries in Latin America and uses econometric methods to determine whether it is indicative of financial deepening or poses risks of credit booms. The strongest credit growth occurred for consumption and mortgages within the household sector and for construction within the corporate sector. At the same time credit has de-dollarized in most countries and there are some signs of maturity lengthening. To assess whether the recent credit growth is excessive two different methods are applied. First, by application of HP-filters the paper finds that credit-to-GDP levels in a number of countries are above their long-term trend. Second, using a panel co-integration approach on 107 high and mid-income countries the paper estimates a model for the credit-to-GDP levels. Comparing the actual levels of credit with the ones predicted by the model we find that some countries in Latin America show significant and positive deviations. These results indicate the existence of a certain level of risk in the recent credit developments. |
|
Keywords
|
Credit boom; financial development; Latin America; panel co-integration |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13106.pdf
|
|
Record ID
|
348
[ Page 7 of 14, No. 30 ]
|
|
Date
|
2013-05 |
|
Author
|
Michal Andrle
|
|
Affiliation
|
Research Department, IMF |
|
Title
|
What Is in Your Output Gap? Unified Framework & Decomposition into Observables |
|
Summary /
Abstract
|
What Is in Your Output Gap? Unified Framework & Decomposition into Observables Author/Editor: Andrle, Michal Summary: This paper discusses several popular methods to estimate the ‘output gap’. It provides a unified, natural concept for the analysis, and demonstrates how to decompose the output gap into contributions of observed data on output, inflation, unemployment, and other variables. A simple bar-chart of contributing factors, in the case of multi-variable methods, sharpens the intuition behind the estimates and ultimately shows ‘what is in your output gap.’ The paper demonstrates how to interpret effects of data revisions and new data releases for output gap estimates (news effects) and how to obtain more insight into real-time properties of estimators. |
|
Keywords
|
Output gap; linear filters; observable decomposition; DSGE |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13105.pdf
|
|
Record ID
|
347
[ Page 7 of 14, No. 31 ]
|
|
Date
|
2013-01 |
|
Author
|
Otaviano Canuto and Matheus Cavallari
|
|
Affiliation
|
World Bank - Poverty Reduction and Economic Management (PREM) |
|
Title
|
Monetary Policy and Macroprudential Regulation: Whither Emerging Markets (World Bank Policy Research Working Paper 6310) |
|
Summary /
Abstract
|
Confidence in combining inflation-targeting-cum-flexible-exchange-rate regimes with isolated microprudential regulation as a means to guarantee both macroeconomic and financial stability has been shattered by the scale and synchronization of asset price booms and busts that preceded the current global financial crisis. This paper has a two-fold purpose. On the one hand, it explores the implications and challenges of acknowledging the need for coordination between monetary policies and macroprudential regulation. On the other, it points out specific challenges currently faced by central bankers in emerging economies, as they cope with policy and regulatory coordination in a context of debt overhang and unconventional monetary policies in advanced economies. |
|
Keywords
|
Currencies and Exchange Rates, Debt Markets, Emerging Markets, Economic Theory & Research, Banks & Banking Reform |
|
URL
|
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2198779
|
|
Record ID
|
346
[ Page 7 of 14, No. 32 ]
|
|
Date
|
2013-05 |
|
Author
|
Michael U. Krause and Stéphane Moyen
|
|
Affiliation
|
Deutsche Bundesbank |
|
Title
|
Public debt and changing inflation targets |
|
Summary /
Abstract
|
What are the effects of a higher central bank inflation target on the burden of real public debt? Several recent proposals have suggested that even a moderate increase in the inflation target can have a pronounced effect on real public debt. We consider this question in a New Keynesian model with a maturity structure of public debt and an imperfectly observed inflation target. We find that moderate changes in the inflation target only have significant effects on real public debt if they are essentially
permanent. Moreover, the additional benefits of not communicating a change in the inflation target are minor. |
|
Keywords
|
Public debt, learning, inflation target, callable perpetuity, debt maturity |
|
URL
|
http://econstor.eu/bitstream/10419/71902/1/742499790.pdf
|
|
Record ID
|
345
[ Page 7 of 14, No. 33 ]
|
|
Date
|
2013-04 |
|
Author
|
Viral V. Acharya, Robert Engle, and Diane Pierret
|
|
Affiliation
|
National Bureau of Economic Research |
|
Title
|
Testing Macroprudential Stress Tests: The Risk of Regulatory Risk Weights |
|
Summary /
Abstract
|
Macroprudential stress tests have been employed by regulators in the United States and Europe to assess and address the solvency condition of financial firms in adverse macroeconomic scenarios. We provide a test of these stress tests by comparing their risk assessments and outcomes to those from a simple methodology that relies on publicly available market data and forecasts the capital shortfall of financial firms in severe market-wide downturns. We find that: (i) The losses projected on financial firm balance-sheets compare well between actual stress tests and the market-data based assessments, and both relate well to actual realized losses in case of future stress to the economy; (ii) In striking contrast, the required capitalization of financial firms in stress tests is found to be rather low, and inadequate ex post, compared to that implied by market data; (iii) This discrepancy arises due to the reliance on regulatory risk weights in determining required levels of capital once stress-test losses are taken into account. In particular, the continued reliance on regulatory risk weights in stress tests appears to have left financial sectors under-capitalized, especially during the European sovereign debt crisis, and likely also provided perverse incentives to build up exposures to low risk-weight assets. |
|
Keywords
|
Macroprudential Stress Testing, Regulatory Risk Weights |
|
URL
|
http://www.nber.org/papers/w18968.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. |
|
Record ID
|
344
[ Page 7 of 14, No. 34 ]
|
|
Date
|
2013-05 |
|
Author
|
Knüppel, Malte and Schultefrankenfeld, Guido
|
|
Affiliation
|
Deutsche Bundesbank |
|
Title
|
The empirical (ir)relevance of the interest rate assumption for central bank forecasts |
|
Summary /
Abstract
|
The interest rate assumptions for macroeconomic forecasts differ considerably among central banks. Common approaches are given by the assumption of constant interest rates, interest rates expected by market participants, or the central bank's own interest rate expectations. From a theoretical point of view, the latter should yield the highest forecast accuracy. The lowest accuracy can be expected from forecasts conditioned on constant interest rates. However, when investigating the predictive accuracy of the forecasts for interest rates, inflation and output growth made by the Bank of England and the Banco do Brasil, we hardly find any significant differences between the forecasts based on different interest assumptions. We conclude that the choice of the interest rate assumption, while being a major concern from a theoretical point of view, appears to be at best of minor relevance empirically. |
|
Keywords
|
Forecast Accuracy, Density Forecasts, Projections |
|
URL
|
http://econstor.eu/bitstream/10419/71907/1/742526879.pdf
|
|
Record ID
|
343
[ Page 7 of 14, No. 35 ]
|
|
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
|
Monetary policy transmission, International financial integration |
|
URL
|
http://www.snb.ch/n/mmr/reference/working_paper_2013_03/source/working_paper_2013_03.n.pdf
|
|
Record ID
|
342
[ Page 7 of 14, No. 36 ]
|
|
Date
|
2012-12 |
|
Author
|
Stephen M. Miller, WenShwo Fang, and Ozkan Eren
|
|
Affiliation
|
University of Nevada, Las Vegas, Feng Chia University, Taiwan, and University of Nevada, Las Vegas
|
|
Title
|
Inflation Targeting: Does It Improve Economic Performance? |
|
Summary /
Abstract
|
The last two decades witnessed a dramatic transformation of how central banks operate. An increasing number of central banks now use inflation targeting as their monetary policy control mechanism. A series of papers attempt to measure the effectiveness of inflation targeting on economic performance. The basic challenge in such tests is that inflation targeting appeared during a time when inflation trended downward across nearly all countries – those that did and did not adopt inflation targeting. This paper reviews the existing methods used to test for the effectiveness of inflation targeting and compares the findings of these different methods for both developed and developing countries. In general, inflation targeting does not affect economic performance in developed countries but does exert a positive effect on economic performance in developing countries. We conclude that the effectiveness of inflation targeting policy garners little, or only transitory, support based on evidence from developed countries. Much more support exists for developing countries.
|
|
Keywords
|
Inflation targeting, difference in differences, fixed and random effects, treatment effects, developed and developing countries |
|
URL
|
http://web.unlv.edu/projects/RePEc/pdf/1207.pdf
|
|
Record ID
|
341
[ Page 7 of 14, No. 37 ]
|
|
Date
|
2012-05 |
|
Author
|
Kapan, Tümer and Minoiu, Camelia
|
|
Affiliation
|
Research Department, IMF |
|
Title
|
Balance Sheet Strength and Bank Lending During the Global Financial Crisis |
|
Summary /
Abstract
|
We examine the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy. Using data from the syndicated loan market, we exploit variation in banks’ reliance on wholesale funding and their structural liquidity positions in 2007Q2 to estimate the impact of exposure to market freezes during 2007–08 on the supply of bank credit. We find that banks with strong balance sheets were better able to maintain lending during the crisis. In particular, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks. However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework. |
|
Keywords
|
Bank lending channel, wholesale funding, capital, net stable funding ratio, Basel II |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp13102.pdf
|
|
Record ID
|
340
[ Page 7 of 14, No. 38 ]
|
|
Date
|
2013-04 |
|
Author
|
Akcelik, Yasin; Aysan, Ahmet Faruk; and Oduncu, Arif
|
|
Affiliation
|
Central Bank of the Republic of Turkey |
|
Title
|
Central Banking in Making during the Post-crisis World and the Policy-Mix of the Central Bank of the Republic of Turkey |
|
Summary /
Abstract
|
After the global crisis, one of the most important lessons learned for the Central Banks has appeared to be the vital importance of financial stability along with the price stability. Hence, finding solutions to how to incorporate the financial stability objective in the implementation of the monetary policy without diluting the price-stability objective has started to be heavily discussed by the academics and policy makers. Accordingly, it has started to be debated that using only short-term interest rates as the main policy tool may not be enough to maintain the price stability and the financial stability at the same time. Interest rates that provide price stability and financial stability can be different and this necessitates the central banks to use multiple policy tools. In view of this, the Central Bank of the Republic of Turkey adopted a new monetary policy framework called the new policy mix in which multiple tools are employed to achieve multiple objectives. In this framework, required reserves ratios, weekly repo rates, interest rate corridor, funding strategy and other macro prudential tools are jointly used as complementary tools for the credit, interest rate and liquidity policies to achieve the price and the financial stability objectives concurrently. This new monetary policy adopted in Turkey also provides an interesting case study to assess how a country came up with novel policies to account for its country specific characteristics. |
|
Keywords
|
Central banking, Policy-mix, Global financial crisis, Financial Stability |
|
URL
|
http://mpra.ub.uni-muenchen.de/46612/1/MPRA_paper_46612.pdf
|
|
Record ID
|
339
[ Page 7 of 14, No. 39 ]
|
|
Date
|
2013-05 |
|
Author
|
Donal McGettigan, Kenji Moriyama, J. Noah Ndela Ntsama, Francois Painchaud, Haonan Qu, and Chad Steinberg
|
|
Affiliation
|
Strategy, Policy and Review Department, IMF |
|
Title
|
Monetary Policy in Emerging Markets: Taming the Cycle |
|
Summary /
Abstract
|
In contrast to advanced markets (AMs), procyclical monetary policy has been a problem for emerging markets (EMs), with macroeconomic policies amplifying economic upswings and deepening downturns. The stark difference in policy has not been subject to extensive study and this paper attempts to address the gap. Key findings, using a large sample of EMs over the past 50 years, are: (i) EMs have adopted increasingly countercyclical monetary policy over time, although large differences remain among EMs and policies became more procyclical during the recent crisis. (ii) Inflation targeting and better institutions have been key factors behind the move to countercyclicality. (iii) Only deep financial markets allow EMs with flexible exchange rate regimes turn countercyclical. (iv) More countercyclical policy is associated with far less volatile output. The economically meaningful impact of IT on monetary policy countercyclicality and output variability is another reason in its favor, over and above better inflation outcomes. |
|
Keywords
|
Monetary Policy, Countercyclical Policy, Emerging Markets |
|
URL
|
http://www.imf.org/external/pubs/ft/wp/2013/wp1396.pdf
|
|
Record ID
|
338
[ Page 7 of 14, No. 40 ]
|
|
Date
|
2013-04 |
|
Author
|
Laurence Ball
|
|
Affiliation
|
Johns Hopkins University |
|
Title
|
The Case for Four Percent Inflation |
|
Summary /
Abstract
|
Many central banks target an inflation rate near two percent. This essay argues that policymakers would do better to target four percent inflation. A four percent target would ease the constraints on monetary policy arising from the zero bound on interest rates, with the result that economic downturns would be less severe. This benefit would come at minimal cost, because four percent inflation does not harm an economy significantly. |
|
Keywords
|
Inflation targeting, cost of inflation, unemployment |
|
URL
|
http://econ.jhu.edu/wp-content/uploads/pdf/papers/wp607_ball.pdf
|
|
Record ID
|
337
[ Page 7 of 14, No. 41 ]
|
|
Date
|
2013-04 |
|
Author
|
Franz Alonso Hamann Salcedo, Rafael Hernández, Luisa Fernanda Silva EScobar and Fernando Tenjo Galarza
|
|
Affiliation
|
Banco de la Republica de Colombia |
|
Title
|
Credit Pro-cyclicality and Bank Balance Sheet in Colombia |
|
Summary /
Abstract
|
The recent financial crisis has renewed the interest of economists, both at the theoretical and empirical level, in developing a better understanding of credit and its mechanisms. A rapidly growing strand of the literature views banks as facing funding restrictions that condition their borrowing to a risk-based capital constraint which, in turn, affects bank lending. This work explores the way banks in Colombia manage their balance sheet and sheds light into the dynamics of credit and leverage during the business cycle. Using a sample of monthly bank balance sheets for the period 1994-2012, we find not only that the Colombian banking sector is predominantly pro-cyclical, but also that the composition of bank liabilities provides important information to policy makers regarding the phase of the cycle of the economy. Shifts from low non-core liability ratios to higher ones during the upward phase of the leverage cycle could play the role of an early warning indicator of financial vulnerability. In addition, we find that bank heterogeneity matters and thus, an aggregate measure of bank leverage can mask successfully a fragile financial sector. |
|
Keywords
|
Banks, credit, leverage, non-core liabilities, balance sheet, business cycle, Colombia. |
|
URL
|
http://www.banrep.gov.co/docum/ftp/be_762.pdf
|
|
Record ID
|
336
[ Page 7 of 14, No. 42 ]
|
|
Date
|
2012-01 |
|
Author
|
Tanaka Hiroatsu
|
|
Affiliation
|
Federal Reserve Board |
|
Title
|
Monetary Policy Regimes and the Term Structure of Interests Rates with Recursive Utility |
|
Summary /
Abstract
|
I study how two different monetary policy regimes characterized by their difference in degrees of credibility (a 'commitment' regime, in which the central bank can credibly commit to future policy and a 'discretion' regime, in which it cannot) affect the term structure of interest rates and attempt to evaluate which monetary policy regime seems more consistent with the data on macroeconomic variables and term structure dynamics. To this end, I construct a no-arbitrage affine-term structure model based on a New-Keynesian type micro-foundation. The model is augmented with Epstein-Zin (EZ) preferences, real wage rigidity and a simple central bank optimization problem. A shock structure that exhibits stochastic volatility in long-run risk of TFP growth parsimoniously generates time-varying term premia. The estimation of the model suggests that the assumption of a discretion regime performs better than a commitment regime in terms of quantitatively fitting some salient features of the US data on the term structure and the business cycle during the Volcker-Greenspan-Bernanke era. The lack of policy credibility leads to volatile and persistent inflation, which generates volatile expected long-run inflation that is negatively correlated with future continuation values. This is perceived particularly risky by EZ nominal bond holders and results in upward sloping average nominal yields, long-term yield volatility and excess return predictability closer to the magnitude observed in the data while keeping the unconditional volatilities of consumption growth and inflation realistic. |
|
Keywords
|
Monetary policy regime, commitment, discretion, term structure, recursive utility, Volcker-Greenspan-Bernanke era |
|
URL
|
http://www.economicdynamics.org/meetpapers/2012/paper_557.pdf
|
|
Record ID
|
335
[ Page 7 of 14, No. 43 ]
|
|
Date
|
2013-04 |
|
Author
|
Carlos De Resende, Ali Dib, René Lalonde and Nikita Perevalov
|
|
Affiliation
|
Bank of Canada |
|
Title
|
Countercyclical Bank Capital Requirement and Optimized Monetary Policy Rules |
|
Summary /
Abstract
|
Using BoC-GEM-Fin, a large-scale DSGE model with real, nominal and financial frictions featuring a banking sector, we explore the macroeconomic implications of various types of countercyclical bank capital regulations. Results suggest that countercyclical capital requirements have a significant stabilizing effect on key macroeconomic variables, but mostly after financial shocks. Moreover, the bank capital regulatory policy and monetary policy interact, and this interaction is contingent on the type of shocks that drive the economic cycle. Finally, we analyze loss functions based on macroeconomic and financial variables to arrive at an optimal countercyclical regulatory policy in a class of simple implementable Taylor-type rules. Compared to bank capital regulatory policy, monetary policy is able to stabilize the economy more efficiently after real shocks. On the other hand, financial shocks require the regulator to be more aggressive in loosening/tightening capital requirements for banks, even as monetary policy works to counter the deviations of inflation from the target. |
|
Keywords
|
Economic models; Financial Institutions; Financial stability; International topics |
|
URL
|
http://www.bankofcanada.ca/wp-content/uploads/2013/04/wp2013-08.pdf
|
|
Record ID
|
334
[ Page 7 of 14, No. 44 ]
|
|
Date
|
2013-03 |
|
Author
|
Andrew J. Filardo and Pierre L. Siklos
|
|
Affiliation
|
Bank for International Settlements and Wilfrid Laurier University |
|
Title
|
Prolonged reserves accumulation, credit booms, asset prices and monetary policy in Asia |
|
Summary /
Abstract
|
This paper examines past evidence of prolonged periods of reserve accumulation in Asian emerging market economies and the direct and indirect implications for monetary stability through the potential impact of such episodes on financial stability. The empirical research focuses on identifying periods of prolonged interventions and correlations with key macrofinancial aggregates. Related changes in central bank balance sheets are also examined, especially in periods when the interventions are linked to strong capital inflows. In particular, we consider whether changes in the central bank's balance sheet from prolonged intervention lead to spillovers to the balance sheet of the private sector. We explore the possible forms of the spillovers and the consequences on asset prices (e.g., housing prices, equity prices, the growth in domestic credit). Policy implications are drawn. Finally, we propose a new indicator of reserves adequacy and excessive foreign exchange reserves accumulation based on a factor model. Two broad conclusions emerge from the stylized facts and the econometric evidence. First, the best protection against costly reserves accumulation is a more flexible exchange rate. Second, the necessity to accumulate reserves as a bulwark against goods price inflation is misplaced. Instead, there is a strong link between asset price movements and the likelihood of accumulating foreign exchange reserves that are costly. |
|
Keywords
|
Foreign exchange reserves accumulation, monetary and financial stability |
|
URL
|
http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/2013/dp0513.pdf
|
|
Record ID
|
333
[ Page 7 of 14, No. 45 ]
|
|
Date
|
2013-04 |
|
Author
|
Benjamin M. Friedman
|
|
Affiliation
|
National Bureau of Economic Research |
|
Title
|
The Simple Analytics of Monetary Policy: A Post-Crisis Approach |
|
Summary /
Abstract
|
The standard workhorse models of monetary policy now commonly in use, both for teaching macroeconomics to students and for supporting policymaking within many central banks, are incapable of incorporating the most widely accepted accounts of how the 2007-9 financial crisis occurred and incapable too of analyzing the actions that monetary policymakers took in response to it. They also offer no point of entry for the frontier research that many economists have subsequently undertaken, especially research revolving around frictions in financial intermediation. This paper suggests a simple model that bridges this gap by distinguishing the interest rate that the central bank sets from the interest rate that matters for the spending decisions of households and firms. One version of this model adds to the canonical “new Keynesian” model a fourth equation representing the spread between these two interest rates. An alternate version replaces this reduced-form expression for the spread with explicit supply and demand equations for privately issued credit obligations. The discussion illustrates the use of both versions of the model for analyzing the kind of breakdown in financial intermediation that triggered the 2007-9 crisis, as well as “unconventional” central bank actions like large-scale asset purchases and forward guidance on the policy interest rate. |
|
URL
|
http://www.nber.org/papers/w18960.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. |
|
Record ID
|
332
[ Page 7 of 14, No. 46 ]
|
|
Date
|
2013-03 |
|
Author
|
Sen Gupta, Abhijit and Sengupta, Rajeswari
|
|
Affiliation
|
Asian Development Bank, Institute for Financial Management and Research |
|
Title
|
Management of Capital Flows in India: 1990-2011 |
|
Summary /
Abstract
|
Increased integration with global financial markets has amplified the complexity of macroeconomic management in India. The diverse objectives of a robust growth rate, healthy current account deficit, competitive exchange rate, adequate external capital to finance investment, moderate inflation, targeted monetary and credit growth rate, minimizing financial fragilities and maintaining adequate reserves need to be balanced in an era of volatile capital flows. In this paper we analyze India’s experience in negotiating the trade-offs between these varied objectives. We find that to minimize risks associated with financial fragilities India has adopted a calibrated and gradual approach towards opening of the capital account, prioritizing the liberalization of certain flows. Using empirical methods we find that instead of adopting corner solutions, India has embraced an intermediate approach in managing the conflicting objectives of the well-known Impossible Trinity – monetary autonomy, exchange rate stability and an open capital account. Our results indicate that the intermediate approach has been associated with an asymmetric intervention in the foreign exchange market, with the objective of resisting pressures of appreciation, and resulted in large accumulation of reserves. We also show that sterilization of this intervention has been incomplete at times leading to rapid increase in monetary aggregates and fueling inflation. Finally, we conclude that while the greater flexibility in exchange rate since 2007, has allowed pursuit of a more independent monetary policy and the exchange rate to act as a shock absorber, the hands-off approach has resulted in reserves remaining virtually stagnant since 2007, leading to a significant deterioration in the reserve adequacy measures. |
|
Keywords
|
Capital controls, Macroeconomic trilemma, Financial integration, Foreign exchange intervention, Sterilization, Exchange market pressure, Reserve adequacy. |
|
URL
|
http://mpra.ub.uni-muenchen.de/46217/1/MPRA_paper_46217.pdf
|
|
Record ID
|
331
[ Page 7 of 14, No. 47 ]
|
|
Date
|
2013-03 |
|
Author
|
Lanzafame, Matteo and Nogueira, Reginaldo
|
|
Affiliation
|
Universita degli Studi di Messina, Italy, IBMEC Business School, Brazil |
|
Title
|
Inflation Targeting and Interest Rates |
|
Summary /
Abstract
|
Inflation Targeting (IT) can be expected to play a role in structurally reducing nominal interest rates, by lowering a country’s inflation expectations and risk premium. Relying on a panel of 52 advanced and emerging economies over the 1975-2009 years, we carry out a formal investigation of this hypothesis. Our econometric strategy adopts a flexible and efficient panel estimation framework, controlling for a number of issues usually neglected in the literature, such as parameter heterogeneity and cross-section dependence. Our findings are supportive of the optimistic view on IT, indicating that adoption of this monetary regime leads to lower nominal interest rates. |
|
Keywords
|
Inflation targeting; Interest rates; panel data; multifactor modeling |
|
URL
|
http://mpra.ub.uni-muenchen.de/46153/1/MPRA_paper_46153.pdf
|
|
Record ID
|
330
[ Page 7 of 14, No. 48 ]
|
|
Date
|
2013-04 |
|
Author
|
Chen, Xiaoshan; Kirsanova, Tatiana; and Leith, Campbell
|
|
Affiliation
|
University of Stirling, University of Glasgow, and University of Glasgow |
|
Title
|
How Optimal is US Monetary Policy? |
|
Summary /
Abstract
|
Most of the literature estimating DSGE models for monetary policy analysis assume that policy follows a simple rule. In this paper we allow policy to be described by various forms of optimal policy - commitment, discretion and quasi-commitment. We find that, even after allowing for Markov switching in shock variances, the inflation target and/or rule parameters, the data preferred description of policy is that the US Fed operates under discretion with a marked increase in conservatism after the 1970s. Parameter estimates are similar to those obtained under simple rules, except that the degree of habits is significantly lower and the prevalence of cost-push shocks greater. Moreover, we find that the greatest welfare gains from the 'Great Moderation' arose from the reduction in the variances in shocks hitting the economy, rather than increased inflation aversion. However, much of the high inflation of the 1970s could have been avoided had policymakers been able to commit, even without adopting stronger anti-inflation objectives. More recently the Fed appears to have temporarily relaxed policy following the 1987 stock market crash, and has lost, without regaining, its post-Volcker conservatism following the bursting of the dot-com bubble in 2000. |
|
Keywords
|
Discretion; Commitment; Great Moderation; Optimal Monetary Policy; Interest Rate Rules; Bayesian Estimation |
|
URL
|
http://www.stir.ac.uk/media/schools/management/documents/SEDP-2013-05-Chen-Kirsanova-Leith.pdf
|
|
Record ID
|
329
[ Page 7 of 14, No. 49 ]
|
|
Date
|
2013-03 |
|
Author
|
Kevin x.d. Huang and J. scott Davis
|
|
Affiliation
|
Vanderbilt University and Federal Reserve Bank of Dallas |
|
Title
|
Credit Risks and Monetary Policy Trade-Offs |
|
Summary /
Abstract
|
Financial frictions and financial shocks can affect the trade-off between inflation stabilization and output-gap stabilization faced by a central bank. Financial frictions lead to a greater response in output following any deviation of inflation from target and thus lead to an increase in the sacrifice ratio. As a result, optimal monetary policy in the face of credit frictions is to allow greater output gap instability in return for greater inflation stability. Such a shift in optimal monetary policy can be mimicked in a Taylor-type interest rate feedback rule that shifts weight to inflation and the lagged interest rate and away from output. However, the ability of the conventional Taylor rule to mimic optimal policy gets worse as credit market frictions and shocks intensify. By including a financial variable like the lending spread in the monetary policy rule, the central bank can partially reverse this worsening output-inflation trade-off brought about by financial frictions and partially undo the effects of credit market frictions and shocks. Thus the central bank may want to include lending spreads in the policy rule even when …financial distortions are not explicitly part of the central bank's objective function. |
|
Keywords
|
Credit friction; Credit shock; Credit spread; Monetary policy trade-offs; Taylor rule |
|
URL
|
http://www.accessecon.com/pubs/VUECON/VUECON-13-00004.pdf
|
|
Record ID
|
328
[ Page 7 of 14, No. 50 ]
|
|
Date
|
2013-03 |
|
Author
|
P. Manasse, R. Savona and M. Vezzoli
|
|
Affiliation
|
Economics Department, University of Bologna; Department of Economics and Management, University of Brescia; and Department of Economics and Management, University of Brescia |
|
Title
|
Rules of Thumb for Banking Crises in Emerging Markets |
|
Summary /
Abstract
|
This paper employs a recent statistical algorithm (CRAGGING) in order to build an early warning model for banking crises in emerging markets. We perturb our data set many times and create “artificial” samples from which we estimated our model, so that, by construction, it is flexible enough to be applied to new data for out-of-sample prediction. We find that, out of a large number (540) of candidate explanatory variables, from macroeconomic to balance sheet indicators of the countries’ financial sector, we can accurately predict banking crises by just a handful of variables. Using data over the period from 1980 to 2010, the model identifies two basic types of banking crises in emerging markets: a “Latin American type”, resulting from the combination of a (past) credit boom, a flight from domestic assets, and high levels of interest rates on deposits; and an “Asian type”, which is characterized by an investment boom financed by banks’ foreign debt. We compare our model to other models obtained using more traditional techniques, a Stepwise Logit, a Classification Tree, and an “Average” model, and we find that our model strongly dominates the others in terms of out-of-sample predictive power. |
|
Keywords
|
Banking Crises, Early Warnings, Regression and Classification Trees, Stepwise Logit |
|
URL
|
http://www2.dse.unibo.it/wp/WP872.pdf
|
|