WorldWideScience

Sample records for optimal monetary policy

  1. Optimal Bank Regulation and Monetary Policy

    OpenAIRE

    John J. Seater

    2000-01-01

    A unified model of monetary policy and bank regulation is presented. In accordance with modern banking theory, banks not only intermediate loans and deposits but also provide a financial service affecting aggregate output. Optimal parameter settings for monetary and regulatory policy are derived. New results are that monetary policy affects the expected level as well as the variance of output, bank regulation should change continually in response to the state of the economy, and bank regulati...

  2. Chaotic dynamics in optimal monetary policy

    Science.gov (United States)

    Gomes, O.; Mendes, V. M.; Mendes, D. A.; Sousa Ramos, J.

    2007-05-01

    There is by now a large consensus in modern monetary policy. This consensus has been built upon a dynamic general equilibrium model of optimal monetary policy as developed by, e.g., Goodfriend and King [ NBER Macroeconomics Annual 1997 edited by B. Bernanke and J. Rotemberg (Cambridge, Mass.: MIT Press, 1997), pp. 231 282], Clarida et al. [J. Econ. Lit. 37, 1661 (1999)], Svensson [J. Mon. Econ. 43, 607 (1999)] and Woodford [ Interest and Prices: Foundations of a Theory of Monetary Policy (Princeton, New Jersey, Princeton University Press, 2003)]. In this paper we extend the standard optimal monetary policy model by introducing nonlinearity into the Phillips curve. Under the specific form of nonlinearity proposed in our paper (which allows for convexity and concavity and secures closed form solutions), we show that the introduction of a nonlinear Phillips curve into the structure of the standard model in a discrete time and deterministic framework produces radical changes to the major conclusions regarding stability and the efficiency of monetary policy. We emphasize the following main results: (i) instead of a unique fixed point we end up with multiple equilibria; (ii) instead of saddle-path stability, for different sets of parameter values we may have saddle stability, totally unstable equilibria and chaotic attractors; (iii) for certain degrees of convexity and/or concavity of the Phillips curve, where endogenous fluctuations arise, one is able to encounter various results that seem intuitively correct. Firstly, when the Central Bank pays attention essentially to inflation targeting, the inflation rate has a lower mean and is less volatile; secondly, when the degree of price stickiness is high, the inflation rate displays a larger mean and higher volatility (but this is sensitive to the values given to the parameters of the model); and thirdly, the higher the target value of the output gap chosen by the Central Bank, the higher is the inflation rate and its

  3. Optimal monetary policy and oil price shocks

    Science.gov (United States)

    Kormilitsina, Anna

    This dissertation is comprised of two chapters. In the first chapter, I investigate the role of systematic U.S. monetary policy in the presence of oil price shocks. The second chapter is devoted to studying different approaches to modeling energy demand. In an influential paper, Bernanke, Gertler, and Watson (1997) and (2004) argue that systematic monetary policy exacerbated the recessions the U.S. economy experienced in the aftermath of post World War II oil price shocks. In the first chapter of this dissertation, I critically evaluate this claim in the context of an estimated medium-scale model of the U.S. business cycle. Specifically, I solve for the Ramsey optimal monetary policy in the medium-scale dynamic stochastic general equilibrium model (henceforth DSGE) of Schmitt-Grohe and Uribe (2005). To model the demand for oil, I use the approach of Finn (2000). According to this approach, the utilization of capital services requires oil usage. In the related literature on the macroeconomic effects of oil price shocks, it is common to calibrate structural parameters of the model. In contrast to this literature, I estimate the parameters of my DSGE model. The estimation strategy involves matching the impulse responses from the theoretical model to responses predicted by an empirical model. For estimation, I use the alternative to the classical Laplace type estimator proposed by Chernozhukov and Hong (2003). To obtain the empirical impulse responses, I identify an oil price shock in a structural VAR (SVAR) model of the U.S. business cycle. The SVAR model predicts that, in response to an oil price increase, GDP, investment, hours, capital utilization, and the real wage fall, while the nominal interest rate and inflation rise. These findings are economically intuitive and in line with the existing empirical evidence. Comparing the actual and the Ramsey optimal monetary policy response to an oil price shock, I find that the optimal policy allows for more inflation, a

  4. Optimal monetary policy in a model with agency costs

    OpenAIRE

    Timothy Fuerst; Matthias Paustian; Charles Carlstorm

    2009-01-01

    is the optimal policy. We derive the targeting criterion that implements optimal monetary policy under commitment and show under what conditions the target depends on leads or lags of the risk premium. Finally, the paper demonstrates that the degree of price stickiness and/or the nature of monetary policy alter the endogenous propagation of net worth across time.

  5. Input-output interactions and optimal monetary policy

    DEFF Research Database (Denmark)

    Petrella, Ivan; Santoro, Emiliano

    2011-01-01

    This paper deals with the implications of factor demand linkages for monetary policy design in a two-sector dynamic general equilibrium model. Part of the output of each sector serves as a production input in both sectors, in accordance with a realistic input–output structure. Strategic...... complementarities induced by factor demand linkages significantly alter the transmission of shocks and amplify the loss of social welfare under optimal monetary policy, compared to what is observed in standard two-sector models. The distinction between value added and gross output that naturally arises...

  6. US fiscal regimes and optimal monetary policy

    NARCIS (Netherlands)

    Mavromatis, K.

    2014-01-01

    Fiscal policy in the US has been documented to have been the leading authority in the ‘60s and the ‘70s (active fiscal policy), while committing to make the necessary fiscal adjustments following Volcker’s appointment (passive fiscal policy). Moreover, while passive, US fiscal policy has at times

  7. Communication, learning and optimal monetary policy

    NARCIS (Netherlands)

    Tesfaselassie, M.F.

    2005-01-01

    The second part of the thesis deals with interest rate policy under inflation targeting when there is uncertainty in the term structure of interest rates emanating from unobserved, possibly volatile, market sentiments. In situations where expectations depend on the state of the economy--the rate of

  8. Communication, learning and optimal monetary policy

    NARCIS (Netherlands)

    Tesfaselassie, M.F.

    2005-01-01

    The second part of the thesis deals with interest rate policy under inflation targeting when there is uncertainty in the term structure of interest rates emanating from unobserved, possibly volatile, market sentiments. In situations where expectations depend on the state of the economy--the rate of

  9. Evaluation of optimal monetary policy strategy in Romania in the context of fulfilment of convergence criteria

    Directory of Open Access Journals (Sweden)

    Monica DAMIAN

    2011-12-01

    Full Text Available Adopting the euro currency implies the fulfilment of Maastricht convergence criteria, which implies a number of challenges for the macroeconomic policy mix, due to the existence of the conflict between them. The paper analyzes empirically the main monetary policy strategy in the context of euro in Romania.The results of the study show that inflation targeting is an optimal monetary policy strategy to achieve real and nominal convergence criteria.

  10. International Monetary Policy Coordination

    OpenAIRE

    Carlberg, Michael

    2005-01-01

    This paper studies the international coordination of monetary policies in the world economy. It carefully discusses the process of policy competition and the structure of policy cooperation. As to policy competition, the focus is on monetary competition between Europe and America. Similarly, as to policy cooperation, the focus is on monetary cooperation between Europe and America. The spillover effects of monetary policy are negative. The policy targets are price stability and full employment.

  11. Optimal Monetary Policy Cooperation through State-Independent Contracts with Targets

    DEFF Research Database (Denmark)

    Jensen, Henrik

    2000-01-01

    Simple state-independent monetary institutions are shown to secure optimal cooperative policies in a stochastic, linear-quadratic two-country world with international policy spill-overs and national credibility problems. Institutions characterize delegation to independent central bankers facing...... quadratic performance related contracts punishing or rewarding deviations from primary and intermediate policy targets...

  12. INFLATION TARGETING – AN OPTIMAL MONETARY POLICY REGIME FOR THE REPUBLIC OF MOLDOVA AT PRESENT

    Directory of Open Access Journals (Sweden)

    Oleg STRATULAT

    2016-03-01

    Full Text Available The National Bank of the Republic of Moldova, as well as other central banks from other neighbouring countries, with the view to promoting the monetary policy, replaced the objective „ achieving and maintaining the national currency stability” with the target “ensuring and maintaining price stability”. This adjustment conditioned the selection of an optimal monetary policy regime to achieve the respective aim. Further to analysis and research there has been adopted the inflation targeting regime in order to determine the exact amount to a variation interval on a 24 month range. Relying on the experience in implementing the inflation targeting regime by the National Bank of Moldova it was determined that this monetary policy regime is the most adequate for the present socio-economic development of the Republic of Moldova.

  13. The effectiveness of monetary policy

    OpenAIRE

    Robert H. Rasche; Marcela M. Williams

    2005-01-01

    This analysis addresses changing views of the role and effectiveness of monetary policy, inflation targeting as an "effective monetary policy," monetary policy and short-run (output) stabilization, and problems in implementing a short-run stabilization policy.

  14. The effectiveness of monetary policy

    OpenAIRE

    Robert H. Rasche; Marcela M. Williams

    2005-01-01

    This analysis addresses changing views of the role and effectiveness of monetary policy, inflation targeting as an "effective monetary policy," monetary policy and short-run (output) stabilization, and problems in implementing a short-run stabilization policy.

  15. Monetary Policy and Economic Policy

    Directory of Open Access Journals (Sweden)

    Iordachioaia Adelina-Geanina

    2011-02-01

    Full Text Available There is widespread agreement that monetary policy matters,but there is disagreement about how it should be conducted. Behind this disagreement lie differences in theoretical understandings. The paper contrasts the New Classical, Neo-Keynesian, and Post-Keynesian frameworks, there by surfacing the differences. The New Classical model has policy only affecting long run inflation. The Neo-Keynesian has policy impacting inflation, unemployment, and real wages. The Post-Keynesian model also impacts growth, so policy implicitly picks a quadruple. Inflation targeting is a sub-optimal policy frame because it biases decisions toward low inflation by obscuring the fact that policy also affects unemployment, real wages, and growth.

  16. Monetary Policy Proving Effective

    Institute of Scientific and Technical Information of China (English)

    2010-01-01

    @@ Hu Xiaolian,Vice Governor of the People's Bank of China,the country's central bank,published an article concerning China's managed floating exchange rate regime and the effectiveness of the monetary policy on the bank's website on July 26.She pointed out monetary policy,as an important instrument of China's macroeconomic control,has faced many challenges in recent years.A more flexible exchange rate regime will help improve the effectiveness of the policy.

  17. Operation of monetary policy

    National Research Council Canada - National Science Library

    1984-01-01

    ... stocks Per cent per annum 10 15 20 30 50 Years to maturity 13 Operation of monetary policy This article covers the three months mid-November 1983 to mid-February 1984. The behaviour of the moneta...

  18. The interaction of fiscal and monetary policy in a monetary union : Balancing credibility and flexibility

    NARCIS (Netherlands)

    Beetsma, R.M.W.J.; Bovenberg, A.L.

    1995-01-01

    This paper explores how decentralized, national fiscal policies interact with a common monetary policy in a monetary union. We show that fiscal policy plays a more important ro le in stabilizing country-specific shocks than with national monetary policies. Whereas monetary u nification with an optim

  19. Monetary Policy Proving Effective

    Institute of Scientific and Technical Information of China (English)

    2010-01-01

    Hu Xiaolian,Vice Governor of the People’s Bank of China,the country’s central bank, published an article concerning China’s managed floating exchange rate regime and the effectiveness of the monetary policy on the bank’s website on July 26.She pointed out monetary policy,as an important instrument of China’s macroeconomic control,has faced many challenges in recent years.A more flexible exchange rate regime will help improve the effectiveness of the policy.Edited excerpts follow

  20. Optimal Monetary Policy and Exchange Rate in a Small Open Economy with Unemployment

    Directory of Open Access Journals (Sweden)

    Hyuk-Jae Rhee

    2014-09-01

    Full Text Available In this paper, we consider a small open economy under the New Keynesian model with unemployment of Gali (2011a, b to discuss the design of the monetary policy. Our findings can be summarized in three parts. First, even with the existence of unemployment, the optimal policy is to minimize variance of domestic price inflation, wage inflation, and the output gap when both domestic price and wage are sticky. Second, stabilizing unemployment rate is important in reducing the welfare loss incurred by both technology and labor supply shocks. Therefore, introducing the unemployment rate as an another argument into the Taylor-rule type interest rate rule will be welfare-enhancing. Lastly, controlling CPI inflation is the best option when the policy is not allowed to respond to unemployment rate. Once the unemployment rate is controlled, however, stabilizing power of CPI inflation-based Taylor rule is diminished.

  1. Optimal Monetary Policy with Durable Consumption Goods and Factor Demand Linkages

    DEFF Research Database (Denmark)

    Petrella, Ivan; Santoro, Emiliano

    This paper deals with the implications of factor demand linkages for monetary policy design. We develop a dynamic general equilibrium model with two sectors that produce durable and non-durable goods, respectively. Part of the output produced in each sector is used as an intermediate input......-durable spending in response to a monetary policy shock. A main result of our monetary policy analysis is that strategic complementarities generated by factor demand linkages amplify social welfare loss. As the degree of interconnection between sectors increases, the cost of misperceiving the correct production...

  2. Monetary policy as equilibrium selection

    OpenAIRE

    Gaetano Antinolfi; Costas Azariadis; Bullard, James B.

    2007-01-01

    Can monetary policy guide expectations toward desirable outcomes when equilibrium and welfare are sensitive to alternative, commonly held rational beliefs? This paper studies this question in an exchange economy with endogenous debt limits in which dynamic complementarities between dated debt limits support two Pareto-ranked steady states: a suboptimal, locally stable autarkic state and a constrained optimal, locally unstable trading state. The authors identify feedback policies that reverse ...

  3. Monetary Policy and The Crisis

    OpenAIRE

    Landais, Bernard

    2009-01-01

    This paper presents the interrelations between the economic and financial crisis and monetary policy. Its emphasizes three dimensions of the problem. First, monetary policy is partialy responsible of the financial and economics events of these last years. Second, strong monetary actions are needed and implemented with some success for curing the consequences of the crisis. Third, after the crisis, monetary policy may be never like before...

  4. UNCONVENTIONAL MONETARY POLICY

    Directory of Open Access Journals (Sweden)

    DIACONESCU DIANA RALUCA

    2015-03-01

    Full Text Available Central banks in advanced economies have deployed a variety of unconventional policies during the crisis. It can be seen that the central banks have been mostly successful at achieving their objectives and that spillover to other countries have—thus far at least—been benign overall. Also it can be considered that using unconventional measures may be appropriate in some circumstances, but also they can have disadvantages and all the benefits for using such measures need to be balanced against potential costs. Prior to the crisis the monetary policy was implemented by central banks in a predictable and systematic way, and its transmission mechanism was understood by the economic agents. A transparent central bank reaction function (or broad rule guided market expectations of future interest rates. After the crisis appeared, the central banks from developed countries applied unconventional tools1 to address two important objectives: first one is to restore the proper functioning of financial markets and intermediation, and second one is to provide further monetary policy accommodation. Both these objectives need to support financial stability, including the diminishing big risks in acute phases of the crisis (collapse of the financial system, depression, and deflation. This paper reviews recent experience with these policies and considers issues related to their continued use in the future in the Romanian economy. It will be a tentative to explain how to avoid liquidity trap2 or get out of it – these also can be seen in the Romanian economy in the last few years.

  5. Monetary Policy Analysis in Serbia

    Directory of Open Access Journals (Sweden)

    Martin Vesna

    2015-09-01

    Full Text Available The paper focuses on analysing monetary policy in Serbia. The National Bank of Serbia chose inflation targeting, which sets price stability as the main objective of monetary policy. To achieve this goal, the central bank uses different monetary policy instruments which analysis can provide us with the understanding of the main directions of their actions but also of the limitations of its application. Only through improvement of both instruments and monetary policy the central bank will create a better foundation for achieving monetary stability. In addition, the implementation of exchange rate policy is entrusted to the National Bank of Serbia, as the main regulator of the financial system. A mere use of managed floating exchange rate, as the chosen exchange rate regime, is an appropriate solution in the current economic circumstances and in accordance with the desired objective of monetary policy.

  6. New Approaches for Monetary Policy

    Directory of Open Access Journals (Sweden)

    Alexandra ADAM

    2012-02-01

    Full Text Available As a result of the economic turmoil started in 2007, there is a dispute if the monetary policy implies radical changes or just a rethinking of details regarding the main framework of the monetary policy strategy. Therefore, the actual debates that I have analyzed in the article take into account, among others, the relationship of monetary policy with the one of financial stability, the analyze if the monetary policy should lean against credit bubbles or just clean after their explosion (Lean vs. Clean debate, the presence of nonlinearities in economy. Thus, monetary economy becomes more interesting and the economists need to think about a wider range of monetary policy problems than existed before.

  7. Optimal Monetary Policy with Durable Consumption Goods and Factor Demand Linkages

    DEFF Research Database (Denmark)

    Petrella, Ivan; Santoro, Emiliano

    This paper deals with the implications of factor demand linkages for monetary policy design. We develop a dynamic general equilibrium model with two sectors that produce durable and non-durable goods, respectively. Part of the output produced in each sector is used as an intermediate input of pro...... is crucial, as this does not only influence the user cost of durables through the conventional demand channel, but also affects in opposite directions the real marginal cost of production in either sector through the intermediate input channel.......This paper deals with the implications of factor demand linkages for monetary policy design. We develop a dynamic general equilibrium model with two sectors that produce durable and non-durable goods, respectively. Part of the output produced in each sector is used as an intermediate input......-durable spending in response to a monetary policy shock. A main result of our monetary policy analysis is that strategic complementarities generated by factor demand linkages amplify social welfare loss. As the degree of interconnection between sectors increases, the cost of misperceiving the correct production...

  8. Central bank learning and monetary policy

    OpenAIRE

    Tesfaselassie, Mewael F.

    2008-01-01

    We analyze optimal monetary policy when a central bank has to learn about an unknown coefficient that determines the effect of surprise inflation on aggregate demand. We derive the optimal policy under active learning and compare it to two limiting cases---certainty equivalence policy and cautionary policy, in which learning takes place passively. Our novel result is that the two passive learning policies represent an upper and lower bound for the active learning policy, irrespective of the s...

  9. Central bank learning and monetary policy

    OpenAIRE

    Tesfaselassie, Mewael F.

    2008-01-01

    We analyze optimal monetary policy when a central bank has to learn about an unknown coefficient that determines the effect of surprise inflation on aggregate demand. We derive the optimal policy under active learning and compare it to two limiting cases---certainty equivalence policy and cautionary policy, in which learning takes place passively. Our novel result is that the two passive learning policies represent an upper and lower bound for the active learning policy, irrespective of the s...

  10. Ramsey monetary policy with labour market frictions

    OpenAIRE

    Faia, Ester

    2007-01-01

    This paper studies the design of optimal monetary policy (in terms of unconstrained Ramsey allocation) in a framework with sticky prices and matching frictions. Furthermore I consider the role of real wage rigidities. Optimal policy features significant deviations from price stability in response to various shocks. This is so since search externalities generate an unemployment/inflation trade-off. In response to productivity shocks optimal policy is pro-cyclical when the worker’s bargaining p...

  11. Monetary Policy and Trade Globalization

    OpenAIRE

    Dudley Cooke

    2010-01-01

    I develop a two country general equilibrium model with heterogeneous price-setting firms to understand how shocks to monetary policy and aggregate labor productivity impact trade integration, which I capture through the (inverse) average productivity of exporting firms. A contractionary domestic monetary policy shock raises the average productivity of domestic exporting firms but lowers the average productivity of foreign exporting firms. The magnitude of these changes is greater when governm...

  12. Monetary Policy and Risk Taking

    OpenAIRE

    Ignazio Angeloni

    2010-01-01

    In this paper Bruegel Visiting Scholar Ignazio Angeloni (European Central Bank), Ester Faia (Goethe University Frankfurt, Kiel IfW and CEPREMAP) and Marco Lo Duca (European Central Bank) examine the links between monetary policy, financial risk and the business cycle, combining data evidence and a new DSGE model with banks. The model includes banks (modeled as in Diamond and Rajan, JF 2000 and JPE 2001) and a financial accelerator (Bernanke et al., 1999 Handbook). A monetary expansion increas...

  13. Credibility and Flexibility with Monetary Policy Committees

    OpenAIRE

    Mihov, Ilian; Sibert, Anne

    2002-01-01

    We consider independent monetary policy committees as a simple way of attaining relatively low inflation without completely sacrificing the stabilization role of monetary policy. If central banker's types are unknown, then for a wide range of parameters an independent monetary policy committee is better than either a mandated zero-inflation rule or discretionary policy conducted by an opportunistic central banker.

  14. Financial Stability, Target Inflation as a Monetary Rule and Concepts of Money Policy: Implications for the Optimal Analysis

    Directory of Open Access Journals (Sweden)

    Mohsen Brahmi

    2015-04-01

    Full Text Available In this article, basing on offensive lecturing research articles of famous authors on financial instability and monetary policy, we propose as aim of this paper to discuss the controversial rule vs. discretion in monetary policy and the new institutional framework of inflation targeting as a remedy for inflationary pressures after the cause of the intermediate target of monetary anchors and exchange rate policy, since the year 70's of the last Century. To do this, we treated a literature review in the field, assigning the work of various economists thus handling of monetary policy favors the discretion/rule to the new inflation target strategy in 90's and 2000. We put particular emphasis on the second step of this paper on the possibility of inflation targeting as an anti-inflationary objective defended for its main defendants.

  15. Monetary Policy after August 2007

    Science.gov (United States)

    Gertler, Mark

    2013-01-01

    In this article, the author describes conceptually how to think about the dramatic changes in monetary policy since the sub-prime crisis of August 2007. He also discusses how to incorporate these changes and related economic concepts in the teaching of an undergraduate class in macroeconomics. A distinction is made between conventional and…

  16. Monetary policy during speculative attacks

    DEFF Research Database (Denmark)

    Bergman, Ulf Michael; Jellingsø, Mads

    2010-01-01

    This paper extends the currency crises model of Aghion, Bacchetta and Banerjee (2000, 2001, 2004) in different directions. Our main result is that a tight monetary policy can have adverse effects beyond the short term and can potentially cause a currency crisis in the medium term, even in cases...

  17. Asset prices and monetary policy

    National Research Council Canada - National Science Library

    Issing, Otmar

    2009-01-01

    ... the opposite. For central banks the relation between monetary policy and asset prices has gained new interest and the dominant view has come under critique. The Consensus View There is a broad consensus around the world that central banks should maintain price stability--keeping inflation low and stable. This objective is reflected in the mandate given to the ce...

  18. Financial crises and monetary policy

    NARCIS (Netherlands)

    Goderis, B.V.G.

    2005-01-01

    In the last three decades, many countries and regions around the world have suffered from currency crises. This thesis investigates the causes of such crises and assesses the role of monetary policy as a tool to avoid them or limit the damage they impose. In addition, it studies the impact of the re

  19. Monetary Policy after August 2007

    Science.gov (United States)

    Gertler, Mark

    2013-01-01

    In this article, the author describes conceptually how to think about the dramatic changes in monetary policy since the sub-prime crisis of August 2007. He also discusses how to incorporate these changes and related economic concepts in the teaching of an undergraduate class in macroeconomics. A distinction is made between conventional and…

  20. Financial crises and monetary policy

    NARCIS (Netherlands)

    Goderis, B.V.G.

    2005-01-01

    In the last three decades, many countries and regions around the world have suffered from currency crises. This thesis investigates the causes of such crises and assesses the role of monetary policy as a tool to avoid them or limit the damage they impose. In addition, it studies the impact of the re

  1. Global Financial Crisis: The Monetary Policy Dilemma

    OpenAIRE

    Basutkar, Tirupati

    2012-01-01

    Post crisis period in India is marked by ‘liquidity hangover’ which RBI’s Monetary Policy is visibly finding difficult to handle. While highlighting the ‘Ad-hoc’ monetary policy response of RBI in recent past, the paper tries to ascertain the significance of monetary policy variables in explaining growth

  2. International Experiences with Different Monetary Policy Regimes

    OpenAIRE

    Mishkin, Frederic S.

    1999-01-01

    In recent years a growing consensus has emerged for price stability as the overriding, long-run goal of monetary policy. However, despite this consensus, the following question still remains: how should monetary policy be conducted to achieve the price stability goal? This paper examines the experience with different monetary policy regimes currently in use in a number of countries to shed light on this question. A central feature of all of the monetary regimes discussed here is the ise of a ...

  3. Quantitative goals for monetary policy

    OpenAIRE

    Fatás, Antonio; Mihov, Ilian; ROSE, Andrew K.

    2006-01-01

    We study empirically the macroeconomic effects of an explicit de jure quantitative goal for monetary policy. Quantitative goals take three forms: exchange rates, money growth rates, and inflation targets. We analyze the effects on inflation of both having a quantitative target, and of hitting a declared target; we also consider effects on output volatility. Our empirical work uses an annual data set covering 42 countries between 1960 and 2000, and takes account of other determinants of inflat...

  4. Monetary policy according to HANK

    OpenAIRE

    Kaplan, Greg; Moll, Benjamin; Violante, Giovanni L

    2016-01-01

    We revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of household wealth and marginal propensities to consume because of two key features: multiple assets with different degrees of liquidity and an idiosyncratic income process with leptokurtic income changes. In this environment, the indirect effects of an unexpected cut in interest rates, which operate throu...

  5. Challenges for monetary policy in the enlarged European monetary Union

    Directory of Open Access Journals (Sweden)

    Radović Irena

    2009-01-01

    Full Text Available The eastward enlargement of the Euro area entails significant implications for the accession candidates in Central and Eastern Europe (CEE, the existing Euro system and the monetary policy of the European Central Bank (ECB. The present analysis assesses the challenges and critical aspects in monetary policy modeling with special emphasis to enlargement. The focus is on the difficulty of implementing a unique currency policy in view or growing heterogeneity within the enlarged monetary union, and secondly - the issue of the voting mechanism within the ECB. When analyzing those two issues, it is conclusive that the difficulties for the ECB and the current Euro zone members will increase. For the enlarged Euro zone, which is becoming more divergent, it will be very hard to find adequate recipes to meet the needs and requirements of all. The big question is: whether centralization of monetary policy is a sustainable and superior solution?.

  6. Monetary Policy, Interest Groups, Financial Crisis

    OpenAIRE

    Pál Péter Kolozsi

    2013-01-01

    The outbreak of the financial and economic crisis in 2007–2008 put an end to the previous consensus on monetary policy. The effects of monetary policy on redistribution have come to the foreground; the modelling and transparency of central bank decisions now require the development of an interpretive framework that allows the complex interpretation of monetary policy decisions in a social context. This paper uses the example of exchange rate policy to explain the effects of central bank decis...

  7. Monetary Policy and Controlling Asset Bubbles

    OpenAIRE

    Masaya Sakuragawa

    2015-01-01

    A great concern is whether there is any means of monetary policy that works for the "leaning against the wind" policy in the bubbly economy. This paper explores the scope for monetary policy that can control bubbles within the framework of the stochastic version of overlapping-generations model with rational bubbles. The policy that raises the cost of external finance, could be identified as monetary tightening, represses the boom, but appreciate bubbles. In contrast, an open market operation...

  8. Contracts, Phillips Curve and Monetary Policy

    Directory of Open Access Journals (Sweden)

    Félix Jiménez

    2016-02-01

    Full Text Available This paper shows how to obtain a short run aggregate supply curve when there are explicit orimplicit contracts. In the same way it is possible to obtain an expectation augmented Phillips curve. Then, a monetary policy is incorporated to the short run aggregate supply curve or to the Phillips curve in order to model the Central Bank reaction when the actual inflation deviates from the target inflation. Then a model with a Central Bank welfare lost function is developed in order to obtain an optimal monetary policy rule which modifies the synthetic version of the Taylor Rule. This model allows making short run comparative static analyses.

  9. Essays in international macroeconomics and monetary policy

    OpenAIRE

    Chen, Qianying

    2011-01-01

    This thesis consists of four chapters. Each chapter covers a topic in international macroeconomics and monetary policy. The first chapter investigates the impact of unexpected monetary policy shocks on exchange rates in a multi-country econometric model. The second chapter examines the linkage between macroeconomic fundamentals and exchange rates through the monetary policy expectation channel. The third chapter focuses on the international transmission of bank and corporate distress. The las...

  10. "Can Monetary Policy Affect The Real Economy?"

    OpenAIRE

    Philip Arestis; Malcolm Sawyer

    2002-01-01

    Current monetary policy involves the manipulation of the Central Bank interest rate (the repo rate), with the specific objective of achieving the goal(s) of monetary policy. The latter is normally the inflation rate, although in a number of instances this may include the level of economic activity (the U.S. Federal Reserve monetary policy is a good example of this category). This raises two issues. The first is the theoretical underpinnings of this mode of monetary policy. The second is the c...

  11. Can monetary policy affect the real economy?

    OpenAIRE

    Arestis, Philip; Sawyer, Malcolm

    2002-01-01

    Current monetary policy involves the manipulation of the Central Bank interest rate (the repo rate), with the specific objective of achieving the goal(s) of monetary policy. The latter is normally the inflation rate, although in a number of instances this may include the level of economic activity (the U.S. Federal Reserve monetary policy is a good example of this category). This raises two issues. The first is the theoretical underpinnings of this mode of monetary policy. The second is the c...

  12. CAN MONETARY POLICY AFFECT THE REAL ECONOMY?

    OpenAIRE

    Philip Arestis; Malcolm Sawyer

    2002-01-01

    Current monetary policy involves the manipulation of the Central Bank interest rate (the repo rate), with the specific objective of achieving the goal(s) of monetary policy. The latter is normally the inflation rate, although in a number of instances this may include the level of economic activity (the U.S. Federal Reserve monetary policy is a good example of this category). This raises two issues. The first is the theoretical underpinnings of this mode of monetary policy. The second is the c...

  13. Monetary policy and dynamic adjustment of corporate investment: A policy transmission channel perspective

    Directory of Open Access Journals (Sweden)

    Qiang Fu

    2015-06-01

    Full Text Available We investigate monetary policy effects on corporate investment adjustment, using a sample of China’s A-share listed firms (2005–2012, under an asymmetic framework and from a monetary policy transmission channel perspective. We find that corporate investment adjustment is faster in expansionary than contractionary monetary policy periods. Monetary policy has a significant effect on adjustment speed through monetary and credit channels. An increase in the growth rate of money supply or credit accelerates adjustment. Both effects are significantly greater during tightening than expansionary periods. The monetary channel has significant asymmetry, whereas the credit channel has none. Leverage moderates the relationship between monetary policy and adjustment, with a greater effect in expansionary periods. This study enriches the corporate investment behavior literature and can help governments develop and optimize macro-control policies.

  14. Monetary policy and dynamic adjustment of corporate investment: A policy transmission channel perspective

    Institute of Scientific and Technical Information of China (English)

    Qiang; Fu; Xing; Liu

    2015-01-01

    We investigate monetary policy effects on corporate investment adjustment,using a sample of China’s A-share listed firms(2005–2012), under an asymmetic framework and from a monetary policy transmission channel perspective. We find that corporate investment adjustment is faster in expansionary than contractionary monetary policy periods. Monetary policy has a significant effect on adjustment speed through monetary and credit channels. An increase in the growth rate of money supply or credit accelerates adjustment.Both effects are significantly greater during tightening than expansionary periods. The monetary channel has significant asymmetry, whereas the credit channel has none. Leverage moderates the relationship between monetary policy and adjustment, with a greater effect in expansionary periods. This study enriches the corporate investment behavior literature and can help governments develop and optimize macro-control policies.

  15. Essays on fiscal and monetary policy

    OpenAIRE

    2005-01-01

    The three chapters of this dissertation investigate how micro level phenomena affect aggregate outcomes and challenge basic fiscal and monetary principles. In particular, I analyze how these phenomena affect the transmission mechanisms and outcomes of specific fiscal and monetary policies in emerging markets. In Chapter 1, I investigate the transmission of monetary policy to retail interest rates using a novel transaction-level data set that includes all corporate loans of every commercial ba...

  16. Euro zone and its monetary policy

    OpenAIRE

    Dorel Dumitru CHIRIŢESCU; Andreea ANDRAŞIU

    2010-01-01

    In this article I have tried to make a short presentation of the Euro Zone and it’s monetary policy. At the present moment the Euro Zone has 16 countries that have adopted the Euro as a national currency and also 4 small countries that have monetary agreements with their neighbours. The monetary policy represents all the regulations of the money supply and interest rates adopted by the European Central Bank in order to control the inflation rate and to stabilize ...

  17. On the scope of Dutch monetary policy

    OpenAIRE

    Kuipers, S.K.; E. STERKEN

    1995-01-01

    The performance of the Netherlands central bank and its monetary policy in the face of its inability to control monetary supply is analysed through a structural model. Findings show that the monetary policy that the Dutch bank has adopted, considering the above constraint, should be fairly effective especially if there is a perfect substitutability between domestic and foreign assets. This fact, however, has not been clearly established.

  18. Monetary Policy Shocks in a Small Open Economy: Assessing the 'Puzzles' of Monetary Policy by SVAR

    OpenAIRE

    Ajluni, Jarir

    2005-01-01

    The paper examines the effects of monetary policy shocks and its puzzles on a small open economy using quarterly Korean data by applying a theoretically motivated Structural VAR, with the objective of introducing empirical evidence that investigates the magnitude and persistence of monetary policy using impulse response function analysis. There is some evidence on the occurrences of monetary policy puzzles confirming previous outcomes in the literature, results suggest that domestic monetary ...

  19. Monetary Policy Shocks in a Small Open Economy: Assessing the 'Puzzles' of Monetary Policy by SVAR

    OpenAIRE

    Ajluni, Jarir

    2005-01-01

    The paper examines the effects of monetary policy shocks and its puzzles on a small open economy using quarterly Korean data by applying a theoretically motivated Structural VAR, with the objective of introducing empirical evidence that investigates the magnitude and persistence of monetary policy using impulse response function analysis. There is some evidence on the occurrences of monetary policy puzzles confirming previous outcomes in the literature, results suggest that domestic monetary ...

  20. The relationship between fiscal and monetary policy

    Directory of Open Access Journals (Sweden)

    A. CAIRNCROSS

    2013-12-01

    Full Text Available The relationship between fiscal and monetary policy is one of great theoretical complexity, acute controversy and major practical importance. The author offers an account of the way thinking has developed on the matter before turning to some of the more obvious theoretical questions governing the mix of fiscal and monetary policy and the limitations to which each of them is subject.

  1. Expectations, Bond Yields and Monetary Policy

    DEFF Research Database (Denmark)

    Chun, Albert Lee

    2011-01-01

    expectations about inflation, output growth, and the anticipated path of monetary policy actions contain important information for explaining movements in bond yields. Estimates from a forward-looking monetary policy rule suggest that the central bank exhibits a preemptive response to inflationary expectations...

  2. Monetary policy and market power in banking

    NARCIS (Netherlands)

    Toolsema-Veldman, Linda

    Applying a spatial competition model to banking, we analyze the effects of the choice of a monetary policy rule by the central bank on banks' market power as measured by the Lerner index. We show that a procyclical monetary policy may reinforce the countercyclical movement of the Lerner index. That

  3. Monetary policy and market power in banking

    NARCIS (Netherlands)

    Toolsema-Veldman, Linda

    2003-01-01

    Applying a spatial competition model to banking, we analyze the effects of the choice of a monetary policy rule by the central bank on banks' market power as measured by the Lerner index. We show that a procyclical monetary policy may reinforce the countercyclical movement of the Lerner index. That

  4. Monetary Policy Rules in Some Transition Economies

    Directory of Open Access Journals (Sweden)

    Mohamed El-Hodiri

    2014-12-01

    Full Text Available In this paper we examine the question of whither monetary rules or ad hoc monetary policies were followed during the early stages of transition and in response to the global financial crisis. We study Eastern European countries and thee CIS countries. We find that during the early of transition, both developed economies and economies in transition used the monetary base, as well as the interest rate, as the main tools for monetary policy. However, in response to the global crises, priority was given to the main objective such as containing inflation and supporting economic growth. Monetary authorities had the additional possible choice of alternative objectives, such as stabilization of nominal exchange rate and real effective exchange rate, or increase in reserves. It was found that countries mostly retained priorities of monetary policy and some of them gave a greater importance to the alternative objectives.

  5. The Monetary Policy – Restrictive or Expansive?

    Directory of Open Access Journals (Sweden)

    Adam Szafarczyk

    2007-10-01

    Full Text Available The monetary policy plays an important role in macroeconomic policy of government. There is a question concerning type of this policy expansive or restrictive (easy or tidy monetary policy. Unfortunately, we have a lot of criteria. Each of them gives us other answer. So due to equitation of Irving Fisher we have dominantly expansive monetary policy. This same situation exists when we use nominal value of rediscount interest rate of central bank. Opposite result appears when we use real value of this interest rate or level of obligatory reserve. Taking under consideration liquidity on money market we know, that level of interest rate is too high.

  6. The interaction of fiscal and monetary policy in a monetary union : Balancing credibility and flexibility

    NARCIS (Netherlands)

    Beetsma, R.M.W.J.; Bovenberg, A.L.

    1995-01-01

    This paper explores how decentralized, national fiscal policies interact with a common monetary policy in a monetary union. We show that fiscal policy plays a more important ro le in stabilizing country-specific shocks than with national monetary policies. Whereas monetary u nification with an

  7. "On the Effectiveness of Monetary Policy and Fiscal Policy"

    OpenAIRE

    Arestis, Philip; Sawyer, Malcolm

    2003-01-01

    Within the framework of macroeconomic policy and theory over the past twenty years or so, a major shift has occurred regarding the relative importance given of monetary policy versus fiscal policy. The former has gained considerably in stature, while the latter is rarely mentioned. Further, monetary policy no longer focuses on attempts to control some monetary aggregate, as it did in the first half of the 1980s, but instead focuses on the setting of interest rates as the key policy instrument...

  8. Monetary policy and regional output in Brazil

    Directory of Open Access Journals (Sweden)

    Rafael Rockenbach da Silva Guimarães

    2014-03-01

    Full Text Available This work presents an analysis of whether the effects of the Brazilian monetary policy on regional outputs are symmetric. The strategy developed combines the techniques of principal component analysis (PCA to decompose the variables that measure regional economic activity into common and region-specific components and vector autoregressions (VAR to observe the behavior of these variables in response to monetary policy shocks. The common component responds to monetary policy as expected. Additionally, the idiosyncratic components of the regions showed no impact of monetary policy. The main finding of this paper is that the monetary policy responses on regional output are symmetrical when the regional output decomposition is performed, and the responses are asymmetrical when this decomposition is not performed. Therefore, performing the regional output decomposition corroborates the economic intuition that monetary policy has no impact on region-specific issues. Once monetary policy affects the common component of the regional economic activity and does not impact its idiosyncratic components, it can be considered symmetrical.

  9. Monetary policy implementation and overnight rate persistence

    OpenAIRE

    Nautz, Dieter; Scheithauer, Jan

    2010-01-01

    Overnight money market rates are the predominant operational target of monetary policy. As a consequence, central banks have re- designed the implementation of monetary policy to keep the deviations of the overnight rate from the key policy rate small and short-lived. This paper uses fractional integration techniques to explore how the operational framework of four major central banks affects the persis- tence of overnight rates. Our results suggest that a well-communicated and transparent in...

  10. Monetary policy implementation and overnight rate persistence

    OpenAIRE

    Nautz, Dieter; Scheithauer, Jan

    2009-01-01

    Overnight money market rates are the predominant operational target of monetary policy. As a consequence, central banks have redesigned the implementation of monetary policy to keep the deviations of the overnight rate from the key policy rate small and short-lived. This paper uses fractional integration techniques to explore how the operational framework of four major central banks affects the persistence of overnight rates. Our results suggest that a well-communicated and transparent intere...

  11. Monetary Policy Implementation and Overnight Rate Persistence

    OpenAIRE

    Nautz, Dieter; Scheithauer, Jan

    2009-01-01

    Overnight money market rates are the predominant operational target of monetary policy. As a consequence, central banks have redesigned the implementation of monetary policy to keep the deviations of the overnight rate from the key policy rate small and short-lived. This paper uses fractional integration techniques to explore how the operational framework of four major central banks affects the persistence of overnight rates. Our results suggest that a well-communicated and transparent intere...

  12. Monetary policy implementation and overnight rate persistence

    OpenAIRE

    Nautz, Dieter; Scheithauer, Jan

    2010-01-01

    Overnight money market rates are the predominant operational target of monetary policy. As a consequence, central banks have redesigned the implementation of monetary policy to keep the deviations of the overnight rate from the key policy rate small and short-lived. This paper uses fractional integration techniques to explore how the operational framework of four major central banks affects the persistence of overnight rates. Our results suggest that a well-communicated and transparent intere...

  13. Monetary Policy Implementation and Overnight Rate Persistence

    OpenAIRE

    Nautz, Dieter; Scheithauer, Jan

    2009-01-01

    Overnight money market rates are the predominant operational target of monetary policy. As a consequence, central banks have re- designed the implementation of monetary policy to keep the deviations of the overnight rate from the key policy rate small and short-lived. This paper uses fractional integration techniques to explore how the operational framework of four major central banks affects the persis- tence of overnight rates. Our results suggest that a well-communicated and transparent in...

  14. The Implementation of Monetary Policy in Australia

    OpenAIRE

    Ric Battellino; John Broadbent; Philip Lowe

    1997-01-01

    In January 1990, the Reserve Bank of Australia (RBA) began announcing and explaining changes in the target cash rate. This has increased public understanding of monetary policy and, by increasing the attention given to changes in interest rates, has affected the way in which changes in policy are transmitted to the economy. In addition, the discipline of having to announce and explain changes in the target cash rate to the public has led to a clearer focus on the objectives of monetary policy...

  15. MONETARY POLICY AND PARALLEL FINANCIAL MARKETS

    Directory of Open Access Journals (Sweden)

    Adela IONESCU

    2015-07-01

    Full Text Available Monetary policy is one of the economic policy "tools" through which it acts on the currency demand and supply in the economy. The importance of monetary policy results from its primary objective - price stability, plus limiting inflation and maintaining internal and external value of the currency. Responsibility for achieving these objectives rests with the Central Bank, which has a monopoly in the formulation and the implementation of monetary policy targets. Price stability is the primary objective of monetary policy and also the central objective of economic policy, alongside with: sustainable economic growth, full employment of labor force, balance of external payments equilibrium. To achieve these overall objectives of economic policy, monetary policy acts through currency as an instrument of action and it represents the overall action exercised by the monetary authority to influence economic development and to ensure price stability. In economic processes numerous factors emerge to the sale or purchase of capital available for a shorter or longer period and to achieving their aspirations of maximize capital gains, they are negotiating, they are confronting and agreeing within specific market relationships. The entirety of relations between various economic issues, enterprises and individuals, between them and the banking intermediaries, as well as the relationship between banks and other credit institutions on the transfer of cash money as specific form of debt and fructification of capital, form capital markets or credit markets. These markets are carved up according to the nature and purposes of the participants.

  16. EURO ZONE AND ITS MONETARY POLICY

    Directory of Open Access Journals (Sweden)

    Dorel Dumitru CHIRIŢESCU

    2010-03-01

    Full Text Available In this article I have tried to make a short presentation of the Euro Zone and it’s monetary policy. At the present moment the Euro Zone has 16 countries that have adopted the Euro as a national currency and also 4 small countries that have monetary agreements with their neighbours. The monetary policy represents all the regulations of the money supply and interest rates adopted by the European Central Bank in order to control the inflation rate and to stabilize a specific currency, in this case, the Euro. Stabilizing the inflation rate to certain levels is the main goal of the monetary policy. The monetary policy is the second policy, next to the fiscal one which in which a government, in this case the European Union’s official bodies, can impact the economic situation of the Eurozone. The fiscal policy represents the way a government spends, borrows or applies different types of taxes. The Monetary policy can be either expansionary, when unemployement and recessions needs to be combated, or contractionary, when inflation is conbated byt raising the interest rates.

  17. The redistributive consequences of monetary policy

    OpenAIRE

    Nakajima, Makoto

    2015-01-01

    Monetary policy is not intended to benefit one segment of the population at the expense of another by redistributing income and wealth. But as Makoto Nakajima explains, it is probably impossible to avoid such redistributive consequences.

  18. Has monetary policy become less effective?

    OpenAIRE

    Joseph H. Haslag

    1999-01-01

    High-powered money has been declining relative to nominal GDP in the United States. Does the ability of monetary policy to affect aggregate activity decline as the money-income ratio falls? In this paper, I specify simple model economy, examining the effects that monetary policy actions and financial innovation would have on the equilibrium money-income ratio. The downward trend in the money-income ratio can be accounted for by increasing inflation, falling reserve requirements, or steady fin...

  19. Monetary policy and insolvency of economic sector

    Directory of Open Access Journals (Sweden)

    Tepavac Rajko

    2012-03-01

    Full Text Available The main task of monetary policy of our central bank is to achieve and preserve stability of prices and currency. Targeted inflation rate has been chosen as operating instrument for gradual realization of low and stable inflation, along with elimination of inflation expectations. Also, a specific inflation corridor is chosen to ensure operations, transparency and ex ante effects of monetary policy. The paper presents analysis on whether there really is a restrictive monetary policy, deflections of real inflation from the programmed one, level of 'restrictiveness' of monetary policy and behavior of bank loans, money supply, nominal and real economic growth. Analysis is carried out and criticism of concepts of monetary regulation of mandatory bank reserves, blocking of financial bank potential through monetary regulation instruments, but also relations between central and business banks through open market policy. Criticism of repo operations and complete disappearance of selective credit policy is provided as well. The problem of almost embedded insolvency of economic sector is highlighted.

  20. CONSIDERATIONS REGARDING MONETARY POLICY IN ROMANIA

    Directory of Open Access Journals (Sweden)

    Pitorac Ruxandra

    2015-07-01

    Full Text Available The main objective of this paper is to study the Romania’s monetary policy, in the period 1996-2013. The research starts with a theoretical review of the monetary policy, whose main purpose is influencing the broad money supply and the lending requirements and the institution in charge of achieving this objective is the Central Bank, highlighting its impact upon the economic activity, through the Keynesian analysis model IS-LM and a correlation between the monetary policy measures and the phases of the economic cycle whose results indicate that during the recession periods it is recommended to reduce interest rates in order to stimulate investments, by raising the money supply, and during the expansion period it is recommended to increase the interest rate in order to cut back the money supply. Starting from this premises, the research takes into account the study of the monetary policy measures adopted by the governmental authority of Romania, making a quantitative analysis of the main macroeconomic indicators: the real interest rate, the lending interest rate, the deposit interest rate and the broad money supply and through a multifactorial regression, highlighting the impact of the interest rates upon the monetary aggregate M2. Moreover, a comparison between the monetary policy measures adopted in Romania and the monetary policies recommended by specialized literature has been done, and the results have indicated that during recession periods the attention of the governmental authorities is focused upon adopting the right measures, but during the expansion periods this doesn’t happen. The results of this research highlight the economic situation in Romania and the way in which the governmental authority intervened, through the monetary policy measures, in order to mitigate the negative effects of the cyclical fluctuations.

  1. Monetary policy rules across OECD countries

    Directory of Open Access Journals (Sweden)

    Jose Angelo Divino

    2009-03-01

    Full Text Available This paper provides empirical evidence on cross-country monetary policy rules for the major OECD countries during the 1979Q2 to 1998Q4 period. The results point to a convergence of monetary policy practices towards a strict anti-inflation policy in the post-1987Q3 period. From 1979Q3 to 1987Q2, there is evidence of an accommodative monetary policy. Comparing the performance of alternative measures of inflation, PPI appears to have played an implicit role of target inflation rate in the latter period. Such a policy avoids unnecessary fluctuations in the nominal interest rate, which only reacts to disturbances that affect domestic variables.

  2. The Role of the Monetary Policy in the Context of the Macroeconomic Policies Mix –A Fiscal and Monetary Policy Case Study for Romania

    National Research Council Canada - National Science Library

    Georgiana-Alina Ionita

    2016-01-01

    The main object of the research is to analyze and identify an optimal monetary and fiscal policy model that responds to the economic problems of the countries from Central and East Europe and, mainly, of Romania...

  3. Monetary Policy and Financial (InStability

    Directory of Open Access Journals (Sweden)

    Adam Koronowski

    2010-06-01

    Full Text Available This paper presents how monetary policy, restricted only by price stability, may easily become propitious to asset inflation and – eventually – to a financial crisis. This risk is particularly high when the financial system lacks proper regulation and effective supervision. Hasty liberalization, negligence of official oversight and „Greenspan doctrine” which refuted any activist policy promoting financial stability characterized Fed’s monetary policy under the former Fed’s governor. The paper also analyses another aspect of the linkages between monetary policy and financial crises – monetary policy reaction to financial crises. It is not surprising that it consists of cutting interest rates and bail-out of insolvent, systemically important financial institutions. Such policy, especially when run too long and changed too abruptly, not only creates moral hazards but it also sets the stage for another „search for yield” and build-up of another speculative bubble. As a result, monetary policy becomes asymmetric and pro-cyclical. Fed’s reaction to the recent crisis seems to be very much in line with this pattern typical of Fed’s policy in the past. However, this time the scale of flooding the economy with liquidity and – as a consequence – the risks of future major imbalances in the financial system are unprecedented. A general conclusion of the paper says that there can’t be a sound financial and economic system unless money itself is a scarce resource. However trivial this statement is, monetary policy of some central banks seems to miss the point.

  4. How do monetary policy tools work? An investigation on monetary transmission mechanism in Iran

    National Research Council Canada - National Science Library

    Naser Ali Yadollahzadeh Tabari

    2013-01-01

    .... In this study, the effect of monetary policy tools including interest rate, exchange rate and money supply on the variables of monetary policy targets including inflation and output is examined...

  5. "Financial Bubbles" and Monetary Policy

    Science.gov (United States)

    Tikhonov, Yuriy A.; Pudovkina, Olga E.; Permjakova, Juliana V.

    2016-01-01

    The relevance of this research is caused by the need of strengthening a role of monetary regulators to prevent financial bubbles in the financial markets. The aim of the article is the analysis of a problem of crisis phenomena in the markets of financial assets owing to an inadequate growth of their cost, owing to subjective reasons. The leading…

  6. A Monetary Policy Simulation Game

    Science.gov (United States)

    Lengwiler, Yvan

    2004-01-01

    The author presents a computer game that puts the player in the role of a central bank governor. The game is a stochastic simulation of a standard reduced form macro model, and the user interacts with this simulation by manipulating the interest rate. The problem the player faces is in many ways quite realistic--just as a real monetary authority,…

  7. A Monetary Policy Simulation Game

    Science.gov (United States)

    Lengwiler, Yvan

    2004-01-01

    The author presents a computer game that puts the player in the role of a central bank governor. The game is a stochastic simulation of a standard reduced form macro model, and the user interacts with this simulation by manipulating the interest rate. The problem the player faces is in many ways quite realistic--just as a real monetary authority,…

  8. Announcements and Credibility of Monetary Policy

    DEFF Research Database (Denmark)

    Schultz, Christian

    An infinitely repeated monetary policy game à la Barro and Gordon (1983) is considered. Before the game starts the government announces a policy rule. If there is a slight probability that government is honest and a slight probability that the government makes mistakes, then a sufficiently patient...

  9. Announcements and credibility of monetary policy

    DEFF Research Database (Denmark)

    Schultz, Christian

    1996-01-01

    An infinitely repeated monetary policy game à la Barro and Gordon is considered. Before the game starts the government announces a policy rule. If there is a slight probability that government is honest and a slight probability that the government makes mistakes, then a sufficiently patient gover...

  10. Monetary Policy in a Low Inflation Environment

    NARCIS (Netherlands)

    C.A. Ullersma (Cornelis Alexander)

    2007-01-01

    textabstractThis thesis shows that since the mid 1980s a sharp fall in equity and house prices tends to go hand in hand with a reduction of the monetary policy interest rate, which is the central bank’s main instrument to safeguard price stability. In exceptional circumstances, the policy rate can

  11. Announcements and credibility of monetary policy

    DEFF Research Database (Denmark)

    Schultz, Christian

    1996-01-01

    An infinitely repeated monetary policy game à la Barro and Gordon is considered. Before the game starts the government announces a policy rule. If there is a slight probability that government is honest and a slight probability that the government makes mistakes, then a sufficiently patient...

  12. Monetary Policy and Excessive Bank Risk Taking

    NARCIS (Netherlands)

    Agur, I.; Demertzis, M.

    2010-01-01

    If monetary policy is to aim at financial stability, how would it change? To analyze this question, this paper develops a general-form model with endogenous bank risk profiles. Policy rates affect both bank incentives to search for yield and the cost of wholesale funding. Financial stability objecti

  13. Monetary Policy and Excessive Bank Risk Taking

    NARCIS (Netherlands)

    Agur, I.; Demertzis, M.

    2010-01-01

    If monetary policy is to aim at financial stability, how would it change? To analyze this question, this paper develops a general-form model with endogenous bank risk profiles. Policy rates affect both bank incentives to search for yield and the cost of wholesale funding. Financial stability

  14. Monetary Policy in a Low Inflation Environment

    NARCIS (Netherlands)

    C.A. Ullersma (Cornelis Alexander)

    2007-01-01

    textabstractThis thesis shows that since the mid 1980s a sharp fall in equity and house prices tends to go hand in hand with a reduction of the monetary policy interest rate, which is the central bank’s main instrument to safeguard price stability. In exceptional circumstances, the policy rate can r

  15. Effectiveness of monetary policy transmission in Indonesia

    Directory of Open Access Journals (Sweden)

    Muhammad Khoirul Fuddin

    2014-10-01

    Full Text Available This study discusses the channel of monetary policy transmission mechanism of money, credit, interest rate and exchange rate in Indonesia. The effectiveness of the transmission mechanism of monetary policy in Indonesia can be described and explained by the ultimate target object in Indonesia, specifically economic growth and inflation. The analytical tool used in this study is Vector Error Correction Model (VECM which uses impulse response and variance decomposition in determining the effectiveness of monetary policy transmission mechanism. The results explain that the credit channel is considered effective in explaining economic growth and the interest rate channel is effective in explaining inflation found in Indonesia.

  16. Prudent monetary policy and prediction of the output gap

    NARCIS (Netherlands)

    van der Ploeg, F.

    2009-01-01

    Risk-adjusted LQG optimal control with perfect and imperfect observation of the economy is used to obtain prudent Taylor rules for monetary policies and cautious Kalman filters. A prudent central bank adjusts the nominal interest rate more aggressively to changes in the inflation gap, especially if

  17. Conducting monetary policy with inflation targets

    OpenAIRE

    George A. Kahn; Klara Parrish

    1998-01-01

    Since the early 1990s, a number of central banks have adopted numerical inflation targets as a guide for monetary policy. The targets are intended to help central banks achieve and maintain price stability by specifying an explicit goal for monetary policy based on a given time path for a particular measure of inflation. In some cases the targets are expressed as a range for inflation over time, while in other cases they are expressed as a path for the inflation rate itself. The measure of in...

  18. Monetary Policy in a Cashless Society

    OpenAIRE

    Costa Storti, Cláudia; De Grauwe, Paul

    2001-01-01

    In this Paper we analyse how monetary policies will be affected in a cashless society. Our main conclusions are that the central bank will lose its traditional instruments of monetary policy. Open market operations and advances to banks will become ineffective as instruments to control the interest rate and the money stock. We argue that this leads to two possible avenues for the future role of the central bank. In the first one the central bank becomes dependent on the treasury, both as a me...

  19. Amplification Effects and Unconventional Monetary Policies

    Directory of Open Access Journals (Sweden)

    Cécile BASTIDON GILLES

    2012-02-01

    Full Text Available Global financial crises trigger off amplification effects, which allow relatively small shocks to propagate through the whole financial system. For this reason, the range of Central banks policies is now widening beyond conventional monetary policies and lending of last resort. The aim of this paper is to establish a rule for this practice. The model is based on the formalization of funding conditions in various types of markets. We conduct a comprehensive analysis of the “unconventional monetary policies”, and especially quantify government bonds purchases by the Central bank.

  20. Uncertainty about Length of the Monetary Policy Transmission Lag: Implications for Monetary Policy

    OpenAIRE

    Ha, Yuong

    1999-01-01

    Using stochastic simulations of the Reserve Bank of New Zealand’s macroeconomic model, this paper examines the implications for monetary policy of uncertainty about the length of the monetary policy transmission lag. Uncertainty is examined from two perspectives. The first investigates the robustness of efficient inflation-forecast-based rules under transmission lag uncertainty. Robustness, in this paper, is measured by the variability of the stabilisation properties of policy rules. The resu...

  1. Monetary Policy in an Emerging European Economic and Monetary Union; Key Issues

    OpenAIRE

    Jacob A. Frenkel; Morris Goldstein

    1990-01-01

    This paper discusses key issues relating to the design and implementation of monetary policy in an emerging European economic and monetary union. Specific institutional proposals for transition to EMU are neither endorsed nor dismissed. In examining the goals of monetary policy, the paper explores the interrelationships among price stability, current account equilibrium, and exchange rate stability. Turning to the implementation of monetary policy, the issues addressed are: coordination versu...

  2. Optimal Degrees of Transparency in Monetary Policymaking

    DEFF Research Database (Denmark)

    Jensen, Henrik

    2002-01-01

    According to most academics and policymakers, transparency in monetary policymaking is desirable. I examine this proposition in a small theoretical model emphasizing forward-looking private sector behavior. Transparency makes it easier for price setters to infer the central bank's future policy......-inflation credibility, and there is need for active monetary stabilization policy...... intentions, thereby making current inflation more responsive to policy actions. This induces the central bank to pay more attention to inflation rather than output gap stabilization. Then, transparency may be disadvantageous. It may actually be a policy-distorting straitjacket if the central bank enjoys low...

  3. MONETARY POLICY TRANSMISSION MECHANISM IN EMERGING COUNTRIES

    Directory of Open Access Journals (Sweden)

    Andreea ROŞOIU

    2013-06-01

    Full Text Available The transmission channels of monetary policy are used by central banks to accomplish the main objective of price stability in the context of sustainable economic growth. The importance of interest rate and exchange rate channels for the emerging countries Romania, Poland, Czech Republic and Hungary is analyzed by using Bayesian VAR approach with Diffuse priors over 1998Q1-2012Q3. Main result of the empirical study is that both channels are effective for the monetary policy transmission mechanism in Hungary and Czech Republic. In Romania and Poland they do not exhibit puzzles, but the impact of the macroeconomic variables is not very significant and shows very high volatility. In the context of monetary integration, exchange rate channel will become irrelevant when these countries adopt Euro currency. This change will lead instead to a powerful interest rate channel.

  4. Does Monetary Policy Have Expansionary Bias with External Wealth?

    OpenAIRE

    Takamatsu, Satoko

    2008-01-01

    This paper investigates how the accumulation of external wealth affects a monetary policy. We demonstrate that though an expansionary bias emerges in a monetary policy, a fiscal method can eliminate such a bias.

  5. 基于非对称通胀偏好的最优货币政策规则%Optimal Monetary Policy Rules under Asymmetric inflation preferences

    Institute of Scientific and Technical Information of China (English)

    黄皂右

    2011-01-01

    与传统的L—Q货币政策分析框架相异,本文通过Linex函数,在央行损失函数中引入非对称通胀目标偏好。新的货币政策动态优化模型分析结果表明,最优货币政策规则中,名义利率对通胀的反应是非线性的,利率工具不仅对通胀水平作出反应,而且对通胀的波动·陛也作出反应,利率对通胀的变化还产生符号与大小上的非对称。%This paper derives optimal monetary policy rules in setups where central bank's inflation preferences are non-symmetry and macroeconomic constraints is linear. Analytical results show that the inclusion of asymmetric inflation preferences leads to sign and size asymmetries, and non-linearities in the respondence of interest rate to inflation change in the new monetary policy rule.

  6. Monetary policy cooperation may not be counterproductive

    DEFF Research Database (Denmark)

    Jensen, Henrik

    1997-01-01

    This paper qualifies Rogoff's famous (1985) result that international monetary policy cooperation is counterproductive. In a model similar to his, it is shown that if wage-setters are non-atomistic and inflation averse - as policymakers are - cooperation leads to higher employment and possibly...

  7. Monetary Policy Frameworks and Real Equilibrium Determinacy

    DEFF Research Database (Denmark)

    Jensen, Henrik

    2002-01-01

    In a simple "prototype" model of monetary policymaking, I examine the issue of real equilibrium determinacy under targeting and instrument rules. The former framework involves minimization of a loss function (under discretion or commitment), whereas the latter involves commitment to an interest......'s stability properties. Instead, they could reveal whether targeting-rule based policy is performed under discretion or commitment...

  8. Effectiveness of monetary policy in Sweden

    NARCIS (Netherlands)

    Moessner, Richhild; De Haan, Jakob; Jansen, David-Jan

    2016-01-01

    We study whether the sensitivity of Swedish interest rates to domestic economic news was affected by the zero lower bound (ZLB) and forward guidance. We find that the sensitivity was reduced at the ZLB at short but not at longer maturities, suggesting that monetary policy remained effective at longe

  9. Effectiveness of monetary policy in Sweden

    NARCIS (Netherlands)

    Moessner, Richhild; De Haan, Jakob; Jansen, David-Jan

    2016-01-01

    We study whether the sensitivity of Swedish interest rates to domestic economic news was affected by the zero lower bound (ZLB) and forward guidance. We find that the sensitivity was reduced at the ZLB at short but not at longer maturities, suggesting that monetary policy remained effective at

  10. Monetary Policy with Diverse Private Expectations

    NARCIS (Netherlands)

    Kurz, Mordecai; Motolese, M.; Piccillo, G.; Hu, H.

    2015-01-01

    We study the impact of diverse beliefs on conduct of monetary policy. Individual belief is modeled by a state variable that defines an individual’s perceived laws of motion. We use a New Keynesian Model that is solved with a quadratic approximation hence individual decisions are quadratic functions.

  11. Monetary Policy and Nigeria's Economic Development | Akujuobi ...

    African Journals Online (AJOL)

    Monetary Policy and Nigeria's Economic Development. ... Itwas found that cash reserve ratio was significant in impacting on ... bill at 5.6%, minimum rediscount rate at 7.4% and liquidity rate at7.7%, while interest rate was not significant at all.

  12. Signalling, wage controls and monetary disinflation policy

    NARCIS (Netherlands)

    van Wijnbergen, S.J.G.; Persson, T.

    1993-01-01

    Focuses on wage control and monetary disinflation policy. How the crucial variable to control is the money supply and wage and price controls should be avoided because of their macroeconomic costs; The two types of government as being low-inflation governments and high-inflation governments; How wag

  13. Monetary Policy Frameworks and Real Equilibrium Determinacy

    DEFF Research Database (Denmark)

    Jensen, Henrik

    2002-01-01

    In a simple "prototype" model of monetary policymaking, I examine the issue of real equilibrium determinacy under targeting and instrument rules. The former framework involves minimization of a loss function (under discretion or commitment), whereas the latter involves commitment to an interest......'s stability properties. Instead, they could reveal whether targeting-rule based policy is performed under discretion or commitment...

  14. Revisiting three intellectual pillars of monetary policy

    National Research Council Canada - National Science Library

    Borio, Claudio

    2016-01-01

    ... not. More specifically, I would like to revisit and question three deeply held beliefs that underpin current monetary policy received wisdom. The first belief is that it is appropriate to define equilibrium (or natural) rates as those consistent with output at potential and with stable prices (inflation) in any given period--the so-called Wi...

  15. Monetary policy, banking and heterogeneous agents

    NARCIS (Netherlands)

    Wolski, M.

    2012-01-01

    The influence of heterogeneous expectations on monetary policy performance has gained a lot of attention in the recent years. It proved to be an important factor that, under some circumstances, may even destabilize the economy (Massaro, 2012). This paper investigates the phenomenon of heterogeneous

  16. Monetary policy, banking and heterogeneous agents

    NARCIS (Netherlands)

    Wolski, M.

    2012-01-01

    The influence of heterogeneous expectations on monetary policy performance has gained a lot of attention in the recent years. It proved to be an important factor that, under some circumstances, may even destabilize the economy (Massaro, 2012). This paper investigates the phenomenon of heterogeneous

  17. Analysis of monetary and fiscal policy mix

    Directory of Open Access Journals (Sweden)

    2010-12-01

    Full Text Available Economies are constantly hit by various shocks-that effect aggregate demand and aggregate supply and have the potential to generate recession or expansion, respective a high level of unemployment and high inflation rate. Governments use fiscal and monetary policies to try to stabilioze the economy.

  18. EXTERNAL FACTORS FOR THE MONETARY POLICY TRANSMISSION MECHANISM

    OpenAIRE

    Dan Horatiu

    2013-01-01

    This paper reviews and analyzes the effects that external (or exogenous) factors, defined as economic factors that cannot be controlled or influenced by the central bank, have on monetary policy and the monetary policy transmission mechanism. Adopting a theoretical research position, we aim at identifying the main external factors to monetary policy and discuss the ways in which these factors alter the economic environment and implicitly the monetary policy transmission mechanism. This is don...

  19. The analysis of monetary policy effects with emphasis on monetary policy strategy types. A VAR approach

    OpenAIRE

    Popescu Iulian Vasile

    2013-01-01

    This paper proposes an empirical analysis of monetary policy shocks effects on the real economic aggregates and prices with the help of vector autoregressive (VAR) in the context of Central and Eastern European countries. Model specification is different for each type of monetary policy strategies applied by central banks in the region with the scope of best capturing a series of CEE states distinctive features. Our main results identify a relatively high degree of heterogeneity between the t...

  20. Monetary policy in a liquidity trap

    OpenAIRE

    Michael Dotsey

    2010-01-01

    In the United States, the Federal Reserve sets monetary policy by targeting the federal funds rate. This process usually involves lowering short-term interest rates when economic growth is weak and raising them when economic growth is strong. A wide class of economic models has shown that, in theory, conducting policy in this way allows the economy to employ resources efficiently. In addition, many empirical studies have shown that most central banks actually behave in this manner. In normal ...

  1. The Monetary Policy in a Changing World

    Directory of Open Access Journals (Sweden)

    Mariana Trandafir

    2015-05-01

    Full Text Available In a context where “the economies’ evolution is driven by the crisis”, the monetary policies are facing, in the post-crisis period, challenges that bring to the forefront of debates the rethinking of objectives, strategies and even implementation tools. This paper presents in a comparative analysis, the relevance of price stability in terms of theoretical fundaments and effectiveness of the concept for the pre and post – crisis periods, in the Eurozone, the US and Japan in an attempt to identify the explicative resorts of the central bank’s monetary behavior. At this time when the central banks are obliged to unconventional measures to save the global economy from the danger of deflation, the topic is important and timely addressed. The paper uses statistical data of official documents taken from the International Monetary Fund, European Union and central bank websites.

  2. Monetary policy, delegation and polarization

    DEFF Research Database (Denmark)

    Schultz, Christian

    1999-01-01

    This paper studies the relation between political polarisation and delegation of stabilisation policy. There is asymmetric information about how the economy works: unlike voters, two political parties know the variance of an employment shock. Prior to an election each party proposes a central...... banker to be chosen if the party wins. If political polarisation is small, voters will learn the true variance and the central banker and the stabilisation policy are the ones most preferred by the median voter. If the political polarisation is high, stabilisation policy does not reflect the variance...

  3. Modern Trends of the European Central Bank's Monetary Policy Development

    OpenAIRE

    Maksym Shchegliuk

    2014-01-01

    The article singles out the definition, aim, direction and goals of monetary policy of the ECB, analyses the phenomenon of inflation and shows how the ECB implements measures on its regulation. The article investigates provisions of the Treaty on the Functioning of the European Union concerning monetary policy and defines the aims and instruments of monetary policy of the European Central Bank. It is shown and summarized the main principles of the ECB activities. The mechanism of monetary pol...

  4. The monetary policy of the European Central Bank

    OpenAIRE

    Ježková, Tereza

    2011-01-01

    The objective of this thesis is to analyse and to evaluate the monetary policy of the European Central Bank (ECB) since the establishment of the European monetary union until the financial crisis in 2008. The thesis is divided into three parts. The first part introduces operating principles of monetary policy, which types of monetary policy exist and which instruments it uses. The second part deals with the process of its establishment and its formal requirements. In the third part, the analy...

  5. Monetary Policy in the Post Keynesian Theoretical Framework

    Directory of Open Access Journals (Sweden)

    FÁBIO HENRIQUE BITTES TERRA

    Full Text Available ABSTRACT The purpose of this contribution is to develop a Post Keynesian monetary policy model, presenting its goals, tools, and channels. The original contribution this paper develops, following (Keynes’s 1936, 1945 proposals, is the use of debt management as an instrument of monetary policy, along with the interest rate and regulation. Moreover, this paper draws its monetary policy model by broadly and strongly relying on Keynes’s original writings. A monetary policy model erected upon this basis relates itself directly to the Post Keynesian efforts to offer a monetary policy framework substantially different from the Inflation Targeting Regime of the New Macroeconomic Consensus.

  6. Effects of ECB Monetary Policy: Differences in Policy Interest Rates

    Directory of Open Access Journals (Sweden)

    Yutaka Kurihara

    2014-10-01

    Full Text Available This article examines the effects of the European Central Bank’s (ECB’s monetary policy on the economy in the Euro area. Existing studies have not conclusively determined whether the effects of the policy are large or small, effective or ineffective. Also, the difference between policy interest rate increases and decreases has not been fully studied. Using two types of VAR models, this article shows that, as expected, the ECB’s monetary policy designed to boost the economy is effective in inflation stabilization, depreciation of the euro, and production improvement. Also, the impact of policy interest rate increases on inflation rate is negative (i.e., effective. However, the results of other cases are not clear empirically. To maintain price stability is the ECB’s primary objective, so it can be concluded that the ECB in general has conducted monetary policy successfully.

  7. OPEN MARKETING - A SPECIFIC FORM OF MONETARY POLICY IN ORDER TO MONETARY VOLUME ADJUSTMENT

    Directory of Open Access Journals (Sweden)

    CHIRTOC IRINA- ELENA

    2013-02-01

    Full Text Available : Applying a uniform monetary policy by all European Union member states also require harmonization of monetary policy instruments and national interbank market integration also. Monetary policy instruments used by NBR (National Bank of Romania have evolved over time as a result of alignment with the instruments used by the European Central Bank. Money market operations in Romania have appeared for the first time in 1997. Starting from the wishing of Central Bank to reduce excess liquidity in 2001 they became the most important monetary policy tool used by the National Bank of Rumania. Open market operations are the instrument of monetary policy, central banking in Eastern Europe to work towards monetary contraction or expansion. Open-market operations in recent years have become the most important monetary policy instrument they play an essential role in promoting monetary policy by the central bank. Through open marketing operations the monetary authorities aim to alter bank reserves and thereby influence the amount of currency in circulation. In Romania, the open marketing operations are initiated by the National Bank of Romania, which determines what type of tools will be used while setting terms and conditions of the implementation. Through the use and control of monetary policy instruments, the central bank as the state bank seeks managing liquidity in the economy.

  8. What Drives ECB Monetary Policy?

    NARCIS (Netherlands)

    Kool, C.J.M.

    2005-01-01

    In this paper I have analyzed ECB interest rate setting in the first 5 years of its existence. Contrary to popular belief and continuous ECB statements, the ECB has not acted has as an obsessed inflation fighter. By any measure, output considerations do play a significant role in the ECB’s policy

  9. What Drives ECB Monetary Policy?

    NARCIS (Netherlands)

    Kool, C.J.M.

    2005-01-01

    In this paper I have analyzed ECB interest rate setting in the first 5 years of its existence. Contrary to popular belief and continuous ECB statements, the ECB has not acted has as an obsessed inflation fighter. By any measure, output considerations do play a significant role in the ECB’s policy ru

  10. OPEN MARKETING - A SPECIFIC FORM OF MONETARY POLICY IN ORDER TO MONETARY VOLUME ADJUSTMENT

    OpenAIRE

    CHIRTOC IRINA- ELENA; MEDAR LUCIAN-ION

    2013-01-01

    : Applying a uniform monetary policy by all European Union member states also require harmonization of monetary policy instruments and national interbank market integration also. Monetary policy instruments used by NBR (National Bank of Romania) have evolved over time as a result of alignment with the instruments used by the European Central Bank. Money market operations in Romania have appeared for the first time in 1997. Starting from the wishing of Central Bank to reduce excess liquidity i...

  11. OPEN MARKETING - A SPECIFIC FORM OF MONETARY POLICY IN ORDER TO MONETARY VOLUME ADJUSTMENT

    OpenAIRE

    CHIRTOC IRINA- ELENA; MEDAR LUCIAN-ION

    2013-01-01

    : Applying a uniform monetary policy by all European Union member states also require harmonization of monetary policy instruments and national interbank market integration also. Monetary policy instruments used by NBR (National Bank of Romania) have evolved over time as a result of alignment with the instruments used by the European Central Bank. Money market operations in Romania have appeared for the first time in 1997. Starting from the wishing of Central Bank to reduce excess liquidity i...

  12. Are monetary policies and performances converging?

    Directory of Open Access Journals (Sweden)

    N. THYGESEN

    2013-12-01

    Full Text Available This paper was presented at the Fourth International Seminar on European Economic and Monetary Union, held in Copenhagen in March of 1981. The work provides a tentative assessment of the EMS in terms of the main internal and external motives which emerged from the discussions in 1978. Commentary on the main criticisms made by economists of a monetarist orientation is then provided. Finally, policy objectives and performance in 1979-80 in the individual countries are surveyed.

  13. Indirect Monetary Policy Reforms and Output Growth in Nigeria: An ...

    African Journals Online (AJOL)

    Indirect Monetary Policy Reforms and Output Growth in Nigeria: An Empirical ... changes (reforms) since the inception of the Central Bank of Nigeria (CBN). ... place when monetary management was largely based on direct controls and those ...

  14. Reputation, credibility and monetary policy effectiveness

    Directory of Open Access Journals (Sweden)

    Gabriel Caldas Montes

    2009-09-01

    Full Text Available As reputation and credibility are important elements for monetary policy effectiveness, the paper aims at exploring the concepts of both and its importance in a context where central banks policies are not neutral, that is, monetary policy affects real and nominal variables. The paper seeks to contribute with a new analysis of how the sort of reputation developed by the monetary authority affects the state of expectations, and then the economic performance, enabling a particular situation that we call "credibility trap" - which makes monetary policy ineffective to affect real activity when necessary. Although the paper presents some similarities to the orthodox approach regarding both reputation and credibility's importance for central banks and its policies, it is different from the orthodox approach speaking of distinct forms of monetary policy recommendations and the sort of reputation that it recommends to be developed.Como reputação e credibilidade são importantes elementos para a eficácia da política monetária, o trabalho explora os conceitos de ambos e suas importâncias em um contexto em que as políticas dos bancos centrais não são neutras, sendo capazes de afetar variáveis reais e nominais. O trabalho busca contribuir com uma nova análise de como o tipo de reputação desenvolvido pela autoridade monetária afeta o estado de expectativas e, assim, o desempenho econômico, possibilitando um caso particular que chamaremos de "armadilha de credibilidade" - a qual torna a política monetária ineficaz em afetar a atividade econômica real quando necessário. Embora a abordagem proposta pelo trabalho apresente algumas similaridades com a abordagem ortodoxa acerca da importância da reputação e da credibilidade para os bancos centrais e suas políticas, a abordagem distingue-se da ortodoxa em termos de recomendações de política monetária e do tipo de reputação que deve ser desenvolvida.

  15. Broad Money Demand and Monetary Policy in Tunisia

    OpenAIRE

    Volker Treichel

    1997-01-01

    The development of empirical foundations to the conduct of monetary policy in Tunisia is the central concern of this paper. Finding stable money demand functions, it broadly corroborates the choice of monetary aggregates as intermediate targets of monetary policy by the Tunisian Central Bank. It finds, however, a lower income elasticity than the one currently applied by the Central Bank and proposes a different methodology for defining monetary growth targets. The paper also finds that both i...

  16. Monetary Policy in the Greenspan Era

    DEFF Research Database (Denmark)

    Christensen, Anders Møller; Nielsen, Heino Bohn

    2009-01-01

    Relationships between the Federal funds rate, unemployment, inflation and the long-term bond rate are investigated with cointegration techniques. We find a stable long-term relationship between the Federal funds rate, unemployment and the bond rate. This relationship is interpretable as a policy...... target because deviations are corrected via the Federal funds rate. Deviations of the actual Federal funds rate from the estimated target give simple indications of discretionary monetary policy, and the larger deviations relate to special episodes outside the current information set. A more traditional...

  17. EXTERNAL FACTORS FOR THE MONETARY POLICY TRANSMISSION MECHANISM

    Directory of Open Access Journals (Sweden)

    Dan Horatiu

    2013-07-01

    Full Text Available This paper reviews and analyzes the effects that external (or exogenous factors, defined as economic factors that cannot be controlled or influenced by the central bank, have on monetary policy and the monetary policy transmission mechanism. Adopting a theoretical research position, we aim at identifying the main external factors to monetary policy and discuss the ways in which these factors alter the economic environment and implicitly the monetary policy transmission mechanism. This is done by changing the way in which monetary transmission channels work and deliver monetary policy decisions throughout the economy, with the final goal of producing central bank desired outcomes with regard to economic variables like inflation, employment, or the production level. We will begin this article with a brief introduction on the topic of monetary policy, the monetary policy transmission mechanism and the potential external factors that may influence the monetary policy and the functioning of its transmission mechanism. The main external factors are identified as linked to fiscal policy, commodity prices, financial market volatility or other globalization related processes. After this introduction, we will proceed with the analysis of the nature and influences of each of the above mentioned external factors on monetary policy and its transmission, indentifying the potential ways in which they can change the structure and internal processes of the transmission channels. As we will see in the study and highlight in our conclusion, the external factors cause decisive changes in the way monetary policy is transmitted, and thus will strongly influence the decisions that central banks take in order to alter key economic variables. The profound understanding of how these non-central bank controlled factors influence the monetary policy transmission mechanism is a key requirement for central banks, as only by being able to predict, recognize and evaluate the

  18. How do monetary policy tools work? An investigation on monetary transmission mechanism in Iran

    Directory of Open Access Journals (Sweden)

    Naser Ali Yadollahzadeh Tabari

    2013-04-01

    Full Text Available Monetary transmission mechanism includes some channels in which monetary policy influences on macroeconomic variables such as the output and inflation. In this study, the effect of monetary policy tools including interest rate, exchange rate and money supply on the variables of monetary policy targets including inflation and output is examined through VECM methodology over the period 1989:2-2007:2. Our findings show that in long-term, monetary supply is the most important variable influencing the price followed by the variables of output and exchange rate, respectively. Exogenous-being of interest rate indicates that this channel is underdeveloped and there is no monetary policy rule like Taylor rule in Iran's economy.

  19. Impact of monetary policy changes on the Chinese monetary and stock markets

    Science.gov (United States)

    Tang, Yong; Luo, Yong; Xiong, Jie; Zhao, Fei; Zhang, Yi-Cheng

    2013-10-01

    The impact of monetary policy changes on the monetary market and stock market in China is investigated in this study. The changes of two major monetary policies, the interest rate and required reserve ratio, are analyzed in a study period covering seven years on the interbank monetary market and Shanghai stock market. We find that the monetary market is related to the macro economy trend and we also find that the monetary change surprises both of lowering and raising bring significant impacts to the two markets and the two markets respond to the changes differently. The results suggest that the impact of fluctuations is much larger for raising policy changes than lowering changes in the monetary market on policy announcing and effective dates. This is consistent with the “sign effect”, i.e. bad news brings a greater impact than good news. By studying the event window of each policy change, we also find that the “sign effect” still exists before and after each change in the monetary market. A relatively larger fluctuation is observed before the event date, which indicates that the monetary market might have a certain ability to predict a potential monetary change, while it is kept secret by the central bank before official announcement. In the stock market, we investigate how the returns and spreads of the Shanghai stock market index respond to the monetary changes. Evidences suggest the stock market is influenced but in a different way than the monetary market. The climbing of returns after the event dates for the lowering policy agrees with the theory that lowering changes can provide a monetary supply to boost the market and drive the stock returns higher but with a delay of 2 to 3 trading days on average. While in the bear market, the lowering policy brings larger volatility to the market on average than the raising ones. These empirical findings are useful for policymakers to understand how monetary policy changes impact the monetary and stock markets

  20. On the effects of monetary policy shocks in developing countries

    Directory of Open Access Journals (Sweden)

    Magda Kandil

    2014-06-01

    Full Text Available Using annual data for a sample of developing countries, the time-series evidence indicates the allocation of monetary policy shocks, both expansionary and contractionary, between price inflation and output growth. Subsequently, cross-country regressions evaluate factors that underlie the difference in these allocations and their implications. The real effects of monetary shocks increase as the elasticity of aggregate demand increases with respect to monetary shocks. Nonetheless, capacity constraints hamper the output adjustment to monetary shocks and increase price inflation. Across countries, trend output growth increases with the output response to monetary shocks. Consistent with the stabilizing function of monetary policy, the variability of output growth decreases in the face of monetary fluctuations across countries. In contrast, monetary fluctuations increase the trend and variability of price inflation across countries.

  1. Income Inequality, Monetary Policy, and the Business Cycle

    OpenAIRE

    Stuart J. Fowler

    2005-01-01

    The effects of changes in monetary policy are studied in a general equilibrium model where money facilitates transactions. Because there are two types of agents, workers and capitalists, different elasticities of money demand exist, implying that monetary policy influences the distribution of income. Only when earnings inequality is incorporated into monetary policy rule is the model able to replicate cyclical fluctuations of both real and nominal aggregates as well as the inequality measure....

  2. Model-based inflation forecasts and monetary policy rules

    OpenAIRE

    Wouters, Raf; Dombrecht, Michel

    2000-01-01

    In this paper, the interaction between inflation and monetary policy rules is analysed within the framework of a dynamic general equilibrium model derived from optimising behaviour and rational expectations. Using model simulations, it is illustrated that the control of monetary policy over the inflation process is strongly dependent on the role of forward looking expectations in the price and wage setting process and on the credibility of monetary policy in the expectation formation process ...

  3. A Note on Post-Modern Monetary Policy

    OpenAIRE

    Thierry Warin

    2006-01-01

    This paper surveys the roots of the modern literature on monetary policy, and illustrates the convergence that occurs between open-economy approaches and the micro foundations of monetary policy. From the Banking School versus Currency School debate to the “credibility versus flexibility” refinement, monetary policy has a long history of scholarly works. Although it may be hard to imagine that there is still room for innovations, the current developments of the literature on open-economy mone...

  4. The Changing Effectiveness of Monetary Policy

    Directory of Open Access Journals (Sweden)

    Jonathan E. Leightner

    2013-11-01

    Full Text Available In the wake of the 2008 financial crisis, many countries are hoping that massive increases in their money supplies will revive their economies. Evaluating the effectiveness of this strategy using traditional statistical methods would require the construction of an extremely complex economic model of the world that showed how each country’s situation affected all other countries. No matter how complex that model was, it would always be subject to the criticism that it had omitted important variables. Omitting important variables from traditional statistical methods ruins all estimates and statistics. This paper uses a relatively new statistical method that solves the omitted variables problem. This technique produces a separate slope estimate for each observation which makes it possible to see how the estimated relationship has changed over time due to omitted variables. I find that the effectiveness of monetary policy has fallen between the first quarter of 2003 and the fourth quarter of 2012 by 14%, 36%, 38%, 32%, 29% and 69% for Japan, the UK, the USA, the Euro area, Brazil, and the Russian Federation respectively. I hypothesize that monetary policy is suffering from diminishing returns because it cannot address the fundamental problem with the world’s economy today; that problem is a global glut of savings that is either sitting idle or funding speculative bubbles.

  5. MONETARY POLICY FORCE EFFECT BY MEANS OF BANKS MONEY CREATION

    Directory of Open Access Journals (Sweden)

    Victoria COCIUG

    2014-07-01

    Full Text Available In the context of modern economy, banks play an essential role for sustainable growth, by ensuring economy with financial resources and driving impulses of monetary policy to economy. Monetary authorities influence significantly the bank's ability to fulfill this role. Thus, to achieve macroeconomic objectives, there is promoted particular monetary policy and are implemented various practical regulations for banks. In this article, we want to identify the existing relationship between monetary policy followed by the authorities and the ability of banks to create money with its impact on various practical regulations.

  6. New Approach to Analyzing Monetary Policy in China

    OpenAIRE

    Petreski, Marjan; Jovanovic, Branimir

    2012-01-01

    Any attempt to model monetary policy in China has to take into account two ‘specifics’ of the Chinese monetary policy: the reliance on several operational instruments, both quantitative (open market operations, discount rate, reserve requirement) and qualitative (selective credit allowances, window guidance etc.), as well as the combined strategy pursued by the People’s Bank of China, i.e. the two intermediate targets - the exchange rate and the money growth. In this paper we analyze monetary...

  7. MONETARY POLICY FORCE EFFECT BY MEANS OF BANKS MONEY CREATION

    OpenAIRE

    Victoria COCIUG; Olga TIMOFEI

    2014-01-01

    In the context of modern economy, banks play an essential role for sustainable growth, by ensuring economy with financial resources and driving impulses of monetary policy to economy. Monetary authorities influence significantly the bank's ability to fulfill this role. Thus, to achieve macroeconomic objectives, there is promoted particular monetary policy and are implemented various practical regulations for banks. In this article, we want to identify the existing relationship between monetar...

  8. Some considerations on using monetary policy to promote financial stability

    Directory of Open Access Journals (Sweden)

    Petria, N.

    2010-12-01

    Full Text Available The current period of crisis on credit markets has highlighted the crucial role of the behaviour of banks in the transmission mechanism of monetary policy. This paper summarises our considerations on how monetary policy, as the main instrument, acts in order to promote financial stability and to stabilize the banking system. Central banks have a variety of tools for implementing monetary policy, but the tool that has received the most attention in literature is the interest rate. We observe that the financial crisis that erupted in the summer of 2007 has refocused attention on other channels of monetary policy, notably the transmission of policy through the supply of credit and overall conditions in the capital markets. Monetary policy has important macroeconomic effects only to the extent that it moves financial market prices that really matter—like long-term interest rates, stock market values, and exchange rates.

  9. Reference-Dependent Preferences and the Transmission of Monetary Policy

    NARCIS (Netherlands)

    Gaffeo, E.; Petrella, I.; Pfajfar, D.; Santoro, E.

    2010-01-01

    This paper proposes a novel explanation of the vast empirical evidence showing that output and prices react asymmetrically to monetary policy innovations over contractions and expansions in the business cycle. We use VAR techniques to show that monetary policy exerts stronger e¤ects on the U.S. GDP

  10. Reference-dependent Preferences and the Transmission of Monetary Policy

    NARCIS (Netherlands)

    Gaffeo, E.; Petrella, I.; Pfajfar, D.; Santoro, E.

    2010-01-01

    This paper proposes a novel explanation of the vast empirical evidence showing that output and prices react asymmetrically to monetary policy innovations over contractions and expansions in the business cycle. We use VAR techniques to show that monetary policy exerts stronger e¤ects on the U.S. GDP

  11. The trade-off between monetary policy and bank stability

    NARCIS (Netherlands)

    Lamers, Martien; Mergaerts, Frederik; Meuleman, Elien; Vennet, Rudi Vander

    2016-01-01

    This paper investigates how monetary policy interventions by the European Central Bank and the Federal Reserve affect the stock market perception of bank systemic risk. In a first step, we identify monetary policy shocks using a structural VAR approach by exploiting the changes of the volatility of

  12. The International Impact of US Unconventional Monetary Policy

    DEFF Research Database (Denmark)

    Lutz, Chandler

    2015-01-01

    Using a structural factor-augmented vector autoregression model and a large data set of daily time series, we study the impact of US unconventional monetary policy on British and German financial markets. Our findings indicate that a surprise US unconventional monetary policy easing leads...

  13. Monetary Policy, Determinancy and Learnability in the Open Economy

    NARCIS (Netherlands)

    Bullard, J.; Schaling, E.

    2005-01-01

    We study how determinacy and learnability of global rational expectations equilibrium may be affected by monetary policy in a simple, two country, New Keynesian framework.The two blocks may be viewed as the U.S. and Europe, or as regions within the euro zone.We seek to understand how monetary policy

  14. Transmission Channels of Monetary Policy: A Broader View

    Directory of Open Access Journals (Sweden)

    Lukáš Kučera

    2016-08-01

    Full Text Available The paper deals with a transmission mechanism of monetary policy under the regime of inflation targeting. It focuses on the expectations channel, the credit view and the cost channel. These channels work side by side and may amplify effects of the traditional view of transmission mechanisms of monetary policy, which emphasises adjustments on the demand side.

  15. On the influence of institutional design on monetary policy making

    NARCIS (Netherlands)

    Raes, L.B.D.

    2014-01-01

    This thesis consists of a collection of essays on monetary policy making. These essays focus on institutional aspects which impact monetary policy making. Two chapters focus on analyzing voting records of central banks. A method is proposed to use the observed votes to infer the preferences of centr

  16. Taylor rule and EMU Monetary Policy Determination and ECB's Preferences

    Directory of Open Access Journals (Sweden)

    Svatopluk Kapounek

    2006-01-01

    Full Text Available The aim of the article is to evaluate the preferences of the ECB in monetary policy and to compare them with preferences of the central banks of new EU member countries from Central and Eastern Europe. The ECB's responsibility for the primary objective (price stability often contrasts with the requirement for economic growth stabilization policy from the national governments. There are doubts if the current members of Eurozone constitute an optimum currency area (the Eurozone 12 is recently the combination of rapidly growing and slow-growing - low inflationary countries. The differences between the countries will even expand during the European monetary union enlargement by new EU member countries. Consequently the probability of asymmetric shocks will increase. The main question is the ability of ECB to fulfill the needs of all EMU member countries in terms of optimal monetary policy. In the first part the authors analyze differences between the preferences of the ECB and national authorities (governments. The negative experiences of Ireland, Italy and other EMU members with current status quo help us to understand fear of future member countries from possible impact of common monetary policy on their national economies. The second part of the paper deals with interest rates determination by ECB and compares it with expectations (requirements from EMU member and EMU candidate countries. The main contribution of the article may be seen in central bank's preferences analyses – the preferences are defined as the parameters in Taylor rule (the weights given by ECB and national authorities to the price stability and economic growth stimulation. The hypothesis is defined as following: are the preferences of ECB in line with the preferences of national central banks of EMU candidate countries? The empirical analysis is based on the Taylor rule decomposition. The hypothesis is tested by regression analysis. Time series regression model uses relations

  17. Monetary policy and world commodity markets: 2000-2007

    Directory of Open Access Journals (Sweden)

    Hossein Askari

    2010-01-01

    Full Text Available Expansionary monetary policy in key industrial countries and a rapidly depreciating US dollar sent commodity prices soaring at unprecedented rates during 2003–2007. In contrast, consumer price indices in major OECD countries, a leading indicator for monetary policy, showed almost no inflation. This twin development is a puzzle as the evolution of consumer prices were not responsive to record low interest rates, doubledigit commodity inflation, and a sharp depreciation of the dollar. A common trend, identified as a monetary shock, drives commodity prices. Policymakers face a policy dilemma: maintain expansionary monetary policy stance with persistent commodity price inflation, subsequent severe world recession, and financial disorder, or tighten monetary policy with subsequent sustained economic growth and financial and price stability.

  18. Financial stability and monetary policy -The case of Brazil

    Directory of Open Access Journals (Sweden)

    Benjamin M. Tabak

    2013-12-01

    Full Text Available This paper seeks to examine the effects of monetary policy over banks' loans growth and whether there is a bank lending channel operating in Brazil. Therefore, we employ a detailed high frequency panel data in which we include bank characteristics and ownership control. We contribute to the literature on bank lending channel by showing that during periods of loosening/tightening monetary policy, banks increase/decrease their loans. Additionally,our results illustrate that large, well-capitalized and liquid banks react differentially to the effects of monetary policy shocks. Finally, we show that the impact of monetary policy differs across state-owned, foreign and private domestic banks. These results are important for developing and conducting monetary policy.

  19. Three essays on monetary policy responses to oil price shocks

    Science.gov (United States)

    Plante, Michael

    This dissertation contains three chapters which explore the question of how monetary policy should respond to changes in the price of oil. Each chapter explores the question from the perspective of a different economic environment. The first chapter examines welfare maximizing optimal monetary policy in a closed economy New Keynesian model that is extended to include household and firm demand for oil products, sticky wages, and capital accumulation. When households and firms demand oil products a natural difference arises between the Consumer Price Index (CPI), the core CPI, and the GDP deflator. I show that when nominal wages are flexible then the optimal policy places a heavy emphasis on stabilizing the inflation rate of the core CPI. If aggregate nominal wages are sticky then the central bank should focus on stabilizing some combination of core inflation and nominal wage inflation. Under no case examined is it optimal to stabilize either GDP deflator or CPI inflation. The second chapter examines monetary policy responses to oil price shocks in a small open economy with traded and non-traded goods. Oil and labor are used to produce the traded and non-traded goods and prices are sticky in the non-traded sector. I show analytically that the ratio of the oil and labor cost shares in the traded and non-traded sectors is crucial for determining the dynamic behavior of many macroeconomic variables after a rise in the price of oil. A policy of fixed exchange rates can produce higher or lower inflation in the non-traded sector depending upon the ratio. Likewise, a policy that stabilizes the inflation rate of prices in the non-traded sector can cause the nominal exchange rate to appreciate or depreciate. For the proper calibration, a policy that stabilizes core inflation produces results very close to the one that stabilizes non-traded inflation. Analytical results show that the fixed exchange rate always produces a unique solution. The policy of stabilizing non

  20. The role of financial intermediaries in monetary policy transmission

    NARCIS (Netherlands)

    Beck, T.H.L.; Colciago, A.; Pfajfar, D.

    The recent financial crisis has stimulated theoretical and empirical research on the propagation mechanisms underlying business cycles, in particular on the role of financial frictions. Many issues concerning the interactions between banking and monetary policy forced policy makers to redefine

  1. The Weakened Transmission of Monetary Policy to Consumer Loan Rates

    National Research Council Canada - National Science Library

    Nada Mora

    2014-01-01

    .... This means the effect of monetary policy on consumer spending may have declined. Section I reviews recent Federal Reserve policy actions and trends in interest rates on Treasuries and other securities...

  2. THE IMPACT OF MONETARY POLICY TOWARD INDONESIAN STOCK MARKET UNDER INFLATION TARGETING REGIME

    Directory of Open Access Journals (Sweden)

    Maria PRAPTININGSIH

    2010-06-01

    Full Text Available A high volatility in stock market movement can be influenced by current news both domestic and international economic shocks, including the ongoing global financial crisis that affect Indonesian economy in particular. Based on empirical studies and theories, that monetary policy can be an effective tool in order to stabilize the stock market volatility. Monetary policy can have a significant effect on the movement in stock market. Does it really happen on Indonesian macro economy? This paper investigates the relations between monetary policy by its instruments and stock market movement. Our empirical evidence is based on before and after the adoption of Inflation Targeting Framework, including the period of Asian Crisis (1997 and the Global Financial Crisis (2008. This paper uses a Vector Error Correction Model (VECM in order to examine the dynamic movement and changes on Indonesian Stock Market as an impact of the changes in monetary policy in terms of Inflation Targeting regime. Utilizing an Impulse Response and Variance Decomposition approach, this paper analyzes the effectiveness of monetary policy toward the stock market performance in order to achieve the stability of stock market and to develop market expectations. These objectives are beneficial to strengthen the credibility of the Central Bank as the monetary authority in terms of the implementation of Inflation Targeting Framework. Furthermore, this paper attempt to assess and evaluate the monetary policy and induce the central bank to create an optimal policy in the future.

  3. Interdependencies Between the Capital Market and the Monetary Policy Decisions

    Directory of Open Access Journals (Sweden)

    Claudia Guni

    2010-12-01

    Full Text Available The declared scope of this work is to highlight the main correlations between the monetary and the capital market, including identifying the adequate objective of monetary policy which might positively influence over the offer on the capital market. The main target of the monetary market consists in the stability of the prices. The link between monetary policy and stock market is extremely important. The stock prices are sensible to economical conditions. Moreover, these prices rapidly change, thus there is a chance for a deviation from the fundamental value, with side-effects for economy.

  4. EFFECTS OF MONETARY POLICY IN ROMANIA - A VAR APPROACH

    Directory of Open Access Journals (Sweden)

    Iulian Popescu

    2012-10-01

    Full Text Available Understanding how monetary policy decisions affect inflation and other economic variables is particularly important. In this paper we consider the implications of monetary policy under the inflation targeting regime in Romania, based on an autoregressive vector method including recursive VAR and structural VAR (SVAR. Therefore, we focus on assessing the extent and persistence of monetary policy effects on gross domestic product (GDP, price level, extended monetary aggregate (M3 and exchange rate. The main results of VAR analysis reflect a negative response of consumer price index (CPI, GDP and M3 and positive nominal exchange rate behaviour to a monetary policy shock, and also a limited impact of a short-term interest rate shock in explaining the consumer prices, production and exchange rate fluctuations.

  5. Financial Market Turmoil: Implications for Monetary Policy Transmission in China

    Institute of Scientific and Technical Information of China (English)

    Chengsi Zhang; Joel Clovis

    2009-01-01

    The recent financial market turmoil has initiated another search for insightful understanding of the interactions between the financial market and monetary policy. This paper explores these interactions in terms of the transmission mechanism of monetary policy in China. We argue that evolving financial development, enhanced by the expansion of the financial market, has altered the conventional channel for monetary transmission in China. Analyzing marked changes in the financial landscape and taking into account policy regime shifts in China, the paper provides clear evidence showing that the financial market has become a new and important channel for transmission of monetury policy in China.

  6. Assessment of Monetary Policy in the Kyrgyz Republic

    Directory of Open Access Journals (Sweden)

    Ercan Ekmekçioğlu

    2012-12-01

    Full Text Available Kyrgyz Republic is a landlocked country located in Asia. This situation makes the economy of the country largely relying on the internal policies made with respect to the fiscal abilities of the country. From 2008 to 2012, the country has recorded challenges with respect to the management of its economy from both internal factors and external variables. The recession is one such external factor that is on record to affected the economy of the country. On the other hand inflation and political instability the position of the country with respect to the GDP and the social welfare of the nationals. This paper assesses the monetary policies adopted by Kyrgyz Republic in an effort to manage its economy. The study focuses on Structure of the Kyrgyz Monetary Policy, Monetary Policy Tools, Monetary Policy Strategies in the Kyrgyz, Kyrgyz Future Objectives of Monetary Policy and ultimately offers recommendation and a conclusion. Through this analysis, intricate details on the situation of the country and the effectiveness of the pursued policies towards their respective purpose is the main focus with the objective monetary policies in the context of relevance and appropriateness. In the course of the report knowledge on monetary dynamics and their effects both internationally and locally are explicated.

  7. The Transmission of Monetary Policy through Conventional and Islamic Banks

    NARCIS (Netherlands)

    Zaheer, S.; Ongena, S.; van Wijnbergen, S.J.G.

    2011-01-01

    We investigate the differences in banks’ responses to monetary policy shocks across bank size, liquidity, and type, i.e., conventional versus Islamic, in Pakistan between 2002:II to 2010:I. We find that following a monetary contraction, small banks with liquid balance sheets cut their lending less

  8. A Unified Framework for Monetary Theory and Policy Analysis.

    Science.gov (United States)

    Lagos, Ricardo; Wright, Randall

    2005-01-01

    Search-theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential. However, tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis. We propose a new framework, based on explicit micro foundations, within which macro…

  9. A Unified Framework for Monetary Theory and Policy Analysis.

    Science.gov (United States)

    Lagos, Ricardo; Wright, Randall

    2005-01-01

    Search-theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential. However, tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis. We propose a new framework, based on explicit micro foundations, within which macro…

  10. The Transmission of Monetary Policy through Conventional and Islamic Banks

    NARCIS (Netherlands)

    Zaheer, S.; Ongena, S.; van Wijnbergen, S.J.G.

    2011-01-01

    We investigate the differences in banks’ responses to monetary policy shocks across bank size, liquidity, and type, i.e., conventional versus Islamic, in Pakistan between 2002:II to 2010:I. We find that following a monetary contraction, small banks with liquid balance sheets cut their lending less t

  11. The transmission of monetary policy through conventional and islamic banks

    NARCIS (Netherlands)

    Zaheer, S.; Ongena, S.; van Wijnbergen, S.

    2012-01-01

    We investigate the differences in banks' responses to monetary policy shocks across bank size, liquidity, and type, i.e., conventional versus Islamic, in Pakistan between 2002:II to 2010:I. We find that following a monetary contraction, small banks with liquid balance sheets cut their lending less t

  12. The transmission of monetary policy through conventional and Islamic banks

    NARCIS (Netherlands)

    Zaheer, S.; Ongena, S.; van Wijnbergen, S.J.G.

    2013-01-01

    We investigate the differences in banks’ responses to monetary policy shocks across bank size, liquidity, and type—i.e., conventional versus Islamic—in Pakistan between 2002:Q2 and 2010:Q1. We find that following a monetary contraction, small banks with liquid balance sheets cut their lending less t

  13. Implications of the financial crisis for models in monetary policy

    OpenAIRE

    Stan du Plessis

    2010-01-01

    Monetary authorities have been implicated in the financial crisis of 2007-2008. John Muellbauer, for example, has blamed what he thought was initially inadequate policy responses by central banks to the crisis on their models, which are, in his words, “overdue for the scrap heap”. This paper investigates the role of monetary policy models in the crisis and finds that (i) it is likely that monetary policy contributed to the financial crisis and (ii) that an inappropriately narrow suite of mode...

  14. Monetary Policy and Bank Excessive Risk-Taking

    Directory of Open Access Journals (Sweden)

    Taha Zaghdoudi

    2017-04-01

    Full Text Available The aim of this paper is to investigate the relationship between monetary policy and bank excessive risk-taking for a panel of 22 countries over the period 1990- 2014. The sample covers countries from Latin America, OECD and South East Asia. By performing panel cointegration and panel GMM models, results indicate that the adoption of an expansionary monetary policy through high money supply and low interest rates increases non-performing loans. However, a restrictive monetary policy with high interest rates attracts riskier investors.

  15. Monetary policy and the well-being of the poor

    OpenAIRE

    Christina D. Romer; David Romer

    1999-01-01

    Poverty is arguably the most pressing economic problem of our time. And because rising inequality, for a given level of income,> implies greater poverty, the distribution of income is also a central concern. At the same time, monetary policy is one of the modern age's most potent tools for managing the economy. Given the importance of poverty and the influence of monetary policy, it is natural to ask if monetary policy can be used as a tool to help the poor.> In a presentation at the Federal ...

  16. Financial innovation and monetary policy: Italy versus the United States

    Directory of Open Access Journals (Sweden)

    G. VACIAGO

    2013-12-01

    Full Text Available Financial innovation has been linked to the problem of monetary control in many countries. In the United States it has been suggested that high and volatile interest rates have created innovations that have reduced the effectiveness of monetary policy. There is an alternative view which believes that ineffective monetary control has created volatility in financial markets. This article considers recent developments in the Italian and United States financial system, in order to compare the evolution of innovation and its impact on monetary control.

  17. Inflation Targeting as the Monetary Policy Framework: Bangladesh Perspective

    Directory of Open Access Journals (Sweden)

    Mohammed SAIFUL ISLAM

    2011-06-01

    Full Text Available Inflation targeting strategy has become a widely accepted monetary policy framework in many countries all over the world. Our study finds that the central bank of Bangladesh is neither inflation targeting nor does follow any other rule-guided monetary policy, rather the policy is formulated with substantial discretion under the guidelines of donor agencies. This paper provides the evidence that monetary sector of Bangladesh economy has gained considerable degree of maturity and fulfils a number of prerequisites to adopt inflation targeting strategy. Using data over 1980-2010 we estimate an error correction model in order to examine if interest rate policy could fight the inflation. This is evident that deviation in inflation from target can be corrected via the changes in interest rate. Empirical findings jointly with few descriptive statistics provide strong evidence to recommend inflation targeting as the monetary policy strategy for Bangladesh.

  18. The role of EU institutions in implementing its monetary policy

    Directory of Open Access Journals (Sweden)

    Emilia GEORGIEVA

    2011-06-01

    Full Text Available The main goal of the current article is to illustrate in detail the powers of the EU institutions to implement its monetary policy. The methods used to explore the topic and to draw the conclusions and interpret the findings are based on deduction and induction. On the grounds of the information presented in the article the following conclusions have been drawn: the relations between the EU institutions responsible for implementing its monetary policy (the European Central Bank, the European Parliament, the Council, the European Commission and others are entirely based on fundamental principles laid down for all its institutions; the commitments of the institutions implementing the EU monetary policy are strictly stipulated in its primary legislation and are mostly related to the establishment of the EU Economic and Monetary Union, the framing, planning and implementing of the common monetary policy, the management of the Monetary Union. In the conditions of world financial and economic crisis the EU has attempted to respond adequately to its monetary policy problems, commensurate with the scope and matching the specific nature of this crisis.

  19. "Minsky, Monetary Policy, and Mint Street: Challenges for the Art of Monetary Policymaking in Emerging Economies"

    OpenAIRE

    Yanamandra, Srinivas

    2014-01-01

    This paper examines the emerging challenges to the art of monetary policymaking using the case study of the Reserve Bank of India (RBI) in light of developments in the Indian economy during the last decade (2003-04 to 2013-14). The paper uses Hyman P. Minsky's financial instability hypothesis as the conceptual framework for evaluating the endogenous nature of financial instability and its potential impact on monetary policymaking, and addresses the need to pursue regulatory policy as a tool t...

  20. BANK OF ENGLAND’S MONETARY POLICY COMMITTEE – ASSESSING THE IMPORTANCE AND THE IMPLICATION UPON MONETARY POLICY

    Directory of Open Access Journals (Sweden)

    HORAȚIU FLORIN ȘOIM

    2012-05-01

    Full Text Available The monetary policy strategies arround the world have been envolving in the last two decades considerable. In the past, central banks’ have been associated with a „veil of mistery” having at their grounds the so-called policy mistique. Nowadays, the new monetary policy strategy – inflation targeting – promoted by many countries stablished new coordinates for monetary policy. In this paper we focuse upon the monetary policy committee with a special focus upon the Bank of England’s case, because of the special track of this committee in several fields: interest rates expectations, other asset prices, the communication of the central bankers, publishing the minutes of the committees.

  1. THE MONETARY POLICY TRANSMISSION MECHANISM THROUGH INTEREST RATE. EMPIRICAL ANALYSIS: ROMANIA

    OpenAIRE

    Gabriel Bistriceanu

    2008-01-01

    Understanding monetary policy transmission is necessary to moentary policy projection and implementation of monetary policy in a efficient manner. I consider that interest rate monetary policy mechanism is very important because the interest rate is now the main instrument used by the majority of central banks in the world in taking monetary policy decissions and by all central banks wich have inflation targeting strategy. In this paper, I analysed monetary policy transmission mechanism throu...

  2. Loss Aversion and the Asymmetric Transmission of Monetary Policy

    DEFF Research Database (Denmark)

    Santoro, Emiliano; Petrella, Ivan; Pfajfar, Damjan

    2014-01-01

    There is widespread evidence that monetary policy exerts asymmetric effects on output over contractions and expansions in economic activity, while price responses display no sizeable asymmetry. To rationalize these facts we develop a dynamic general equilibrium model where households’ utility...

  3. Why the Fed's monetary policy has been a failure

    National Research Council Canada - National Science Library

    Ranson, R. David

    2014-01-01

    .... Expectations that current monetary policy tools will have the desired effects on credit volume and economic growth lack straightforward empirical verification in the long sweep of US history. 3...

  4. Financial Crisis, Monetary Policy, and Stock Market Volatility in China

    National Research Council Canada - National Science Library

    Cheng-si Zhang; Da-yin Zhang; Jeffery Breece

    2011-01-01

    .... We find a significant regime shift in the volatility of the stock market when the People's Bank of China adopted an accommodative monetary policy in response to the global financial crisis of 2007-2008...

  5. MONETARY POLICY ADJUSTMENT AT THE GLOBAL FINANCIAL CRISIS CONSTRAINTS

    National Research Council Canada - National Science Library

    Adina Criste

    2014-01-01

    The global financial crisis marked a border for central banks, as it raised challenges which constrained them both to extend the range of monetary policy instruments and to redefine their role in the financial system...

  6. Do Mortgage Loans Respond Perversly to Monetary Policy?

    National Research Council Canada - National Science Library

    Al i Termos; Mohsen Saad

    2016-01-01

    .... Our major finding is that while commercial and industrial (C&I) loans and consumer loans respond to monetary policy asymmetrically according to theoretical predictions, mortgage loans show a reverse asymmetric response...

  7. BANK REGULATION AS MONETARY POLICY: LESSONS FROM THE GREAT RECESSION

    National Research Council Canada - National Science Library

    Steve H Hanke; Matt Sekerke

    2017-01-01

    In this article, we depart from the consensus view by suggesting that growth rates of broad money are a better indication of the postcrisis stance of monetary policy in the United States than the federal funds rate...

  8. Monetary and fiscal policy interaction and government debt stabilization

    NARCIS (Netherlands)

    van Aarle, B.; Bovenberg, A.L.; Raith, M.

    1995-01-01

    In many developing and developed countries, government debt stabilization is an important policy issue. This paper models the strategic interaction between the monetary authorities who control monetization and the fiscal authorities who control primary fiscal deficits. Government debt dynamics are

  9. The Relative Importance of the Channels of Monetary Policy ...

    African Journals Online (AJOL)

    Results indicate that the exchange rate and credit are effective channels of monetary policy transmission in Zambia. .... Changes in stock market values and household wealth in turn affect aggregate .... Canada, Australia, and Sweden). Finally ...

  10. Monetary policy and world commodity markets: 2000-2007

    OpenAIRE

    Hossein Askari; Noureddine Krichene

    2010-01-01

    Expansionary monetary policy in key industrial countries and a rapidly depreciating US dollar sent commodity prices soaring at unprecedented rates during 2003–2007. In contrast, consumer price indices in major OECD countries, a leading indicator for monetary policy, showed almost no inflation. This twin development is a puzzle as the evolution of consumer prices were not responsive to record low interest rates, doubledigit commodity inflation, and a sharp depreciation of the dollar. A commo...

  11. Measuring the Non-Linear Effects of Monetary Policy

    OpenAIRE

    Christian Matthes; Regis Barnichon

    2015-01-01

    This paper proposes a method to identify the non-linear effects of structural shocks by using Gaussian basis functions to parametrize impulse response functions. We apply our approach to monetary policy and find that the effect of a monetary intervention depends strongly on (i) the sign of the intervention, (ii) the size of the intervention, and (iii) the state of the business cycle at the time of the intervention. A contractionary policy has a strong adverse effect on output, much stronger t...

  12. Determinacy, Stock Market Dynamics and Monetary Policy Inertia

    DEFF Research Database (Denmark)

    Pfajfar, Damjan; Santoro, Emiliano

    the vantage of equilibrium uniqueness. We show that this reaction function is isomorphic to a rule with an interest rate smoothing term, whose magnitude increases in the degree of aggressiveness towards asset prices growth. As shown by Bullard and Mitra (2007, Determinacy, learnability, and monetary policy...... inertia, Journal of Money, Credit and Banking 39, 1177-1212) this feature of monetary policy inertia can help at alleviating problems of indeterminacy....

  13. Research Note on "International Consumption Risk Sharing and Monetary Policy"

    OpenAIRE

    Blank, Sven

    2009-01-01

    This model analyzes the impact of monetary policy on international consumption risk sharing. To this end, the setup by Ghironi and Stebunovs (2008) is extended in two dimensions. First, to allow for international portfolio choices, cross-border trade of home and foreign equity is brought in. Second, to assign a non-trivial role to monetary policy, nominal price rigidities are introduced as in Bilbiie, Ghironi, and Melitz (2007). The model features incomplete goods as well as incomplete asset ...

  14. Heterogeneous Consumers, Demand Regimes, Monetary Policy and Equilibrium Determinacy

    OpenAIRE

    Di Bartolomeo, Giovanni; Rossi, Lorenza

    2005-01-01

    This paper investigates the effects of monetary policy in presence of heterogeneous consumers. We study the effectiveness (quantitative effects) of monetary policy and equilibrium determinacy properties of a New Keynesian DSGE model where a fraction of households cannot smooth consumption. We show that two-demand regimes can emerge (according to the “slope” of IS curve) and that the main unconventional results, stressed by recent literature, only hold in the unconventional case of an IS curve...

  15. Monetary policy, housing investment, and heterogeneous regional markets

    OpenAIRE

    Michael Fratantoni; Scott Schuh

    2000-01-01

    This paper quantifies the importance of heterogeneity in regional housing markets for the conduct of monetary policy using a new model called an aggregation VAR (AVAR). The model integrates a national financial market with regional housing markets, imposing all exact aggregation conditions. Monetary policy is transmitted to the real economy through the mortgage rate. The AVAR model is based on linear VARs, but its aggregate impulse responses exhibit two nonlinearities: (1) time variation stem...

  16. Navigating the Trilemma: Capital Flows and Monetary Policy in China

    OpenAIRE

    Glick, Reuven; Hutchison, Michael

    2008-01-01

    In recent years China has faced an increasing trilemma¡Xhow to pursue an independent domestic monetary policy and limit exchange rate flexibility, while at the same time facing large and growing international capital flows. This paper analyzes the impact of the trilemma on China's monetary policy as the country liberalizes its goods and financial markets and integrates with the world economy. It shows how China has sought to insulate its reserve money from the effects of balance of payments i...

  17. Monetary and fiscal policy in the process of global integration

    OpenAIRE

    Madzova, Violeta; Sajnoski, Krste; Davcev, Ljupco

    2013-01-01

    The global environment in which monetary policy persisted brings more challenges as a result of changes that started with globalization in trade and financial fields. Concerning the trade, over the years that preceded the crisis in many advanced economies the task of monetary policy in maintaining low inflation was easier through global disinflationary pressures associated with cheaper imported products. Analyzing further, things will probably be different as structural upward trend in commod...

  18. The macroeconomic effects of monetary policy and financial crisis

    OpenAIRE

    Douch, Mohamed

    2005-01-01

    In this paper we focus on postwar US data and incorporate new nancial measures and monetary policy shocks in a vector autoregression (VAR) system in order to test whether one or the other has any real effect on the economy. We nd econometric evidence that these shocks and events are exogenous, and therefore the exogenous nature of shocks to monetary policy and stock market crashes investigated in this study may help policymakers, especially regarding debates related to eventual relationshi...

  19. Monetary Policy Instruments and Bank Risks in China

    OpenAIRE

    Zhongyuan Geng; Xue Zhai

    2013-01-01

    The authors use a panel data regression model to examine the effects of main monetary policy instruments on commercial bank risks in China from 1998 to 2011. The interest rate has a positive effect on bank risk while the interest rate margin, the reserve requirement ratio and open market operation have a negative effect. Among the three monetary policy instruments, the reserve requirement ratio has the greatest effect on bank risk, the interest rate (the interest rate margin) the second large...

  20. Monetary Policy Instruments and Bank Risks in China

    OpenAIRE

    Zhongyuan Geng; Xue Zhai

    2013-01-01

    The authors use a panel data regression model to examine the effects of main monetary policy instruments on commercial bank risks in China from 1998 to 2011. The interest rate has a positive effect on bank risk while the interest rate margin, the reserve requirement ratio and open market operation have a negative effect. Among the three monetary policy instruments, the reserve requirement ratio has the greatest effect on bank risk, the interest rate (the interest rate margin) the second large...

  1. Navigating the trilemma: Capital flows and monetary policy in China

    OpenAIRE

    Glick, Reuven; Hutchison, Michael

    2008-01-01

    In recent years China has faced an increasing trilemma¡Xhow to pursue an independent domestic monetary policy and limit exchange rate flexibility, while at the same time facing large and growing international capital flows. This paper analyzes the impact of the trilemma on China's monetary policy as the country liberalizes its goods and financial markets and integrates with the world economy. It shows how China has sought to insulate its reserve money from the effects of balance of payments i...

  2. The Independent Monetary Policy under the Fixed Exchange Regime

    OpenAIRE

    Gang Gong; Jian Gao

    2006-01-01

    Using a macro-econometric model that is specified for the current Chinese economy, we investigate the performance of monetary policy in China with the assumption (which anyway will occur in the near future) that capital market was opened. Our purpose is to find how the monetary authority should response to a variety of external shocks by applying different policy tools (including required reserve ratio, buying and selling foreign exchange, the open market operation, the discount rate among ot...

  3. The Effect of Monetary Policy on Credit Spreads

    OpenAIRE

    Tolga Cenesizoglu; Badye Essid

    2010-01-01

    In this paper, we analyze the effect of monetary policy on credit spreads between yields on corporate bonds with different ratings over changing conditions in the economy. Using futures data on the fed funds rate, we distinguish between expected and unexpected changes in monetary policy. We find that unexpected changes in the fed funds rate do not have a significant effect on changes in credit spreads when we do not control for different conditions in the economy. We then distinguish between ...

  4. The Effect of Monetary Policy on Credit Spreads

    OpenAIRE

    Tolga Cenesizoglu; Badye Essid

    2010-01-01

    In this paper, we analyze the effect of monetary policy on credit spreads between yields on corporate bonds with different ratings over changing conditions in the economy. Using futures data on the fed funds rate, we distinguish between expected and unexpected changes in monetary policy. We find that unexpected changes in the fed funds rate do not have a significant effect on changes in credit spreads when we do not control for different conditions in the economy. We then distinguish between ...

  5. Can inflation targeting mitigate monetary policy time-inconsistency?

    Directory of Open Access Journals (Sweden)

    Gabriel Caldas Montes

    2014-04-01

    Full Text Available Although the adoption of inflation targeting can, on average, bring benefits to developing countries, however, adopting this scheme is not necessarily sufficient to mitigate the time-inconsistency problem of monetary policy. The present paper makes use of two theoretical models in order to analyze for the Brazilian case whether it is possible for the monetary authority to conduct time-inconsistent monetary policies even under inflation targeting. The results obtained for Brazil allow one to conjecture that the traditional argument that the adoption of inflation targeting can avoid the time-inconsistency problem is not necessarily true.

  6. The policy mix in a monetary union under alternative policy institutions and asymmetries

    OpenAIRE

    Gagnol, Laurent; Moise SIDIROPOULOS

    2001-01-01

    In this paper we study the monetary and fiscal policy making in a monetary union when authorities face asymmetries in the countries constructing this monetary union. We analyze this problem in an asymmetric environment using a two-country theoretical model and by introducing two alternative types of national asymmetries : asymmetric shocks and the asymmetric transmission mechanism. The central issue of the paper is the design of the appropriate monetary and fiscal policy institutions. In this...

  7. BANKS CLAIMS ON PRIVATE SECTOR AND MONETARY POLICY CHANNEL

    Directory of Open Access Journals (Sweden)

    Suhartono Suhartono

    2017-03-01

    Full Text Available Banking industry is the main channel of monetary policy. As emphasized by the information-theoreticapproach, a central function of banks was to screen and monitor borrowers, thereby overcoming informationand incentive problems. By developing expertise in gathering relevant information, as well as by maintainingongoing relationships with customers, banks could control their business. Since 2000, Bank Indonesiastarted to implement a new framework of monetary policy and was initially applied in July 2005. Theimpact of new monetary policy framework was investigated within the banking capital adequacy regulationand economics framework. We found that stock exchange index (IHSG was positive and significant at1%. Other variables such as FINSHARE, GM2, NPL, CAR, BIRATE were negative and significant. In general,we concluded that banking sector claims on the private sector was one of important monetary policychannels.

  8. The Effectiveness of Monetary and Fiscal Policy in Serbia

    Directory of Open Access Journals (Sweden)

    Biljana Rakić

    2013-07-01

    Full Text Available The effectiveness of fiscal and monetary policy has been the center of debate between Keynesians and the monetarists for a long time. However, the results from numerous empirical studies are inconclusive, suggesting that none of the policies can be thought of as superior to the other and their relative effectiveness in any economy depends on the prevailing economic and political conditions at any point in time. In order to determine the influence of fiscal and monetary policy on the economic activity in Serbia, we employed unit root and cointegration tests, as well as the regression analysis on the series of quarterly data for the period 2003-2012. The obtained results show that monetary policy is more effective in stimulating economic growth comparing to fiscal policy. Hence, the overall conclusion is that government should pay more attention to the fiscal policy to improve its efficiency in the future.

  9. 两种目标制下的我国最优货币政策研究%Research on Optimal Monetary Policies under Two Kinds of Target in China

    Institute of Scientific and Technical Information of China (English)

    谢戟; 赵新泉

    2015-01-01

    T his paper has established an AD‐AS model of open economy .It structures and estimates a mixed AD‐AS model based on statistics from 2003 to 2013 of China ,concluding optimal pre‐commitment monetary rules both of inflation target and interest rate smoothness target .Without interference ,the macro‐economy system of China would be asymptotically stable under both of the two optimal monetary policies .The optimal monetary policy of inflation target is more effective on controlling output gap ,w hile the policy of interest rate smoothness target is more sensible on operability .%文章构造了一个开放经济下的混合型AD‐AS模型,并根据我国2003~2013年的统计数据对其进行了估计,分别求出了在通货膨胀目标制和利率平滑目标制下事先承诺型的最优货币政策规则。在没有扰动的情况下,我国的宏观经济系统在这两种最优货币政策下都是渐近稳定的。通过两种目标制下最优货币政策的比较,发现在控制产出缺口方面,通货膨胀目标制更有效,在利率的操作性方面,利率平滑目标制更合理。

  10. What was the Role of Monetary Policy in the Greek Financial Crisis?

    OpenAIRE

    Edward Seyler; John Levendis

    2013-01-01

    To what extent is Greece's current economic crisis the result of monetary policy misalignment between the European Central Bank and Greece? We use a risk adjusted Taylor Rule to examine Greece's monetary policy from 1993 to the present. We argue that the monetary policy of the Bank of Greece satisfies several criteria for a good monetary policy. The monetary policy of the ECB, on the other hand, exhibits characteristics that suggest it had a destabilizing effect on the economy of Greece. That...

  11. What was the Role of Monetary Policy in the Greek Financial Crisis?

    OpenAIRE

    Edward Seyler; John Levendis

    2013-01-01

    To what extent is Greece's current economic crisis the result of monetary policy misalignment between the European Central Bank and Greece? We use a risk adjusted Taylor Rule to examine Greece's monetary policy from 1993 to the present. We argue that the monetary policy of the Bank of Greece satisfies several criteria for a good monetary policy. The monetary policy of the ECB, on the other hand, exhibits characteristics that suggest it had a destabilizing effect on the economy of Greece. That...

  12. An oil demand and supply model incorporating monetary policy

    Energy Technology Data Exchange (ETDEWEB)

    Askari, Hossein [George Washington University, 17795 Canby Road, Leesburg, VA 20175 (United States); Krichene, Noureddine [International Monetary Fund, 700 19th Street, NW, Washington DC 20431 (United States)

    2010-05-15

    Oil price inflation may have had a significant role in pushing the world economy into its worst post-war recession during 2008-2009. Reserve currency central banks pursued an overly expansionary monetary policy during 2001-2009, in the form of low or negative real interest rates and accompanied by a rapidly falling US dollar, while paying inadequate attention to the destabilizing effects on oil markets. In this paper, we show that monetary policy variables, namely key interest rates and the US dollar exchange rate, had a powerful effect on oil markets. World oil demand was significantly influenced by interest and dollar exchange rates, while oil supply was rigid. Oil demand and supply have very low price elasticity and this characteristic makes oil prices highly volatile and subject to wider fluctuations than the prices of other commodities. Aggressive monetary policy would stimulate oil demand, however, it would be met with rigid oil supply and would turn inflationary and disruptive to economic growth if there was little excess capacity in oil output. We argue that a measure of stability in oil markets cannot be achieved unless monetary policy is restrained and real interest rates become significantly positive. Monetary tightening during 1979-1982 might imply that monetary policy has to be restrained for a long period and with high interest rates in order to bring stability back to oil markets. (author)

  13. THE INFLUENCES OF INFLATION ON THE MONETARY POLICY INTEREST

    Directory of Open Access Journals (Sweden)

    Popa Coralia Emilia

    2012-12-01

    Full Text Available In the context of sovereign debt crisis in Europe, a crisis entirely felt also in the direct relation between credit institutions, the National Bank of Romania (NBR adopted a monetary policy strategy meant to determine the reinforcement of its image, by initiating in the autumn of 2011 a new series of reduction of the monetary policy interest rate and implicitly the appropriate resizing of liquidity conditions. By increasing the role of liquidity adjustment, the European Central Bank (ECB succeeded to determine in the money market the decrease of interbank rate interests under the interest rate level of monetary policy. The direct inflation targeting strategy used by the European Central Bank in applying its monetary policy has the first criterion of implementation the expression of inflation target in terms of „headline inflation” (consumer price index - CPI given that the economic market in Romania is familiar with this indicator. Also, the main criterion considered by the investment segment of the market to achieve capital infusions in economic transactions is represented by the consumer price index, this one ensuring the necessary transparency related to the effects of inflation phenomenon. A strong argument supporting the use of consumer price index in monetary policy is represented by its upward flexibility towards the limited effectiveness of monetary aggregates in sizing inflationary anticipations. The downward slope of inflation phenomenon, in whose depreciation the evolution of consumer price index, whose positive trend surprised the European Central Bank, played a significant role, determined adjustments in the monetary policy strategy of the National Bank of Romania and at the same time the achievement of the inflationary target proposed with a direct effect on the monetary policy interest rate. The same measure to reduce the key interest rate is outlined in the monetary policy of the European Central Bank and it is

  14. Did capital market convergence lower the effectiveness of the interest rate as a monetary policy tool?

    NARCIS (Netherlands)

    Jansen, Pieter W.

    2006-01-01

    International capital market convergence reduces the ability for monetary authorities to set domestic monetary conditions. Traditionally, monetary policy transmission is channelled through the short-term interest rate. Savings and investment decisions are effected through the response of the bond

  15. The Effect of Chinese Monetary Policy on Banking During the Global Financial Crisis

    OpenAIRE

    Chen, Tao

    2013-01-01

    1. Abstract 2. Introduction to the main monetary policy tools in China 2.1 Reserve requirements 2.2 Open market operations 2.3 Interest rate policy 2.4 Credit policy and window guidance 2.5 Real estate credit control 3. Loosening monetary policy and its effect on the banking 3.1 Loosening monetary policy measures 3.2 The effect of the expansionary monetary policy on the banking 4. Sound monetary policy with tight trend and its effect on banking 4.1 Main measures of the sound monetary policy w...

  16. Mix of Fiscal and Monetary Policy Rules and Inflation Dynamics in China%Mix of Fiscal and Monetary Policy Rules and Inflation Dynamics in China

    Institute of Scientific and Technical Information of China (English)

    Qingwang Guo; Junxue Jia; Yongjie Zhang; Zhiyun Zhao

    2011-01-01

    The present paper examines the role of the mix of fiscal and monetary policy rules in determining inflation dynamics using fiscal and monetary policy reaction func.tions and Markov-switching vector autoregression methods based on quarterly data in the period 1992-2007. Our results show that fiseal and monetary policies in China can be adequately described using some simple rules, and that significant regime shifts took plaee around 1998. Fiscal policy tended to be active and countereyclical in the pre-1998 period, then switched to be passive and more eountercyclical, whereas monetary policy was characterized as passive and procyclical in the pre-1998 period, and switched to be active and countercyclical afterwards. The mix of fiscal and monetary policy rules can explain inflation dynamics better than the monetary policy rule alone. Therefore, price stability requires not only appropriate monetary policy but also appropriate fiseal policy.

  17. The Transmission of Monetary Policy through Conventional and Islamic Banks

    OpenAIRE

    Zaheer, S; Ongena, S.; van Wijnbergen, S.J.G.

    2011-01-01

    This discussion paper resulted in a publication in the 'International Journal of Central Banking' , 2013, 9(4), 175-224. We investigate the differences in banks' responses to monetary policy shocks across bank size, liquidity, and type, i.e., conventional versus Islamic, in Pakistan between 2002:II to 2010:I. We find that following a monetary contraction, small banks with liquid balance sheets cut their lending less than other small banks. In contrast large banks maintain their lending irresp...

  18. Uncertainties, monetary policy and financial stability: challenges on inflation targeting

    Directory of Open Access Journals (Sweden)

    Gabriel Caldas Montes

    2010-03-01

    Full Text Available This work aims at presenting the challenges that inflation targeting central banks may face since uncertainties represent a harmful element for the effectiveness of monetary policy, and since financial instabilities may disturb the transmission mechanisms - in particular, the expectation channel - and thus the economic stability. Financial stability must not be considered as a simple goal of monetary policy, but a precondition for central banks operate their policies and reach the goals of inflation and output stability. The work identifies different sources of uncertainties that surround central banks' decisions; and approaches the role that inflation targeting central banks should play according to some basic principles that can serve as useful guides for central banks to help them achieve successful outcomes in their conduct of monetary policy.

  19. Discretion versus rules in fiscal and monetary policies

    Directory of Open Access Journals (Sweden)

    T.G. Savchenko

    2015-09-01

    Full Text Available The article studies the dilemma of the application of discretionary measures and rules (automatic mechanisms in economic policy. On the basis of international experience the author has made the conclusion about the active use of fiscal and monetary rules in the practice of state regulation of economic processes in foreign countries. Ukrainian fiscal and monetary policies are based on the application of discretionary measures and this reduces the possibility of prediction and is not conducive to building trust on the part of economic agents. The paper presents the methodological approach to the analysis of the contradictions in economic policy. Such contradictions underlie determinants in economic policy development. According to the results of the approach mentioned above the author proves the necessity of the explicit monetary rules for the National Bank of Ukraine and the need to improve the effectiveness of the fiscal (budgetary rules in Ukraine.

  20. MONETARY POLICY TRANSMISSION MECHANISM AND TVP-VAR MODEL

    Directory of Open Access Journals (Sweden)

    Andreea ROŞOIU

    2013-12-01

    Full Text Available The transmission of monetary policy to the economy is a subject of major importance for central banks because, by using these measures, central banks can achieve their purpose of ensuring price stability without neglecting the objective of sustainable economic growth. In order to analyze the evolution of the monetary policy transmission mechanism in Romania, a time varying structural vector autoregression model is estimated, by using a Markov Chain Monte Carlo algorithm for the posterior evolution. The conclusions of the empirical study are: both systematic and non-systematic monetary policy have changed during the investigated period of time, the systematic response of the interest rate to shocks in inflation and unemployment being faster over the recent period. Also, non-policy shocks seem more important than interest rate shocks in explaining inflation and unemployment evolution.

  1. The Monetary Policy and the Real Estate Market

    Directory of Open Access Journals (Sweden)

    Vasile DEDU

    2011-12-01

    Full Text Available In this paper, we intend to study the connection between monetary policy measures and the boom and bust cycles of the real estate markets in different countries. Many recent articles consider that central banks had an important contribution in triggering the global crisis and the collapse of the real estate markets during 2007-2009 due to the low monetary policy rates and the inadequate regulation and supervision of the banking system. We consider the generalization of this idea is an error, as certain central banks like the National Bank of Romania (NBR adopted prudent policies in the pre-crisis period.

  2. Borrowing constraints, multiple equilibria and monetary policy

    NARCIS (Netherlands)

    Assenza, T.

    2007-01-01

    The appealing feature of Kiyotaki and Moore's Financial Accelerator model (Kiyotaki and Moore, 1997, 2002) is the linkage of asset price changes and borrowing constraints. This framework therefore is the natural vehicle to explore the net worth channel of the monetary transmission mechanism. In the

  3. Borrowing constraints, multiple equilibria and monetary policy

    NARCIS (Netherlands)

    Assenza, T.

    2007-01-01

    The appealing feature of Kiyotaki and Moore's Financial Accelerator model (Kiyotaki and Moore, 1997, 2002) is the linkage of asset price changes and borrowing constraints. This framework therefore is the natural vehicle to explore the net worth channel of the monetary transmission mechanism. In the

  4. The Disparate Labor Market Impacts of Monetary Policy

    Science.gov (United States)

    Carpenter, Seth B.; Rodgers, William M., III

    2004-01-01

    Employing two widely used approaches to identify the effects of monetary policy, this paper explores the differential impact of policy on the labor market outcomes of teenagers, minorities, out-of-school youth, and less-skilled individuals. Evidence from recursive vector autoregressions and autoregressive distributed lag models that use…

  5. Monetary Policy at Work: Lessons from the FOMC Transcripts.

    Science.gov (United States)

    Spencer, Roger W.

    1996-01-01

    Utilizes Federal Open Market Committee (FOMC) transcripts to reveal how the Federal Reserve shapes monetary policy. Analysis of the documents shows the Committee examining a wide variety of indicators and approaches in an attempt to determine the appropriate time for a policy change. Inflationary pressures were a preeminent concern. (MJP)

  6. The role of financial intermediaries in monetary policy transmission

    NARCIS (Netherlands)

    Beck, T.H.L.; Colciago, A.; Pfajfar, D.

    2014-01-01

    The recent financial crisis has stimulated theoretical and empirical research on the propagation mechanisms underlying business cycles, in particular on the role of financial frictions. Many issues concerning the interactions between banking and monetary policy forced policy makers to redefine econo

  7. Monetary Policy with Sectoral Linkages and Durable Goods

    DEFF Research Database (Denmark)

    Petrella, Ivan; Rossi, Raffaele; Santoro, Emiliano

    -off as it emerges in otherwise standard two-sector models. We compare the welfare properties of a timeless-perspective monetary policy with the performance of simple instrumental rules that adjust the policy rate in response to the output gap and alternative aggregate measures of final goods price inflation...

  8. Monetary Policy at Work: Lessons from the FOMC Transcripts.

    Science.gov (United States)

    Spencer, Roger W.

    1996-01-01

    Utilizes Federal Open Market Committee (FOMC) transcripts to reveal how the Federal Reserve shapes monetary policy. Analysis of the documents shows the Committee examining a wide variety of indicators and approaches in an attempt to determine the appropriate time for a policy change. Inflationary pressures were a preeminent concern. (MJP)

  9. The Disparate Labor Market Impacts of Monetary Policy

    Science.gov (United States)

    Carpenter, Seth B.; Rodgers, William M., III

    2004-01-01

    Employing two widely used approaches to identify the effects of monetary policy, this paper explores the differential impact of policy on the labor market outcomes of teenagers, minorities, out-of-school youth, and less-skilled individuals. Evidence from recursive vector autoregressions and autoregressive distributed lag models that use…

  10. Conquering Credibility for Monetary Policy Under Sticky Confidence

    Directory of Open Access Journals (Sweden)

    Jaylson Jair da Silveira

    2015-06-01

    Full Text Available We derive a best-reply monetary policy when the confidence by price setters on the monetary authority’s commitment to price level targeting may be both incomplete and sticky. We find that complete confidence (or full credibility is not a necessary condition for the achievement of a price level target even when heterogeneity in firms’ price level expectations is endogenously time-varying and may emerge as a long-run equilibrium outcome. In fact, in the absence of exogenous perturbations to the dynamic of confidence building, it is the achievement of a price level target for long enough that, due to stickiness in the state of confidence, rather ensures the conquering of full credibility. This result has relevant implications for the conduct of monetary policy in pursuit of price stability. One implication is that setting a price level target matters more as a means to provide monetary policy with a sharper focus on price stability than as a device to conquer credibility. As regards the conquering of credibility for monetary policy, it turns out that actions speak louder than words, as the continuing achievement of price stability is what ultimately performs better as a confidence-building device.

  11. Heterogeneous Responses of Chinese Cities' Housing Prices to Monetary Policies

    Institute of Scientific and Technical Information of China (English)

    闫妍; 王延颋; 朱晓武

    2011-01-01

    This works examine the responses of housing prices to the monetary policies in various Chinese cities. Thirty-five large and medium sized Chinese cities are classified into six clusters applying the minimum variance clustering method according to the calculated correlation coefficients between the housing price indices of every two cities. Time difference correlation analysis is then employed to quantify the relations between the housing price indices of the six clusters and the monetary policies. It is suggested that the housing prices of various cities evolved at different paces and their responses to the monetary policies are heterogeneous, and local economic features are more important than geographic distances in determining the housing price trends.

  12. Reference-dependent Preferences and the Transmission of Monetary Policy

    DEFF Research Database (Denmark)

    Gaffeo, Edoardo; Petrella, Ivan; Pfajfar, Damjan

    This paper proposes a novel explanation of the vast empirical evidence showing that output and prices react asymmetrically to monetary policy innovations over contractions and expansions in the business cycle. We use VAR techniques to show that monetary policy exerts stronger effects on the U...... of intertemporal substitution in consumption that generate competing effects on the responses of output and inflation following a monetary innovation. The key predictions of the model are in line with the data. We then explore the state-dependent trade-off between inflation and output stabilization that naturally...... arises in this context. Greater elasticity of inflation to real activity during expansionary stages of the cycle promotes a stronger degree of policy activism in the response to the expected rate of inflation under discretion, compared to what is otherwise prescribed during contractions....

  13. Currency Crises and Monetary Policy in an Economy with Credit Constraints

    DEFF Research Database (Denmark)

    Bergman, Ulf Michael; Hassan, Shakill

    This paper revisits the currency crises model of Aghion, Bacchetta and Banerjee (2000, 2001, 2004), who show that if there exist nominal price rigidities and private sector credit constraints, and the credit multiplier depends on real interest rates, then the optimal monetary policy response...

  14. Monetary and Fiscal Policies for a Finite Planet

    Directory of Open Access Journals (Sweden)

    Adam Scanlan

    2013-06-01

    Full Text Available Current macroeconomic policy promotes continuous economic growth. Unemployment, poverty and debt are associated with insufficient growth. Economic activity depends upon the transformation of natural materials, ultimately returning to the environment as waste. Current levels of economic throughput exceed the planet’s carrying capacity. As a result of poorly constructed economic institutions, society faces the unacceptable choice between ecological catastrophe and human misery. A transition to a steady-state economy is required, characterized by a rate of throughput compatible with planetary boundaries. This paper contributes to the development of a steady-state economy by addressing US monetary and fiscal policies. A steady-state monetary policy would support counter-cyclical, debt-free vertical money creation through the public sector, in ways that contribute to sustainable well-being. The implication for a steady-state fiscal policy is that any lending or spending requires a careful balance of recovery of money, not as a means of revenue, but as an economic imperative to meet monetary policy goals. A steady-state fiscal policy would prioritize targeted public goods investments, taxation of ecological “bads” and economic rent and implementation of progressive tax structures. Institutional innovations are considered, including common asset trusts, to regulate throughput, and a public monetary trust, to strictly regulate money supply.

  15. More Potent Monetary Policy? Insights from a Threshold Model

    OpenAIRE

    Jarkko Jääskelä

    2007-01-01

    It has been argued that the effect of a change in the monetary policy interest rate on aggregate demand may be larger at higher levels of indebtedness through its impact on cash flows. However, the extent of credit constraints may be at least as important, if not more so. In particular, monetary policy could have a larger impact on aggregate demand when credit constraints are pervasive (which could be the case at low or high levels of indebtedness, or both). This paper examines the extent to ...

  16. 失业波动、社会福利损失与中国最优货币政策%Unemployment Fluctuation, Welfare Loss and the Optimal Monetary Policy in China

    Institute of Scientific and Technical Information of China (English)

    2013-01-01

    This paper considers the optimal policy in China through constructing and calibrating a new Keynesian monetary policy dynamic general equilibrium model with unemployment and physical capital .And we find that the optimal policy lead to the least social welfare loss .Based on this, we investigate the optimal discretionary, commitment and the optimal simple rule and the social welfare loss caused by these policies . The results show that the optimal simple rule targeting inflation and wage inflation mostly approximates the op -timal policy rule.This conclusion has important policy implications for China′s economy.%  通过构建并校准一个包含失业与物质资本的新凯恩斯主义货币政策动态随机一般均衡框架,笔者考察了存在失业情形的中国最优货币政策问题。笔者分别考察与比较了最优相机抉择货币政策、完全承诺以及严格盯住通货膨胀、严格盯住工资通胀、混合规则等最优简单货币政策规则下的社会福利损失,结果表明混合规则的最优简单货币政策规则所带来的社会福利损失与最优货币政策规则最为接近。这一结论对于失业问题日益严峻背景下我国货币政策盯住目标的选取具有重要的现实意义。

  17. Treasury bond volatility and uncertainty about monetary policy

    NARCIS (Netherlands)

    Arnold, I.J.M.; Vrugt, E.B.

    2010-01-01

    We show that dispersion-based uncertainty about the future course of monetary policy is the single most important determinant of Treasury bond volatility across all maturities. The link between Treasury bond volatility and uncertainty about macroeconomic variables is much stronger than for the more

  18. LIMITS OF ECB MONETARY POLICIES ON ADJUSTING MACROECONOMIC SHOCKS

    Directory of Open Access Journals (Sweden)

    Ihnatov Iulian Romeo

    2009-05-01

    Full Text Available : In this paper we intend to highlight the limits of ECB in managing the macroeconomic shocks in the Euro zone. We consider that in the last months the ECB monetary policy rate loses its effectiveness and, consequently, should be offset by other measures

  19. Interactions between Monetary and Fiscal Policy via Open Market Operations

    NARCIS (Netherlands)

    Schabert, A.

    2004-01-01

    We examine interactions of monetary and fiscal policy in a sticky price model where public debt is non-neutral, as it provides transaction services. This property is brought about by a legal restriction on open market operations by which only government bonds are eligible. Debt creation eases access

  20. Better Monetary Control may Increase the Inflationary Bias of Policy

    NARCIS (Netherlands)

    O.H. Swank (Otto)

    1994-01-01

    textabstractExplores the implications of imperfect monetary control and uncertainty about the trade-off between output and inflation to discretionary policy. Impact of imperfect control of money growth on policymakers' incentive to create surprises; Consequences of imperfect control of money growth

  1. Treasury bond volatility and uncertainty about monetary policy

    NARCIS (Netherlands)

    Arnold, I.J.M.; Vrugt, E.B.

    2010-01-01

    We show that dispersion-based uncertainty about the future course of monetary policy is the single most important determinant of Treasury bond volatility across all maturities. The link between Treasury bond volatility and uncertainty about macroeconomic variables is much stronger than for the more

  2. The Effects of Learning in Interactive Monetary Policy Committees

    NARCIS (Netherlands)

    Berk, Jan Marc; Bierut, Beata K.

    2004-01-01

    We develop a theoretical framework for studying the effects of interaction on the quaJity of decision-making by monetary policy committees. We show that interaction, i.e. increasing one's expertise through an exchange of views, is most likely not to result in interdependent voting behaviour.Therefor

  3. The Effects of Learning in Interactive Monetary Policy Committees

    NARCIS (Netherlands)

    J.M. Berk (Jan Marc); B.K. Bierut

    2004-01-01

    textabstractWe develop a theoretical framework for studying the effects of interaction on the quaJity of decision-making by monetary policy committees. We show that interaction, i.e. increasing one's expertise through an exchange of views, is most likely not to result in interdependent voting behavi

  4. Interactions between Monetary and Fiscal Policy via Open Market Operations

    NARCIS (Netherlands)

    Schabert, A.

    2004-01-01

    We examine interactions of monetary and fiscal policy in a sticky price model where public debt is non-neutral, as it provides transaction services. This property is brought about by a legal restriction on open market operations by which only government bonds are eligible. Debt creation eases access

  5. Monetary Policy Shocks and Stock Returns Reactions: Evidence ...

    African Journals Online (AJOL)

    SIPHAMBE, H.K. (PROF.)

    in part, by lack of well-functioning capital markets and unavailability of good quality ..... response of asset prices to changes in monetary policy for the US using .... Dt. As highlighted by Ioannidis and Kontonikas (2008) the above model has two ...

  6. Essays on globalization, monetary policy and financial crisis'

    NARCIS (Netherlands)

    Qian, Z.

    2012-01-01

    This thesis focuses on three interlinked topics. Chapter 2 studies the determinants of sovereign CDS spreads in Greece, Ireland, Italy, Portugal and Spain during the recent global financial crisis and European debt crisis. Chapter 3 introduces a model on the interactions between monetary policy rule

  7. Essays on globalization, monetary policy and financial crisis'

    NARCIS (Netherlands)

    Qian, Z.

    2012-01-01

    This thesis focuses on three interlinked topics. Chapter 2 studies the determinants of sovereign CDS spreads in Greece, Ireland, Italy, Portugal and Spain during the recent global financial crisis and European debt crisis. Chapter 3 introduces a model on the interactions between monetary policy

  8. Monetary and fiscal policy interaction and government debt stabilization

    NARCIS (Netherlands)

    van Aarle, B.; Bovenberg, A.L.; Raith, M.

    1995-01-01

    In many developing and developed countries, government debt stabilization is an important policy issue. This paper models the strategic interaction between the monetary authorities who control monetization and the fiscal authorities who control primary fiscal deficits. Government debt dynamics are d

  9. China to Shift to Prudent Monetary Policy Next Year

    Institute of Scientific and Technical Information of China (English)

    2010-01-01

    China will shift its monetary policy stance from relatively loose to prudent next year,the Political Bureau of the Communist Party of China(CPC) Central Committee decided Friday. The meeting,chaired by President Hu Jintao,also general

  10. TRANSMISSION MECHANISM OF MONETARY POLICY IN TERMS OF VIETNAM

    Directory of Open Access Journals (Sweden)

    The Dong Phung

    2013-01-01

    Full Text Available In order to conduct an effective monetary policy, the Central bank should have a clear understanding of the mechanism of the money transfer and the importance of different transmission channels, and the impact of these transmission channels on the sectors of the economy, especially on the manufacturing sector.

  11. Monetary Policy, Debt and the Cyclical Behavior of Inventories

    Directory of Open Access Journals (Sweden)

    Abdul Ghafar Ismail

    2007-01-01

    Full Text Available An earlier study on the determinants of inventories investment has been proposed by Lovel (1961. However, the study fails to mention the effects of financial variables. The puzzle prevails on account of imperfect capital markets. This implies that interest rate generally affects inventory investment indirectly through the debt channel. For instance, in the period of tight monetary policy, increasing interest rates have a negative impact on the present value of firms’ collateralizable net worth. In addition, they also weaken firms’ balance sheets as interest expenses also rise up. In imperfect capital markets, this fact indicates an increase in the amount of external financing that firms need, a rise in the premium on external financing that they face, and a reduction in their accumulation of assets, their spending and their production. Given the low adjustment cost that characterizes firms, it will be inventories that firms will initially reduce. Therefore, this paper is contributes to the issue of monetary policy transmission in Malaysia. Our specific attention is limited to the channel of monetary policy on a firm’s inventory. Using micro data, we try to take into account the relevance of the firm’s balance sheet conditions in the transmission of monetary policy.

  12. Monetary Policy and the Taylor Principle in Open Economies

    NARCIS (Netherlands)

    Linnemann, L.; Schabert, A.

    2006-01-01

    Nowadays, central banks mostly conduct monetary policy by setting nominal interest rates. A widely held view is that central banks can stabilize inflation if they follow the Taylor principle, which requires raising the nominal interest rate more than one-for-one in response to higher inflation. Is

  13. Monetary Policy and the Taylor Principle in Open Economies

    NARCIS (Netherlands)

    Linnemann, L.; Schabert, A.

    2006-01-01

    Nowadays, central banks mostly conduct monetary policy by setting nominal interest rates. A widely held view is that central banks can stabilize inflation if they follow the Taylor principle, which requires raising the nominal interest rate more than one-for-one in response to higher inflation. Is t

  14. The Failure of ECB Monetary Policy from a Mises-Hayek Perspective

    OpenAIRE

    Schnabl, Gunther

    2017-01-01

    The paper analyses the common European monetary policy based on a Mises-Hayek overinvestment framework, which is combined with the theory of optimum currency areas. It shows how since the turn of the millennium a too expansionary monetary policy contributed to unsustainable overinvestment booms in the periphery of the European Monetary Union, and more recently in Germany, dependent on the national fiscal policy stances. It is argued that the ECB´s ultra-loose monetary policy as a crisis thera...

  15. Interest Rates Targeting of Monetary Policy: An Open Economy SVAR Study of Malaysia

    OpenAIRE

    Karim, Zulkefly Abdul; Karim, Bakri Abdul

    2014-01-01

    This paper examines the implementation of monetary policy during the interest rates targeting in a small-open economy (i.e. Malaysia) by using an open-economy structural VAR (SVAR) study. It tests the effect of foreign shocks upon domestic macroeconomic fluctuations and monetary policy, and examines how effective monetary policy is in influencing macroeconomic variables. The results show that during interest rates targeting, monetary policy plays a significant role in affecting macroeconomics...

  16. Testing the Nonlinearity of the Phillips Curve. Implications for Monetary Policy

    Directory of Open Access Journals (Sweden)

    Georgiana BALABAN

    2010-04-01

    Full Text Available This paper studies the nonlinearity of the Phillips Curve and its implications for monetary policy. To investigate the trade-off between output gap and inflation volatility we used a backward-looking model type. The data for our empirical analysis is obtained from the Area Wide Model (AWM Database (from 1970 to 2008 for Euro area and National Institute of Statistics (from 2000 to 2009 for Romania and has quarterly frequency. The results of econometric tests indicate a significant estimated coefficient of the output gap for Romania, compared with the Eurozone; we find no significant evidence of nonlinearity of the Phillips curve in the European Monetary Union. This suggests that the optimal choice for European Central Bank should be a fixed inflation targeting, while the National Bank of Romania's monetary policy strategy should aim a flexible inflation targeting.

  17. The price level and monetary policy

    Directory of Open Access Journals (Sweden)

    Charles P. Kindleberger

    2002-03-01

    Full Text Available Most central banks are required to or choose to stabilize a price index, largely by manipulating short term interest rates. A serious problem is which index to choose among the national income deflator, wholesale prices, the cost of living, with or eliminating highly volatile commodities such as food and energy, to produce a core index, plus others such as housing, including or without imputed rent of owner-occupied houses, or assets, whether equities or houses. No obvious and widely agreed index exists. Even if there were a clear choice, there remains a question whether a central bank should carefully consider action in order to achieve other goals: full employment, adjustment of the balance of payments, of the exchange rate, prevention of bubbles in asset prices, or recovery from financial crises. If so, the question of central bank weapons remains: monetary expansion or contraction, credit controls, for overall or for particular purposes, and moral suasion.

  18. Does development finance pose an additional risk to monetary policy?

    Directory of Open Access Journals (Sweden)

    Haruna Issahaku

    2016-06-01

    Full Text Available This study investigates whether remittances entail extra risk for macroeconomic policy management and examines the role (if any that the financial system can play in the interaction between remittances and monetary policy. Employing panel data for 106 developing countries from 1970 to 2013, the results from our panel vector autoregressive (PVAR model reveal that remittance volatility reduces macroeconomic risk in developing countries while simultaneously stimulating a reduction in domestic interest rates. This finding remains robust to alternative specifications of remittance volatility and monetary policy risk and to variations in the degree of financial development. The key lesson from this study is that developing countries can leverage the positive impact of remittances in reducing macroeconomic instability by implementing policies that induce remittances.

  19. The view from here: outlook and monetary policy

    OpenAIRE

    Williams, John C.

    2015-01-01

    The U.S. economy is likely to reach the Federal Reserve’s maximum employment goal later this year. Although inflation has remained persistently low, it is expected to return to the Fed’s 2% target over the next few years. Due to the lags between monetary policy’s implementation and its effects, the time is coming to take the first step toward normalizing monetary policy by raising short-term interest rates. The following is adapted from a presentation by the president and CEO of the Federal R...

  20. Long-range dependence in interest rates and monetary policy

    Science.gov (United States)

    Cajueiro, Daniel O.; Tabak, Benjamin M.

    2008-01-01

    This Letter studies the dynamics of Brazilian interest rates for short-term maturities. The Letter employs developed techniques in the econophysics literature and tests for long-range dependence in the term structure of these interest rates for the last decade. Empirical results suggest that the degree of long-range dependence has changed over time due to changes in monetary policy, specially in the short-end of the term structure of interest rates. Therefore, we show that it is possible to identify monetary arrangements using these techniques from econophysics.

  1. Long-range dependence in Interest Rates and Monetary Policy

    CERN Document Server

    Cajueiro, D O; Cajueiro, Daniel O.; Tabak, Benjamin M.

    2006-01-01

    This paper studies the dynamics of Brazilian interest rates for short-term maturities. The paper employs developed techniques in the econophysics literature and tests for long-range dependence in the term structure of these interest rates for the last decade. Empirical results suggest that the degree of long-range dependence has changed over time due to changes in monetary policy, specially in the short-end of the term structure of interest rates. Therefore, we show that it is possible to identify monetary arrangements using these techniques from econophysics.

  2. 77 FR 47070 - Withdrawal of the Commission Policy Statement on Monetary Equitable Remedies in Competition Cases

    Science.gov (United States)

    2012-08-07

    ... Withdrawal of the Commission Policy Statement on Monetary Equitable Remedies in Competition Cases AGENCY... the Federal Trade Commission issued a Policy Statement on Monetary Remedies in Competition Cases. The..., Effecting the Withdrawal of the Commission's Policy Statement on Monetary Equitable Remedies in Competition...

  3. It's Not Your Mother and Father's Monetary Policy Anymore: The Federal Reserve and Financial Crisis Relief

    Science.gov (United States)

    Hill, Andrew T.; Wood, William C.

    2011-01-01

    The recent financial crisis brought about dramatic changes in the way that the Federal Reserve, the nation's central bank, conducts monetary policy. One challenge for high school educators going forward will be to strike a balance between the teaching of traditional monetary policy and the teaching of the monetary policy used during these…

  4. It's Not Your Mother and Father's Monetary Policy Anymore: The Federal Reserve and Financial Crisis Relief

    Science.gov (United States)

    Hill, Andrew T.; Wood, William C.

    2011-01-01

    The recent financial crisis brought about dramatic changes in the way that the Federal Reserve, the nation's central bank, conducts monetary policy. One challenge for high school educators going forward will be to strike a balance between the teaching of traditional monetary policy and the teaching of the monetary policy used during these…

  5. Monetary policy in a dollarised economy: The case of Peru

    OpenAIRE

    Quispe Misaico, Zenon

    2000-01-01

    Persistent high inflation in Peru during the 1970s led households to hold foreign currency as store of value. This process of dollarisation increased significantly during the hyperinflation of 1988-90. In the years that followed, a wide-ranging package of reforms in the financial system and in the conduct of monetary policy and fiscal policy were introduced to bring a halt to the hyperinflation. But despite nearly a decade of subsequent economic stabilisation, the decrease in dollarisation ha...

  6. Measuring the reaction of monetary policy to the stock market

    OpenAIRE

    Roberto Rigobon; Brian Sack

    2001-01-01

    Movements in the stock market can have a significant impact on the macroeconomy and are therefore likely to be an important factor in the determination of monetary policy. However, little is known about the magnitude of the Federal Reserve's reaction to the stock market. One reason is that it is difficult to estimate the policy reaction because of the simultaneous response of equity prices to interest rate changes. This paper uses an identification technique based on the heteroskedasticity of...

  7. Essays on systematic and unsystematic monetary and fiscal policies

    OpenAIRE

    Cimadomo, Jacopo

    2008-01-01

    The active use of macroeconomic policies to smooth economic fluctuations and, as aconsequence, the stance that policymakers should adopt over the business cycle, remaincontroversial issues in the economic literature.In the light of the dramatic experience of the early 1930s’ Great Depression, Keynes (1936)argued that the market mechanism could not be relied upon to spontaneously recover froma slump, and advocated counter-cyclical public spending and monetary policy to stimulatedemand. Albeit ...

  8. Coordinating monetary and fiscal policies: a role for rules?

    OpenAIRE

    Goyal, Ashima

    2002-01-01

    The chapter argues for rules to coordinate monetary and fiscal policies. But the rules are rule like only in imposing forward-looking behaviour, while they allow the discretion to respond to shocks. They would serve to anchor expectations, and align private sector actions with desired outcomes. Many countries have used rules, but credible rules have to be suited to a country’s circumstances, which include both structure and political economy. These aspects help to explain past policy choices ...

  9. Interest Rates Targeting of Monetary Policy: An Open Economy SVAR Study of Malaysia

    Directory of Open Access Journals (Sweden)

    Zulkefly Abdul Karim

    2014-02-01

    Full Text Available This paper examines the implementation of monetary policy during the interest rates targeting in a small-open economy (i.e. Malaysia by using an open-economy structural VAR (SVAR study. It tests the effect of foreign shocks upon domestic macroeconomic fluctuations and monetary policy, and examines how effective monetary policy is in influencing macroeconomic variables. The results show that during interest rates targeting, monetary policy plays a significant role in affecting macroeconomics variables. This finding suggests that monetary policy has an important role as a stabilization policy in a small-open economy.

  10. A Monetary Analysis of Balance Sheet Policies

    OpenAIRE

    2013-01-01

    We augment a standard macroeconomic model to analyze the effects and limitations of balance sheet policies. We show that the central bank can stimulate real activity by changing the size or the composition of its balance sheet, when interest rate policy is ineffective. Specifically, the central bank can stabilize the economy by increasing money supply against eligible assets even when the policy rate is at the zero lower bound. By changing the composition of its balance sheet, it can affect i...

  11. THE IMPACT OF MONETARY POLICY ON BANK CREDIT DURING ECONOMIC CRISIS: INDONESIA’S EXPERIENCE

    Directory of Open Access Journals (Sweden)

    Abdul Mongid

    2017-03-01

    Full Text Available The monetary policy mechanism by which monetary policy was transmitted to thereal economy had emerged as the pivotal discussion topic recently. This paper tried to discussthe impact of Bank Indonesia’s monetary policy on loan bank. By using simple loan bankframework we concluded that monetary policies were able to influence loan bank. Themonetary variables such as discount rate policy, base money and exchange rate policy werevery important in determining the banking credit. As the credit was very important to influencesthe economic activitiy, the result provided evidence that monetary policy was important as atool to control economic activity via credit channel. The validity of this study challenged thehypotheses that monetary policy was death. However, monetary policy maker should carefullyconsider the soundness of the banking industry because it was a strategic partner for monetaryauthority to control the economic activities.

  12. Crowding Out of Monetary Policy as a Limitation of Fiscal Policy

    OpenAIRE

    Hiermeyer, Martin

    2016-01-01

    If expansionary fiscal policy is inflationary, expansionary fiscal policy forces an inflation-targeting central bank to be somewhat more restrictive in its monetary policy. This altered central bank policy comes at a cost in terms of output which has to be calculated against the output gain achieved by the expansionary fiscal policy.

  13. The Influence of Monetary Policy and Fiscal Policy on the Rural Residents’ Consumption

    Institute of Scientific and Technical Information of China (English)

    Xinzhi; LIU; Lu; LI; Yusong; LIU

    2014-01-01

    This paper conducts an empirical analysis of influence of fiscal expenditure supporting agriculture monetary supply on rural residents’ s consumption by adopting a vector auto-regression model,based on the data from 1978 to 2011.The study indicated that:in the short term,fiscal policy is the Granger reason of rural residents’ consumption,monetary policy is not the Granger reason of rural residents’ consumption;in the long term,the comprehensive function of fiscal policy and monetary policy has a great influence on the of rural residents’ consumption.Under the background of Economic Transition and Urbanization,Expanding Domestic Demand is the slogan.We should coordinate fiscal policy and monetary policy to promote the rural residents’ consumption.

  14. CONNECTIONS BETWEEN MONETARY POLICIES AND GLOBALIZATION

    Directory of Open Access Journals (Sweden)

    Alexandru Olteanu

    2008-10-01

    Full Text Available The last decades have been marked by an acceleration of historical and political processes, which brought essential changes in the sphere of geopolitics with ongoing consequences on economics, financial markets and international relationships, and effects on the arising of new worldwide power balance. The economic relationships were set before the foundation of the first states. Commercial relationships have had a long history and at the beginning were independent of the social and state organizations existing at the time. That is why bilateralism – as applied with reference to the relationship between two economic agents - is the oldest notion since life necessities have always implied the exchange of products. Despite these tendencies autarchy dominated economic life ever since this came into being until the great geographic discoveries and industrial revolution. Economic “coagulations” have continued in the course of time and become more prominent reaching unimaginably impenetrable levels recently, thus constituting a balance factor at regional and international level. Present evolutions confirm the old provisions concerning the indissoluble relationship between the economic and the financial monetary factor and international stability.

  15. Estimation of transmission mechanism of monetary policy in Serbia

    Directory of Open Access Journals (Sweden)

    Bungin Sanja

    2015-01-01

    Full Text Available Transmission mechanism of monetary policy recently has been subject to several studies in Serbia. The so called 'black box' of monetary policy is investigated with aim to identify the effects of transmission channel in environment where exchange rate has a dominant role in central bank operations. Therefore, it is a challenge to approach this problem in inflation targeting regime where key interest rate is expected to prevail as a main policy instrument. The study employs unrestricted Vector Autoregression model for estimating significance of exchange rate and interest rate channel. As expected, exchange rate has far more stronger influence on inflation, even though there are some signs of interest rate channel existence. Introducing Euribor as endogenous variables in VAR system displayed important impact on real variables.

  16. Reference-dependent Preferences and the Transmission of Monetary Policy

    DEFF Research Database (Denmark)

    Gaffeo, Edoardo; Petrella, Ivan; Pfajfar, Damjan

    This paper proposes a novel explanation of the vast empirical evidence showing that output and prices react asymmetrically to monetary policy innovations over contractions and expansions in the business cycle. We use VAR techniques to show that monetary policy exerts stronger effects on the U...... depends on deviations of their consumption from a reference level below which aversion to loss is displayed. In line with the theory developed by Kahneman and Tversky (1979), losses in consumption utility loom larger than gains. This implies state-dependent degrees of real rigidity and elasticity...... arises in this context. Greater elasticity of inflation to real activity during expansionary stages of the cycle promotes a stronger degree of policy activism in the response to the expected rate of inflation under discretion, compared to what is otherwise prescribed during contractions....

  17. Monetary Policy in China (1994-2004): Targets, Instruments and their Effectiveness

    OpenAIRE

    Geiger, Michael

    2006-01-01

    China's monetary policy disposes of two sets of monetary policy instruments: Instruments of the central bank, the People's Bank of China (PBC) and non-monetary policy instruments. Additionally, the PBC's instruments include price-based indirect and quantity-based direct instruments. The simultaneous usage of these instruments leads to various distortions that ultimately prevent the interest rate channel of monetary transmission from functioning. Moreover, the strong influences of quantity-bas...

  18. Revisiting the impacts of oil price increases on monetary policy implementation in the largest oil importers

    Directory of Open Access Journals (Sweden)

    Nurtac Yildirim

    2015-06-01

    Full Text Available The aim of this paper is to test the impacts of oil price increases on monetary policy implementation in the largest oil importers. For that purpose, we estimate structural vector error correction (SVEC models to show the impacts of oil price increases on industrial production, consumer prices and immediate interest rates which are the elements of Taylor rule for the four largest oil importers (the USA, the EU, China and Japan. Our results indicate that oil price increases transmit to output and inflation and lead to fluctuations in industrial production, consumer prices and immediate interest rates which in turn influence the monetary policy stance in the following periods. The basic conclusion of research is that the channels through which oil prices affect output, inflation and interest rates should be identified by the monetary policy authorities of the USA, the EU, China and Japan. We also emphasize the importance of the determination of the optimal monetary policy framework to eliminate the negative consequences of oil price increases.

  19. Testing the Effectiveness of Monetary Policy in Malaysia Using Alternative Monetary Aggregation

    OpenAIRE

    Leong, Choi-Meng; Puah, Chin-Hong; Abu Mansor, Shazali; Evan, Lau

    2008-01-01

    The capability of monetary aggregates to generate stable link with fundamental economic indicators verifies the effectiveness of monetary targeting. However, traditional monetary aggregates have become flawed when financial reforms take place. As official monetary aggregates fail to maintain stable link with crucial economic indicators in Malaysia, monetary targeting has been substituted by interest rate targeting. Therefore, Divisia monetary aggregates, which are considered more superior tha...

  20. Relationship Between Energy Prices, Monetary Policy and Inflation; A Case Study of South Asian Economies

    Directory of Open Access Journals (Sweden)

    Atiq-ur-Rehman

    2014-01-01

    Full Text Available Monetary policy tools, including money supply and interest rate, are the most popular instruments to control inflation around the globe. It is assumed that a tight monetary policy, either in form of reduction in money supply or an increase in interest rate, will reduce inflation by reducing aggregate demand in an economy. However, monetary policy could be counterproductive if cost side effects of monetary tightening prevail. High energy prices may increase the cost of production by reducing aggregate supply in the economy. If tight monetary policy is used to reduce this cost push inflation, the cost side effect of energy prices will add to cost side effects of monetary tightening and will become dominant. In this case, the monetary policy could be counterproductive. Furthermore, simultaneous reduction in aggregate supply and aggregate demand will bring twofold reduction in output. Therefore greater care is needed in the use of monetary policy in the situation of cost push inflation. This article investigates the presence of cost side effect of monetary transmission mechanism, the role of international oil prices in domestic inflation, and implications for monetary policy. The findings suggest that both monetary policy and oil prices have cost side effects on inflation and monetary tightening could be counterproductive if used to reduce energy pushed inflationary trend.

  1. MONETARY POLICY UNDER THE IMPACT OF THE CURRENT GLOBAL CRISIS

    Directory of Open Access Journals (Sweden)

    Zina Marcu (Cioran

    2013-12-01

    Full Text Available The issue of the financial crisis draws more and more the specialists’ attention. The monetary policy has a decisive role in monitoring and reducing the inflationary phenomenon as much as possible, since it can become a real danger for an economy during a period of crisis. Inflation is a negative thing that affects the economy. It discourages the investments and the economic growth. The aim of this paper is to find the Central Bank’s economic instruments and levers that can contribute to price stability in the economy. It was found that the elaboration of a measure of monetary policy with a restrictive feature can contribute to price stability on long term, but we should take into account the macroeconomic context in which it is applied.

  2. Econophysics of interest rates and the role of monetary policy

    CERN Document Server

    Cajueiro, D O; Cajueiro, Daniel O.; Tabak, Benjamin M.

    2006-01-01

    This paper presents empirical evidence using recently developed techniques in econophysics suggesting that the degree of long-range dependence in interest rates depends on the conduct of monetary policy. We study the term structure of interest rates for the US and find evidence that global Hurst exponents change dramatically according to Chairman Tenure in the Federal Reserve Board and also with changes in the conduct of monetary policy. In the period from 1960's until the monetarist experiment in the beginning of the 1980's interest rates had a significant long-range dependence behavior. However, in the recent period, in the second part of the Volcker tenure and in the Greenspan tenure, interest rates do not present long-range dependence behavior. These empirical findings cast some light on the origins of long-range dependence behavior in financial assets.

  3. Monetary policy,accounting conservatism and trade credit

    Institute of Scientific and Technical Information of China (English)

    Bingbin; Dai; Fan; Yang

    2015-01-01

    Using a sample of A-share listed firms in China during the 2003–2012 period,this paper investigates the effect of accounting conservatism on trade credit,taking changes in monetary policy into account.We find that corporations with higher accounting conservatism obtain more trade credit and that accounting conservatism has a greater influence on trade credit under tight monetary policy.Furthermore,the backgrounds of the supplier and customer influence the positive relationship between accounting conservatism and trade credit.This influence is more evident when a company is privately owned and has greater market power,and less evident when the supplier or customer is the controlling shareholder.

  4. MONETARY POLICY AND INFLATION TARGETING IN A SMALL OPEN ECONOMY

    Directory of Open Access Journals (Sweden)

    Antoni Antoni

    2011-09-01

    Full Text Available The danger of inflation has been the focus of many central banks. This paper analyzes the transmission mechanism of monetary policy and inflation targeting in Malaysia with a backward-looking aggregate supply and demand analysis. The manage floating regime applied in the country has an important role in achieving a stable exchange rate against its major trading partners. It also analyzes the policy of maintaining the soundness of interest rate to perceive inflation targeting to increase its economic growth. Using 1991-2004 data and a traditional structural econometric model, it shows that output gap is important in forecasting a domestic inflation rate by controlling the interest rate.  Keywords: Inflation targeting, monetary economics, structural econometric modelJEL classification numbers: E3, E52

  5. The Selected Aspects of Application of Monetary Policy in the Economic and Monetary Union Pre-And-Post 2008

    National Research Council Canada - National Science Library

    Marek Vojtaššák

    2015-01-01

    Purpose of the article is to present in two parts the selected aspects of application of monetary policy in the euro area pre and post 2008 as well as insitutional adaptations brought by the EU legislator...

  6. The Value of Intermediate Targets in Implementing Monetary Policy

    OpenAIRE

    Benjamin M. Friedman

    1984-01-01

    This paper reports empirical results indicating that there is no compelling evidence in favor of singling outany one variable as "the intermediate target" of monetary policy. Of the variables considered here - including money (M1), credit, a long-term interest rate, and whichever of either reserves or a short-term interest rate the Federal Reserve System does not set directly by open market operations -- most do contain at least some statistically significant information about the future grow...

  7. Bank core deposits and the mitigation of monetary policy

    OpenAIRE

    Lamont K. Black; Diana Hancock; Wayne Passmore

    2007-01-01

    We consider the business strategy of some banks that provide relationship loans (where they have loan origination and monitoring advantages relative to capital markets) with core deposit funding (where they can pass along the benefit of a sticky price on deposits). These "traditional banks" tend to lend out less than the deposits they take in, so they have a "buffer stock" of core deposits. This buffer stock of core deposits can be used to mitigate the full effect of tighter monetary policy o...

  8. Monetary policy, expected inflation and inflation risk premia

    OpenAIRE

    Ravenna, Federico; Seppälä, Juha

    2007-01-01

    Within a New Keynesian business cycle model, we study variables that are normally unobservable but are very important for the conduct of monetary policy, namely expected inflation and inflation risk premia. We solve the model using a third-order approximation that allows us to study time-varying risk premia. Our model is consistent with rejection of the expectations hypothesis and the business-cycle behaviour of nominal interest rates in US data. We find that inflation risk premia are very sm...

  9. Essays on globalization, monetary policy and financial crisis'

    OpenAIRE

    Qian, Z.

    2012-01-01

    This thesis focuses on three interlinked topics. Chapter 2 studies the determinants of sovereign CDS spreads in Greece, Ireland, Italy, Portugal and Spain during the recent global financial crisis and European debt crisis. Chapter 3 introduces a model on the interactions between monetary policy rules and long-run financial stability. Chapter 4 studies the effect of openness on the output gap-inflation tradeoff faced by central banks.

  10. Financial Crisis, Monetary Policy, and Stock Market Volatility in China

    OpenAIRE

    Cheng-si Zhang; Da-yin Zhang; Jeffery Breece

    2011-01-01

    This paper employs the Markov regime switching GARCH model to capture the nature of China's stock market volatility in 2003-2009. We find a significant regime shift in the volatility of the stock market when the People's Bank of China adopted an accommodative monetary policy in response to the global financial crisis of 2007-2008. After the structural change, China's stock market moved into a regime with increased volatility, which appears to be persisting into the near future. This finding s...

  11. A positive theory of monetary policy and robust control

    OpenAIRE

    Juha Kilponen

    2004-01-01

    This paper applies the robust control approach to a simple positive theory of monetary policy, when the central bank’s model of the economy is subject to misspecifications. It is shown that a central bank should react more aggressively to supply shocks when the model misspecifications grow larger. Moreover, the model misspecifications aggravate the inflation bias and a trade-off between output stabilisation and inflation worsens when the uncertainty surrounding the central bank’s model increa...

  12. The Transmission of Monetary Policy through Redistributions and Durable Purchases

    OpenAIRE

    Sterk, Vincent; Tenreyro, Silvana

    2015-01-01

    The central explanation for how monetary policy transmits to the real economy relies critically on nominal rigidities, which form the basis of the New Keynesian (NK) framework. This paper studies a different transmission mechanism that operates even in the absence of nominal rigidities. We show that in an OLG setting, standard open market operations (OMO) carried by central banks have important revaluation effects that alter the level and distribution of wealth and the incentives to work and ...

  13. The Value of Intermediate Targets in Implementing Monetary Policy

    OpenAIRE

    Benjamin M. Friedman

    1984-01-01

    This paper reports empirical results indicating that there is no compelling evidence in favor of singling outany one variable as "the intermediate target" of monetary policy. Of the variables considered here - including money (M1), credit, a long-term interest rate, and whichever of either reserves or a short-term interest rate the Federal Reserve System does not set directly by open market operations -- most do contain at least some statistically significant information about the future grow...

  14. Efficiency and limits of monetary policy in the financial instability. Romania's case

    National Research Council Canada - National Science Library

    BANDOI, Anca; TOMITA, Ion

    2009-01-01

    ... crisis to the national economies. One of the current problems of the monetary authorities is to use monetary policy instruments so as to provide the liquidity needed for the economic reconstruction and growth...

  15. THE ROLE OF MONETARY POLICY IN STIMULATING ECONOMIC GROWTH

    Directory of Open Access Journals (Sweden)

    Егор Николаевич Поляков

    2013-06-01

    Full Text Available The paper reviews the conduct of monetary policy in Russia throughout last 10 years. The core method of analysis is ADL modeling. The author explains money supply influence on key macroeconomic variables: investment, consumption, import, inflation, REER. Specifically our results show to what extent GDP growth is determined by money supply growth throughout last 10 years. The author explains efficiency fall of Central Bank expansionary actions throughout last 5 years. The author suggests the set of decisions geared towards increasing the monetary policy efficiency. Ruble devaluation is a key of them.In particular, now the Central Bank of Russia and the Government of the following may be recommended:- gradual devaluation of the ruble by operations in the currency market you with the sterilization of excess money supply;- reduction in the rate of growth of tariffs for electricity, gas, of rail transport to the level of inflation;- reduction in the rate of growth of budget expenditures to the level of inflation.According to the author, these measures will allow monetary policy to revive Russia as an effective tool to stimulate economic growth.DOI: http://dx.doi.org/10.12731/2218-7405-2013-5-9

  16. THE ROLE OF MONETARY POLICY IN STIMULATING ECONOMIC GROWTH

    Directory of Open Access Journals (Sweden)

    Polyakov Egor Nikolaevich

    2013-05-01

    Full Text Available The paper reviews the conduct of monetary policy in Russia throughout last 10 years. The core method of analysis is ADL modeling. The author explains money supply influence on key macroeconomic variables: investment, consumption, import, inflation, REER. Specifically our results show to what extent GDP growth is determined by money supply growth throughout last 10 years. The author explains efficiency fall of Central Bank expansionary actions throughout last 5 years. The author suggests the set of decisions geared towards increasing the monetary policy efficiency. Ruble devaluation is a key of them. In particular, now the Central Bank of Russia and the Government of the following may be recommended: - gradual devaluation of the ruble by operations in the currency market you with the sterilization of excess money supply; - reduction in the rate of growth of tariffs for electricity, gas, of rail transport to the level of inflation; - reduction in the rate of growth of budget expenditures to the level of inflation. According to the author, these measures will allow monetary policy to revive Russia as an effective tool to stimulate economic growth.

  17. ECB MONETARY POLICY CONSISTENCY AND INTERBANK INTEREST RATES FORECASTS

    Directory of Open Access Journals (Sweden)

    GIOVANNI VERGA

    2011-03-01

    Full Text Available The European Central Bank has often declared that it has two main monetary policy tools: the official interest rate (Repo and its communications to the public (the monthly President’s Conferences above all. In this paper an ECB’s reaction function formed by a system of two non-linear equations is employed to explain both ECB’s Repo and communications, and to verify if the two policy instruments are used consistently. It turned out that the estimated system is particularly robust, and the consistently is proved. During the financial crisis, however, also an index of monetary market risk must enter the equations in order to maintain the other parameters stable. By employing those two monetary policy tools as regressors, along with risk and liquidity, a good deal of the future changes in the interbank interest rates can be explained. During the crisis such forecasts are much better than those obtained by applying the usual term structure theory.

  18. PROBLEM AND PERSPECTIVE OF ISLAMIC MONETARY POLICY IN INDONESIA

    Directory of Open Access Journals (Sweden)

    Marsuki Marsuki

    2017-03-01

    Full Text Available This article would try to explicate several theoretical and practical concepts on the problems and prospectsof Islamic monetary policy in Indonesia using a critical analysis approach, in accordance with standardscientific references, and would be complemented with descriptions and examples of practice. From theseillustrations and analyses, it appeared that on one hand, Islamic monetary policy would find many difficultiesif implemented fully, considering that there were several fundamental obstacles that would have to besurmounted by such an implementation, primarily the fact that Indonesian Constitution (UUD 1945 was notbased on Islamic law or syariah. On the other hand, despite problems and challenges, the existing conditionwas still open for the possibility for partial implementation of Islamic monetary policy. It was because therewere several conditions which were amenable for an implementation, for instance the facts that majority ofIndonesian population was Muslim, the increasing acceptance of the public for the advantages of Islamicmonetary and financial system, and increasing support by stakeholders of the banking system, especiallythe Indonesian central bank (BI. Moreover, there were facts about financial institutions and existingsyariah banking institutions.

  19. "Policy mandates for macro-prudential and monetary policies in a new Keynesian framework"

    OpenAIRE

    Levine, Paul; Lima, Diana

    2015-01-01

    In the aftermath of the financial crisis, the role of monetary policy and macro-prudential regulation in promoting financial stability is under discussion. The old debate concerning whether monetary policy should respond to credit and asset price bubbles was revived, whereas macro-prudential regulation is being assessed as an alternative macroeconomic tool to deal with financial imbalances. The paper explores both sides of the debate in a New Keynesian framework with financial frictions by co...

  20. Effectiveness of Conventional and Syariah Monetary Policy Transmission

    Directory of Open Access Journals (Sweden)

    Yoghi Citra Pratama

    2014-03-01

    Full Text Available Objective - The purpose of this study is to compare the effectiveness of monetary policy transmission through conventional and Islamic instruments through the interest rate channel and profit loss sharing / margins channel, to control the price level (inflation and economic growth (outputMethod – Methodology used in this study is the Vector Auto Regressive (VAR / Vector Error correction model (VECM to see the effect of shock and long-term effects on inflation and output. Variables used are sbi interest rates, PUAB interest rate, deposit rates and lending rates, as well as from the Islamic side is SBIS yield, yield PUAS, profit lost sharing for the deposits and margin financing. This study use Unit Root Test, Cointegration degree of integration test, test causality, VECM and IRF estimates. Using monthly time series data from 2009 s / d 2012.Result – Results of the study showed that the test based on Granger causality, overall, the transmission channel of monetary policy according to the conventional theory, while the monetary policy transmission channel Sharia can not be clearly identified and disconnected in yield / profit and loss sharing deposits. And based on the estimated VECM is known that in the long term Islamic instruments is the right instrument to control inflation.Conclusion – This finding concluded that syariah instruments is the effective instrument in reducing inflation rate and also encourage the growth of Islamic banking, and should also consider the right margin level to increase the output on real sector. Keywords : Monetary Transmission, Central Bank, Industrial Production Index, Consumer Price Index

  1. Relative price effects of monetary policy shock in Malaysia: a svar study

    OpenAIRE

    Abdul Karim, Zulkefly; Zaidi, Mohd Azlan Shah; W.N.W, Azman-Saini

    2011-01-01

    Studies on Malaysia monetary policy mostly examine the effect of monetary policy change on output and inflation in aggregate terms. While sectoral output effects of monetary policy have also been investigated, there is however a lack in the study on the effect of policy change on disaggregated inflation. This paper attempts to examine the later issue by employing structural vector autoregressive (SVAR) model. By estimating the model separately for each sub-group of Malaysian consumer price i...

  2. ESTIMATING THE EFFICIENCY OF INTEREST-RATE POLICY IN THE FRAMEWORK OF MONETARY POLICY IN VIETNAM

    Directory of Open Access Journals (Sweden)

    Tche Dong Phung

    2013-01-01

    Full Text Available The article considers the evaluation process of interest-rate policy in Vietnam from 1980 to the present time and makes a conclusion that this policy was aimed at increasing the effectiveness of the interest-rate instrument in the framework of monetary policy of the State Bank of Vietnam.

  3. Monetary and Fiscal Policy Interaction in the EMU: A Dynamic Game Approach

    NARCIS (Netherlands)

    Aarle, B. van; Engwerda, J.; Plasmans, J.E.J.

    2002-01-01

    The interaction of monetary and fiscal policies is a crucial issue in a highly integrated economic area as the European Union. We investigate to which extent the EMU, that introduced a common monetary policy and restrictions on fiscal policy at the national level, benefits from macroeconomic policy

  4. Unconventional Monetary Policy and Bank Risk Taking in Euro Area

    Directory of Open Access Journals (Sweden)

    Ioana Pleșcău

    2016-01-01

    Full Text Available Central banking over the world has changed after the 2008 financial crisis. Monetary policyhas expanded the array of instruments it used in order to influence the macro economy. Majorcentral banks started using not only traditional, conventional instruments, but also some nonstandardmeasures in order to avoid economic collapse and sustain the banking system. The aim ofthis paper is to analyse the impact of European Central Bank unconventional instruments,measured using the change in its balance sheet, on the bank risk-taking of commercial banks fromEurozone, captured by Z-Score. Our findings point to an increase of bank risk-taking, due to theuse of unconventional monetary policy measures.

  5. Unconventional Monetary Policies in the Eurozone: Considering Theoretical Backgrounds and Policy Outcomes

    Directory of Open Access Journals (Sweden)

    Derya Yılmaz

    2015-07-01

    Full Text Available Global Financial Crisis erupted as a sub-prime mortgage market crisis in US and became a full-fledged global crisis after the fall of Lehman Brothers. Thus, the effects of financial crisis spread to all over the world. In the Eurozone, the financial crisis became more challenging as it provoked the sovereign debt problems of some countries and triggered a sovereign debt crisis. Sovereign Debt Crisis was the first crisis in the Eurozone after forming a monetary union and put the viability of the union under risk. In this tranquil environment, European Central Bank (ECB responded the crisis with set of monetary policy tools- conventional and unconventional. ECB pursued unconventional monetary policy parallel to its conventional monetary policy tool- policy rate. It provided liquidity support to markets, purchase public and private assets and guide markets about future short-term interest rates in the context of unconventional monetary policy. The aims of using these policies are similar for all central banks: alleviating the financial market tensions and stimulating aggregate demand. This study evaluated the effectiveness of these policies on the basis of these aims. The study finds out that ECB has been effective on depressing the financial market stress but ECB has not been effective on stimulating the aggregate demand.

  6. Implications of bank ownership for the credit channel of monetary policy transmission:evidence from India

    OpenAIRE

    Bhaumik, Sumon; Dang, Vinh; Ali M. Kutan

    2011-01-01

    Using bank-level data from India, we examine the impact of ownership on the reaction of banks to monetary policy, and also test whether the reaction of different types of banks to monetary policy changes is different in easy and tight policy regimes. Our results suggest that there are considerable differences in the reactions of different types of banks to monetary policy initiatives of the central bank, and that the bank lending channel of monetary policy is likely to be much more effective ...

  7. Did capital market convergence lower the effectiveness of the interest rate as a monetary policy tool?

    NARCIS (Netherlands)

    Jansen, Pieter W.

    2006-01-01

    International capital market convergence reduces the ability for monetary authorities to set domestic monetary conditions. Traditionally, monetary policy transmission is channelled through the short-term interest rate. Savings and investment decisions are effected through the response of the bond yi

  8. The monetary policy of the European Central Bank in modern conditions

    Directory of Open Access Journals (Sweden)

    Kavitskaya Irina, L.

    2015-12-01

    Full Text Available The paper presents the monetary policy analysis of the European Central Bank (ECB under the present crisis conditions. The paper systematizes the ECB monetary policy in today's crisis and researches it at different stages of the crisis. A detailed analysis showed that the ECB's monetary policy is significantly different from the actions of other central banks during the current crisis (for example, the Federal Reserve. Thus, the ECB unconventional monetary policy combined with traditional measures, but does not replace them. Often ECB use credit easing instead of quantitative easing. The ECB's monetary policy used not only to combat the financial crisis, such as the Fed, but also to deal with the debt crisis. These features of the ECB’s monetary policy were due to both the institutional characteristics of the European Union, as well as special conditions of flow of the financial crisis in the euro zone.

  9. Unioni monetarie: una prospettiva teorica

    Directory of Open Access Journals (Sweden)

    F. CESARANO

    2013-10-01

    Full Text Available The work provides a theoretical analysis of monetary policy and unification in light of today’s debate among academic economists on EMU. A brief survey of the main issues concerning monetary policy is presented. The author then puts the subject in a broader perspective, showing that central questions concerning the optimality of currency areas are strictly related to the theory of monetary policy and, particularly, to the effectiveness of domestic monetary actions. Since participation in a monetary union implies loss of monetary sovereignty, the issue at hand is evaluating the effects of this loss on social welfare. Hence, the author argues that federal fiscal policy can play a crucial role in the adjustment mechanism.  JEL Codes: F15, E52Keywords: Monetary policy, EMU, Monetary union, Economic integration

  10. The effectiveness of monetary policy in steering money market rates during the recent financial crisis

    OpenAIRE

    Abbassi, Puriya; Linzert, Tobias

    2011-01-01

    The recent financial crisis deeply affected the money market yield curve and thus, potentially, the proper functioning of the interest rate channel of monetary policy transmission. Therefore, we analyze the effectiveness of monetary policy in steering euro area money market rates using two measures: first, the predictability of money market rates on the basis of monetary policy expectations, and second the impact of extraordinary central bank measures on money market rates. We find that marke...

  11. Monetary Policy Implementation and Liquidity Management of the Czech Banking System

    OpenAIRE

    Brůna, Karel

    2010-01-01

    Implementation of monetary policy assumes that monetary policy instruments stabilize O/N interest rates to the proximity of main policy rate to archive monetary targets. The function of stabilizing mechanism is based on simple rule that the volume of liquidity in the banking system is held in line with the demand of banks for reserves. In this paper main factors of banking system liquidity are analyzed in the context of bank’s imperfect intertemporal substitution of reserves and with respect ...

  12. Monetary Regimes and Policy on a Global Scale: The Oeuvre of Michael D. Bordo

    OpenAIRE

    Rockoff, Hugh; Eugene N. White

    2012-01-01

    Michael D. Bordo has helped to define the modern field of monetary history, drawing from it important policy lessons for current practitioners. For his seventieth year, we survey his contributions to our understanding of the Great Depression, money and the economy in historical perspective, exchange rate regimes including the gold standard, Bretton Woods, and the European Monetary Union, globalization, financial crises, the Canadian monetary experience, and historical guidance for monetary p...

  13. Expectations, foreign exchange forwards and reflections on monetary policy

    Directory of Open Access Journals (Sweden)

    A. FERRO

    2014-03-01

    Full Text Available The paper provides preliminary analysis on the relationships that can be established between the rates of the forward exchange rate and the spot exchange rates at the various expectations hypothesis. The authors go on to highlight the implications of monetary policy that the various kinds of expectations entail. To test specifically the role of expectations in the determination of exchange rates at the end we will proceed through a couple of simple empirical tests that refer to the spot and forward prices of the Deutsche Mark against the pound on the Frankfurt market in the first four months of 1976.

  14. Does Monetary Policy Respond to Commodity Price Shocks?

    OpenAIRE

    Ano Sujithan, Kuhanathan; Koliai, Lyes; Avouyi-Dovi, Sanvi

    2013-01-01

    Commodity prices, especially oil prices, peaked in the aftermath of the financial crisis of 2007 and they have remained highly volatile. All things being equal, the increase in commodity prices may induce a similar tendency of inflation and hence become a monetary policy issue. However, the impact of the changes of commodity prices on inflation is not clear. In this paper, by using Markov-switching models we show that there is an implicit impact of commodity markets on short-term interest rat...

  15. Determinacy, Stock Market Dynamics and Monetary Policy Inertia

    DEFF Research Database (Denmark)

    Pfajfar, Damjan; Santoro, Emiliano

    the vantage of equilibrium uniqueness. We show that this reaction function is isomorphic to a rule with an interest rate smoothing term, whose magnitude increases in the degree of aggressiveness towards asset prices growth. As shown by Bullard and Mitra (2007, Determinacy, learnability, and monetary policy......This note deals with the stability properties of an economy where the central bank is concerned with stock market developments. We introduce a Taylor rule reacting to stock price growth rates along with inflation and output gap in a New-Keynesian setup. We explore the performance of this rule from...

  16. THE REGIONAL EFFECTS OF MONETARY POLICY: THE CASE OF THE AMERICAN SOUTH

    Directory of Open Access Journals (Sweden)

    David Beckworth

    2016-08-01

    Full Text Available A number of studies over the past decade find that US monetary policy generates asymmetric effects on regional economies. These studies further find that the variation in industry composition across US regions is a key reason for these regional effects of monetary policy. One implication from these findings is that should a US region undergo a major restructuring of its economy that region would likely find its response to monetary policy shocks to change as well. This possibility is explored in this article by examining the regional effect of monetary policy shocks during and after the dramatic economic transformations of the American South in the twentieth century.

  17. Foreign Shocks, Monetary Policy, and Macroeconomic Fluctuations in a Small Open Economy: A SVAR Study of Malaysia

    National Research Council Canada - National Science Library

    Zulkefly Abdul Karim; Bakri Abdul Karim

    2016-01-01

    This paper investigates the effect of foreign shocks upon domestic macroeconomic fluctuations and monetary policy, and examines the effectiveness of domestic monetary policy as a stabilization policy in Malaysia...

  18. Monetary policy change of the Central bank of Poland

    Directory of Open Access Journals (Sweden)

    Kraś Ireneusz

    2015-07-01

    Full Text Available The National Bank of Poland is an institution which, in conjunction with the government is responsible for the implementation of country’s economic policy reinforces its democratic character. Provisions of its operation are governed by the Constitution of The Republic of Poland and by the Act on the National Bank of Poland. To this end, the objective of the present research is to analyse the proposed amendments in the Act on the NBP. The latter concerns the amendment procedures, term of office and the rotations and numbers of Monetary Policy Council. The remaining part of the analyses is dedicated to the issue of dismissal of a MPC’s member in conjunction with the prohibition of occupying other positions, the adoption of the NBP’s financial statements and the separation of instruments of monetary policy’s instruments for stability of domestic financial system. Introduced changes in the proposed draft reduce the independence of the NBP while making it more subject to the Cabinet. Following the result of further consultations on the draft of Act on the NBP, provisions which reduce the independence of the NBP shall be partially removed.

  19. Source of Underestimation of the Monetary Policy Effect: Re-examination of the Policy Effectiveness in Japan's 1990s

    OpenAIRE

    Masahiko Shibamoto

    2014-01-01

    This paper re-examines the empirical evidence on the potency of Japanese monetary policy in the 1990s by comparing the estimated impacts of various proxies of monetary policy shocks on the macro economy. My empirical results demonstrate that the surprise target changes as a proxy of monetary policy shocks had impacts on real output and financial variables over the period 1990–2001. I also show that the estimated effects of identified monetary policy shocks depend on whether the shocks are ant...

  20. Source of Underestimation of the Monetary Policy Effect: Re-examination of the Policy Effectiveness in Japan's 1990s

    OpenAIRE

    Masahiko Shibamoto

    2014-01-01

    This paper re-examines the empirical evidence on the potency of Japanese monetary policy in the 1990s by comparing the estimated impacts of various proxies of monetary policy shocks on the macro economy. My empirical results demonstrate that the surprise target changes as a proxy of monetary policy shocks had impacts on real output and financial variables over the period 1990–2001. I also show that the estimated effects of identified monetary policy shocks depend on whether the shocks are ant...

  1. How useful are monetary policy rules to deal with inflation: The Spanish case.

    OpenAIRE

    Carmen Díaz Roldán; Alberto Montero Soler

    2004-01-01

    The role of monetary policy rules to explain the behaviour of central banks has received an increasing attention during the last few years. The Spanish case could be of interest given that, with an inflation above the European average, was able to conduct its monetary policy and to control the inflation in order to join the European monetary union. But after the adoption of the European Central Bank’s monetary policy in January 1999, a higher inflation can be observed. In this paper we explor...

  2. How useful are monetary policy rules to deal with inflation: The Spanish case.

    OpenAIRE

    Carmen Díaz Roldán; Alberto Montero Soler

    2004-01-01

    The role of monetary policy rules to explain the behaviour of central banks has received an increasing attention during the last few years. The Spanish case could be of interest given that, with an inflation above the European average, was able to conduct its monetary policy and to control the inflation in order to join the European monetary union. But after the adoption of the European Central Bank’s monetary policy in January 1999, a higher inflation can be observed. In this paper we explor...

  3. Open Market Operations as a Monetary Policy Shock Measure in a Quantitative Business Cycle Model

    OpenAIRE

    Heer, Burkhard; Schabert, Andreas

    2000-01-01

    This paper presents a business cycle analysis of monetary policy shocks measured by disturbances to open market operations, i.e. the ratio of open market papers to non-borrowed reserves. We find empirical evidence for the usefulness of this policy measure, as it predicts significant declines in output, M1 growth, and prices, as well as a significant rise in interest rates after a monetary contraction. We develop a dynamic general equilibrium model with financial intermediation where monetary ...

  4. Monetary Policy Implementation and Results in Twenty Inflation-Targeting Countries.

    OpenAIRE

    Klaus Schmidt-Hebbel.; Matías Tapia

    2002-01-01

    Inflation targeting is an increasingly popular monetary regime among industrialized and developing central banks. However, there is little cross-country comparative information about commonalties and differences in monetary policy implementation and results across inflation-targeting countries. This paper presents the results of a survey on monetary policy conducted among the world’s twenty central banks that currently target inflation. Survey responses highlight operational features of monet...

  5. The Bank Lending Channel and Monetary Policy Rules for European Banks: Further Extensions

    OpenAIRE

    Nicholas Apergis; Miller, Stephen M.; Effrosyni Alevizopoulou

    2012-01-01

    The monetary authorities affect the macroeconomic activity through various channels of influence. This paper examines the bank lending channel, which considers how central bank actions affect deposits, loan supply, and real spending. The monetary authorities influence deposits and loan supplies through its main indicator of policy, the real short-term interest rate. This paper employs the endogenously determined target interest rate emanating from the central bank’s monetary policy rule to ex...

  6. THEORIES OF MONETARY POLICY – FROM THE MERCANTILIST PRAGMATISM TO THE MODERN MONETARY THEORIES

    Directory of Open Access Journals (Sweden)

    Zina CIORAN

    2014-06-01

    Full Text Available The purpose of this article is to perform an incursion into the monetary theories, from the mercantilists to the modern theories. The monetary area is an important component of the economic system which has always been and still is tormented by anxiety and uncertainty. The currency can be considered a barometer that promptly and precisely registers a country’s economic oscillations and the fundamental problems that torment the human society nowadays is mainly expressed in monetary terms. Being one of the major tools the state uses to balance the economy, the monetary politics has permanently generated fervent controversies and discussions. Scientific research of the monetary phenomenon, facing the complexity of the currency problems with a diversity of currency types and with the complex currency role within the company, as well as the explosive evolution of the financial institutions, structures and monetary and financial products has always kept the monetary theory in the beginning of a new research program. The monetary theory center, around which the economists‘ thinking is founded, is formed of: emphasizing the money role in the economy, the money measurement, the money offer and request with their influence factors, the monetary balance theory, the monetary impulse transition modality as well as the monetary behavior on the part of the economic agents. It was established that each economical thinking movement marked the social, economical and political life for a certain amount of time, each school has criticized or supported their predecessors’ ideas contributing to the enrichment of the monetary theory and the economic development, implicitly.

  7. Monetary Policy & Monetary Regime in an Interest Free Economy: An Alternate Approach In Monetary Economics amidst Great Recession

    OpenAIRE

    Shaikh, Salman

    2010-01-01

    This paper reviews limited, but precious academic literature on central banking and monetary management in Islamic finance. It discusses the building blocks of an Islamic monetary system. It discusses how savings would feature despite discontinuation of interest, how inflation will be checked with central banks not having at its disposal conventional OMO, how liquidity will be managed in banking sector when central bank wants to inject liquidity or mop up funds. How and to what extent the ins...

  8. The Impact of Conventional and Unconventional Monetary Policy on Investor Sentiment

    DEFF Research Database (Denmark)

    Lutz, Chandler

    2015-01-01

    the fed funds rate is at its zero lower bound, research results indicate that expansionary unconventional monetary policy shocks also have a large and positive impact on investor mood. Together, our findings highlight the importance of both conventional and unconventional monetary policy...

  9. The National Bank of Romania monetary policy characteristics in addition to the current financial crisis

    OpenAIRE

    Stefan Sambotin; Andreea Bucur

    2012-01-01

    Considering the starting point for research the Central Bank key role in economic life, through the implementation of the monetary policy, by exercising prudential control and supervision of commercial banks, the present paper proposes an analysis of the National Bank of Romania monetary policy coordinates in the frame of the increased intensification harsh effects of the global economic crisis.

  10. What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure

    NARCIS (Netherlands)

    Uhlig, H.F.H.V.S.

    1999-01-01

    This paper proposes to estimate the effects of monetary policy shocks by a new \\agnostic" method, imposing sign restrictions on the impulse responses of prices, nonborrowed reserves and the federal funds rate in response to a monetary policy shock. No restrictions are imposed on the response of real

  11. The National Bank of Romania monetary policy characteristics in addition to the current financial crisis

    Directory of Open Access Journals (Sweden)

    Stefan Sambotin

    2012-12-01

    Full Text Available Considering the starting point for research the Central Bank key role in economic life, through the implementation of the monetary policy, by exercising prudential control and supervision of commercial banks, the present paper proposes an analysis of the National Bank of Romania monetary policy coordinates in the frame of the increased intensification harsh effects of the global economic crisis.

  12. How the Reserve Bank of New Zealand manages liquidity for monetary policy implementation

    National Research Council Canada - National Science Library

    Parekh, Sandeep

    2016-01-01

    ... Introduction The implementation of monetary policy is an important part of a central bank's role in the economy. The Reserve Bank of New Zealand (the Bank) has a number of responsibilities which include the implementation of monetary policy, the operation of the inter-bank payments and settlements system, and the promotion of a sound and efficient banki...

  13. Monetary policy in modern conditions: Theory and Practice (on materials of the Republic of Belarus)

    OpenAIRE

    Bashlakova Ol'ga Sergeevna

    2015-01-01

    Monetary-credit policy is the leading direction of the market economy state regulation, but economics hasn’t yet developed an effective mechanism and criteria of its implementation. The article analysis in detail interconnection of 2011–2014 monetary-credit policy parameters with dynamics of such macroeconomic indicators as inflation, investments, savings and credit volume.

  14. The Interaction of Monetary and Fiscal Policy in the Countries of the Visegrad Group

    Directory of Open Access Journals (Sweden)

    Jan Janků

    2014-01-01

    Full Text Available Coordination of or at least absence of conflict between monetary and fiscal policies are key to the successful implementation of economic policy. The article aims to use reaction functions to assess whether the monetary and fiscal policies in the countries of the Visegrad Group are in coordination or in conflict and which variables influence their decisions. The central bank is the representative of monetary policy, which has interest rates as its instrument, and the government as the representative of the fiscal policy which has change revenue or spending as a share of GDP as instrument. To obtain the results, multivariate regression analysis is used. The research period is based on quarterly observations from first quarter of 2000 to the fourth quarter of 2012. Stabilizing role of monetary policy and in some countries also partially stabilizing role of fiscal policy has been found. Another result was that in the case of the Czech Republic, Slovakia and Poland, monetary policy appears to play the dominant role, whereas fiscal policy plays dominant role in Hungary. In the case of Slovakia, some different results may be due to Slovakia’s participation in ERM II, which led to the monetary policy, in addition to maintaining price stability, also aiming to maintain a fixed exchange rate and the subsequent entry of Slovakia into the Eurozone and the de facto loss of autonomous monetary policy.

  15. EFFECTIVENESS AND LIMITATIONS OF MONETARY POLICY INSTRUMENTS IN ROMANIA AND THE EUROPEAN UNION

    Directory of Open Access Journals (Sweden)

    Zina CIORAN

    2014-12-01

    Full Text Available The complexity of the monetary phenomenon as well as the effects that it induces in the social and economic life of the countries around the world have represented and still represent the subject of much controversy and dispute. The current forms of the monetary circulation organization in different countries, internationally as well, represent the result of a continuous process of changes and innovations in the monetary area. The purpose of this article is to present aspects of the monetary policy and its instruments which have evolved according to the historical conditions of each period. The paper is also a presentation of effectiveness and limits of the monetary policy instruments and their role in solving the current economic problems for which the governments seek solutions. As a consequence to the analysis, it can be seen that in most cases it uses a mixture of monetary policy instruments because, when acting in a complementary way, they have a higher efficiency.

  16. Capital Controls, Exchange Rate Management, and Monetary Policy in a Small Open Economy: A Stylized Model of the Chilean Case, 1978-1980 Capital Controls, Exchange Rate Management, and Monetary Policy in a Small Open Economy: A Stylized Model of the Chilean Case, 1978-1980

    OpenAIRE

    Patricio Arrau

    1990-01-01

    The paper addresses in an intertemporal optimizing framework the high real interest rate and the current account deficit observed in Chile when the economy was disinflated by means of the nominal exchange rate. The particular manner the capital account was controlled (a temporary flow constraint to capital inflows) along with a passive monetary (the Monetary Approach to the Balance of Payments) resulted in a tight monetary policy as the balance of payments could not provide the desired monev ...

  17. Empirical research on the international spillover effects of U.S. monetary policy and their impacts

    Institute of Scientific and Technical Information of China (English)

    吴宏; 刘威

    2009-01-01

    Empirical research has shown that there were international spillover effects from the U.S. monetary policy to output level, net exports and price levels of each country, and the impact on prices in each country was of synchronous effect. The structural impulse response analysis showed that U.S. monetary policy could improve U.S. income and payment without damaging U.S. economic growth, but the shocks negatively affected the economic growth in the rest of the world. Hence, it’s important to pay close attention to the moral risks of U.S. monetary policy to evade the global shocks caused by the "benefit-itself-at-the-expense-of-others" polices of the American government. Besides these findings, U.S. monetary policy shocks strongly affect China’s trade surplus fluctuations. Based on this, we propose that the approaches of balancing China’s current account could be explored efficiently from the perspective of monetary policy.

  18. The Formation of New Monetary Policies: Decisions of Central Banks on the Great Recession

    Directory of Open Access Journals (Sweden)

    Ana Esther Castro

    2014-05-01

    Full Text Available The effect that the Great Recession had on monetary policies has led to the profound reorientation of central banks’ actions from 2007 to 2013. The purpose of this work is to analyze the monetary policies applied by the main central banks, mainly the European Central Bank, the Federal Reserve System of USA and the Bank of Japan, in order to raise thoughts on the guidelines that central banks should follow in the future. In the first section the bases of monetary policy before the crisis are described; in the second we explain the change in the orientation of the role of central banks during the crisis; and finally, we synthesize the bases on which the economic debate is taking place on the orientation of future monetary policies. We conclude that, in so far as the inoperativeness of transmission mechanisms still persists, monetary policies will remain in a process of change.

  19. A Graphical Exposition of the Inconsistency of Optimal Monetary Plans

    Science.gov (United States)

    Steindl, Frank G.

    2007-01-01

    The author presents a geometrical framework in which the inability of discretionary policy (consistent policy in the sense of Kydland and Prescott) to be socially optimal is demonstrated. Policy based on a rule results in a higher level of utility. The author extends the model to demonstrate that policy of a Rogoff conservative central banker…

  20. Non-discretionary monetary policy: The answer for transition economies?

    OpenAIRE

    Mafi-Kreft, Elham; Steven F. Kreft

    2004-01-01

    It is a well-established fact that monetary institutions help shape the macroeconomic environment of countries by stabilizing prices. In the early 1990s, transition economies had the opportunity to rearrange their monetary institutions to better achieve low levels of inflation. Those economies had several prominent monetary arrangements to choose from, such as sovereign central banks or currency boards. This paper surveys the monetary institutions currently in place in several transition econ...

  1. The price stability oriented monetary policy of the European Central Bank

    National Research Council Canada - National Science Library

    Gasiński, Wojciech; Misztal, Anna

    2010-01-01

    ... economic policies in the Community. Monetary policy is a special tool that national governments and central banks uses to influence on its economy, especially to control the supply of money and to influence on the level of economic indicators...

  2. Financial stability, monetary policy and budgetary coordination in EMU

    Directory of Open Access Journals (Sweden)

    Claudiu Tiberiu ALBULESCU

    2012-08-01

    Full Text Available A series of recent studies analyze the impact of financial crisis on the fiscal soundness in the Euro area countries. Even if their documented results present the transmission mechanisms of the financial instability toward the fiscal sector, a more realistic problem is related to the contribution of the fiscal and budgetary disequilibrium to the financial instability propagation. In this line, we show, based on a simple econometric model, that, beside the expansionary monetary policy, the budgetary deficit conducts to the financial stability deterioration. The financial stability of the Euro area is measured based on an aggregate financial stability index, constructed by employing the IMF methodology used for the financial stress index.

  3. A SHARIA RETURN AS AN ALTERNATIVE INSTRUMENT FOR MONETARY POLICY

    Directory of Open Access Journals (Sweden)

    Ashief Hamam

    2011-09-01

    Full Text Available Rapid development in Islamic financial industry has not been supported by sharia monetary policy instruments. This study looks at the possibility of sharia returns as the instrument. Using both error correction model and vector error correction model to estimate the data from 2002(1 to 2010(12, this paper finds that sharia return has the same effect as the interest rate in the demand for money. The shock effect of sharia return on broad money supply, Gross Domestic Product, and Consumer Price Index is greater than that of interest rate. In addition, these three variables are more quickly become stable following the shock of sharia return. Keywords: Sharia return, islamic financial system, vector error correction modelJEL classification numbers: E52, G15

  4. ON THE CURRENT RMB EXCHANGE RATE REGIME AFFECTING THE EFFECTIVENESS OF MONETARY POLICY

    Institute of Scientific and Technical Information of China (English)

    黄燕君

    2001-01-01

    The current exchange rate regime of China is just like the US dollar-pegged exchange rate regime, which weakens the effectiveness of monetary policy but increases the effectiveness of fiscal policy. Since the scope of implementing the fiscal policy is quite narrow, it is necessary to promote the effectiveness of monetary policy by enlarging the elasticity of the RMB exchange rate regime so as to stimulate the rapid development of the Chinese economy effectively.

  5. The reaction of bank lending to monetary policy in Brazil

    Directory of Open Access Journals (Sweden)

    Tony Takeda

    2005-03-01

    Full Text Available This paper evaluates the relevance of the "bank lending channel'' of monetary policy transmission in Brazil. Disaggregated monthly data of the Brazilian banks balance sheets from December 1994 to December 2001 are analyzed. In addition to the short-term interest rate, we consider the effects of another monetary policy instrument frequently used in Brazil, represented by reserve requirements on overall banks deposits - demand, savings, and time deposits. Dynamic panel data techniques are employed. Our results suggest that the impact of reserve requirements is relevant and stronger for larger banks loans. This finding results from the progressive reserve rates required from banks, which affect to a greater extent banks with larger deposit volumes.Este artigo avalia o canal de empréstimos bancários na transmissão da política monetária. A análise foca os dados mensais desagregados do balanço patrimonial dos bancos comerciais brasileiros de dezembro de 1994 a dezembro de 2001. Em adição à taxa básica de juros de curto prazo, este estudo considera também os efeitos de um outro instrumento de política monetária usado freqüentemente no Brasil, representado pelos recolhimentos compulsórios sobre os depósitos à vista, de poupança e a prazo. A partir de técnicas de análise de dados em painel dinâmico, os resultados dos testes sugerem que o impacto dos compulsórios é relevante e é mais forte sobre os empréstimos dos grandes bancos, conclusão que decorre de recolhimentos compulsórios de caráter progressivo, que afetam mais fortemente os bancos com maiores volumes de depósitos.

  6. Foreign Shocks, Monetary Policy, and Macroeconomic Fluctuations in a Small Open Economy: A SVAR Study of Malaysia

    OpenAIRE

    Zulkefly Abdul Karim; Bakri Abdul Karim

    2016-01-01

    This paper investigates the effect of foreign shocks upon domestic macroeconomic fluctuations and monetary policy, and examines the effectiveness of domestic monetary policy as a stabilization policy in Malaysia. Monetary policy variables (interest rate and money supply) have been measured through a non-recursive structural VAR (SVAR) identification scheme, which allows the monetary authority to set the interest rate and money supply after observing the current value of foreign...

  7. Financial Constraints and the Response of Business Investment to Monetary Policy Shocks

    Directory of Open Access Journals (Sweden)

    Haase Timothy J.

    2016-09-01

    Full Text Available In this study I investigate what impact monetary policy shocks have on firms’ fixed investment, the less liquid portion of gross investment that requires more planning. I account for firms facing financial constraints firms by utilizing a common measure of asset size, which is used in previous literature. I use two exogenous, continuous series of monetary policy shocks to show that constrained firms have statistically different responses to policy than unconstrained firms. Specifically, I find that constrained firms’ fixed investment significantly responds more to monetary policy shocks than unconstrained firms.

  8. Modern approaches to the implementation of monetary policy and the regulation of financial systems

    Directory of Open Access Journals (Sweden)

    Basistîi Nicolae

    2013-01-01

    Full Text Available This study determines the modern approaches to the implementation of monetary policy and regulation of financial systems. Set of measures to prevent and overcome the financial crisis is grounded taking into consideration different areas of research and the IMF.New tasks of monetary policy in central banks are specified and they are intended to ensure the financial stability of the state (within the common fiscal policy.The main directions of elaboration and implementation of new monetary policy mechanism, which is intended to ensure the effective solution of problems in macro prudential supervision and financial stability, are examined.

  9. MODERN APPROACHES TO THE IMPLEMENTATION OF MONETARY POLICY AND THE REGULATION OF FINANCIAL SYSTEMS

    Directory of Open Access Journals (Sweden)

    Radu CUHAL

    2013-01-01

    Full Text Available This study determines the modern approaches to the implementation of monetary policy and regulation of financial systems. Set of measures to prevent and overcome the financial crisis is grounded taking into consideration different areas of research and the IMF. New tasks of monetary policy in central banks are specified and they are intended to ensure the financial stability of the state (within the common fiscal policy. The main directions of elaboration and implementation of new monetary policy mechanism, which is intended to ensure the effective solution of problems in macro prudential supervision and financial stability, are examined.

  10. Interest rate transmission mechanism of monetary policy in the selected EMU candidate countries

    Directory of Open Access Journals (Sweden)

    Mirdala Rajmund

    2009-01-01

    Full Text Available The stable macroeconomic environment, as one of the primary objectives of the Visegrad countries in the 1990s, was partially supported by the exchange rate policy. Fixed exchange rate systems within gradually widen bands (Czech Republic, Slovak Republic and crawling peg system (Hungary, Poland were replaced by the managed floating in the Czech Republic (May 1997, Poland (April 2000, Slovak Republic (October 1998 and fixed exchange rate to euro in Hungary (January 2000 with broad band (October 2001. Higher macroeconomic and banking sector stability allowed countries from the Visegrad group to implement the monetary policy strategy based on the interest rate transmission mechanism. Continuous harmonization of the monetary policy framework (with the monetary policy of the ECB and the increasing sensitivity of the economy agents to the interest rates changes allowed the central banks from the Visegrad countries to implement monetary policy strategy based on the key interest rates determination. In the paper we analyze the impact of the central banks' monetary policy in the Visegrad countries on the selected macroeconomic variables in the period 1999-2008 implementing SVAR (structural vector autoregression approach. We expect that higher sensitivity of domestic variables to interest rates shocks can be interpreted as a convergence of monetary policies in candidate countries towards the ECB's monetary policy.

  11. Impact of Monetary Policy and Fiscal Policy on Indonesian Stock Market

    Directory of Open Access Journals (Sweden)

    Rossanto Dwi HANDOYO

    2015-05-01

    Full Text Available This paper attempts to investigate the effect of fiscal and monetary policy on Indonesian Stock price as well as main sectors stock price such as agricultural, mining, manufacture, and financial sector indexes. We consider the world oil price as a foreign variable that will influence domestic economy as in regular small open economy model. In this paper, we employ the Monte Carlo algorithm to Near-SVAR models (If some of the VAR equations have regressors not included in the others. We find that there is a positive stock price response to monetary policy shock both aggregated and sectoral stock price. In term of interaction between fiscal policy shock and stock market, we find that all sectors respond negative relationship. From this empirical finding, fiscal policy crowd out private sector activity in market, thus, its effect will be impotent in economy. We also provide the evidence that not only both policies are able to influence the stock price individually, but also the interaction between monetary and fiscal policy is important in explaining stock market performance.

  12. Monetary Policy Needs to Keep up with the Times

    Institute of Scientific and Technical Information of China (English)

    李健

    2007-01-01

    Since the start of reform and opening in the late 1970s, China’s monetary operation has undergone dramatic changes. The J-curve of Chinese monetary aggregate (total quantity growth) over the period between 1978 and 2005 illustrates the changes in total quantity growth, while the changes in monetary structure are shown by an X-curve, and are attributed to the increased ratio of money in circulation to savings (money serving as a store of value) from 6:4 to 4:6. Therefore, the key factor in maintaining supply-and -demand equilibrium in monetary supply has shifted from the supply side to the demand side. The monetary aggregate has influenced the decrease in commodity prices. However, composite prices including assets, reflect the equilibrium of monetary supply and demand. In the face of the changes in Chinese monetary operation, attention should be given to inflation pressure and highly concentrated financial risks in the banking system, and the regulation of monetary demand should be emphasized. The regulation of monetary aggregate and monetary structure are both of vital importance.

  13. Evaluating the Relative Impact of Monetary and Fiscal Policy in Nigeria using the St. Louis Equation

    Directory of Open Access Journals (Sweden)

    Michael Adebayo Ajayi

    2017-02-01

    Full Text Available The controversy existing on the efficacy of monetary and fiscal policy to influence the economy is unending. This study evaluates the relative impact of monetary and fiscal policy in Nigeria from 1986 to 2014 using a modified St. Louis equation. Employing the Ordinary Least Squares estimation method, this study reveals that growth in money supply and export have a positive and significant effect on growth in output of the economy while growth in government expenditure has a negative and insignificant effect. This study provides evidence that monetary policy has a greater growth-stimulating effect on the economy than fiscal policy. It recommends that monetary policy rather than fiscal policy should be relied upon by the Nigerian government as an economic stabilisation tool.

  14. The optimal monetary policy rule based on the unemployment rate and the inflation rate%基于失业率与通货膨胀率的我国最优货币政策规则选择

    Institute of Scientific and Technical Information of China (English)

    金成晓; 卢颖超

    2015-01-01

    In this paper,we build a small macroeconomic model with microeconomic foundation and dual sticky property to characterize the relationship between inflation rate and unemployment rate and gives the optimal monetary policy rules under the policy objectives.The results show that:(1 )The parameter of price sticky is 0.4936,there are 50.64% of companies which will follow the best way to adjust price in every quarter,and t,so assumes the existence of labor market friction reasonable;(2)Using inflation and unemployment rate as the threshold of the Interest rate has a smaller welfare loss;(3)When two variables are in a reasonable range,through loss the unemployment rate to exchange the stable of the inflation rate can get greater social welfare;(4)Lower wage sticky and moderately improve price sticky benefit the stable of economy.The innovations of this paper are that:We join the character of the labor market frictions in the New Keynesian model.%参考双粘性小型宏观经济模型刻画了通货膨胀率与失业率之间的动态关系,在此基础上给出了中国的最优货币政策规则形式。研究得出:(1)粘性价格系数为0.4936,每季度50.64%的企业会按照最优的方式来调整价格,粘性工资系数为0.5064,工资调整较慢,假定劳动力市场存在摩擦比较合理;(2)同时将通货膨胀预期及失业率作为阈值的利率规则具有更小的福利损失;(3)在两变量都处于合理区间时,通过损失失业率来换取通货膨胀的稳定可以使经济获得更大的福利。(4)降低工资粘性及适度升高价格粘性有利于经济的稳定。

  15. Alternative Conditions to Time Inconsistency Equilibrium of an International Monetary Policy

    Directory of Open Access Journals (Sweden)

    Iman Bastanifar

    2013-01-01

    Full Text Available Monetary policy rule is an approach to avoid time inconsistency problem as regarded by new classical economist to choose a time plan for policy making in order to maximize households’ well-being. The foundation of time inconsistency problem is not coincidence of expectations as an ex-ante variable, which is expected variable, with actual variable as an ex-post variable. Expectations in Finn Kydland and Edward Prescott as the 2004 laureates of the Nobel Memorial Prize in Economics, is rational and formed only by a representative agent because of the discretionary policy of benevolent planner. However the benevolent planner may be as an international planner. In this paper, we develop the model of Kydland and Prescott, by substituting the assumption of heterogeneous households (a domestic household and foreign household instead of a representative agent and using heterogeneous beliefs. The recent assumption helps us to have an alternative time inconsistency equilibrium with at least two different sources of expectations, which is called Dichotomy Sources of Expectations (DSE as the main contribution of this paper .We then use expectations-adjusted Phillips curve to see the conditions of time inconsistency of k percent monetary rule of Friedman in a framework of DSE’s Model. The results show that expectations-adjusted Phillips curve in a society with DSE is not vertical and Friedman's k-percent rule may not be optimal. We find out that, not only an international benevolent planner but also a foreign household must set a rule to maximize the well-being of the world. Indeed, we need a multi-dimensional rule for any international monetary policy.

  16. The effect of monetary policy of Central Bank on activities of Tehran Stock Exchange

    Directory of Open Access Journals (Sweden)

    Hossein Vazifehdust

    2013-08-01

    Full Text Available This paper examines the relationship between monetary policy and activity of the Tehran Stock Exchange. The statistical population of the research consists of all companies listed in Tehran Stock Exchange and central bank monetary policy variables including time series generated by the central bank seasonally. For the purpose of data analysis, econometric autoregressive system models, and two-stage ADF regression with unit roots test, co-integration and reliability were used to determine level of effect and type of effect of the four components of monetary policy on exchange activity. The results of this study show that there is a strong relation between share price index and monetary policy variables and between monetary policy variables and trading volume. However, the relation between monetary policy variables and cash yield index was not so strong, but monetary policy variables’ effect on stock exchange activity was acceptable considering strong relation between the two first variables. It is suggested that if this work is done using non-linear models, it will yield better results.

  17. MARXIST THEORY AND MONETARY POLICIES DURING SOCIALIST CONSTRUCTION

    OpenAIRE

    Lucia Lizarazu

    2016-01-01

    The paper aims to identify the main points of consensus and disagreement between monetary theory in Marx and the quantity theory of money, and motivation as a contribution to debate on the need and scope for monetary planning in socialist construction. The study allows us to conclude that monetary planning in socialist construction must ensure compliance with the law of the amount of paper money needed in the circulation and the general law of circulation, so as to guarantee the function of m...

  18. Essays on monetary and fiscal policy interaction : Applications to EMU and Eastern Europe

    NARCIS (Netherlands)

    van Aarle, B.

    1996-01-01

    The interaction of monetary and fiscal policies encompasses much research material and covers a respectable area in theoretical macroeconomics. In this broad research field, three different focuses are discernible. A first line of research studies the dynamic interdependence of monetary and fiscal

  19. Learning, Inflation Reduction and Optimal Monetary Policy

    NARCIS (Netherlands)

    Schaling, E.

    2003-01-01

    In this paper we analyze disinflation in two environments.One in which the central bank has perfect knowledge, in the sense that it understands and observes the process by which private sector inflation expectations are generated, and one in which the central bank has to learn the private sector

  20. Costa Rica During the Global Recession: Fiscal Stimulus with Tight Monetary Policy

    OpenAIRE

    Jose Antonio Cordero

    2009-01-01

    This paper shows that, in spite of a reasonably sized fiscal stimulus package, Costa Rica’s economy continues on a downward path, partly because fiscal policy is being offset by a tightening of monetary policy. The paper notes that the International Monetary Fund has insisted that Costa Rica’s monetary policy remain tight due to worries over inflation targets and a perceived risk of a balance of payments crisis. However, the author notes that the IMF could help prevent a balance of payments c...

  1. Autonomy and Effectiveness of Chinese Monetary Policy under the De Facto Fixed Exchange Rate System

    Institute of Scientific and Technical Information of China (English)

    Huayu Sun

    2009-01-01

    This paper uses monthly data to examine the autonomy and effectiveness of monetary policy in China under the de facto fixed exchange rate arrangement in place from 1998 to 2005. The results obtained from Granger causality tests in a vector autoregresslon framework indicate that: (i) China actually conducted independent monetary policy during the fired exchange rate period; and (ii) market-oriented policy measures are impotent in influencing real output and prices. The framework of the investigation into the autonomy of monetary policy adapts to the Chinese economic condition that primary loan and deposit rates are set by the central bank. Based on the empirical results, the present paper provides alternative strategies to improve the effectiveness of monetary policy in China, including developing the financial system and solidifying microeconoraic fundamentals instead of forcing the adaptation of a more flexible exchange rate regime.

  2. Rules and Discretion in Monetary Policy: Is the Response of the Stock Market Rational?

    Directory of Open Access Journals (Sweden)

    Ion-Iulian MARINESCU

    2015-04-01

    Full Text Available We investigate the effects of the monetary policy conduct on the domestic capital market for a sample of developed countries where the capital market plays a significant role in the economy. We break down the policy rate innovations in rules-based and discretionary components in order to determine the degree of prudentiality in the monetary policy conduct and we study their accounts with respect to capital market rationality. The rules-based component is determined using an interpolated vanilla Taylor-rule policy rate at the event date and the discretionary component is obtained by subtracting the rules-based rate from the target monetary policy rate innovation. Using an event study approach, we analyze the impact of monetary policy components on the returns of the stock market and we determine that the conduct of the monetary policy can cause irrational responses of the capital market. More than that, we show, for the analyzed countries, that if the general level of discretion in the monetary policy is high the response of the stock market becomes increasingly erratic, indicating that forward guidance may help reduce uncertainty on capital markets.

  3. Financial structure and monetary policy transmission in transition countries

    NARCIS (Netherlands)

    Elbourne, A.; de Haan, J.

    2006-01-01

    Using the structural vector autoregressive methodology, we present estimates of monetary transmission for the new and future EU member countries in Central and Eastern Europe. Unlike most previous research we include ten transition countries. We examine to what extent monetary transmission in these

  4. Financial structure and monetary policy transmission in transition countries

    NARCIS (Netherlands)

    Elbourne, A.; de Haan, J.

    Using the structural vector autoregressive methodology, we present estimates of monetary transmission for the new and future EU member countries in Central and Eastern Europe. Unlike most previous research we include ten transition countries. We examine to what extent monetary transmission in these

  5. Fiscal and Monetary Policy for The Development of Indonesian Plantation

    Directory of Open Access Journals (Sweden)

    Suharyadi Suharyadi

    2011-09-01

    Full Text Available The global monetary crisis in 2007-2008 and the focus of development on climate changesmake it important to promote a healthy economic growth based on the local resources, Theeconomic crisis, which has slowed down the economic growth and has caused job losseswhich result in increasing unemployment and poverty, should alter the focus of Indonesianeconomic development in the future to be based on renewable and sustainable local resources.Indonesia is an agricultural and maritime country so these two aspects should be thecore of the growth. In agricultural culture, plantation sector is the source of sustainable economicgrowth because of its geographical, demographic, and cultural potentials. The problemsin plantation sector are the low growth of areas and productivity as well as its limitedend-products. The research findings indicated that in order to increase areas, there should bea guarantee on investment, interest rate, and little retribution or good governance. To increaseproductivity, we need a guarantee on fertilizer price, interest rate, and wages, as wellas pricing factors to avoid market distortion. This is very important relating to the economicstimulus policy which is essential to revitalize from the economic doom in the future.Keywords: plantation sector, area, productivity, investment, interest rate, and wages

  6. Does financial inclusion affect monetary policy in SAARC countries?

    Directory of Open Access Journals (Sweden)

    Sanjaya Kumar Lenka

    2016-12-01

    Full Text Available Alike the role of heart for human body, finance is the focal point of an economy, whereas savings and investment are its tubes and vessels. Hence, a solid financial system is a fundamental character of an enduring economy. The frozen financial system endures longer if its foundation is concrete and subsists in the people of grass-root level. They are those, who live in villages and small towns, earn meager income, work in primary sector, spend more on food, and have lesser social securities. In this setting, the process of bringing these people into the main stream of financial activities is called financial inclusion. This study describes the impact of financial inclusion on monetary policy of South Asian Association for Regional Cooperation (SAARC countries from 2004–2013. The study uses principal component analysis (PCA to construct a Financial Inclusion Index that serves as a proxy variable for the accessibility of financial inclusion in the SAARC countries. Adding to it, three different models like FEM, REM, and Panel-corrected standard errors are used for the analysis. In this study, an empirical result of generalized least square(GLS estimation shows that financial inclusion, exchange rate, and interest rate are negatively associated with inflation in SAARC countries.

  7. Monetary policy under a quasi-fixed exchange rate regime. The case of France between 1987 and 1996

    Directory of Open Access Journals (Sweden)

    B. MOJON

    1999-12-01

    Full Text Available In this paper, I describe the implementation of monetary policy by the Banque de France between 1987 and 1996. This period was characterised by a quasi-fixed exchange rate for France, as the franc was never realigned within the European Monetary System (EMS. I build indicators of the stance of French monetary policy. These show the influence of the EMS constraint on French monetary policy. In particular, since 1987, the shocks of purely domestic French monetary policy (i.e. the variations of the interest rate around the rule of ERM peg target, have only had very little impact on the French economy.

  8. The Regional Appropriateness of Monetary Policy: An Application of Taylor’s Rule to Australian States and Territories

    OpenAIRE

    Javier Hernandez; Allan Layton

    2002-01-01

    In recent years Taylor’s rule has become a widely used tool for assessing the stance of monetary policy. Not only has it been used to evaluate the U.S. Federal Reserve’s monetary policy, but also, for example, to evaluate the appropriateness of the European Central Bank’s monetary policy for each individual member nation of the European Monetary Union. This paper builds on this work and uses Taylor’s rule to evaluate the degree of appropriateness of Australia’s national monetary policy to eac...

  9. The Regional Appropriateness of Monetary Policy: An Application of Taylor’s Rule to Australian States and Territories

    OpenAIRE

    Javier Hernandez; Allan Layton

    2002-01-01

    In recent years Taylor’s rule has become a widely used tool for assessing the stance of monetary policy. Not only has it been used to evaluate the U.S. Federal Reserve’s monetary policy, but also, for example, to evaluate the appropriateness of the European Central Bank’s monetary policy for each individual member nation of the European Monetary Union. This paper builds on this work and uses Taylor’s rule to evaluate the degree of appropriateness of Australia’s national monetary policy to eac...

  10. Asymmetric Effect of Monetary Policy on Stock Market Volatility in ASEAN5

    Directory of Open Access Journals (Sweden)

    Trung Thanh BUI

    2015-05-01

    Full Text Available Among many channels, stock market directly transmits the effect of monetary policy decisions because it quickly responds to policy news. The primary objective of this paper is to clarify the asymmetric effect of monetary policy on stock market volatility, which is believed to have adverse effects on the economy recovery, over its bull and bear period. We performed empirical research in a panel setting in which monthly data of ASEAN5 (Vietnam, Thailand, Philippines, Malaysia, and Indonesia was collected from January 2006 to June 2013. To reduce identification and endogeneity problem, we used short-term interest rate as a proxy for the stance of monetary policy. The Markov switching model was used to identify the bull and bear periods of stock market. We employed feasible GLS estimator to examine the possible asymmetry. The empirical results have demonstrated the existence of the asymmetry in the monetary policy effect on the stock market volatility over stock market cycle in ASEAN5. The findings have suggested that monetary policy is more effective in bear market and that a tight monetary policy increases the probability of shifting stock market from bullish to bearish state.

  11. The Vietnamese lending rate, policy-related rate, and monetary policy post-1997 Asian financial crisis

    Directory of Open Access Journals (Sweden)

    Chu V. Nguyen

    2015-12-01

    Full Text Available Asymmetries in the Vietnamese lending central bank’s policy-related rate spread were documented. Empirical results revealed that the spread adjusts to the threshold faster when the central bank’s policy-related rates decrease relative to the lending rates than when the central bank’s policy-related rates move in the opposite direction. Additionally, the empirical findings indicate that Vietnamese commercial banks exhibit competitive rate setting behavior which may be attributable to graft maximization by bank’s management. The results also show bidirectional Granger causality between the Vietnamese lending rate and the central bank’s policy-related rate, indicating that the lending rate and the central bank’s policy-related rate affect each other’s movements. These results suggest that monetary authority can use its countercyclical monetary policy instruments to achieve its macroeconomics objectives. However, the estimation results of the GARCH (2, 3-in-Mean model suggest that they should intervene more frequently and by small policy measures to minimize the conditional variance of the spread to minimize the magnitude of the cycle of the lending rate.

  12. Modeling expectations in agent-based models: an application to central bank's communication and monetary policy

    NARCIS (Netherlands)

    Salle, I.L.

    2015-01-01

    Expectations play a major role in macroeconomic dynamics, especially regarding the conduct of monetary policy. Yet, modeling the interplay between communication, expectations and aggregate outcomes remains a challenging task, mainly because this requires deviation from the paradigm of rational expec

  13. The Legality of Japan’s Current Monetary Policy under International Law

    National Research Council Canada - National Science Library

    John Riley

    2014-01-01

    In response to the 2008 global financial crisis, many of the world’s largest central banks initiated unconventional monetary policies such as quantitative easing when standard open market operations became ineffective...

  14. The Effect of Monetary Policy on Commodity Prices: Disentangling the Evidence for Individual Prices

    Directory of Open Access Journals (Sweden)

    Carolina Arteaga Cabrales

    2014-01-01

    Full Text Available We study the effect of monetary policy shocks on commodity prices. While most of the literature has found that expansionary shocks have a positive effect on aggregate price indices, we study the effect on individual prices of a sample of four commodities. This set of commodity prices is essential to understand the dynamics of the balance of payments in Colombia. The analysis is based on structural VAR models; we identify monetary policy shocks following Kim (1999, 2003 upon quarterly data for commodity prices and their fundamentals for the period from 1980q1 to 2010q3. Our results show that commodity prices overshoot their long run equilibrium in response to a contractionary shock in the US monetary policy and, in contrast with literature, the response of the individual prices considered is stronger than what has been found in aggregate indices. Additionally, it is found that the monetary policy explains a substantial share of the fluctuations in prices.

  15. Monetary policy and inflation in Brazil (1975-2000: a VAR estimation

    Directory of Open Access Journals (Sweden)

    Minella André

    2003-01-01

    Full Text Available This paper investigates monetary policy and basic macroeconomic relationships involving output, inflation rate, interest rate, and money in Brazil. Based on a vector autoregressive (VAR estimation, it compares three different periods: moderately-increasing inflation (1975-1985, high inflation (1985-1994, and low inflation (1994-2000. The main results are the following: monetary policy shocks have significant effects on output; monetary policy shocks do not induce a reduction in the inflation rate in the first two periods, but there are indications that they have gained power to affect prices after the Real Plan was launched; monetary policy does not usually respond rapidly or actively to inflation-rate and output innovations; in the recent period, the interest rate responds intensely to financial crises; positive interest-rate shocks are accompanied by a decline in money in all the three periods; the degree of inflation persistence is substantially lower in the recent period.

  16. Monetary Policy and Bond Option Pricing in an Analytical RBC Model

    OpenAIRE

    Söderlind, Paul

    2003-01-01

    This paper analyzes how bond option prices are affected by different types of monetary policy. Analytical results from a general equilibrium model with sticky wages show that employment or output targeting typically give lower bond option prices than inflation targeting.

  17. Asymmetric Effect of Monetary Policy on Stock Market Volatility in ASEAN5

    National Research Council Canada - National Science Library

    Trung Thanh BUI

    2015-01-01

    .... The primary objective of this paper is to clarify the asymmetric effect of monetary policy on stock market volatility, which is believed to have adverse effects on the economy recovery, over its bull and bear period...

  18. Monetary policy, financial intermediation, current account and housing market - how do they fit together?

    OpenAIRE

    Stanimira Milcheva

    2012-01-01

    We estimate the role of monetary policy, net capital inflow and credit supply shocks for house prices, residential investment and durable consumption. These fundamental shocks account for three leading hypotheses about the causes of the recent housing bubble in the US: loose monetary policy, a `global saving glut' and loose credit standards for mortgage borrowers. Shocks in credit standards are stemming from variations in the assets of security broker-dealers, as these channel the securitized...

  19. Financial frictions and the reaction of stock prices to monetary policy shocks

    OpenAIRE

    Ozdagli, Ali

    2014-01-01

    This paper reveals and tests a new theoretical implication of the credit channel of monetary policy: as financial frictions (monitoring or auditing costs) increase, the reaction of stock prices to monetary policy shocks decreases. Correspondingly, towards the end of the Enron accounting scandal, the stock prices of firms sharing the same auditor as Enron responded by about 50 to 60 basis points less than other firms to a 10 basis point reduction in the federal funds target rate. This effect i...

  20. Financial Frictions and Reaction of Stock Prices to Monetary Policy Shocks

    OpenAIRE

    Ali Ozdagli

    2014-01-01

    This paper reveals a new theoretical implication of the credit channel of monetary policy: the stock prices of financially more constrained firms are less responsive to monetary policy shocks. In order to study this implication, we use Enron scandal as an exogenous variation in the monitoring cost of the Arthur Andersen clients relative to other firms in a difference in differences framework. We find that Arthur Andersen clients have responded about 40 to 50 basis points less than other firms...

  1. The transmission of monetary policy in EMEs in a changing financial environment: a longitudinal analysis

    OpenAIRE

    Emanuel Kohlscheen; Ken Miyajima

    2015-01-01

    The departure from the Modigliani-Miller conditions, due for instance to market incompleteness, asymmetric information or taxation, tends to increase the importance of indirect channels by which monetary policy affects the level of economic activity in emerging market economies (EMEs). The bank lending channel highlighted by Bernanke and Blinder (1988) is a prominent example of such indirect effect of monetary policy. In this study we investigate how the bank lending channel acts above and be...

  2. Choice of the Path of Fiscal and Monetary Policy Coordination in China

    OpenAIRE

    Xiuyun Cai

    2009-01-01

    The role of monetary policies regulating social the aggregate demand is highlighted, while the role in restructuring the supply and demand are greater limitations. The Central Bank indirectly affects the currency in circulation and the total size of credit by adjusting the statutory deposit reserve rate, the rediscount rate, open market operations; The Central Bank increases or decreases in money supply by limiting the loan quota and the currency issuance. Thus the role of the monetary polici...

  3. Monetary policy, bank size and bank lending: evidence from Australia(new version)

    OpenAIRE

    liu, luke

    2012-01-01

    This study explores how monetary policy changes flow through the banking sector in Australia. Drawing on data between 2004 and 2010, we divide banks into three groups according to their size, and examine the impact of cash rate change on lending of different types of loans. We found the response of bank lending after a monetary policy change varies with the size of the bank as well as the types of loan.

  4. Monetary policy, bank size and bank lending: evidence from Australia(new version)

    OpenAIRE

    liu, luke

    2012-01-01

    This study explores how monetary policy changes flow through the banking sector in Australia. Drawing on data between 2004 and 2010, we divide banks into three groups according to their size, and examine the impact of cash rate change on lending of different types of loans. We found the response of bank lending after a monetary policy change varies with the size of the bank as well as the types of loan.

  5. The transmission of monetary policy operations through redistributions and durable purchases

    OpenAIRE

    Vincent Sterk; Silvana Tenreyro

    2013-01-01

    A large literature has documented statistically significant effects of monetary policy on economic activity. The central explanation for how monetary policy transmits to the real economy relies critically on nominal rigidities, which form the basis of the New Keynesian (NK) framework. This paper studies a different transmission mechanism that operates even in the absence of nominal rigidities. We show that in an OLG setting, standard open market operations (OMO) carried by central banks have ...

  6. The transmission of monetary policy operations through redistributions and durable purchases

    OpenAIRE

    Sterk, Vincent; Tenreyro, Silvana

    2013-01-01

    A large literature has documented statistically significant effects of monetary policy on economic activity. The central explanation for how monetary policy transmits to\\ud the real economy relies critically on nominal rigidities, which form the basis of the New Keynesian (NK) framework. This paper studies a different transmission mechanism\\ud that operates even in the absence of nominal rigidities. We show that in an OLG setting, standard open market operations (OMO) carried by central banks...

  7. Monetary policy games and international migration of labor in interdependent economies.

    Science.gov (United States)

    Agiomirgianakis, G M

    1998-01-01

    "In this paper we incorporate the possibility of international migration into a monetary policy game played by governments in unionized interdependent economies. We show that contrary to usual presumptions, established by earlier studies that ignore the possibility of international migration, inter-government cooperation in the monetary field may well turn out to be advantageous. This has important implications for the European economies, since it suggests that measures taken towards encouraging international migration within EU [the European Union] will not only harmonize the European labor markets but will also make monetary policy cooperation within Europe, as required by the Maastrict Treaty, more advantageous." excerpt

  8. EXPANSIONARY MONETARY POLICY AND THE OPPORTUNITIES FOR RESURGENCE OF INVESTMENT GROWTH IN UKRAINE

    Directory of Open Access Journals (Sweden)

    A. Ignatyuk

    2014-12-01

    Full Text Available This article is analyzed the basic tools of the expansionary monetary policy and its impact on investment growth. It is proposed transformation of monetary policy to activate the innovation processes, in particular by introducing macro-prudential limitations of investment alternatives for the population and strengthening the role of banks with state capital. In article is suggested the methods of National bank, together with the Government to stimulate investment by the use of the allocation of funds through the instruments of monetary expansion.

  9. "Control of Finance as a Prerequisite for Successful Monetary Policy: A Reinterpretation of Henry Simons's Rules versus Authorities in Monetary Policy"

    OpenAIRE

    Moe, Thorvald Grung

    2012-01-01

    Henry Simons's 1936 article 'Rules versus Authorities in Monetary Policy' is a classical reference in the literature on central bank independence and rule-based policy. A closer reading of the article reveals a more nuanced policy prescription, with significant emphasis on the need to control short-term borrowing; bank credit is seen as highly unstable, and price level controls, in Simons's view, are not be possible without limiting banks' ability to create money by extending loans. These ele...

  10. "Control of Finance as a Prerequisite for Successful Monetary Policy: A Reinterpretation of Henry Simons's Rules versus Authorities in Monetary Policy"

    OpenAIRE

    Moe, Thorvald Grung

    2012-01-01

    Henry Simons's 1936 article 'Rules versus Authorities in Monetary Policy' is a classical reference in the literature on central bank independence and rule-based policy. A closer reading of the article reveals a more nuanced policy prescription, with significant emphasis on the need to control short-term borrowing; bank credit is seen as highly unstable, and price level controls, in Simons's view, are not be possible without limiting banks' ability to create money by extending loans. These ele...

  11. THE CRUCIAL ROLE OF CENTRAL BANK TRANSPARENCY IN ASSESSING THE MONETARY POLICY COMMITTEE MECHANISM

    Directory of Open Access Journals (Sweden)

    Dumiter Florin Cornel

    2012-12-01

    Full Text Available In the past, central banks used to be very reserved regarding their activities, strategies and monetary policy decisions and actions. As central banks become more and more independent, transparency gained importance based upon accountability arguments. An important fact for adopting an increasing central bank transparency lies in its importance of influencing the development of expectations. The concept of central bank transparency has emerged in the economic literature relatively later than some other key concepts. The widespread agreement of an inflation targeting regime and a more transparent central bank is desired by the most central banks around the world in the context of the need of the public disclosure of macroeconomic models, the quarterly time series for indicators like: inflation, output, budgetary deficit, public debt, interest rate, inflation expectations, the public announcement of the monetary policy decisions, objectives and targets, the publication of some key monetary tools like: inflation report, financial stability report, monetary policy committee report, annual report. These are all key issues in the construction of a more transparent and independent central bank in the context of a good global governance. Moreover, for the fruitful success of the central bank, latum sensu, and monetary policy, stricto sensu, it must be encompassed a complex monetary policy committee mechanism. This complex mechanism must by edowed with the collegial approach of the monetary policy committee, structure of the voting mechanism within the committee, the importance of the person which announces the changes within the interest rates and the public disclosure of these information’s enriched in a communication strategy. This communication strategy is very important for assessing and public understanding of the central bank’s actions but also for communicating the objectives, targets and forward looking approaches of the monetary

  12. Anti-crisis monetary policy on the example of selected central banks in 2007-2011

    Directory of Open Access Journals (Sweden)

    Łukasz Kluczyński

    2015-04-01

    Full Text Available The purpose of this article was to present the actions of the monetary authorities in the light of the recent financial crisis. Destabilization of global markets and the economic recession that began with the collapse of Lehman Brothers meant that the standard monetary policy emerged ineffective in combating the crisis. The article shows how two major central banks of the world that is, the FED and the ECB, through modifying the existing instruments of monetary policy and the introduction of completely new tools tried to restore liquidity in the financial markets, after the standard monetary policy instruments have been insufficient and ineffective. In contrast, activities of the NBP also shown, which were primarily preventive aspect.

  13. Fiscal and monetary policies in the South Pacific Island countries: an evaluation.

    Science.gov (United States)

    Jayaraman, T K

    2000-06-01

    This paper evaluates the fiscal and monetary policies of South Pacific Island Countries (SPICs) in terms of its efficacy on economic growth. To this effect, the backgrounds on the existing fiscal and monetary policies are discussed with emphasis on their inefficiencies and limitations. In addition, the findings of an empirical study conducted in the countries of Fiji, Tonga, Vanatau, and Samoa regarding the efficacy of the policies are presented. The results, which were subjected to various tests of statistical significance, indicate that both policies were ineffective in all four SPICs. However, monetary policy had a positive impact on growth in Fiji, Tonga, and Vanatau. In view of such, several policy implications are cited, including 1) that delays and inefficiencies involved in the execution of public projects should be minimized; 2) quality and components of public expenditures is of critical significance; and 3) financial sectors should be improved.

  14. Integration of Monetary and Fiscal Policy of the Countries of the Visegrad Group

    Directory of Open Access Journals (Sweden)

    Kappel Stanislav

    2014-09-01

    Full Text Available The aim of this paper is to evaluate mutual interaction of monetary and fiscal policies in the countries of the Visegrad group, i.e. in the Czech Republic, Slovakia, Poland and Hungary. The relationship of monetary and fiscal policy - their coordination, cooperation or mutual antagonism - are basic determinants of successful implementation for economic policy of the state. Fiscal and monetary policies usually have different aims, and some conflict situations may arise in practical economic and political decision- making. Each policy has to make its decision with regard to the other one. Methodical approaches of this contribution are based on the game theory, which deals with the analysis of a wide range of decision situations with more participants (players and it is primarily focused on the conflict situations. This game-theoretical approach is responsible for creating the theoretical model which is then dealt with in the empirical analysis. We find a distinctly stabilizing role of monetary policy and relatively problematic stabilizing role of fiscal policy in the analyzed countries. The dominant role of monetary policy is statistically confirmed in the case of the Czech Republic and Hungary.

  15. Effectiveness of China's Monetary Policy and Reform of Its Foreign Exchange System

    Institute of Scientific and Technical Information of China (English)

    Xinhua Gu; Lan Zhang

    2006-01-01

    This paper examines the effectiveness of China's monetary policy in curbing the overheating and speculation problems under the current foreign exchange system. The paper stresses the necessity of capital controls in China's gradual foreign exchange reform and the importance of credible government policy in guiding market expectations. Also, the paper discusses the persistence of China's external imbalance, and provides policy recommendations for its reduction.

  16. Hazardous Times for Monetary Policy : What do Twenty-three Million Bank Loans Say about the Effects of Monetary Policy on Credit Risk?

    NARCIS (Netherlands)

    Jiminez, G.; Ongena, S.; Saurina, J.

    2007-01-01

    We investigate the impact of the stance and path of monetary policy on the level of credit risk of individual bank loans and on lending standards. We employ the Credit Register of the Bank of Spain that contains detailed monthly information on virtually all loans granted by all credit institutions

  17. Hazardous Times for Monetary Policy : What do Twenty-three Million Bank Loans Say about the Effects of Monetary Policy on Credit Risk?

    NARCIS (Netherlands)

    Jiminez, G.; Ongena, S.; Saurina, J.

    2007-01-01

    We investigate the impact of the stance and path of monetary policy on the level of credit risk of individual bank loans and on lending standards. We employ the Credit Register of the Bank of Spain that contains detailed monthly information on virtually all loans granted by all credit institutions o

  18. Interaction between fiscal and monetary policy in a dynamic nonlinear model.

    Science.gov (United States)

    Bertella, Mario A; Rego, Henio A; Neris, Celso; Silva, Jonathas N; Podobnik, Boris; Stanley, H Eugene

    2015-01-01

    The objective of this study is to verify the dynamics between fiscal policy, measured by public debt, and monetary policy, measured by a reaction function of a central bank. Changes in monetary policies due to deviations from their targets always generate fiscal impacts. We examine two policy reaction functions: the first related to inflation targets and the second related to economic growth targets. We find that the condition for stable equilibrium is more restrictive in the first case than in the second. We then apply our simulation model to Brazil and United Kingdom and find that the equilibrium is unstable in the Brazilian case but stable in the UK case.

  19. Interaction between fiscal and monetary policy in a dynamic nonlinear model.

    Directory of Open Access Journals (Sweden)

    Mario A Bertella

    Full Text Available The objective of this study is to verify the dynamics between fiscal policy, measured by public debt, and monetary policy, measured by a reaction function of a central bank. Changes in monetary policies due to deviations from their targets always generate fiscal impacts. We examine two policy reaction functions: the first related to inflation targets and the second related to economic growth targets. We find that the condition for stable equilibrium is more restrictive in the first case than in the second. We then apply our simulation model to Brazil and United Kingdom and find that the equilibrium is unstable in the Brazilian case but stable in the UK case.

  20. The narrative approach for the identification of monetary policy shocks in small open economies

    OpenAIRE

    Eleni Angelopoulou

    2007-01-01

    This paper reviews 22 years of UK monetary policy (1971-1992) using official record from the Quarterly Bulletin of the Bank of England. A definition of policy shocks, which allows for the exclusion of cases of interest rate increases, which were unrelated to the monetary policy objectives, is used. The empirical analysis shows that output displays the usual hump-shaped response after a shock to the policy indicator but adjustment to pre-shock levels is slow. Other variables also display theor...

  1. MONEY: FROM STATISTICAL DEFINITION TO MONETARY POLICY FOR ADOPTING EURO.

    Directory of Open Access Journals (Sweden)

    Zapodeanu Daniela

    2011-07-01

    Full Text Available Abstract: The evolution of monetary aggregates is closely related to the economic cycle, especially the evolution of GDP. The study aims to analyse the primary monetary aggregates (M1, the secondary (M2 and the tertiary (M3 in three Central and Eastern European countries: Romania, Bulgaria and Poland. The countries were chosen as follows: Romania and Bulgaria on the basis of the economic and geographical closeness and Poland as a benchmark for the first group. The data used are money supply, monetary aggregates: primary, secondary and tertiary, in Romania, Poland and Bulgaria, for the period January 2004 - March 2011, the monthly series are obtained from central bank websites, Poland's Central Bank and Bulgarian National Statistical Institute. The evolution of monetary aggregates of the three countries was compared with the Euro area and it was noticed a high degree of similarity between countries more developed economically as compared to less developed countries. From the viewpoint of optimum currency areas, it is necessary that the countries that adopt the Euro would respond symmetrically to external shocks and also have similar economic behaviour. Our study aims, in this respect, to analyse the components and the characteristics of the monetary aggregates, as well as the trends existing within them. The analysis of the correlation between monetary aggregates will show how the way in which the monetary mass and aggregates behave and which the sense of connection established between these countries is. We find that Romania and Bulgaria have a similar comportment, the correlation between these being the highest, we observe some differences between Romania and Bulgaria versus Poland.

  2. The impact of monetary policy on output and inflation in India: A frequency domain analysis

    Directory of Open Access Journals (Sweden)

    Salunkhe Bhavesh

    2017-01-01

    Full Text Available In the recent past, several attempts by the RBI to control inflation through tight monetary policy have ended up slowing the growth process, thereby provoking prolonged discussion among academics and policymakers about the efficacy of monetary policy in India. Against this backdrop, the present study attempts to estimate the causal relationship between monetary policy and its final objectives; i.e., growth, and controlling inflation in India. The methodological tool used is testing for Granger Causality in the frequency domain as developed by Lemmens et al. (2008, and monetary policy has been proxied by the weighted average call money rate. In view of the fact that output gap is one of the determinants of future inflation, an attempt has also been made to study the causal relationship between output gap and inflation. The results of empirical estimation show a bi-directional causality between policy rate and inflation and between policy rate and output, which implies that the monetary authorities in India were equally concerned about inflation and output growth when determining policy. Furthermore, any attempt to control inflation affects output with the same or even greater magnitude than inflation, thereby damaging the growth process. The relationship between output gap and inflation was found to be positive, as reported in earlier studies for India. Furthermore, the output gap causes inflation only in the short-tomediumrun.

  3. Revival of Legacy of Tooke and Gibson: Implications for Monetary Policy

    Directory of Open Access Journals (Sweden)

    Rehman Atiq-ur

    2015-05-01

    Full Text Available The monetary policy rules used by central banks these days are based on the assumption that inflation could be reduced by increasing interest rate. On contrary, Tooke (1774-1858, the forefather of monetary economics, was of the view that the relationship between interest rate and inflation should be positive. His view was based on simple logic, ‘interest is a part of cost, and therefore, the increase in interest rate should increase inflation by increasing cost of production (Tooke, 1838’. Tooke’s view has got support from a number of empirical evidence including Gibson (1923 who found positive correlation between two variables for UK data over a period of 200 years. On the other hand, mainstream economic thinking on which the actual monetary practices are based ignored any possibility of positive relationship between interest rate and inflation throughout the history. The existence of Tooke’s cost side effects of monetary policy is a serious concern because if these effects exist than the use of monetary policy would be counterproductive. Using the data from entire globe, I attempt to explore the nature of relationship between the interest rate and inflation. I found that the data supports the perception of Tooke and Gibson and denies that the effectiveness of monetary policy currently adapted by the correlation between interest rate and inflation is positive. The results are robust to sample size, sample period, and various definitions of interest rate and inflation.

  4. UNCONVENTIONAL MONETARY POLICY: CHANGING EUROPEAN CENTRAL BANK’S PERSPECTIVE ON FINANCIAL GOVERNANCE

    Directory of Open Access Journals (Sweden)

    Bogdan Munteanu

    2017-06-01

    Full Text Available The paper aims to look at the European Central Bank governance in terms of decisions taken to deploy a new kit of unconventional monetary policy measures, in order to respond to a new economic paradigm characterized by dynamic change in evolution, high volatility and enhanced financial risks. As an institution, the European Central Bank is led by the Governing Council and the decisions taken on how to use monetary policy impact an entire financial system. European Central Banking governance is about safeguarding the common currency and ensuring a future for the economic and monetary area to emerge stronger. For this purpose, when conventional monetary policies reach limits in their effects, it is time for the European Central Bank governance to analyse and assume the decision to deploy the arsenal of unconventional monetary policies. The experience of recent years showed a positive effect of the European Central Bank’s unconventional monetary measures, but costs could rise in case of extensive use of such measures. When these measures are used in combination, the effect is amplified and the European Central Bank needs to assess when it is time to withdraw the support, how to communicate and what exit strategy should use, what the costs are and impact can expect.

  5. An empirical analysis of Singapore’s monetary and exchange rate policies in the 1990s

    Directory of Open Access Journals (Sweden)

    R.C. MAYSAMI

    1998-03-01

    Full Text Available The economy of Singapore has remained relatively unscathed from the Asian currency crisis of 1997 and 1998 which has severely crippled the markets of Hong Kong, Indonesia, and Malaysia. The Monetary Authority of Singapore, which has overseen the country's financial development since the 1960s, has maintained sound monetary policy which has saved the economy from ruin. The government, unlike those of other countries, has also regulated real estate loans and land development and has strengthened its basic services of telecommunications and transport. The present work seeks to re-examine the conflict between monetary stability and exchange rate objectives. The authors seek to find out which policy goal the Monetary Authority of Singapore has been and should be more interested in.

  6. Civil monetary penalties--weapon against fraud or instrument of health policy?

    Science.gov (United States)

    Barton, H M

    1989-06-01

    Most physicians are aware of the highly publicized aspects of government health care regulation, including attempts at mandatory physician assignment and recoupment of services deemed medically unnecessary. There is less awareness of the potential pitfalls of civil monetary penalties, as many physicians believe they are primarily applicable to false claim allegations. However, the use of civil monetary penalties is increasing as Congress creates new bases of liability. This development leads to the question: Are civil monetary penalties a weapon against fraud or an instrument of federal policy?

  7. Examining the reaction of monetary policy to exchange rate changes: A nonlinear ARDL approach

    Science.gov (United States)

    Manogaran, Lavaneesvari; Sek, Siok Kun

    2017-04-01

    Previous studies showed the exchange rate changes can have significant impacts on macroeconomic performance. Over fluctuation of exchange rate may lead to economic instability. Hence, monetary policy rule tends to react to exchange rate changes. Especially, in emerging economies where the policy-maker tends to limit the exchange rate movement through interventions. In this study, we seek to investigate how the monetary policy rule reacts to exchange rate changes. The nonlinear autoregressive distributed lag (NARDL) model is applied to capture the asymmetric effect of exchange rate changes on monetary policy reaction function (interest rate). We focus the study in ASEAN5 countries (Indonesia, Malaysia, Philippines, Thailand and Singapore). The results indicated the existence of asymmetric effect of exchange rates changes on the monetary reaction function for all ASEAN5 countries in the long-run. Where, in majority of the cases the monetary policy is reacting to the appreciation and depreciation of exchange rate by raising the policy rate. This affirms the intervention of policymakers with the `fear of floating' behavior.

  8. Monetary policy rules and external shocks an a semi-dollarized economy

    Directory of Open Access Journals (Sweden)

    Oscar Dancourt

    2014-01-01

    Full Text Available The 2008-2009 crisis showed that the main macroeconomic challenge facing an economy such as Peru's is the management of external shocks that deteriorate the balance of payments and reduce aggregate demand. The aim of this paper is to discuss what the monetary policy response to theseexternal shocks should be. Since inflation targeting was implemented in 2002, the most important instrument of Peruvian monetary policy has been a short-term interest rate. Another key instrument of monetary policy has been sterilized intervention in the foreign exchange market. In order to compare the different monetary policy responses to external shocks, these central bank instruments are incorporated into a textbook IS-LM-BP model. This model is adapted to the financial conditions of an economy such as Peru’s, which has a banking system that operates in both domestic and foreign currency.The conclusion of this paper, in keeping with that of Blanchard et al. (2010, is that a monetary policy which combines a Taylor rule for setting the interest rate, aimed at internal equilibrium, with a foreign exchange intervention policy of leaning against the wind, aimed at external equilibrium, can stabilize both price levels and economic activity in the face of external shocks.The central bank should reduce the interest rate and sell foreign currency to face adverse external shocks, and should raise the interest rate and buy foreign currency to face favorable external shocks.

  9. CONSIDERATIONS ON MONETARY POLICY HELD BY THE CENTRAL BANK TO ADOPT THE EURO

    Directory of Open Access Journals (Sweden)

    Zoicas-Ienciu Adrian

    2010-07-01

    Full Text Available The current paper presents some considerations regarding the monetary policy held by the central bank in order to obtain the declared goal of joining the European Monetary Union. The paper refers to the strategies included in the National Accession Plan, and in the Convergence Program established by the National Bank of Romania. Furthermore, the paper presents some of the recent developments and the technical developments.

  10. The Transition to Marked-Based Monetary Policy: What Can China Learn from the European Experience?

    OpenAIRE

    Oxelheim, Lars; Forssbæck , Jens

    2007-01-01

    We discuss the prospects for Chinese money market development and transition to market-based monetary policy operations based on a comparative historical analysis of the present Chinese situation and the development in 11 European countries from 1979 up to the launch of European Economic and Monetary Union (EMU). Central banks in the latter group typically had an incentive to encourage the formation of efficient benchmark segments in the domestic money markets for the conduct of open market o...

  11. Monetary policy implementation and money demand instability during the financial crisis

    OpenAIRE

    Svatopluk Kapounek

    2011-01-01

    The author focuses on the money endogeneity in the context of common monetary policy implementation in the euro area. The empirical analysis shows money demand function instability during the financial crisis. The instability is described by decrease in credit money creation and money velocity changes. The cointegration tests identifed long-run positive relationship between monetary aggregates and economic activity. Concurrently, the economic activity is treated to be weakly exogenous in the ...

  12. The Research on the Decision-making Mechanism of China's Monetary Policy Regulation

    Institute of Scientific and Technical Information of China (English)

    GUO Ju'e

    2002-01-01

    The article adopts the quarterly data of the monetary and macroeconomics variables from 1978 ~ 1999, applies the asymmetrical information game analysis, the regression and cointegration errorcorrection model, to investigate on the decision-making mechanism of money supply and money regulation project. It suggests the regulation process which central bank controls with instruments of the monetary policy and the mode detail of its operation.

  13. Monetary Policy and the Distribution of Wealth in a OLG Economy with Heterogeneous Agents, Money and Bequests

    OpenAIRE

    Longaretti, R; Delli Gatti, D.

    2002-01-01

    We develop an OLG model in which the distribution of wealth makes monetary policy non-superneutral at the individual level. In other words monetary policy may have distributional consequences. We demonstrate that in a representative agent economy, monetary policy would be superneutral both at the individual and at the aggregate level. On the contrary if agents differ from one another as far as income and wealth are concerned, there exists a mean field effect that makes money non-superneutral ...

  14. Monetary policy and the punch bowl: The case for quantitative policy and wage growth targeting

    OpenAIRE

    Thomas I. Palley

    2017-01-01

    Federal Reserve Chairman William McChesney Martin famously declared that the Federal Reserve "is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up." This paper uses the punch bowl metaphor to analyze how the Federal Reserve can improve monetary policy so as to deliver shared prosperity with greater financial stability. The problem is the party starts earlier on Wall Street than Main Street, so the Fed may remove the punchbowl bef...

  15. A DSGE Model for China’s Monetary and Macroprudential Policies

    OpenAIRE

    Sinclair, Peter; Sun, Lixin

    2014-01-01

    This paper develops a calibrated DSGE model for simulating China’s monetary policy and macroprudential policy. The empirical results show, first, that the interest rate is a better instrument for China’s monetary policy than the required reserve ratio when the central bank is solely concerned by the price stability; second, that the loan-to-value (LTV) ratio is a very useful macroprudential tool for China’s financial stability, and the required reserve ratio could be used as an instrument for...

  16. Recent Monetary Policy Statement of Bangladesh Bank (July 2009) : An Analytical Commentary

    OpenAIRE

    Debapriya Bhattacharya; Towfiqul Islam Khan

    2012-01-01

    Monetary policy is the process by which the central bank of a country controls the supply of money, the availability of money, and the cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy. Fiscal policy induced demand management approach as propagated by Keynes, which was popular in the postGreat Depression period, later made way to monetary policy led stabilisation approach in the period of high inflation of 1970s....

  17. Recent developments in monetary macroeconomics and U.S. dollar policy

    OpenAIRE

    Gavin, William T.

    2005-01-01

    This paper summarizes recent developments in the theory and practice of monetary policy in a closed economy and explains what these developments mean for United States dollar policy. There is no conflict between what is appropriate U.S. monetary policy at home or abroad because the dollar is the world's key currency. Both at home and abroad, the main problem for U.S. policymakers is to provide an anchor for the dollar. Recent experience in other countries suggests that a solution is evolving ...

  18. The impact of monetary policy on household consumption in South Africa: Evidence from vector autoregressive techniques

    Directory of Open Access Journals (Sweden)

    Emmanuel Owusu-Sekyere

    2017-07-01

    Full Text Available Background: This article adds to scarce sub-Saharan African and South African literature on monetary policy transmission mechanisms by looking into: (1 the Keynesian interest rate channel of monetary policy transmission in South Africa, focussing on the behaviour of household credit and household consumption; (2 using the time-varying parameter vector autoregressive (VAR techniques with stochastic volatility to capture the time-varying nature of the underlying structure of the South African economy to see whether it performs better than the constant parameter VAR in so doing and (3 policy implications emerging from the findings of the study. Aim: In testing the hypotheses of the interest rate channel of monetary policy transmission, the aim is to see how household credit and ultimately household consumption have evolved in South Africa: (1 before inflation targeting (1994–1999, (2 after inflation targeting (2000–2007 and (3 during the global financial crisis (2007–2012 in response to different monetary policy positioning. Setting: We focus on three periods: post transition from apartheid, during inflation targeting and during the global financial crisis, periods which saw changes in the monetary policy stance in South Africa. Methods: Quarterly data from 1994Q1 to 2012Q4, constant parameter VAR and time-varying parameter vector autoregressive (TVP-VAR techniques are used in this study. The use of the TVP-VAR is to capture the time-varying nature of the underlying structure of the South African economy and also to investigate whether it performs better than the constant parameter VAR in so doing. Results: The results show that household credit and consumption declined and stayed negative post transition and after inflation targeting – periods of monetary tightening in South Africa - but increased during the global financial crisis, which saw expansionary monetary policy measures aimed at mitigating the negative output gap in South

  19. Fiscal and Monetary Policy via the Internet and Where Did the Too Many Dollars Come From? Lesson Plans.

    Science.gov (United States)

    Ripp, Ken

    This document contains two lesson plans. The first, "Fiscal and Monetary Policy via the Internet," seeks to expose high school students to Internet technology while introducing them to fiscal and monetary policy. Information gathering skills, economic understanding, policy application, and economic content retention should all be enhanced by this…

  20. Whatever it Takes: The Real Effects of Unconventional Monetary Policy

    NARCIS (Netherlands)

    V.V. Acharya (Viral); T. Eisert (Tim); C. Eufinger (Christian); C.W. Hirsch (Christian)

    2016-01-01

    textabstractLaunched in Summer 2012, the European Central Bank (ECB)’s Outright Monetary Transactions (OMT) program indirectly recapitalized European banks through its positive impact on periphery sovereign bonds. However, the stability reestablished in the banking sector did not fully translate

  1. Brunner on the state of international monetary policy

    Directory of Open Access Journals (Sweden)

    R. SOLOMON

    2013-12-01

    Full Text Available This brief note serves as a response to Karl Brunner’s characterisation of the author’s views on the Bretton Woods system. The author also raises some questions about Brunner’s interpretation of post-World War II international monetary developments.  

  2. Coordination of Public Debt Management and Running Monetary Policy in Croatia

    Directory of Open Access Journals (Sweden)

    Zorica Raspudić Golomejić

    2007-06-01

    Full Text Available This paper deals with the issue of the coordination of public debt management and running monetary policy in Croatia, and draws attention to the importance of this kind of coordination for macroeconomic stability. Particular attention is paid to the management of public debt and the running of monetary policy in Croatia as practiced to date, and the problems that have arisen the while. Also given are the most important measures that the Croatian National Bank has taken to make it easier to manage the public debt and achieve better coordination with the Finance Ministry. There is more detailed discussion of the introduction of open market operations, the most important step taken towards better coordination of the running of monetary policy and the management of the public debt. Since the introduction of open market operations, interest rates on the interbank market and on the government bonds market have oscillated far less and have stabilized at a lower level. This should facilitate public debt management and provide for greater predictability in the planning of debt management costs. The final section discusses the importance of the further development of the government bonds market for the improvement of coordination in Croatia. The conclusion makes concrete proposals for the improvement of coordination: the achievement of an at least approximate consensus about the optimum combination of fiscal and monetary policy and the establishment of mechanisms for regular exchanges of information between the Finance Ministry and the Croatian National Bank for the purpose of harmonizing fiscal and monetary policy.

  3. Impulse-response analysis of monetary policy – Visegád group countries case

    Directory of Open Access Journals (Sweden)

    Kateřina Myšková

    2013-01-01

    Full Text Available In this paper, we focus on comparability of monetary policies of Visegrád group countries (V4. Main objective of central banks function in V4 countries lies in maintaining price stability. For this purpose, inflation targeting regime is realized in a medium-term focus in V4, which means that there is a certain lag between monetary policy operation and its influence on an inflation target. Central bank does not have a direct impact on its ultimate goals. Therefore, any monetary policy analysis and assumption of its effectiveness comes out from an essential existence of a working transmission mechanism. Thus, changes in settings of monetary policy instruments have to be able to inflict causal changes on intermediary markets and via these markets on target markets. This situation can be modeled by the vector autoregressive (VAR model with suitable variables. Our main task is to compare a relationship between VAR model responses to predefined impulses for all V4 pairs. We use calibration technique for this purpose. Specifically, we will utilize one-dimensional calibration model with a linear calibration function for deriving unknown parameters. Moreover, we will test a significance of estimated parameters. We distinguish between model parameters for before-crisis- and during-crisis- data, because we suppose that financial crisis affects VAR model parameters significantly. Different responses in each country can mean the inability of the common monetary policy for V4 at present.

  4. The Bank Lending Channel of Monetary Policy Transmission in A Dual Banking System

    Directory of Open Access Journals (Sweden)

    Mansor H. Ibrahim

    2017-02-01

    Full Text Available This paper examines the impact of monetary policy on bank lending in a dual banking system, i.e. Malaysia. Making use of an unbalanced panel data set of 38 Islamic and conventional banks covering mostly 2001-2014, we find evidence that variations in monetary policy affect lending growth of Islamic banks and, to some extent, conventional banks. The results further reveal that, in conformity with studies using aggregate Islamic financing data, the Islamic financing growth reacts more strongly to monetary policy changes. Moreover, we find no marked difference between full-fledged Islamic banks and Islamic bank subsidiaries in their responses to monetary policy. While we also document some evidence indicating the significant relations between bank-specific variables and lending growth, the bank-specific variables do not seem to have any role in impacting the potency of the bank lending channel. Finally, we find that lending growth is directly related to economic growth, suggesting procyclicality of bank lending/financing in Malaysia. These results have important implications for effective implementation of monetary policy and further development of Islamic banks in Malaysia.

  5. Vector Autoregressions with Parsimoniously Time Varying Parameters and an Application to Monetary Policy

    DEFF Research Database (Denmark)

    Callot, Laurent; Kristensen, Johannes Tang

    the monetary policy response to inflation and business cycle fluctuations in the US by estimating a parsimoniously time varying parameter Taylor rule.We document substantial changes in the policy response of the Fed in the 1970s and 1980s, and since 2007, but also document the stability of this response...

  6. THE ASSET PRICE CHANNEL AND ITS ROLE IN MONETARY POLICY TRANSMISSION

    Directory of Open Access Journals (Sweden)

    Dan Horatiu

    2013-07-01

    Full Text Available his paper addresses the subject of the monetary policy transmission mechanism by focusing on the asset price channel, which is the monetary transmission channel responsible for the propagation of the effects induced by the monetary policy decisions made by the central bank that affect the price of assets. We will analyze the asset price channel by taking a close look at its structure, internal processes and the way it delivers monetary policy throughout the economy, ultimately influencing key variables such as the unemployment rate and the levels of consumption and production. After an introduction dealing with the entire monetary transmission mechanism, its role and purposes, we will focus on the particularities of the asset price channel and the two main ways in which it delivers monetary policy decision effects: through changes in Tobin’s q value, which is the ratio between the market value of a given company and its replacement cost of capital, and through the effect of wealth, both of financial and housing nature, on consumption. In our study, we will consider theoretical aspects and observations, but also empirical evidence that highlights that the exact way in which the asset price channel functions may differ from one economy to another due to differences in the structures of the respective economies and differences in psychology and cultural values of consumers. The deep understanding of the asset price transmission channel is very important for any central bank, as this is the channel that governs key aspects of monetary policy transmission linked to the market value of assets and individual wealth. These values have, as we will see in more detail throughout the paper, an important impact on both consumption and investment, two economic actions that can help the economy, but can also prove to be a crucial element in starting and perpetuating an economic crisis.

  7. Assessment of the monetary policy transmission mechanism in the new EU member states

    Directory of Open Access Journals (Sweden)

    Bungin Sanja

    2016-01-01

    Full Text Available In order to completely understand and analyse the transmission mechanism, it is necessary to observe all factors conditioning its overall efficiency as well as the efficiency of individual transmission channels. This paper focuses on countries that have successfully passed the transition period and have experience with implementing different monetary policy regimes. The evolution of monetary policy resulted in the development of instruments through which central banks influence the real sector activity by means of a transmission mechanism. The empirical analysis based on econometric tools investigates the efficiency of transmission mechanism channels, or more precisely, their significance in the monetary targeting regime. With a view to reaching the conclusion about the direction in which it is necessary to develop the structure of the real and financial sector, aimed at a better functioning of monetary policy instruments, the paper features a theoretical analysis of the characteristics of the monetary policy in the developed economies, as well as the structural characteristics of these economies.

  8. MONETARY POLICY SHOCKS AND ISLAMIC BANKS DEPOSITS IN INDONESIAN DUAL BANKING SYSTEM AFTER THE FINANCIAL CRISIS

    Directory of Open Access Journals (Sweden)

    Ahmad Affandi

    2017-03-01

    Full Text Available Use of riba (usury in the economic system remained a key factor that led to financial crisis since theinception of modern economy in the late of 17th century. Implementation of interest based monetary policystipulated rampant speculation as common practices in the global financial sector. Although Islamic bankingwas governed by syariah (Divine Law, which was assumed to be resilient from distress, the volatility ofinterest movement would generally affect Islamic banks operations in a dual banking system. This paperwould look at this issue and would empirically explore the dynamic inter-relationships between deposits ofIslamic banks with monetary policy variables in Indonesia. In terms of market share, as of 2009, Islamicbanking asset in Indonesia was a meager 2%. The industry had been affected by few monetary policy shockson its deposits and financing. The study would employ vector auto regression model (VAR to explore thedynamics between the variables. The study would focus on data from 2004 to 2008 or performance after theAsian financial crisis. The results from these tests determined that shariah based deposits played significantrole in transmitting monetary policy effects to the economy. This study found that Islamic banking depositsin Indonesia were not sensitive to monetary policy changes. This study also concluded that IndonesianIslamic banks were resilient to financial crisis.

  9. A structural dynamic factor model for the effects of monetary policy estimated by the EM algorithm

    DEFF Research Database (Denmark)

    Bork, Lasse

    This paper applies the maximum likelihood based EM algorithm to a large-dimensional factor analysis of US monetary policy. Specifically, economy-wide effects of shocks to the US federal funds rate are estimated in a structural dynamic factor model in which 100+ US macroeconomic and financial time...... series are driven by the joint dynamics of the federal funds rate and a few correlated dynamic factors. This paper contains a number of methodological contributions to the existing literature on data-rich monetary policy analysis. Firstly, the identification scheme allows for correlated factor dynamics...... as opposed to the orthogonal factors resulting from the popular principal component approach to structural factor models. Correlated factors are economically more sensible and important for a richer monetary policy transmission mechanism. Secondly, I consider both static factor loadings as well as dynamic...

  10. Cross-correlations between the US monetary policy, US dollar index and crude oil market

    Science.gov (United States)

    Sun, Xinxin; Lu, Xinsheng; Yue, Gongzheng; Li, Jianfeng

    2017-02-01

    This paper investigates the cross-correlations between the US monetary policy, US dollar index and WTI crude oil market, using a dataset covering a period from February 4, 1994 to February 29, 2016. Our study contributes to the literature by examining the effect of the US monetary policy on US dollar index and WTI crude oil through the MF-DCCA approach. The empirical results show that the cross-correlations between the three sets of time series exhibit strong multifractal features with the strength of multifractality increasing over the sample period. Employing a rolling window analysis, our empirical results show that the US monetary policy operations have clear influences on the cross-correlated behavior of the three time series covered by this study.

  11. A structural dynamic factor model for the effects of monetary policy estimated by the EM algorithm

    DEFF Research Database (Denmark)

    Bork, Lasse

    This paper applies the maximum likelihood based EM algorithm to a large-dimensional factor analysis of US monetary policy. Specifically, economy-wide effects of shocks to the US federal funds rate are estimated in a structural dynamic factor model in which 100+ US macroeconomic and financial time...... series are driven by the joint dynamics of the federal funds rate and a few correlated dynamic factors. This paper contains a number of methodological contributions to the existing literature on data-rich monetary policy analysis. Firstly, the identification scheme allows for correlated factor dynamics...... as opposed to the orthogonal factors resulting from the popular principal component approach to structural factor models. Correlated factors are economically more sensible and important for a richer monetary policy transmission mechanism. Secondly, I consider both static factor loadings as well as dynamic...

  12. Money supply growth and inflation – the monetary policy strategy of the European Central Bank

    Directory of Open Access Journals (Sweden)

    Svatopluk Kapounek

    2007-01-01

    Full Text Available The main aim of this article is to find out whether there is a significant relationship between money supply growth and inflation in the Eurozone. For this reason, the monetary policy strategy of the European Central Bank (ECB has been evaluated. Since the establishment of the ECB in January 1999 to May 2003 the ECB‘s monetary policy strategy consisted of three main elements: a quantitative definition of price stability, a prominent role for money in the assessment of risks to price stability (aggregate M3 as a reference value, and a broadly based assessment of the outlook for price developments. Nevertheless, since May 2003 M3 or any other monetary aggregate has lost its prominent role in the ECB‘s strategy. Therefore the nowadays ECB‘s monetary policy strategy consists of a quantitative definition of the primary objective of price stability and an analytical framework based on two pillars – economic analysis and monetary analysis. These two pillars are used by the ECB‘s Governing Council in the overall assessment of risks to price stability and in monetary policy decisions.The empirical part of this article is based on time series correlation between money supply growth and inflation in selected member countries of the Economic and Monetary Union (EMU - Eurozone during the period 1995–2005. The time series are divided into two parts. The first part covers data for selected member countries of the European Union from 1995 till 1998, i.e. before the establishment of the EMU. Whereas the second part includes data for the whole Eurozone since its official start in 1999 to 2005. The time series are adjusted by SARIMA models.

  13. TRANSITION TO INFLATION TARGETING IN UKRAINE: NEW TOOLS FOR MONETARY POLICY

    Directory of Open Access Journals (Sweden)

    S. Naumenkova

    2015-03-01

    Full Text Available Positive experience of inflation targeting in many countries influenced the decision to implement this framework in Ukraine. Authors consider the appropriateness of retaining inflation target under conditions of deteriorating currency market. Uncertainty of forecasts is aggravated by fragile impact of monetary policy on Ukrainian economy in conditions of growing nonlinearity of macroeconomic processes. The authors suggest the possibility of using two channels of transmission mechanism, namely, exchange rate and interest rate, and recommend additional tools to specify targets of monetary policy for the National Bank of Ukraine.

  14. The euro and the large banks’ behaviour within the EMU – Entrepreneurial strategies and monetary policy

    Directory of Open Access Journals (Sweden)

    M. BORCHERT

    1999-03-01

    Full Text Available This paper connects different business cultures of large banks in various countries of the EMU with monetary policy issue of the ECB. First, the banks’ competitive potential as well as their strategic behaviour is outlined. Furthermore, a cluster analysis exhibits some banking groups according to the liability-orientation of the largest EMU-banks, and a factor analysis gives some additional information about their asset-orientation; both business orientations play an important role for the efficiency of monetary policy. FInally, the different cash requirements within the various European countries might lead to totally new bank strategies, yielding to an internationalization of large bank-credits.

  15. ANALYSIS OF TRENDS OF DEBT CRISIS AND MONETARY POLICY IN RUSSIAN FEDERATION

    Directory of Open Access Journals (Sweden)

    Sergey V. Sheremeta

    2014-01-01

    Full Text Available Macroeconomic situation in Russia in 2013-14 characterized by increasing ofthe debt, credit, investment and financial problems that threaten the national financial and economic security. Features of the tight fiscal and monetary policies inRussia, based on the money (emission,credit and interest rate restrictions maylead to a debt crisis, trends of which are appearing now. Therefore it requires the radical change in the financial and monetary policy in order to maintain businessactivity and international competitivenessof Russian.

  16. On the Hump-Shaped Output Effect of Monetary Policy in an Open Economy

    OpenAIRE

    Pierdzioch, Christian; Yener, Serkan

    2004-01-01

    Results of empirical research have revealed a characteristic hump-shaped effect of monetary policy shocks on output: the effect builds to a peak after several months and then gradually dies out. We analyze, in the context of a "new open economy macroeconomics" model, factors that imply a hump- shaped effect of a monetary policy shock on output. We find that a hump- shaped effect of output is likely to result if the model features a "catching up with the Joneses" effect, pricing-to-market beha...

  17. On the Hump-Shaped Output Effect of Monetary Policy in an Open Economy

    OpenAIRE

    Pierdzioch, Christian; Yener, Serkan

    2004-01-01

    Results of empirical research have revealed a characteristic hump-shaped effect of monetary policy shocks on output: the effect builds to a peak after several months and then gradually dies out. We analyze, in the context of a "new open economy macroeconomics" model, factors that imply a hump- shaped effect of a monetary policy shock on output. We find that a hump- shaped effect of output is likely to result if the model features a "catching up with the Joneses" effect, pricing-to-market beha...

  18. IS THERE A LINK BETWEEN MONETARY POLICY AND RISK PERCEPTION IN EASTERN EUROPEAN COUNTRIES IMPLEMENTING INFLATION TARGETING REGIME?

    Directory of Open Access Journals (Sweden)

    Aydan Kansu

    2013-04-01

    Full Text Available Following the recent financial crisis of August 2007 in US, economists and policy makers hold the view that monetary policy may have an effect on real economic activity through ‘risk taking channel’ which indicates the risk behavior of economic agents and the linkages between monetary policy and perception of risk. In this study, we examine whether changes in monetary policy stance influence the risk perceptions and generates any impact on the real side of the economy in Czech Republic, Poland, Russian Federation and Turkey implementing inflation targeting. In the context of a SVAR model, we find that monetary policy does not affect risk perception reflected by stock price variability and any attempt by central banks to stimulate real economic activity through monetary policy also appears to be ineffective in these countries.

  19. Time consistent monetary policy reconsidered: may we have a deflationary bias too?

    OpenAIRE

    Rotondi, Zeno

    2000-01-01

    The celebrated inflationary bias of time consistent monetary policy is re-examined. To this end we consider an extended version of the simple Barro and Gordon framework featuring important aspects of actual policy making such as imperfect instrument control, overlapping wage contracts, policy lags and interest rate control. The model developed provides a counterexample to the standard theory as it yields the result that a deflationary bias may be possible as well. The rationale for this surpr...

  20. Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand.

    OpenAIRE

    Nelson, Edward

    2005-01-01

    This paper studies the Great Inflation in Canada, Australia, and New Zealand. Newspaper coverage and policymakers’ statements are used to analyze the views on the inflation process that led to the 1970s macroeconomic policies, and the different movement in each country away from 1970s views. I argue that to understand the course of policy in each country, it is crucial to use the monetary policy neglect hypothesis, which claims that the Great Inflation occurred because policymakers delegated ...

  1. The effectiveness of monetary policy transmission under capital inflows: Evidence from Asia

    Directory of Open Access Journals (Sweden)

    Sonali Jain-Chandra

    2014-06-01

    Full Text Available The effectiveness of the monetary policy transmission mechanism in open economies could be impaired if interest rates are driven primarily by global factors, especially during periods of large capital inflows. The main objective of this paper is to assess whether this is true for emerging Asia's economies. Using a dynamic factor model and a structural vector autoregression model, we show that long-term interest rates in Asia are indeed predominantly driven by global factors. However, monetary policy transmission mechanism remains effective in the region, as it operates predominantly through short-term interest rates. Nevertheless, the monetary transmission mechanism, though effective, is somewhat weaker in Asia during the periods of surges in capital inflows.

  2. Two Different Views on Monetary Policy Impact: The New Consensus and Post-Keynesian Economics

    Directory of Open Access Journals (Sweden)

    Marius-Corneliu Marinas

    2007-09-01

    Full Text Available The objective of this study is to make a synthesis of the differences between two new macroeconomic views. A New Consensus has arisen among neoclassical and New-Keynesian economists, such as Romer, Taylor and Walsh. This new view seeks to redefine the application of monetary policy by re-specifying the most appropriate monetary rule, which is used for inflation targeting. The framework of the monetary policy impact requires the usage of a expectations augmented Phillips curve, characterized through the lack of trade-off inflation-unemployment in the long-run. Post-keynesian macroeconomic critical, whose promoters are Arestis, Lavoie and Satterfield, argues that for most of the production levels obtained output change has no effect on inflation. This is a re-formulation of the Keynesian aggregate supply curve, which is entirely horizontal.

  3. Nonverbal contention and contempt in U.K. parliamentary oversight hearings on fiscal and monetary policy.

    Science.gov (United States)

    Schonhardt-Bailey, Cheryl

    2017-01-01

    In parliamentary committee oversight hearings on fiscal policy, monetary policy, and financial stability, where verbal deliberation is the focus, nonverbal communication may be crucial in the acceptance or rejection of arguments proffered by policymakers. Systematic qualitative coding of these hearings in the 2010-15 U.K. Parliament finds the following: (1) facial expressions, particularly in the form of anger and contempt, are more prevalent in fiscal policy hearings, where backbench parliamentarians hold frontbench parliamentarians to account, than in monetary policy or financial stability hearings, where the witnesses being held to account are unelected policy experts; (2) comparing committees across chambers, hearings in the House of Lords committee yield more reassuring facial expressions relative to hearings in the House of Commons committee, suggesting a more relaxed and less adversarial context in the former; and (3) central bank witnesses appearing before both the Lords and Commons committees tend toward expressions of appeasement, suggesting a willingness to defer to Parliament.

  4. The zero lower bound on nominal interest rates and monetary policy effectiveness: A survey

    NARCIS (Netherlands)

    C.A. Uilersma

    2003-01-01

    textabstractThis paper surveys the literature on monetary policy at the zero lower bound on nominal interest rates. Certain crucial insights regarding expectations have been neglected in recent research in this field. Taking this into account, the interactions between demand, confidence and supply s

  5. TRANSMISSION MECHANISM OF MONETARY POLICY THROUGH ASSET PRICE IN INDONESIA IN THE PERIOD 2002-2011

    Directory of Open Access Journals (Sweden)

    Puspitasari Wahyu Anggraeni

    2016-12-01

    Full Text Available The objective of this study is to identify the transmission mechanism of monetary policy through the assets price in Indonesia. In practice, Bank of Indonesia and the government implements monetary policies by reducing the Loan to Value ratio and by implementing expansionary policy through Housing Finance Liquidy Facility. The method used in this study is the Vector Autoregression First Difference (DVAR. The specific variables used in this study include long-term mortgage interest rates, housing price index, composite stock price index, hot money, money supply and Gross Dometic Product with the observation period starting in 2002:1-2011:12. Some procedures that will be used to support VAR specification including stationary test, cointegration test, Impulse Response Function, and Variance Decompositiion. Based on the DVAR estimates, the asset prices affect the output through the money supply. These results suggest that asset prices do not directly affect output but through some transmission mechanism. The contraction monetary policy implemented by the monetary authority is therefore effective enough to anticipate economic heating caused by the change in asset price.

  6. Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy.

    Science.gov (United States)

    Christiano, Lawrence J.; Eichenbaum, Martin; Evans, Charles L.

    2005-01-01

    We present a model embodying moderate amounts of nominal rigidities that accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these features, the most important are staggered wage contracts…

  7. The Effect of Monetary Policy on Exchange Rates : How to Solve the Puzzles

    NARCIS (Netherlands)

    Kumah, F.Y.

    1996-01-01

    Recent empirical research on the effects of monetary policy shocks on exchange rate fluctuations have encountered the exchange rate puzzle and th e forward discount bias puzzle.The exchange rate puzzle is the tendency of the domestic currency (of non-US G-7 countries) to depreciate against the US

  8. Money, the Banking System and Monetary Policy in Canada: A Teaching Unit.

    Science.gov (United States)

    Curtis, Douglas C. A.; Staunton, Ted, Ed.

    One of a series of teaching units designed to introduce secondary school students to the Canadian economy, this handbook contains instructional materials on Canada's monetary system and policy. Material is organized and presented in terms of specific topic readings and illustrative activities. The topics covered in six sections are money, the…

  9. The Simple Analytics of Monetary Policy: A Post-Crisis Approach

    Science.gov (United States)

    Friedman, Benjamin M.

    2013-01-01

    The standard workhorse models of monetary policy now commonly in use, both for teaching macro-economics 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 are incapable too of analyzing the actions that monetary…

  10. State Manipulation and Asymptotic Inefficiency in a Dynamic Model of Monetary Policy

    DEFF Research Database (Denmark)

    Jensen, Henrik; Lockwood, Ben

    2000-01-01

    . In a dynamic version of a well-known monetary policy game we show that such asymptotic efficiency may not be possible, as the presence of a state variable introduces the possibility of state manipulation. Moreover, the lowest inflation rate in Nash threats equilibrium may be increasing as players become more...

  11. Industries and the bank lending effects of bank credit demand and monetary policy in Germany

    NARCIS (Netherlands)

    Raabe, K.; Arnold, I.J.M.; Kool, C.J.M.

    2006-01-01

    This paper presents evidence on the industry effects of bank lending in Germany and asks whether bank lending to single industries depends on industry-specific bank credit demand or on monetary policy as determinant of bank credit supply. To this end, we estimate individual bank lending functions fo

  12. Monetary Policy, Inflation and Economic Growth in Pakistan: Exploring the Co-integration and Causality Relationships

    Directory of Open Access Journals (Sweden)

    Imran Sharif Chaudhry

    2012-12-01

    Full Text Available This paper investigates the long run and short run relationships of monetary policy, inflation and economic growth in Pakistan using co-integration and causality analysis during the period 0f 1972-2010. A large number of empirical studies on the relationshipsof monetary policy and inflation are available and most of these have analyzed the effectiveness of monetary policy in controlling inflation in Pakistan. The present study fills the gap in the literature by analyzing the nexus of monetary policy, inflation andgrowth in Pakistan. The results indicate that credit to private sector, the variable of financial depth, real exchange rate and budget deficit are found elastic and significant variables to influence the real GDP in Pakistan. The pair-wise Granger Causality results suggest that real GDP and real exchange rate are causing to each other bi-directionally. The real GDP also do cause financial depth (M2GD, domestic credit (CREDIT and budget deficit (BDEF uni-directionally. The real exchange rate is also causing thefinancial depth and budget deficit variables. The results are consistent with the empirical literature.

  13. Unconventional monetary policies:How effective have been the ECB measures against the financial crisis?

    Institute of Scientific and Technical Information of China (English)

    张伟航; 张浩

    2014-01-01

    In the latest financial crisis, apart from standard practice, ECB conducted a series of unconventional practice, which were ef ective in money market. However, because of the impaired monetary policy transmission mechanism and political independence in Eurozone, the recovery of the real economy is delayed.

  14. Essays in nonlinear dynamics in economics and econometrics with applications to monetary policy and banking

    NARCIS (Netherlands)

    Wolski, M.

    2014-01-01

    This thesis explores the highly nonlinear profile of the modern financial world and assesses its relevance in monetary policy conduct and macroprudential supervision. It focuses on three possible different origins of nonlinear structures. Firstly, we study the role of the heterogeneous and boundedly

  15. Essays in nonlinear dynamics in economics and econometrics with applications to monetary policy and banking

    NARCIS (Netherlands)

    Wolski, M.

    2014-01-01

    This thesis explores the highly nonlinear profile of the modern financial world and assesses its relevance in monetary policy conduct and macroprudential supervision. It focuses on three possible different origins of nonlinear structures. Firstly, we study the role of the heterogeneous and boundedly

  16. Modern Monetary Policy and Central Bank Governance : A Story of Two Tales

    NARCIS (Netherlands)

    Eijffinger, S.C.W.; Masciandaro, D.

    The objective of this note is to present the evolution of both the economics and the political economy of monetary policy in the last three decades – first the Great Moderation and then the Financial Crisis – as a story of two intertwined tales: on the one side the tale of how to govern money and

  17. Monetary Policy, Risk-Taking, and Pricing : Evidence from a Quasi-Natural Experiment

    NARCIS (Netherlands)

    Ioannidou, V.; Ongena, S.; Peydro, J.L.

    2009-01-01

    We analyse the impact of monetary policy on bank risk-taking and pricing. Bolivia provides us with an excellent experimental setting to identify this impact. Its small economy is not synchronized with the US economy but its banking system is almost fully dollarized. Consequently the US federal funds

  18. Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy.

    Science.gov (United States)

    Christiano, Lawrence J.; Eichenbaum, Martin; Evans, Charles L.

    2005-01-01

    We present a model embodying moderate amounts of nominal rigidities that accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these features, the most important are staggered wage contracts…

  19. Money, the Banking System and Monetary Policy in Canada: A Teaching Unit.

    Science.gov (United States)

    Curtis, Douglas C. A.; Staunton, Ted, Ed.

    One of a series of teaching units designed to introduce secondary school students to the Canadian economy, this handbook contains instructional materials on Canada's monetary system and policy. Material is organized and presented in terms of specific topic readings and illustrative activities. The topics covered in six sections are money, the…

  20. State Manipulation and Asymptotic Inefficiency in a Dynamic Model of Monetary Policy

    DEFF Research Database (Denmark)

    Jensen, Henrik; Lockwood, Ben

    2000-01-01

    . In a dynamic version of a well-known monetary policy game we show that such asymptotic efficiency may not be possible, as the presence of a state variable introduces the possibility of state manipulation. Moreover, the lowest inflation rate in Nash threats equilibrium may be increasing as players become more...

  1. The Simple Analytics of Monetary Policy: A Post-Crisis Approach

    Science.gov (United States)

    Friedman, Benjamin M.

    2013-01-01

    The standard workhorse models of monetary policy now commonly in use, both for teaching macro-economics 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 are incapable too of analyzing the actions that monetary…

  2. Deleveraging and Monetary Policy: Japan Since the 1990s and the United States Since 2007

    National Research Council Canada - National Science Library

    Kazuo Ueda

    2012-01-01

    .... I will discuss the use of both the conventional interest rate tool--the federal funds rate in the United States, and the "call rate" in Japan--and nonconventional measures of monetary policy and consider their effectiveness in the context of the rest of the financial system. [PUBLICATION ABSTRACT

  3. The Effect of Monetary Policy on Exchange Rates : How to Solve the Puzzles

    NARCIS (Netherlands)

    Kumah, F.Y.

    1996-01-01

    Recent empirical research on the effects of monetary policy shocks on exchange rate fluctuations have encountered the exchange rate puzzle and th e forward discount bias puzzle.The exchange rate puzzle is the tendency of the domestic currency (of non-US G-7 countries) to depreciate against the US do

  4. Modern Monetary Policy and Central Bank Governance : A Story of Two Tales

    NARCIS (Netherlands)

    Eijffinger, S.C.W.; Masciandaro, D.

    2014-01-01

    The objective of this note is to present the evolution of both the economics and the political economy of monetary policy in the last three decades – first the Great Moderation and then the Financial Crisis – as a story of two intertwined tales: on the one side the tale of how to govern money and in

  5. Firm size, industry mix and the regional transmission of monetary policy in Germany

    NARCIS (Netherlands)

    Arnold, I.J.M.; Vrugt, E.B.

    2004-01-01

    This paper estimates the impact of interest rate shocks on regional output in Germany over the period from 1970 to 2000. We use a vector autoregression (VAR) model to obtain impulse responses, which reveal differences in the output responses to monetary policy shocks across ten German provinces. Nex

  6. Financial imbalances, the dollar exchange rate and international monetary policy.

    Directory of Open Access Journals (Sweden)

    R. TRIFFIN

    2013-12-01

    Full Text Available The continuous and spectacular rise of the dollar on the global foreign exchange market, despite the equally spectacular current account deficit of the U.S. balance of payments, is something that no economist would have dreamed to be possible. Everyone will agree that the answer to the puzzle lies in the fact that the transactions in the current account now constitute only a small part of the gross currency movements, in fact dominated by capital movements. What needs to be explained then is the sheer volume of the total net capital that finances the deficit. The present work considers this paradox, the dollar’s role in the world monetary system and medium and long-term perspectives for the world financial system.

  7. Note on 'Loss of Monetary Discretion in a Simple Dynamic Policy Game'

    DEFF Research Database (Denmark)

    Beetsma, Roel M. W. J.; Bovenberg, A. Lans; Jensen, Henrik

    1996-01-01

    Jensen (1994a) finds that loss of monetary discretion leads to lower welfare. However, by extending his model we show that if real base money holdings are relatively low, as is likely to be the case for modern economics, a zero-inflation rule may well be preferable to monetary discretion....... If the emphasis on achieving the output and public spending targets falls, a zero-inflation rule is more likely to be preferred. The increased support for binding policy rules thus conforms with a less tolerant attitude towards inflation...

  8. Monetary policy implementation and money demand instability during the financial crisis

    Directory of Open Access Journals (Sweden)

    Svatopluk Kapounek

    2011-01-01

    Full Text Available The author focuses on the money endogeneity in the context of common monetary policy implementation in the euro area. The empirical analysis shows money demand function instability during the financial crisis. The instability is described by decrease in credit money creation and money velocity changes. The cointegration tests identifed long-run positive relationship between monetary aggregates and economic activity. Concurrently, the economic activity is treated to be weakly exogenous in the model.The conclusions are discussed with Postkeynesians’ assumption, that central banks cannot fix the stock of money in a country. The causality is directed from economic activity to money demand.

  9. Modern Monetary Policy and Central Bank Governance: A Story of Two Tales

    OpenAIRE

    Eijffinger, S.C.W.; Masciandaro, D.

    2014-01-01

    The objective of this note is to present the evolution of both the economics and the political economy of monetary policy in the last three decades – first the Great Moderation and then the Financial Crisis – as a story of two intertwined tales: on the one side the tale of how to govern money and interest rates in the short run; on the other side the tale of how to design in a longer horizon the monetary architectures. In the tradition the two tales are told separately, where the academic sch...

  10. Monetary Policy and Foreign Exchange Management: Reforming Central Bank Functions in Myanmar

    OpenAIRE

    Nijathaworn, Bandid; Chaikhor, Suwatchai; Chotika-arpa, Suppakorn; Sakkankosone, Suchart

    2015-01-01

    Myanmar’s macroeconomic policy framework does not adequately support the new functions of the Central Bank of Myanmar. The monetary policy regime is deficient and institutions that complement the working of a market-based economy lacking. This paper identifies 10 priority areas for reform to allow the central bank to effectively perform its emerging new functions in support of economic growth and stability. This is a three-front effort: dismantle nonmarket arrangements, especially in the fina...

  11. Monetary Policy and Foreign Exchange Management: Reforming Central Bank Functions in Myanmar

    OpenAIRE

    Nijathaworn, Bandid; Chaikhor, Suwatchai; Chotika-arpa, Suppakorn; Sakkankosone, Suchart

    2015-01-01

    Myanmar's macroeconomic policy framework does not adequately support the new functions of the Central Bank of Myanmar. The monetary policy regime is deficient and institutions that complement the working of a market-based economy lacking. This paper identifies 10 priority areas for reform to allow the central bank to effectively perform its emerging new functions in support of economic growth and stability. This is a three-front effort: dismantle nonmarket arrangements, especially in the fina...

  12. Alternative Monetary Policy Rules in a Small Open Economy with Financial Frictions: The Case of Korea

    Directory of Open Access Journals (Sweden)

    Yongseung Jung

    2011-09-01

    Full Text Available This paper first shows an empirical result of VAR that Korean economy has experienced a severe economic contraction to an exogenous country spread shock. To analyze the effect of alternative monetary policy on the economy, the paper sets up a multi-sector small open economy new Keynesian (NK hereafter model with financial frictions due to asymmetric information between firms and financial intermediaries along the line of Bernanke et al. (1999. It shows that the small economy with financial frictions is more vulnerable to the exogenous shocks such as the foreign exchange rate shock under the fixed exchange rate regime than under the flexible exchange regime. It also shows that the interest rate rule that responds to financial market conditions is better than any other interest rate rules only if it does not react to the exchange rate fluctuations. Moreover, an interest rate rule that responds to the exchange rate fluctuations, i.e. the monetary policy under the managed floating exchange rate regime is inferior to the monetary policy rules that do not respond to the exchange rate fluctuations. Finally, it shows that the monetary authority needs to stabilize a narrow price index such as domestic price index rather than a general price index such as consumer price index under the financial friction circumstances.

  13. Monetary policy and the effects of oil price shocks on the Japanese economy

    Science.gov (United States)

    Lee, Byung Rhae

    1998-12-01

    The evidence of output decreases and price level increases following oil price shocks in the Japanese economy is presented in this paper. These negative effects of oil shocks are better explained by Hamilton's (1996) net oil price increase measure (NOPI) than by other oil measures. The fact that an oil shock has a statistically significant effect on the call money rate and real output and that the call money rate also has a statistically significant effect on real output appears to explain that the effects of oil price shocks on economic activity are partially attributed to contractionary monetary policy responses. The asymmetric effects of positive and negative oil shocks are also found in the Japanese economy and this asymmetry can also be partially explained by monetary policy responses. To assess the relative contribution of oil shocks and endogenous monetary policy responses to the economic downturns, I shut off the responses of the call money rate to oil shocks utilizing the impulse response results from the VAR model. Then, I re-run the VAR with the adjusted call money rate series. The empirical results show that around 30--40% of the negative effects of oil price shocks on the Japanese economy can be accounted for by oil shock induced monetary tightening.

  14. The importance and role of the Central Bank in the creation of a healthy monetary and investment policy

    Directory of Open Access Journals (Sweden)

    Šmigić-Miladinović Jasmina

    2016-01-01

    Full Text Available The paper's starting point is finding an answer to the question: What kind of monetary policy should be followed by the Central bank in new market circumstances? As a major monetary institution, the Central bank should provide credibility for its monetary policy, which is particularly important during a macroeconomic stabilisation. In order to choose the most appropriate monetary policy, its creators should be familiar with the monetary policy's effects on economic activities, first of all on investment activities and the period in which they may occur. The Central bank uses its special status and authorisations to control monetary trends, to keep and handle foreign exchange reserves, to keep banks' required reserves, to manage the country's debt, to be the final creditor of the banking system, to take care of the banking system's liquidity. That is why the Central bank has become important for the functioning of the whole financial market, and especially the monetary market. The Central bank has both direct and indirect influence on the most important events on financial markets, financial system, as well as a wider influence - on a country's whole economy. In order to envisage the financial market's impact on monetary and investment policies, one should begin with the Central bank's role on the financial market, and at the same time analyse the financial market's instruments and institutions.

  15. Fiscal and Monetary Policy Reconsidered, Again: Basic Lessons.

    Science.gov (United States)

    Eisner, Robert

    1993-01-01

    Asserts that many macroeconomics textbooks include arguments about national fiscal policy that may not be relevant nor accurate. Concludes that counter cyclical fiscal policy restricted to changes in income taxes and transfer payments are weak tools in efforts to pull a nation out of recession. (CFR)

  16. Foreign Shocks, Monetary Policy, and Macroeconomic Fluctuations in a Small Open Economy: A SVAR Study of Malaysia

    Directory of Open Access Journals (Sweden)

    Zulkefly Abdul Karim

    2016-06-01

    Full Text Available This paper investigates the effect of foreign shocks upon domestic macroeconomic fluctuations and monetary policy, and examines the effectiveness of domestic monetary policy as a stabilization policy in Malaysia. Monetary policy variables (interest rate and money supply have been measured through a non-recursive structural VAR (SVAR identification scheme, which allows the monetary authority to set the interest rate and money supply after observing the current value of foreign variables, domestic output and inflation. The results show the important role of foreign shocks in influencing Malaysian monetary policy and macroeconomic variables. There is a real effect of monetary policy, that is, a positive shock in money supply increases domestic output. In contrast, a positive interest rates shock has a negative effect on domestic output growth and inflation. The effects of money supply and interest rate shocks on the exchange rate and stock prices are also consistent with standard economic theory. In addition, domestic monetary policy is able to mitigate the negative effect of external shocks upon domestic economy.

  17. Inflation, exchange rate and efficacy of monetary policy in Nigeria: The empirical evidence

    Directory of Open Access Journals (Sweden)

    BigBen Chukwuma Ogbonna

    2016-01-01

    1986 – 2008. Estimates from a vector auto regression model (VAR of key macroeconomic variables demonstrate the weak link between money supply and inflation in the both time horizons, which suggests that the hypothesis that money supply is not an effective policy instrument for management of inflationary developments cannot be rejected for Nigeria. The results further suggest that in both time horizons, exchange rate has been identified as a singular most promising macroeconomic fundamental for both internal and external sectors adjustments. However, the deregulation of the domestic economy as occasioned by SAP has significantly diluted the efficacy of exchange rate as a monetary policy instrument for the management of Nigeria’s aggregate money stock and trade balance developments. These notwithstanding, the Central Bank of Nigeria can continue to play a stabilizing role in the economy through the continuation of prudent monetary policies and frequent interventions in exchange rate management to smooth out shocks.

  18. Coordination between the monetary and public debt management policies in Croatia

    Directory of Open Access Journals (Sweden)

    •Zorica Raspudić Golomejić

    2012-06-01

    Full Text Available This paper explains the main characteristics of and prerequisites for coordination between the measures and instruments of monetary and public debt management policies in Croatia and evaluates current practice, particularly over the last two recession years. Attention is drawn to the importance of coordination for achieving macroeconomic stability and to the main problems and challenges obstructing successful coordination. It is assessed that the Croatian National Bank (CNB, with its measures and instruments, has consistently contributed to improving coordination with the public debt management policy, despite the narrowing of its room for manoeuvre due to a complex economic environment and the specific functioning of the transmission mechanism of monetary policy. Notwithstanding some contribution to coordination made by the Government and Ministry of Finance, they must take measures and employ instruments to make more significant adjustments and, together with the CNB, define an optimum fiscal and monetary policy mix for the future that will ensure stable economic growth. This paper gives an overview of major CNB measures aimed at facilitating the public debt management and improving coordination with the Ministry of Finance, and presents a detailed analysis of open market operations. It also points to a certain contribution of the Ministry of Finance to the coordination improvement, indicating major barriers to effective coordination between these important policies.

  19. Effects of Fiscal and Monetary Policy in the Great Recession

    Directory of Open Access Journals (Sweden)

    Gonzalo Caballero

    2013-09-01

    Full Text Available World economy is living a time of change, and the complexity of change has implied a new research agenda on the role of economic policy in society. The role, types and effects of economic policy have been major issues in economic science since its origins. Jean Tinbergen (1956 [1] established the basis for the traditional theory of economic policy in economics and he tried to show how economic knowledge could be organized to regulate and guide economic systems. Nevertheless, this traditional approach has been improved through several contributions, for example when Eggertsson (1997 [2] incorporated the existence of incomplete knowledge, endogenous politics and institutional change in the theory of economic policy.

  20. Monetary Policy Shocks and Stock Returns Reactions: Evidence ...

    African Journals Online (AJOL)

    Our results indicate that positive interest rate innovations are associated with ... stock returns of companies listed on the Botswana Stock Exchange (BSE). ... policy shocks explain a relatively small proportion of stock returns variability.

  1. Interest rate channel in Romania: assessing the effectiveness transmission of monetary policy impulses to inflation and economic growth

    Directory of Open Access Journals (Sweden)

    Anca Elena NUCU

    2013-02-01

    Full Text Available The purpose of our paper is to evaluate the effectiveness of monetary policy transmission mechanism in Romania, via interest rate channel. Using a Vector Error Correction Model and impulse response analysis, we study the impact of a positive monetary policy shock via short term interest rate on macroeconomic variables over the period 2003M01-2012M06. Our empirical results are in line with economic theory and we can say that we are witnessing to an improvement in the transmission effectiveness of monetary policy impulses via interest rate channel.

  2. Monetary Policy in the Presence of Random Wage Indexation

    NARCIS (Netherlands)

    J.A. Attey (Jonathan); C.G. de Vries (Casper)

    2016-01-01

    textabstractEmpirical estimations suggest heavy-tailed unconditional distributions for inflation, the output gap and the interest rate. However, standard NK models used in policy analysis imply normal distributions for these variables. In this study, we propose a model which replicates the above men

  3. Monetary Policy Shocks and Risk Premia in the Interbank Market

    DEFF Research Database (Denmark)

    Wingender, Asger Moll

    2011-01-01

    futures. However, rate cuts taking place at unscheduled FOMC meetings can increase risk premia during periods of financial distress, consistent with the view that central bank actions under such circumstances are perceived as signals that policy makers have private information of further unfavorable...

  4. Monetary Policy in the Presence of Random Wage Indexation

    NARCIS (Netherlands)

    J.A. Attey (Jonathan); C.G. de Vries (Casper)

    2016-01-01

    textabstractEmpirical estimations suggest heavy-tailed unconditional distributions for inflation, the output gap and the interest rate. However, standard NK models used in policy analysis imply normal distributions for these variables. In this study, we propose a model which replicates the above

  5. Credit market distortions, asset prices and monetary policy

    NARCIS (Netherlands)

    Pfajfar, D.; Santoro, E.

    2014-01-01

    We study the conditions that ensure rational expectations equilibrium (REE) determinacy and expectational stability (E-stability) in a standard sticky-price model augmented with the cost channel. We allow for varying degrees of pass-through of the policy rate to bank-lending rates. Strong cost-side

  6. Credit Market Distortions, Asset Prices and Monetary Policy

    NARCIS (Netherlands)

    Pfajfar, D.; Santoro, E.

    2012-01-01

    Abstract: We study the conditions that ensure rational expectations equilibrium (REE) determinacy and expectational stability (E-stability) in a standard sticky-price model augmented with the cost channel. We allow for varying degrees of pass-through of the policy rate to bank-lending rates. Strong

  7. Credit Market Distortions, Asset Prices and Monetary Policy

    NARCIS (Netherlands)

    Pfajfar, D.; Santoro, E.

    2012-01-01

    Abstract: We study the conditions that ensure rational expectations equilibrium (REE) determinacy and expectational stability (E-stability) in a standard sticky-price model augmented with the cost channel. We allow for varying degrees of passthrough of the policy rate to bank-lending rates. Strong

  8. Credit market distortions, asset prices and monetary policy

    NARCIS (Netherlands)

    Pfajfar, D.; Santoro, E.

    2014-01-01

    We study the conditions that ensure rational expectations equilibrium (REE) determinacy and expectational stability (E-stability) in a standard sticky-price model augmented with the cost channel. We allow for varying degrees of pass-through of the policy rate to bank-lending rates. Strong cost-side

  9. Restoring international competitiveness in Croatia: The role of fiscal and monetary policy

    Directory of Open Access Journals (Sweden)

    Ćorić Tomislav

    2013-01-01

    Full Text Available Croatia has joined the European Union as a country with several substantial structural problems, of which the most important is weak competitiveness. Although competitiveness can be viewed from the ‘institutional’ perspective, which includes World Development Indicators (WDI and Doing Business reports, in this paper the authors focus on the more standard view of competitiveness based on unit labour costs (ULC and real effective exchange rate (REER. As a small, open and highly dollarized/euroised economy that has to coordinate its economic policy with the EU policy framework, Croatia has limited space for increasing international competitiveness using monetary policy measures aimed at (nominal devaluation of the national currency. Therefore economic policy stakeholders should focus on decreasing unit labour costs and real effective exchange rate mainly through the process of internal devaluation, which is based on adequate fiscal policy measures. In this paper the authors analyse the role of monetary and fiscal policy in the deteriorating real effective exchange rate and unit labour costs since 2000, and their current capabilities and restrictions in restoring international competitiveness. The Structural VAR model (SVAR is used to estimate the effects of foreign (banking capital, credit growth, and current public expenditure on REER and ULC. The preliminary hypothesis of the paper is that monetary policy should continue to support bank lending activities and the role of fiscal policy is to achieve an internal devaluation, which will increase the competitiveness of the Croatian economy. Restoring international competitiveness is necessary due to its impact on net exports and consequently the economic recovery of the national economy, which has faced recession conditions for five years in a row. Also, restoring competitiveness is one of the most important preconditions for the success of a small country joining the single European market.

  10. The structure of financial markets and the modus operandi of monetary policy: Lindahl and Ohlin compared

    Directory of Open Access Journals (Sweden)

    D. TROPEANO

    2013-12-01

    Full Text Available In the recent literature on financial markets a clear line of demarcation can be traced between models that support theories of the efficiency of financial markets and those that refute them. The principal differences between the two approaches have to do with the whole of information available to economic agents and the treatment of risk. Depending on whether the hypothesis of the efficiency of financial markets is accepted or refuted, different evaluations of the effects of monetary policy are justified. The work looks at the relationship between the structure of financial markets and the effectiveness of monetary policy, and in particular the positions of Lindahl and Ohlin of the Swedish school.

  11. MANAGEMENT OF SUSTAINABLE SOCIO-ECONOMIC DEVELOPMENT OF REGIONS WITHIN FISCAL AND MONETARY POLICY IN RUSSIA

    Directory of Open Access Journals (Sweden)

    T. Usmanova

    2016-01-01

    Full Text Available Strategy of social and economic development of regions has to be a basis for formation budgetary and tax and a monetary policy. Formation of strategic plans have to provide an exit to the new level of innovative economic and social development of Russia. Adaptation of the current legislation is necessary for the solution of the set major problems regarding budgetary and tax and a monetary policy in the Russian Federation. The important direction of development of social and economic development of territories is the clustering and formation of projects of the public-private partnership (PPP. Within integration of the countries into the world economy the organizations as systems in the form of clusters and the PPP projects can only be the competitive. Within formation of the organizations as systems it is necessary to provide formation of standards of a sustainable development (SEU for social protection of the population and increase of the human capital.

  12. VAR ANALYSIS OF THE TRANSMISSION MECHANISM OF MONETARY POLICY IN ROMANIA

    Directory of Open Access Journals (Sweden)

    Zina CIORAN

    2015-04-01

    Full Text Available The purpose of this article is to evaluate the efficiency of the monetary policy impulses transmission on inflation and unemployment in Romania, through the interest rate channel and to show the role played by interest rate in the transmission mechanism of monetary policy impulses. I have also revised a variable’s response to the shocks of another variable VAR analysis. VAR analysis on Romania during 2005 - 2013 shows that an interest rate shock can explain the movement in inflation and unemployment rates. We find that there are significant changes in the interest rate based on the inflation rate, and vice versa, due to the relationship of co-integration between variables.

  13. Strategic interaction between fiscal and monetary policies in an export-oriented economy

    Directory of Open Access Journals (Sweden)

    Merzlyakov Sergey

    2012-01-01

    Full Text Available Solving the problem of stabilizing the economy is directly tied to the necessity of keeping the main macroeconomic variables stable. However, macroeconomic stability is not in the general case a purely fiscal or a purely monetary problem. How the central bank and the government interact is of principle importance. We investigate the impact of macroeconomic policies on the dynamics of the exchange rate, inflation, output and stabilization fund and consider different forms of strategic interaction between the government and the central bank. In this paper we build a stylized model of an export-oriented economy. We use numerical examples for our analysis and practical conclusions. The effective interaction of fiscal and monetary policies is possible under a cooperative Stackelberg game interaction with the government as leader. It is shown that the independence of the central bank does not play a crucial role.

  14. VAR ANALYSIS OF THE TRANSMISSION MECHANISM OF MONETARY POLICY IN ROMANIA

    Directory of Open Access Journals (Sweden)

    Zina CIORAN

    2015-04-01

    Full Text Available The purpose of this article is to evaluate the efficiency of the monetary policy impulses transmission on inflation and unemployment in Romania, through the interest rate channel and to show the role played by interest rate in the transmission mechanism of monetary policy impulses. I have also revised a variable’s response to the shocks of another variable VAR analysis. VAR analysis on Romania during 2005 - 2013 shows that an interest rate shock can explain the movement in inflation and unemployment rates. We find that there are significant changes in the interest rate based on the inflation rate, and vice versa, due to the relationship of co-integration between variables.

  15. TIME INCONSISTENCY AND REPUTATION IN MONETARY POLICY: A STRATEGIC MODELLING IN CONTINUOUS TIME

    Institute of Scientific and Technical Information of China (English)

    Li Jingyuan; Tian Guoqiang

    2008-01-01

    This article develops a model to examine the equilibrium behavior of the time inconsistency problem in a continuous time economy with stochastic and endogenized dis-tortion. First, the authors introduce the notion of sequentially rational equilibrium, and show that the time inconsistency problem may be solved with trigger reputation strategies for stochastic setting. The conditions for the existence of sequentially rational equilibrium are provided. Then, the concept of sequentially rational stochastically stable equilibrium is introduced. The authors compare the relative stability between the cooperative behavior and uncooperative behavior, and show that the cooperative equilibrium in this monetary policy game is a sequentially rational stochastically stable equilibrium and the uncooper-ative equilibrium is sequentially rational stochastically unstable equilibrium. In the long run, the zero inflation monetary policies are inherently more stable than the discretion rules, and once established, they tend to persist for longer periods of the time.

  16. Monetary policy and banking supervision: still at arm's length? A comparative analysis

    Directory of Open Access Journals (Sweden)

    Donato Masciandaro

    2012-12-01

    Full Text Available By the early 2000s an increasing number of countries had adopted a well-defined central bank framework, characterized by two intertwined features: stronger specialization for the banking authority in achieving monetary policy goals, and a lessening of its traditional responsibilities for the safeguard of financial stability within its institutional perimeter. The fundamental effect was that Central Bank Involvement in Supervision (CBIS generally decreased. But then, after the Financial Crisis erupted in 2008, reforms have been undertaken and projects are being discussed to reconsider the role of the central bank in the field of supervisory tasks. The main research question is then: how is CBIS moving? This article offers two contributions. Firstly, the economics of the relationship between central banking, monetary policy and banking supervision is reviewed. Secondly, the current situation of CBIS in 88 countries around the world is analyzed.

  17. Business cycles and monetary policy asymmetry: An investigation using Markov-switching models

    Science.gov (United States)

    Tan, Siow-Hooi; Habibullah, Muzafar Shah

    2007-07-01

    This study assesses empirically the effects of monetary policy on four ASEAN economies in different states. The idea of asymmetry is being examined by using the relatively popular technique of non-linear modeling-Hamilton's Markov regime-switching model. The findings confirmed the existence of two-regimes in all economies under study. Additionally, the null hypothesis of symmetry had been rejected in the case of the four economies and to a great extent, monetary policy was confirmed to have had larger effects during recessions. These findings, thus, may imply the important role that credit market imperfections have on a firm's investment behavior, which in turn suggests that the financial accelerator is a relevant mechanism underscoring the observed asymmetry.

  18. Effects of Fiscal Policy and Monetary Policy on the Stock Market in Poland

    Directory of Open Access Journals (Sweden)

    Yu Hsing

    2013-10-01

    Full Text Available The focus of this paper is to examine potential impacts of fiscal and monetary policies on stock market performance in Poland. Applying the GARCH model and based on a sample during 1999.Q2 to 2012.Q4, this paper finds that Poland’s stock market index is not affected by the ratio of government deficits or debt to GDP and is negatively influenced by the money market rate. The stock index and the ratio of M3 to GDP show a quadratic relationship with a critical value of 46.03%, suggesting that they have a positive relationship if the M3/GDP ratio is less than 46.03% and a negative relationship if the M3/GDP ratio is greater than 46.03%. Furthermore, Poland’s stock index is positively associated with industrial production and stock market performance in Germany and the U.S. and negatively affected by the nominal effective exchange rate and the inflation rate.

  19. Alternatives to Inflation Targeting Monetary Policy for Stable and Egalitarian Growth: A Brief Research Summary

    OpenAIRE

    Gerald Epstein

    2003-01-01

    Many countries in the developing world have adopted an approach to monetary policy that focuses on maintaining a low level of inflation, to the exclusion of other important objectives such as employment generation, increasing investment or reducing poverty, despite the widespread evidence that moderate levels of inflation have few or no costs. Some have even adopted formal “inflation targeting”, an approach which commits the central bank to hitting a fairly rigid inflation target, often as lo...

  20. The Implementation of Monetary Policy in China: The Interbank Market and Bank Lending

    OpenAIRE

    Hongyi Chen; Qianying Chen; Stefan Gerlach

    2011-01-01

    We analyze the impact of monetary policy instruments on interbank lending rates and retail bank lending in China using an extended version of the model of Porter and Xu (2009). Unlike the central banks of advanced economies, the People's Bank of China uses changes in the required reserve ratios and open market operations to influence liquidity in money markets and adjusts the regulated deposit and lending rates and loan targets to intervene in the retail deposit and lending market. These inte...