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on Central Banking |
| By: | Jangryoul Kim; Preston Miller |
| Abstract: | This paper is an attempt to determine the relative importance of the efficiency and stability effects of monetary policy. The method is to find the policy that maximizes welfare in a general equilibrium model that generates both effects. It is found that the steady-state inflation rate under the optimal policy is significantly above the rate required for maximal efficiency and significantly below that required for maximal stability. Thus, both effects play important roles in determining the optimal rate of inflation. In addition, it is found that if a typical macroeconomic objective function is maximized as a substitute for welfare-maximization, the resultant policy rule puts too much weight on stability. It generates too much inflation and causes the policy instrument to respond too much to new information. |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmbp:6-04&r=cba |
| By: | Paul Cavelaars |
| Abstract: | This paper studies the implications of globalisation for the effectiveness of monetary policy in large open economies, such as the euro area and the United States. The analysis allows for imperfect competition and an endogenous home bias in consumption. I find that globalisation (a reduction in the costs of international trade) causes a monetary expansion to have a larger (smaller) e¤ect on prices (output). To the extent that globalisation also induces stronger competition in the goods market, I find that its impact on the incentive for activist monetary policy is ambiguous. Finally, globalisation reduces the beggary-thy-neighbour effects of monetary policy. |
| Keywords: | trade costs; openness; monetary policy. |
| JEL: | F15 F41 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:048&r=cba |
| By: | Marvin Goodfriend; Robert King |
| Abstract: | Using a simple modern macroeconomic model, we argue that the real effects of the Volcker disinflation in the early 1980s were mainly due to imperfect credibility, evident in volatility and stubbornness of long-term interest rates. Studying recently released transcripts of the Federal Open Market Committee, we find -- to our surprise -- that Volcker and other FOMC members also regarded long-term interest rates as key indicators of inflation expectations and of their disinflationary policy's credibility. We also consider the interplay of monetary targets, operating procedures, and credibility during the Volcker disinflation. |
| JEL: | E3 E4 E5 N1 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11562&r=cba |
| By: | Rasmus Fatum (School of Business, University of Alberta); Michael M. Hutchison (Department of Economics, University of California) |
| Abstract: | This article examines the rationale behind the massive increase in Japanese foreign exchange market intervention operations in 2003-04, and evaluates its effectiveness both in limiting yen exchange rate appreciation and influencing the direction of monetary policy. The two main questions addressed in this study are: Was the intervention effective in slowing exchange rate appreciation compared to a counterfactual case with no intervention? And, has intervention on such a large scale authorized by the Ministry of Finance been able to directly influence liquidity creation or indirectly influence the stance of Bank of Japan policy? |
| Keywords: | foreign exchange intervention; Japanese monetary policy |
| JEL: | E51 E58 F31 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:05-05&r=cba |
| By: | Rangan Gupta (University of Connecticut and University of Pretoria) |
| Abstract: | The paper analyzes the effects of financial liberalization on inflation. We develop a monetary and endogenous growth, dynamic general equilibrium model with financial intermediaries subjected to obligatory "high" cash reserves requirement, serving as the source of financial repression. When calibrated to four Southern European semi-industrialized countries, namely Greece, Italy, Spain and Portugal, that typically had high reserve requirements, the model indicates a positive inflation-financial repression relationship irrespective of the the specification of preferences. But the strength of the relationship obtained from the model is found to be much smaller in size than the corresponding empirical estimates. |
| Keywords: | Inflation; Financial Markets and the Macroeconomy |
| JEL: | E31 E44 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2005-31&r=cba |
| By: | Rangan Gupta (University of Connecticut and University of Pretoria) |
| Abstract: | The paper analyzes the effects of financial liberalization on inflation. We develop a monetary and endogenous growth, dynamic general equilibrium model of a small open semi-industrialized economy, with financial intermediaries subjected to obligatory "high" reserve ratio, serving as the source of financial repression. When calibrated to four Southern European semi-industrialized countries, namely Greece, Italy, Spain and Portugal, that typically had high reserve requirements, the model indicates a positive inflation-financial repression relationship irrespective of the the specification of preferences. But the strength of the relationship obtained from the model is found to be much smaller in size than the corresponding empirical estimates. |
| Keywords: | Inflation; Financial Markets and the Macroeconomy |
| JEL: | E31 E44 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2005-32&r=cba |
| By: | Fiona Atkins (School of Economics, Mathematics & Statistics, Birkbeck College) |
| Abstract: | This paper estimates the money demand function for Jamaica using a Structural co-integrating VAR. This approach provides estimates of the long run structural relations and also reveals the complex short run feedbacks of monetary policy on key macro variables. In recent years Jamaican governments have adopted an inflation targeting framework for policy and have moved towards reliance on interest rates rather than direct money control as the primary instrument. This policy presumes that monetary transmission runs from the interest rate to directly affect the level of output which then feeds into the inflation process. However, in an economy with limited financial sector development interest rate transmission may be more circumspect, having a strong direct affect on money demand which then influences aggregate demand and output and hence inflation. These feedbacks are investigated within the error correction model.. Stability of Money demand is vital for predictable policy, and is investigated using CUSUM tests for parameter stability. The Jamaican financial sector suffered a major crisis in the mid 1990’s, the paper considers whether the stability of money demand was compromised. It is argued that the finding of stable money demand suggests that the specific policy responses may have successfully bolstered confidence and prevented financial implosion. |
| Keywords: | Caribbean, Jamaica, money demand |
| JEL: | C51 C52 E41 E52 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:0512&r=cba |
| By: | Michael D. Bordo; Angela Redish |
| Abstract: | On the seventieth birthday of the Bank of Canada, we evaluate the Bank's contribution to monetary policy in an international context. We focus on: the reasons for the establishment of the central bank in 1935, its unique record of floating in a sea of fixed currencies under Bretton Woods; its experience with the Great Inflation and monetarism; its pioneering adoption of inflation targeting; and recent innovations in the payments and the phasing out of reserve requirements. |
| JEL: | E58 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11586&r=cba |
| By: | Thórarinn G. Pétursson |
| Abstract: | An increasing number of countries have adopted inflation targeting since New Zealand first adopted this framework in early 1990. Currently there are 21 countries using inflation targeting in every continent of the world. This paper discusses the economic effects of inflation targeting. The main conclusion is that inflation targeting has largely been a success. The new framework has made central banks, which previously lacked credibility, able to change the way they do monetary policy towards what is commonly considered best practice. In many respects they have even been leading in creating a new benchmark for how to formulate monetary policy. |
| Date: | 2004–06 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp23_thorarinn&r=cba |
| By: | Refet S. Gurkaynak |
| Abstract: | Federal funds futures are popular tools for calculating market-based monetary policy surprises. These surprises are usually thought of as the difference between expected and realized federal funds target rates at the current FOMC meeting. This paper demonstrates the use of federal funds futures contracts to measure how FOMC announcements lead to changes in expected interest rates after future FOMC meetings. Using several 'surprises' at different horizons, timing, level, and slope components of unanticipated policy actions are defined. These three components have differing effects on asset prices that are not captured by the contemporaneous surprise measure. |
| Keywords: | Monetary policy ; Federal funds rate ; Federal funds market (United States) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-29&r=cba |
| By: | Jorge Hermann; Rómulo Chumacero |
| Abstract: | Este documento muestra un hecho estilizado robusto en la relación entre dinero e inflación en Chile: la inflación precede (estadísticamente) al crecimiento del dinero y no viceversa. Este hallazgo es robusto a la consideración del tipo de política monetaria, período muestral, agregado monetario, consideración de segundos momentos condicionales o la inclusión de metas de inflación. A su vez, se presenta una motivación teórica de porqué la evolución de los agregados monetarios no necesariamente está asociada a la inflación. |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:324&r=cba |