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on Central Banking |
| By: | Charles T. Carlstrom; Timothy S. Fuerst |
| Abstract: | We document increased central bank independence within the set of industrialized nations. This increased independence can account for nearly two thirds of the improved inflation performance of these nations over the last two decades. |
| Keywords: | Banks and banking, Central ; Inflation (Finance) |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:0621&r=cba |
| By: | Frederic S. Mishkin; Klaus Schmidt-Hebbel |
| Abstract: | Yes, as inferred from panel evidence for inflation-targeting countries and a control group of high-achieving industrial countries that do not target inflation. Our evidence suggests that inflation targeting helps countries achieve lower inflation in the long run, have smaller inflation response to oil-price and exchange-rate shocks, strengthen monetary policy independence, improve monetary policy efficiency, and obtain inflation outcomes closer to target levels. Some benefits of inflation targeting are larger when inflation targeters have achieved disinflation and are able to make their inflation targets stationary. Despite these favorable results for inflation targeting, our evidence generally does not suggest that countries that adopt inflation targeting have attained better monetary policy performance relative to our control group of highly successful non-inflation targeters. However, inflation targeting does seem to help all country groups to move toward performance of the control group. The performance attained by industrial-country inflation targeters generally dominates performance of emerging-economy inflation targeters and is similar to that of industrial non-inflation targeting countries. |
| JEL: | E31 E52 E58 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12876&r=cba |
| By: | Charles Wyplosz (IUHEI, The Graduate Institute of International Studies, Geneva) |
| Abstract: | Debt sustainability is an essential attribute of good macroeconomic policies but its precise definition is elusive and its assessment is even more challenging. The IMF has developed a sophisticated approach but it must be recognized that, because the future is unknown, any debt sustainability assessment is only valid within the bounds of the underlying guesses. There is no support for the view that added complexity allows for more precise assessments. As a consequence, policy conclusions drawn from debts sustainability exercises must be considered with care. Sacrificing growth – in the short and even in the long run – to imprecisely known risks can be very costly. |
| Keywords: | International Economics, Exchange Rates, External debt |
| JEL: | F33 F36 |
| Date: | 2005–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heiwp03-2007&r=cba |
| By: | Sebastian Edwards |
| Abstract: | In this paper I analyze whether restrictions to capital mobility reduce vulnerability to external shocks. More specifically, I ask if countries that restrict the free flow of international capital have a lower probability of experiencing a large contraction in net capital flows. I use three new indexes on the degree of international financial integration and a large multi-country data set for 1970-2004 to estimate a series of random-effect probit equations. I find that the marginal effect of higher capital mobility on the probability of a capital flow contraction is positive and statistically significant, but very small. Having a flexible exchange rate greatly reduces the probability of experiencing a capital flow contraction. The benefits of flexible rates increase as the degree of capital mobility increases. A higher current account deficit increases the probability of a capital flow contraction, while a higher ratio of FDI to GDP reduces that probability. |
| JEL: | F3 F32 F34 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12852&r=cba |
| By: | Yin-Wong Cheung; Menzie D. Chinn; Eiji Fujii |
| Abstract: | We evaluate whether the Renminbi (RMB) is misaligned, relying upon conventional statistical methods of inference. A framework built around the relationship between relative price and relative output levels is used. We find that, once sampling uncertainty and serial correlation are accounted for, there is little statistical evidence that the RMB is undervalued. The result is robust to various choices of country samples and sample periods, as well as to the inclusion of control variables. |
| JEL: | F3 F4 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12850&r=cba |
| By: | Edward Nelson |
| Abstract: | This paper brings together, using extensive archival material from several countries, scattered information about Milton Friedman's views and predictions regarding U.S. monetary policy developments after 1960 (i.e., the period beyond that covered by his and Anna Schwartz's Monetary History of the United States). I evaluate these interpretations and predictions in light of subsequent events. |
| Keywords: | Friedman, Milton ; Economic history |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2007-02&r=cba |
| By: | Cristina Arellano; Jonathan Heathcote |
| Abstract: | How does a country’s choice of exchange rate regime impact its ability to borrow from abroad? We build a small open economy model in which the government can potentially respond to shocks via domestic monetary policy and by international borrowing. We assume that debt repayment must be incentive compatible when the default punishment is equivalent to permanent exclusion from debt markets. We compare a floating regime to full dollarization. ; We find that dollarization is potentially beneficial, even though it means the loss of the monetary instrument, precisely because this loss can strengthen incentives to maintain access to debt markets. Given stronger repayment incentives, more borrowing can be supported, and thus dollarization can increase international financial integration. This prediction of theory is consistent with the experiences of El Salvador and Ecuador, which recently dollarized, as well as with that of highly-indebted countries like Italy which adopted the Euro as part of Economic and Monetary Union: in each case, around the time of regime change, spreads on foreign currency government debt declined substantially. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:385&r=cba |
| By: | Kirdan Lees; Troy Matheson; Christie Smith (Reserve Bank of New Zealand) |
| Abstract: | We evaluate the performance of an open economy DSGE-VAR model for New Zealand along both forecasting and policy dimensions. We show that forecasts from a DSGE-VAR and a 'vanilla' DSGE model are competitive with, and in some dimensions superior to, the Reserve Bank of New Zealand's official forecasts. We also use the estimated DSGE-VAR structure to identify optimal policy rules that are consistent with the Reserve Bank's Policy Targets Agreement. Optimal policy rules under parameter uncertainty prove to be relatively similar to the certainty case. The optimal policies react aggressively to inflation and contain a large degree of interest rate smoothing, but place a low weight on responding to output or the change in the nominal exchange rate. |
| JEL: | C51 E52 F41 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbdps:2007/01&r=cba |
| By: | Tom Cargill (Department of Economics, University of Nevada, Reno); Federico Guerrero (Department of Economics, University of Nevada, Reno) |
| Abstract: | The Bank of Japan permitted a ten-year period of deflation (1995-2005) which appears to have ended in 2006. The deflation, as well as the preceding disinflation, adversely affected the financial and real sectors of the economy that in turn, made it difficult to recover from the collapse of asset prices in 1990 and 1991. Various ad hoc explanations have been offered to account for the deflation period. This paper offers a second-best explanation based on a two-player policy game between the Bank of Japan and the banking system in which the banking system relies on an accommodative policy of forgiveness and forbearance by the Ministry of Finance to deal with weak balance sheets. The paper does not explicitly model the Ministry of Finance preference function but incorporates the Bank of Japan’s perceived willingness of the Ministry to accommodate the banking system in the Bank’s reaction function. The model suggests that in the context of established deflationary expectations and large amounts of debt, the Bank of Japan explicitly regarded the level of debt as exceeding the socially optimal level, that Ministry of Finance forgiveness and forbearance contributed to this excess, and lacking an instrument to reverse deflationary expectations, the Bank of Japan employed deflation as a disciplining instrument to limit real debt. |
| Keywords: | Monetary Policy, Deflation, Japan |
| JEL: | E31 E58 E42 E50 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:unr:wpaper:06-009&r=cba |
| By: | Kevin X.D. Huang (Department of Economics, Vanderbilt University); Qinglai Meng (Department of Economics, Chinese University of Hong Kong) |
| Abstract: | In sticky price models with endogenous investment, virtually all monetary policy rules that set a nominal interest rate in response solely to future inflation induce real indeterminacy of equilibrium. Applying the Samuelson-Farebrother conditions, we obtain a necessary and sufficient condition for local real determinacy, which reveals that increasing price stickiness or letting policy respond also to current output may help ensure a unique equilibrium. We find that the first channel by itself has a quantitatively negligible effect and almost all strict inflation-targeting rules lead to indeterminacy, whether with higher price stickiness or overall stickiness by incorporating firm-specific capital, sticky wages, or both. The effect of the second avenue depends on labor supply elasticity and stickiness. With high labor supply elasticity and price stickiness, indeterminacy is much less likely to occur as policy also responds to output. With estimated labor supply elasticity or empirically reasonable price stickiness, policy's response to output helps little in ensuring determinacy; even incorporating firm-specific capital makes only a marginal improvement. Incorporating sticky wages, on the other hand, greatly enhances the role of policy's response to output in ensuring determinacy. With both sticky wages and firm-specific capital incorporated, even a tiny response of policy to current output can render equilibrium determinate for a wide range of response of policy to future inflation. |
| Keywords: | Forward-looking inflation targeting, current output, sticky prices, sticky wages, firm-specific capital, endogenous investment, indeterminacy, Samuelson-Farebrother conditions |
| JEL: | E12 E31 E52 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0704&r=cba |
| By: | S. Boragan Aruoba; Sanjay K. Chugh |
| Abstract: | We study optimal fiscal and monetary policy in an environment where explicit frictions give rise to valued money, making money essential in the sense that it expands the set of feasible trades. Our main results are in stark contrast to the prescriptions of earlier flexible-price Ramsey models. Two especially important findings emerge from our work: the Friedman Rule is typically not optimal and inflation is stable over time. Inflation is not a substitute instrument for a missing tax, as is sometimes the case in standard Ramsey models. Rather, the inflation tax is exactly the right tax to use because the use of money has a rent associated with it. Regarding the optimal dynamic policy, realized (ex-post) inflation is quite stable over time, in contrast to the very volatile ex-post inflation rates that arise in standard flexible-price Ramsey models. We also find that because capital is underaccumulated, optimal policy includes a subsidy on capital income. Taken together, these findings turn conventional wisdom from traditional Ramsey monetary models on its head. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:880&r=cba |
| By: | Marika Karanassou (Queen Mary, University of London and IZA); Dennis J. Snower (Institute for World Economics, CEPR and IZA) |
| Abstract: | A major criticism against staggered nominal contracts is that they give rise to the so called "persistency puzzle" - although they generate price inertia, they cannot account for the stylised fact of inflation persistence. It is thus commonly asserted that, in the context of the new Phillips curve (NPC), inflation is a jump variable. We argue that this "persistency puzzle" is highly misleading, relying on the exogeneity of the forcing variable (e.g. output gap, marginal costs, unemployment rate) and the assumption of a zero discount rate. We show that when the discount rate is positive in a general equilibrium setting (in which real variables not only affect inflation, but are also influenced by it), standard wage-price staggering models can generate both substantial inflation persistence and a nonzero inflation-unemployment tradeoff in the long-run. This is due to frictional growth, a phenomenon that captures the interplay of nominal staggering and permanent monetary changes. We also show that the cumulative amount of inflation undershooting is associated with a downward-sloping NPC in the long-run. |
| Keywords: | Inflation dynamics, Persistence, Wage-price staggering, New Phillips curve, Monetary policy, Frictional growth |
| JEL: | E31 E32 E42 E63 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp586&r=cba |
| By: | Matthew Higgins; Thomas Klitgaard; Cédric Tille |
| Abstract: | Sustained large U.S. current account deficits have led some economists and policymakers to worry that future current account adjustment could occur through a sudden and disruptive depreciation of the dollar and a sharp drop in U.S. consumption. Two factors that, to date, have cast doubt on such concerns are the stability of U.S. net external liabilities and the minimal net income payments made by the United States on these liabilities. We show that the stability of the external position reflects sizable capital gains stemming from strong foreign equity markets and a weaker dollar - conditions that could be reversed in the future. We also show that while minimal U.S. net income payments reflect a much higher measured rate of return on U.S. foreign direct investment (FDI) assets than on U.S. FDI liabilities, ongoing borrowing is likely to overwhelm this favorable rate of return, pushing the U.S. net income balance more deeply into deficit. ; In addition, we review the argument that the United States holds large amounts of intangible assets not captured in the data - assets that would bring the true U.S. net investment position close to balance. We argue that intangible capital, while a relevant dimension of economic analysis, is unlikely to be substantial enough to alter the U.S. net liability position. |
| Keywords: | Balance of payments ; Investments, Foreign ; Consumption (Economics) ; Liabilities (Accounting) ; Dollar, American |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:271&r=cba |
| By: | Tom Cargill (Department of Economics, University of Nevada, Reno); Federico Guerrero (Department of Economics, University of Nevada, Reno) |
| Abstract: | Interest rate targeting is widely used by central banks to pursue price stability; however, the variation in inflation policy outcomes between central banks such as the Federal Reserve and the Bank of Japan despite a common policy instrument framework suggests interest- targeting has limitations. Despite the variation in policy outcomes, the role of targeting was enhanced with the advent of Taylor rules in the 1990s and interest rate targeting dominates central bank attitudes to the exclusion of any other policy instrument framework. The recent Japanese experience confronts us with the need to reassess the relative merits of interest targeting. This paper frames the discussion of the various problems of the interest-targeting framework within a model that encompasses a number of important previous results and stresses that interest rate targeting may leave the price level indeterminate in various plausible circumstances. In a low, or even zero interest rate environment, such as the one that characterized Japan, Taylor-type rules may offer no solution to the indeterminacy problem. The paper then discusses various aspects of the BoJ’s decision to adhere to interest rate targeting despite its limitations. |
| Keywords: | Interest-targeting, Monetary Policy, Deflation, Japan |
| JEL: | E52 E58 E31 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:unr:wpaper:06-010&r=cba |
| By: | Domenico Giannone; Troy Matheson (Reserve Bank of New Zealand) |
| Abstract: | This paper introduces a new indicator of core inflation for New Zealand, estimated using a dynamic factor model and disaggregate price data. Using disaggregate price data we can directly compare the predictive performance of our core indicator with a wide range of other ‘core inflation’ measures estimated from disaggregate prices, such as the weighted median and the trimmed mean. Predictive performance is assessed relative to a centred 2 year moving average of past and future annual inflation outcomes. The 2 year centred moving average is used as an analytical approximation of the inflation target from the PTA, which requires the Reserve Bank to keep annual inflation between 1 and 3 per cent on average over the medium term. We find that our indicator produces relatively good estimates of this characterisation of core inflation when compared with estimates derived from a range of other models. |
| JEL: | C32 E31 E32 E52 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbdps:2006/10&r=cba |
| By: | Aubhik Khan; Julia Thomas |
| Abstract: | The authors examine a monetary economy where households incur fixed transactions costs when exchanging bonds and money and, as a result, carry money balances in excess of current spending to limit the frequency of such trades. As only a fraction of households choose to actively trade bonds and money at any given time, the market is endogenously segmented. Moreover, because households in this model economy have the ability to alter the timing of their trading activities, the extent of market segmentation varies over time in response to real and nominal shocks. The authors find that this added flexibility can substantially reinforce both sluggishness in aggregate price adjustment and the persistence of liquidity effects in real and nominal interest rates relative to that seen in models with exogenously segmented markets. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:07-1&r=cba |
| By: | Daniel L. Thornton |
| Abstract: | In an environment of low inflation, the Federal Reserve faces the risk that it has not provided enough monetary stimulus even when it has pushed the short-term nominal interest rate to its lower bound of zero. Assuming the nominal Treasury-bill rate has been lowered to zero, this paper considers whether further open market purchases of Treasury bills could spur aggregate demand through increases in the monetary base that may stimulate aggregate demand by increasing liquidity for financial intermediaries and households; by affecting expectations of the future paths of short-term interest rates, inflation, and asset prices; or by stimulating bank lending through the credit channel. This paper also examines the alternative policy tools that are available to the Federal Reserve in theory, and notes the practical limitations imposed by the Federal Reserve Act, The tools the Federal Reserve has at its disposal include open market purchases of Treasury bonds and private-sector credit instruments (at least those that may be purchased by the Federal Reserve); unsterilized and sterilized intervention in foreign exchange; lending through the discount window; and, perhaps in some circumstances, the use of options. |
| Keywords: | Liquidity (Economics) ; Monetary policy |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2007-01&r=cba |
| By: | David, DE LA CROIX (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Gregory, DE WALQUE; Rafael, WOUTERS |
| Abstract: | We first build a fair wage model in which effort varies over the business cycle. This mechanism decreases the need for other sources of sluggishness to explain the observed high inflation persistence. Second, we confront empirically our fair wage model with a New Keynesian model based on the standard assumption of monopolistic competition in the labor market. We show that, in terms of overall fit, the fair wage model outperforms the New Keynesian one. The extension of the fair wage model with lagged wage is judged insignificant by the data, but the extension based on a rent sharing argument including firmÕs productivity gains in the fair wage is not. Looking at the implications for monetary policy, we conclude that the additional trade-off problem created by the inefficient real wage behavior significantly affect nominal interest rates and inflation outcomes |
| Keywords: | Efficiency wage, effort, inflation persistence, monetary policy |
| JEL: | E4 E5 |
| Date: | 2006–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2006061&r=cba |
| By: | Keith Kuester (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper incorporates search and matching frictions in the labor market into a New Keynesian model. In contrast to the literature, the labor market activity takes place in the (Calvo-staggered) price-setting sector. Matching frictions lead price-setting firms to negotiate wage rates with their employees. The negotiation of wages substantially increases strategic complementarity in price-setting among suppliers of differentiated goods. This leads to an increase in real rigidities as in Woodford (2003), which reduces the size of price changes optimally chosen by re-optimizing firms. The same factors which induce smooth inflation also dampen the adjustment of wages in response to shocks. In the search and matching framework this is key for explaining the highly responsive nature of vacancies in the data. Another interesting finding for the Phillips curve is that inflation is not only driven by an output gap but also by an employment gap – a feature usually neglected in empirical research. The modified model matches impulse responses of an SVAR for post Volcker-disinflation US data very well. JEL Classification: E31,E24,E32,J63,J64. |
| Keywords: | firm-specific labor, real rigidities, Phillips curve, wage rigidity, bargaining. |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070720&r=cba |
| By: | Peter Docherty (School of Finance and Economics, University of Technology, Sydney) |
| Abstract: | This paper investigates the role played by endogenous money in models with interest-sensitive expenditures. In particular, it examines the impact of endogenous money on a baseline neoclassical model arguing against the frequently asserted claim that traditional neoclassical macroeconomics is compatible with endogenous money. It demonstrates firstly that endogenous money is a sufficient condition to render unstable a neoclassical model characterised by interest-sensitive expenditures, full employment and money neutrality. Secondly, it shows that the introduction of either money illusion on the part of workers or a Taylor rule governing monetary policy are alternative methods of stabilising models with interest-sensitive expenditures and endogenous money, though with different implications for the full employment and neutrality characteristics of the standard model. Thirdly, it raises questions about whether models which incorporate Taylor rules can be properly characterised as containing endogenous money and it provides an alternative interpretation of such models. The paper concludes by arguing that money supply endogeneity of the extreme or accommodationist type is of fundamental significance for the construction of a theory of long period unemployment but it identifies a set of remaining questions which need to be addressed in the advancement of this project. |
| Keywords: | endogenous money; money neutrality; unemployment; interest-sensitivity |
| JEL: | E40 E52 E58 |
| Date: | 2006–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:wpaper:148&r=cba |
| By: | Peter Howells (School of Economics, University of the West of England) |
| Keywords: | Monetary Policy; |
| JEL: | E58 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:0701&r=cba |
| By: | Arnold, Ivo J.M.; Kool, Clemens J.M.; Raabe, Katharina |
| Abstract: | This paper presents evidence on the industry effects of bank lending in Germany and identifies the industry effects of bank lending associated with changes in monetary policy and industryspecific bank credit demand. To this end, we estimate individual bank lending functions for 13 manufacturing and non-manufacturing industries and five banking groups using quarterly bank balance sheet and bank lending data for the period 1992:1-2002:4. The evidence from dynamic panel data models shows that industry-specific bank lending growth predominantly responds to changes in industry-specific bank credit demand rather than to changes in monetary policy. In fact, conclusions regarding the bank lending effects of monetary policy are very sensitive to the choice of industry. The empirical results lend strong support to the existence of industry effects of bank lending. Because industries are a prominent source of variation in the bank lending effects of bank credit demand and monetary policy, the paper concludes that the industry composition of bank credit portfolios is an important determinant of bank lending growth and monetary policy effectiveness. |
| Keywords: | Monetary policy transmission, credit channel, industry structure, dynamic panel data |
| JEL: | C23 E52 G21 L16 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:5197&r=cba |
| By: | Federico Guerrero (Department of Economics, University of Nevada, Reno) |
| Abstract: | This paper does two things. First, it shows both anecdotal and cross-country evidence that indicates that countries that have experienced hyperinflation display significantly lower long-term rates of inflation than countries that lack the same experience. Secondly, it presents a model to rationalize the main empirical finding. There is more than one mechanism through which the long-term effects of hyperinflation may have an impact on long-term inflation outcomes. The suggested explanation this paper offers is that hyperinflations act by reducing the social costs of increasing the collection of conventional, distorsionary taxes relative to the collection of the inflation tax. |
| Keywords: | Hyperinflations, monetary institutions, inflation, central banks |
| JEL: | E31 E42 E58 E65 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:unr:wpaper:06-015&r=cba |
| By: | OGAWA Eiji; SHIMIZU Junko |
| Abstract: | Ogawa and Shimizu (2005, 2006a) have proposed a possible way to create an Asian Monetary Unit (AMU) as a weighted average of the thirteen East Asian currencies (ASEAN + China, Japan, and Korea) and developed AMU Deviation Indicators for a surveillance process under the Chiang Mai Initiative. Both the AMU and the AMU Deviation Indicators are important in helping the countries in the region to recognize the necessity of moving toward a common currency basket system. However, there remains an open question about how to implement this system in East Asian countries. The purpose of this paper is to compile the latest issues of currency basket itself and to develop concrete steps toward a common currency basket system in East Asia. Particularly, we simulate possible individual currency basket weights based on trade shares of each East Asian country and convert them to G3 currency (the US dollar, the euro, and the Japanese yen) basket weights. We also investigate the discrepancies between the converted G3 currency basket weight of the AMU and the weights of the common G3 currency basket, which is to illustrate the reality of implementing a common currency basket system. We propose a possible way to shift from an individual G3 currency basket system to the AMU currency basket system. In this process, we expect that the Japanese yen would play a varying role at each stage toward monetary coordination in East Asia. |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:07002&r=cba |
| By: | Ansgar Belke; Thorsten Polleit; Wim Kösters; Martin Leschke |
| JEL: | E31 E58 E51 E52 E37 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:hoh:hohdip:279&r=cba |
| By: | Beverly Lapham (Queen's University); Danny Leung (Bank of Canada) |
| Abstract: | Consumer prices are not very responsive to movements in nominal exchange rates and their response has fallen in Canada since the mid 1980s. This paper explores two of the most likely explanations for this decline in exchange rate pass-through to consumer prices: (1) lower inflation and (2) restructuring in the retail sector. We believe that both explanations are important but our primary focus in this paper is on the second explanation. We discuss the restructuring that has occurred in Canadian retail and trends in mark-ups and concentration in that sector. We argue that to understand these trends, it is important to examine pass-through in industrial organization models with strategic elements. Finally, we present a series of such models and evaluate the effects of various forms of restructuring on mark-ups, concentration, and exchange rate pass-through. |
| Keywords: | Pass-Through, Restructuring, Strategic Pricing, Mark-ups, Exchange Rates, Imperfect Competition |
| JEL: | D40 F15 F31 F41 L16 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1120&r=cba |
| By: | Eleni Angelopoulou (Bank of Greece and Athens University of Economics and Business); Heather D. Gibson (Bank of Greece) |
| Abstract: | This paper examines the sensitivity of investment to cash flow using a panel of UK firms in manufacturing with a view to shedding some light on the existence of a balance sheet channel or financial accelerator. In addition to examining the impact of cash flow in different subsamples based on company size or financial policy (dividend payouts, share issues and debt accumulation), we also investigate the extent to which investment becomes more sensitive to cash flow in periods of monetary tightness. To this end, we employ a monetary tightness indicator constructed for the UK using the narrative approach pioneered by Romer and Romer. The results provide some support for the view that UK firms show greater investment sensitivity to cash flow during periods of tight monetary policy. |
| Keywords: | Financial Constraints; Balance Sheet Channel, Investment. |
| JEL: | E22 E52 E44 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:53&r=cba |
| By: | Balázs Égert (Oesterreichische Nationalbank; MODEM, University of Paris X-Nanterre and William Davidson Institute) |
| Abstract: | This paper analyses the effectiveness of foreign exchange interventions in Croatia, the Czech Republic, Hungary, Romania, Slovakia and Turkey using the event study approach. Interventions are found to be effective only in the short run when they ease appreciation pressures. Central bank communication and interest rate steps considerably enhance their effectiveness. The observed effect of interventions on the exchange rate corresponds to the declared objectives of the central banks of Croatia, the Czech Republic, Hungary and perhaps also Romania, whereas this is only partially true for Slovakia and Turkey. Finally, interventions are mostly sterilized in all countries except Croatia. Interventions are not much more effective in Croatia than in the other countries studied. This suggests that unsterilized interventions do not automatically inuence the exchange rate. |
| Keywords: | central bank intervention, communication, foreign exchange intervention, verbal intervention |
| JEL: | F31 |
| Date: | 2006–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:134&r=cba |