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on Central Banking |
| By: | Fernando Alvarez; Andrew Atkeson; Patrick J. Kehoe |
| Abstract: | The key question asked by standard monetary models used for policy analysis, How do changes in short-term interest rates affect the economy? All of the standard models imply that such changes in interest rates affect the economy by altering the conditional means of the macroeconomic aggregates and have no effect on the conditional variances of these aggregates. We argue that the data on exchange rates imply nearly the opposite: the observation that exchange rates are approximately random walks implies that fluctuations in interest rates are associated with nearly one-for-one changes in conditional variances and nearly no changes in conditional means. In this sense standard monetary models capture essentially none of what is going on in the data. We thus argue that almost everything we say about monetary policy using these models is wrong. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:388&r=cba |
| By: | Athanasios Orphanides; John C. Williams |
| Abstract: | We examine the performance and robustness properties of monetary policy rules in an estimated macroeconomic model in which the economy undergoes structural change and where private agents and the central bank possess imperfect knowledge about the true structure of the economy. Policymakers follow an interest rate rule aiming to maintain price stability and to minimize fluctuations of unemployment around its natural rate but are uncertain about the economy's natural rates of interest and unemployment and how private agents form expectations. In particular, we consider two models of expectations formation: rational expectations and learning. We show that in this environment the ability to stabilize the real side of the economy is significantly reduced relative to an economy under rational expectations with perfect knowledge. Furthermore, policies that would be optimal under perfect knowledge can perform very poorly if knowledge is imperfect. Efficient policies that take account of private learning and misperceptions of natural rates call for greater policy inertia, a more aggressive response to inflation, and a smaller response to the perceived unemployment gap than would be optimal if everyone had perfect knowledge of the economy. We show that such policies are quite robust to potential misspecification of private sector learning and the magnitude of variation in natural rates. |
| Keywords: | Monetary policy |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2007-08&r=cba |
| By: | Richard Dennis |
| Abstract: | Model uncertainty has the potential to change importantly how monetary policy should be conducted, making it an issue that central banks cannot ignore. In this paper, I use a standard new Keynesian business cycle model to analyze the behavior of a central bank that conducts policy with discretion while fearing that its model is misspecified. I begin by showing how to solve linear-quadratic robust Markov-perfect Stackelberg problems where the leader fears that private agents form expectations using the misspecified model. Next, I exploit the connection between robust control and uncertainty aversion to present and interpret my results in terms of the distorted beliefs held by the central bank, households, and firms. My main results are as follows. First, the central bank's pessimism leads it to forecast future outcomes using an expectations operator that, relative to rational expectations, assigns greater probability to extreme inflation and consumption outcomes. Second, the central bank's skepticism about its model causes it to move forcefully to stabilize inflation following shocks. Finally, even in the absence of misspecification, policy loss can be improved if the central bank implements a robust policy. |
| Keywords: | Monetary policy |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2007-09&r=cba |
| By: | Oleksiy Kryvtsov; Malik Shukayev; Alexander Ueberfeldt |
| Abstract: | This paper examines the role of monetary policy in an environment with aggregate risk and incomplete markets. In a two-period overlapping-generations model with aggregate uncertainty and nominal bonds, optimal monetary policy attains the ex-ante Pareto optimal allocation. This policy aims to stabilize the savings rate in the economy via the effect of expected inflation on real returns of nominal bonds. The equilibrium under optimal monetary policy is characterized by positive average inflation and a nonstationary price level. In an application a key finding is that optimal monetary policy combines features of inflation and price-level targeting. |
| Keywords: | Monetary policy framework |
| JEL: | E5 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:07-26&r=cba |
| By: | Carlsson, Mikael (Research Department); Westermark, Andreas (Department of Economics) |
| Abstract: | We develop a New Keynesian model with staggered price and wage setting where downward nominal wage rigidity (DNWR) arises endogenously through the wage bargaining institutions. It is shown that the optimal (discretionary) monetary policy response to changing economic conditions then becomes asymmetric. Interestingly, we find that the welfare loss is actually slightly smaller in an economy with DNWR. This is due to that DNWR is not an additional constraint on the monetary policy problem. Instead, it is a constraint that changes the choice set and opens up for potential welfare gains due to lower wage variability. Another finding is that the Taylor rule provides a fairly good approximation of optimal policy under DNWR. In contrast, this result does not hold in the unconstrained case. In fact, under the Taylor rule, agents would clearly prefer an economy with DNWR before an unconstrained economy ex ante. |
| Keywords: | Monetary Policy; Wage Bargaining; Downward Nominal Wage Rigidity |
| JEL: | E52 E58 J41 |
| Date: | 2007–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2007_015&r=cba |
| By: | Campbell Leith; Simon Wren-Lewis |
| Abstract: | A common feature of exchange rate misalignments is that they produce a divergence between traded and non-traded goods sectors, leading to pressures on monetary policy makers to react. In this paper we develop a small open economy model which features traded and non-traded goods sectors with which to assess the extent to which monetary policy should respond to exchange rate misalignments. To do so we initially contrast the efficient outcome of the model with that under flexible prices and find that the flex-price equilibrium exhibits an excessive exchange rate appreciation in the face of a positive UIP shock. By introducing sticky prices in both sectors we provide a role for policy in the face of UIP shocks. We then derive a quadratic approximation to welfare which comprises quadratic terms in the output gaps in both sectors as well as sectoral rates of inflation. These can be rewritten in terms of the usual aggregate variables, but only after including terms in relative sectoral prices and/or the terms of trade to capture the sectoral composition of aggregates. We derive optimal policy analytically before giving numerical examples of the optimal response to UIP shocks. Finally, we contrast the optimal policy with a number of alternative policy stances and assess the robustness of results to changes in model parameters. |
| Keywords: | Exchange Rate Misalignment, Monetary Policy, Non-Traded Goods |
| JEL: | F41 E52 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:305&r=cba |
| By: | Campbell Leith; Simon Wren-Lewis |
| Abstract: | Most recent work deriving optimal monetary policy utilising New Neo-Classical Synthesis (NNCS) models abstract from the impact of monetary policy on the government`s finances, by assuming that any change in the government`s budget can be financed through lump sum taxes. In this paper, we assume that the government does not have access to such taxes to satisfy its intertemporal budget constraint in the face of shocks. We then consider optimal monetary and fiscal policies under discretion and commitment in the face of technology, preference and cost-push shocks. We confirm that the optimal precommitment policy implies a random walk in the steady-state level of debt. We also find that the time-inconsistency in the optimal precommitment policy is such that governments are tempted, given inflationary expectations, to utilise their monetary and fiscal instruments in the initial period to change the ultimate debt burden they need to service. We show that this temptation is only eliminated if following shocks, the new steady-state debt is equal to the original (efficient) debt level. This implies that under a discretionary policy the random walk result is overturned: debt will always be returned to this initial steady-state even although there is no explicit debt target in the government`s objective function. Analytically and in a series of numerical simulations we show which instrument is used to stabilise the debt depends crucially on the degree of nominal inertia and the size of the debt-stock. We also show that the welfare consequences of introducing debt are negligible for precommitment policy, but can be significant for discretionary policy. |
| Keywords: | New Keynesian Model, Government Debt, Monetary Policy, Fiscal Policy |
| JEL: | E62 E63 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:310&r=cba |
| By: | Vítor Castro (Universidade de Coimbra and NIPE) |
| Abstract: | This study intends to provide an empirical answer to the question of whether Maastricht and SGP fiscal rules have affected growth of European Union countries. A growth equation augment with fiscal variables and controlling for the period in which fiscal rules were implemented in Europe is estimated over a panel of 15 EU countries (and 8 OECD countries) for the period 1970-2005 with the purpose of answering this question. The equation is estimated using both a dynamic fixed effects estimator and a recently developed pooled mean group estimator. GMM estimators are also used in a robustness analysis. Empirical results show that growth of real GDP per capita in the EU was not negatively affected in the period after Maastricht. This is the case when the recent performance of EU countries is compared both with their past performance and with the performance of other developed countries. Results even show that growth is slightly higher in the period in which the fulfilment of the 3% criteria for the deficit started to be officially assessed. Therefore, this study concludes that the institutional changes that occurred in Europe after 1992, especially the implementation of Maastricht and Stability and Growth Pact fiscal rules, should not be blamed for being harmful to growth in Europe. |
| Keywords: | European Union, Economic Growth, Fiscal rules, Pooled mean group estimator |
| JEL: | E62 H6 O47 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:10/2007&r=cba |
| By: | Tatiana Kirsanova; Simon Wren-Lewis |
| Abstract: | We examine the impact of different degrees of fiscal feedback on debt in an economy with nominal rigidities where monetary policy is optimal. We look at the extent to which different degrees of fiscal feedback enhances or detracts from the ability of the monetary authorities to stabilise output and inflation. Using an objective function derived from utility, we find the optimal level of fiscal feedback to be small. There is a clear discontinuity in the behaviour of monetary policy and welfare either side of this optimal level. As the extent of fiscal feedback increases, optimal monetary policy becomes less active because fiscal feedback tends to deflate inflationary shocks. However this fiscal stabilisation is less efficient than monetary policy, and so welfare declines. In contrast, if fiscal feedback falls below some critical value, either the model becomes indeterminate, or optimal monetary policy becomes strongly passive, and this passive monetary policy leads to a sharp deterioration in welfare. |
| Keywords: | Fiscal Policy, Feedback Rules, Debt, Macroeconomic Stabilisation |
| JEL: | E52 E61 E63 F41 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:306&r=cba |
| By: | Vladislav Damjanovic; Charles Nolan |
| Abstract: | We study the impact of two-sided nominal shocks in a simple dynamic, general equilibrium (S,s)-pricing macroeconomic model comprised of heterogeneous sectors. The simple model we develop has a number of appealing empirical implications; it captures why some sectors of the economy have systematically more flexible prices, the smooth dynamics of aggregate output following a monetary shock, and a degree of price asynchronization. Incorporating multiple sectors is central to arriving at these three results. |
| Keywords: | Price rigidity, Ss pricing, macroeconomic dynamics. |
| JEL: | E31 E32 E37 E58 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:0709&r=cba |
| By: | Carlos Bowles (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Roberta Friz; Veronique Genre (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Geoff Kenny (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Aidan Meyler (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Tuomas Rautanen |
| Abstract: | Eight years have passed since the European Central Bank (ECB) launched its Survey of Professional Forecasters (SPF). The SPF asks a panel of approximately 75 forecasters located in the European Union (EU) for their short- to longer-term expectations for macroeconomic variables such as euro area inflation, growth and unemployment. This paper provides an initial assessment of the information content of this survey. First, we consider shorter-term (i.e., one- and two-year ahead rolling horizon) forecasts. The analysis suggests that, over the sample period, in common with other private and institutional forecasters, the SPF systematically under-forecast inflation but that there is less evidence of such systematic errors for GDP and unemployment forecasts. However, these findings, which generally hold regardless of whether one considers the aggregate SPF panel or individual responses, should be interpreted with caution given the relatively short sample period available for the analysis. Second, we consider SPF respondents’ assessment of forecast uncertainty using information from heir probability distributions. The results suggest that, particularly at the individual level, SPF respondents do not seem to fully capture the overall level of macroeconomic uncertainty. Moreover, even at the aggregate level, a more sophisticated evaluation of the SPF density forecasts using the probability integral transform largely confirms this assessment. Lastly, we consider longer-term macroeconomic expectations from the SPF, where, as expectations cannot yet be assessed against so few actual realisations, we provide a mainly qualitative assessment. With regard to inflation, the study suggests that the ECB has been successful at anchoring longterm expectations at rates consistent with its primary objective to ensure price stability over the medium term. Long-term GDP expectations – which should provide an indication of the private sector’s assessment of potential growth – have declined over the sample period and the balance of risks reported by respondents has generally been skewed to the downside. |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20070059&r=cba |
| By: | Jennifer L. Castle; David F. Hendry |
| Abstract: | Structural models` inflation forecasts are often inferior to those of naive devices. This chapter theoretically and empirically assesses this for UK annual and quarterly inflation, using the theoretical framework in Clements and Hendry (1998, 1999). Forecasts from equilibrium-correction mechanisms, built by automatic model selection, are compared to various robust devices. Forecast-error taxonomies for aggregated and time-disaggregated information reveal that the impacts of structural breaks are identical between these, so no gain results, helping interpret the empirical findings. Forecast failures in structural models are driven by their deterministic terms, confirming location shifts as a pernicious cause thereof, and explaining the success of robust devices. |
| Keywords: | Inflation Forecasting, Structural Breaks, Robust Forecasts, Time-disaggregation, Forecast-error Taxonomies |
| JEL: | C32 C53 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:309&r=cba |
| By: | Jeremy J. Nalewaik |
| Abstract: | This work estimates Markov switching models on real time data and shows that the growth rate of gross domestic income (GDI), deflated by the GDP deflator, has done a better job recognizing the start of recessions than has the growth rate of real GDP. This result suggests that placing an increased focus on GDI may be useful in assessing the current state of the economy. In addition, the paper shows that the definition of a low-growth phase in the Markov switching models has changed over the past couple of decades. The models increasingly define this phase as an extended period of around zero rather than negative growth, diverging somewhat from the traditional definition of a recession. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2007-07&r=cba |
| By: | Mewael F. Tesfaselassie |
| Abstract: | In a model with forward-looking expectations, the paper examines communication of central bank forecasts when the inflation target is subject to unobserved changes. It characterizes the effect of disclosure of forecasts on inflation and output stabilization and the choice of an active versus passive monetary policy. The paper shows that these choices depend on the slope of the Phillips curve, the central bank's preference weight on inflation relative to output and the ratio of the variability of the inflation target relative to the cost-push disturbance. The paper briefly discusses how disclosure of forecasts may be beneficial for a society that is more concerned about inflation stabilization than the central bank. |
| Keywords: | Forward-looking expectations, inflation target, central bank fore- casts, disclosure policy |
| JEL: | E42 E43 E52 E58 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1319&r=cba |
| By: | Rochelle M. Edge; Michael T. Kiley; Jean-Philippe Laforte |
| Abstract: | This paper presents a monetary DSGE model of the U.S. economy. The model captures the most important production, expenditure, and nominal-contracting decisions underlying economic data while remaining sufficiently small to allow it to provide a clear interpretation of the data. We emphasize the role of model-based analyses as vehicles for storytelling by providing several examples--based around the evolution of natural rates of production and interest--of how our model can provide narratives to explain recent macroeconomic fluctuations. The stories obtained from our model are both similar to and quite different from conventional accounts. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2007-08&r=cba |
| By: | Daniel L.Thornton |
| Abstract: | There are two unresolved puzzles in the empirical foreign exchange literature. The first is the finding that tests of forward rate unbiasedness using the forward rate and forward premium equations yield markedly different conclusions. A companion puzzle?the forward premium puzzle?is the fact that the forward premium incorrectly predicts the direction of the subsequent change in the spot rate, which implies a massive rejection of uncovered interest parity. This paper resolves both puzzles. |
| Keywords: | Foreign exchange |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2007-14&r=cba |
| By: | Kerstin Bernoth (De Nederlandsche Bank, and ZEI-University of Bonn); Jürgen von Hagen (University of Bonn, Indiana University, and CEPR); Casper G. de Vries (Erasmus Universiteit Rotterdam) |
| Abstract: | The forward premium puzzle (FPP) is the negative correlation between the forward premium and the realized exchange rate return at maturities of a month and beyond. Some recent evidence shows that at maturities of multiple years and at the highest intra day frequency the correlation is positive and close to one. This paper contributes by using futures data instead of forwards to complete the maturity spectrum at the (multi-) day level. We find that the correlation only slowly turns negative as the number of days to maturity is increased to the monthly level. The typical shape of the premium correlation with regard to the forward maturity length appears to be V-shaped. |
| Keywords: | exchange rates; market efficiency; forward premium puzzle; uncovered interest parity; futures rates |
| JEL: | F31 F37 G13 |
| Date: | 2007–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20070033&r=cba |
| By: | Michal Brzoza-Brzezina; Jesus Crespo Cuaresma |
| Abstract: | We use a Bayesian dynamic latent factor model to extract world, regional and country factors of real interest rate series for 22 OECD economies. We find that the world factor plays a privileged role in explaining the variance of real rates for most countries in the sample, and accounts for the steady decrease in interest rates in the last decades. Moreover, the relative contribution of the world factor is rising over time. We also find relevant differences between the group of countries that follow fixed exchange rate strategies and those with flexible regimes. |
| Keywords: | Real interest rates, natural rate of interest, Bayesian dynamic factor models. |
| JEL: | E43 C11 E58 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2007-06&r=cba |
| By: | Kurmas Akdogan; Yunus Aksoy |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0703&r=cba |
| By: | Caterina Mendicino (Monetary and Financial Analysis Department, Bank of Canada, 234 Wellington St., Ottawa, K1A 0G9, Ontario, Canada.) |
| Abstract: | This paper investigates the role of credit market size as a determinant of business cycle fluctuations. First, using OECD data I document that credit market depth mitigates the impact of variations in productivity to output volatility. Then, I use a business cycle model with borrowing limits a la Kiyotaki and Moore (1997) to replicate this empirical regularity. The relative price of capital and the reallocation of capital are the key variables in explaining the relation between credit market size and output volatility. The model matches resonably well the reduction in productivity-driven output volatility implied by the established size of the credit market observed in OECD data. JEL Classification: E21, E22, E44, G20. |
| Keywords: | Credit frictions, reallocation of capital, asset prices. |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070743&r=cba |
| By: | John C. Bluedoen; Christopher Bowdler |
| Abstract: | We analyze the international transmission of interest rates under pegged and non-pegged exchange rate regimes, demonstrating that transmission depends upon the informational properties of a base country`s interest rate change. We differentiate between interest rate movements which are predictable/unpredictable and dependent/independent (i.e., a function of non-monetary factors such as cost-push inflation). Under capital mobility, we show that predictable or dependent interest rate changes should elicit interest rate pass-through for an imperfectly credible peg that is less than unity, whilst interest rate changes that are unpredictable and independent should elicit pass-through greater than unity. Using a real-time identification of unpredictable and independent U.S. federal funds rate changes, we provide evidence consistent with these propositions. When the federal funds rate change is unpredictable and independent, the joint hypothesis of unit within-month pass-through to pegs and zero within-month pass-through to non-pegs cannot be rejected. The same hypothesis is strongly rejected following actual, aggregate federal funds rate changes which include predictable and dependent components. In a dynamic context, we find that maximum interest rate pass-through to pegs is delayed. Moreover, even though there is a full transmission of unpredictable and independent federal funds rate changes, they explain only a small portion of pegged regime interest rate changes. |
| Keywords: | Interest Rate Pass-Through, Monetary Policy Identification, Open Economy Trilemma, Exchange Rate Regime |
| JEL: | F33 F41 F42 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:290&r=cba |
| By: | Entorf, Horst; Moeber, Jochen; Sonderhof, Katja |
| Abstract: | Following the well-known approach by Adler and Dumas (1984) we evaluate the foreign exchange rate exposure of nations. Results based on data from 27 countries show that national foreign exchange rate exposures are significantly related to the current trade balance variables of corresponding economies. |
| Keywords: | Exchange rate exposure, international trade, current trade balance |
| JEL: | F31 G15 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:5492&r=cba |
| By: | Violetta Damia (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Carmen Picón Aguilar (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Quality is a subjective notion and encompasses all aspects of how well a product meets users’ needs. It is inherently a multi-faceted concept that cannot be easily defined; any chosen definition is likely to change over time as new aspects gain importance following the evolving users’ needs. The purpose of this paper is threefold; (1) to present a number of quantitative quality indicators, (2) to apply them to measure the quality of balance of payments (b.o.p.) data at the euro area level, and (3) to identify various aspects of data quality that may be enhanced, together with their interrelations with other quality dimensions. The indicators used are compatible with the IMF Data Quality Assessment Framework (DQAF), as defined for b.o.p. statistics, focusing mainly on revisions and consistency. The results obtained from such quantitative indicators may help compilers to set priorities in order to improve the quality of the euro area data still further in dimensions such as accuracy, reliability and serviceability. Additionally, this assessment may help users to understand better the quality of the data, to anticipate the possible size and direction of the forthcoming revisions, and to evaluate the impact of using different datasets in their analysis. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20060054&r=cba |
| By: | Stanley Sienkiewicz |
| Abstract: | This paper discusses the potential money laundering threat that prepaid cards face as they enter the mainstream of consumer payments. Over the past year, several government agencies have issued reports describing the threat to the U.S. financial system, including the use of prepaid cards by money launderers. Also, this paper incorporates the presentations made at a workshop hosted by the Payment Cards Center at which Patrice Motz, executive vice president, Premier Compliance Solutions, and Paul Silverstein, executive vice president, Epoch Data Inc., led discussions. These two leading anti-money laundering strategists explained how money laundering occurs in financial payments and how firms can mitigate and detect money laundering activities. This paper provides an overview of money laundering, describes how prepaid cards could be abused, and outlines how both the government and the payment sectors have responded to mitigate risks. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpdp:07-02&r=cba |
| By: | Julia S. Cheney; Sherrie L.W. Rhine |
| Abstract: | This paper describes the characteristics of closed-system and open-system prepaid cards. Of particular interest is a class of open-system programs that offer a set of features similar to conventional deposit accounts using card-based payment applications. The benefits that open-system prepaid cards offer for consumers, providers, and issuing banks contribute to the increased adoption of these payment applications. Using these cards, consumers can pay bills, make purchases, and get cash from ATM networks. At the same time, consumers who hold prepaid cards need not secure a traditional banking relationship nor gain approval for a deposit account or revolving credit. By offering prepaid cards, issuing banks may meet the financial needs of consumers who may not otherwise qualify for more traditional banking products and these banks may do so with a card-based electronic payment application that essentially eliminates credit risk for the bank. |
| Keywords: | Payment systems |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpdp:06-07&r=cba |
| By: | Verdier, Marianne |
| Abstract: | Some retail payment systems can be modelled as two-sided markets, where a payment system facilitates money exchanges between consumers on one side and merchants on the other. The system sets rules and standards, to ensure usage and acceptance of its payment instruments by consumers and merchants respectively. Some retail payment systems exhibit indirect network externalities, which is one of the main criteria used to define two-sided markets. As more consumers use the payment platform, more merchants are encouraged to join it. Conversely, the value of holding payment instruments increases with the number of merchants accepting them. The theory of two-sided markets contributes to a better understanding of these retail payment systems, by showing that an asymmetric allocation of costs is needed to maximise the volume of transactions. It also starts to offer results that could explain competition between payment platforms. However, this theory entails some limits to a thorough understanding of retail payment systems. Firstly, we show that some retail payment systems, such as credit transfer or direct debit systems, do not necessarily fulfil all the theoretical criteria used to define twosided markets. Moreover, this theory does not take into account specific features of the payment industry, such as risk management or fraud prevention. This leads us to propose new research directions. |
| Keywords: | payment systems; two-sided markets; platform competition; payment cards. |
| JEL: | O30 L13 D43 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2606&r=cba |
| By: | Pierdzioch, Christian; Cenesiz, M. Alper |
| Abstract: | The money multiplier measures the accumulated effect of a monetary policy shock on key macroeconomic variables like output and hours worked. Conventional wisdom suggests that financial market integration should significantly increase the money multiplier. Based on a dynamic general equilibrium model, we derive the result that costs of adjusting hours worked substantially dampen the effect of financial market integration on the money multiplier. Costs of adjusting hours worked capture in an efficient and stylized manner that adjustment processes in the labor market typically are costly and time consuming. Empirical evidence supports the result of our theoretical analysis. |
| Keywords: | Financial market integration; Money multiplier; Costs of adjusting hours worked |
| JEL: | F36 F41 E44 |
| Date: | 2007–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2657&r=cba |
| By: | Roberto Frenkel; Martín Rapetti |
| Abstract: | This paper offers a comprehensive look at how Argentina managed a remarkable economic recovery from its collapse in 2001. The authors show how the Argentine government's policy of targeting a stable and competitive real exchange rate was crucial to the country's economic recovery. They also analyze the various sources of aggregate demand and government revenue in different phases of the expansion. In addition to the crucial role of the exchange rate, the authors look at other policies - such as an export tax, capital controls, and the default on much of the country's sovereign debt - which were met with disapproval by many economists and other commentators but played an important role in the recovery. |
| JEL: | E58 E52 E42 F31 F41 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2007-12&r=cba |
| By: | Sabine Herrmann (Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany.); Eva Katalin Polgar (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | The primary goal of monetary policy in most economies of the world is to achieve and maintain price stability. This paper evaluates price developments and consumer price indices in south-eastern European countries, i.e. countries that have either recently joined the EU or are candidate or potential candidate countries. It is motivated by the fact that, in transition countries, inflation has generally been higher and more volatile than in advanced economies. The analysis reveals that the subindex housing/energy appears to be the main driving force behind overall inflation in the region. In most of the countries under review, administered prices prove to be an important factor in consumer price developments, with their weights increasing over time. Inflation volatility in south-eastern Europe is significantly higher than in the euro area. While this is partly due to a higher level of inflation, it also reflects a more pronounced share for the most volatile sub-indices as well as the marked impact of administered prices on the overall price index, a phenomenon which has also been seen in the central and eastern European countries. While in most south-eastern European countries no HICP has been calculated yet, there is little evidence suggesting that the future use of the HICP will result in a systematic change in inflation patterns in the respective countries. However, as deviations have been observed in a few countries for certain periods, without further information on the structure of the respective national CPI and the HICP such differences cannot be fully excluded. JEL Classification: E21, O52, O57, P22. |
| Keywords: | South-eastern Europe, inflation developments, inflation volatility, consumer price indices, HICP, administered prices. |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20070057&r=cba |
| By: | Claeys, Sophie (Research Department, Central Bank of Sweden); Schoors, Koen (CERISE) |
| Abstract: | Supervisors sometimes have to manage both the micro- and macro- prudential dimensions of bank stability. These may either conflict or complement each other. We analyze prudential supervision by the Central Bank of Russia (CBR). We find evidence of micro-prudential concerns, measured as the rule-based enforcement of bank standards. Macro-prudential concerns are also documented: Banks in concentrated bank markets, large banks, money center banks and large deposit banks are less likely to face license withdrawal. Further, the CBR is reluctant to withdraw licenses when there are “too many banks to fail”. Finally, macro-prudential concerns induce regulatory forbearance, revealing conflicts with micro-prudential objectives. |
| Keywords: | Prudential Supervision; Bank Stability; Systemic Stability |
| JEL: | E50 G20 N20 |
| Date: | 2007–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0205&r=cba |
| By: | Jérôme Blanc (LEFI - Laboratoire d'économie de la firme et des institutions - [Université Lumière - Lyon II]) |
| Abstract: | Ce texte s'interroge sur les origines du projet de currency board en Lituanie, les conditions dans lesquelles ce projet a été façonné et les conditions de son établissement effectif. Il met en lumière la convergence sur la Lituanie d'une dynamique internationale de propositions de tels dispositifs pour des pays de l'ancien bloc soviétique et le développement de relais locaux. Il examine ensuite les débats et rapports qui ont suivi l'annonce officielle, par le Premier ministre, du projet de caisse d'émission en octobre 1993. Enfin il présente le dispositif tel que façonné par la loi sur la crédibilité du litas votée le 17 mars 1994 et les problèmes immédiats issus de sa conception. |
| Keywords: | Currency board;Monnaie;régime de change;institutions;Lituanie |
| Date: | 2007–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00140508_v1&r=cba |