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on Central Banking |
| By: | Loeffler, Axel; Schnabl, Gunther; Schobert, Franziska |
| Abstract: | Given low interest rates in the large industrial countries and buoyant capital inflows into the emerging markets East Asian central banks have accumulated large stocks of foreign reserves. As the resulting easing of monetary conditions has become a threat to domestic price and financial stability, the East Asian central banks have embarked on substantial sterilization operations to absorb what we call surplus liquidity from the domestic banking systems. This has brought the East Asian central banks into debtor positions versus the domestic banking systems. We show based on a central bank loss function that given buoyant capital inflows and exchange rate stabilization the absorption of surplus liquidity leads either to financial repression, or rising inflation or both. Assuming that a debtor central bank moved towards a freely floating exchange rate to gain monetary policy independence, we show that monetary policy independence is undermined by sterilization costs and revaluation losses on foreign reserves. -- |
| Keywords: | Debtor Central Banks,Monetary Policy Autonomy,Sterilization,Exchange Rate Regime,East Asia |
| JEL: | E52 E58 F31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:122&r=cba |
| By: | Mirkov, Nikola; Natvik, Gisle James |
| Abstract: | If central banks value the ex-post accuracy of their forecasts, previously announced interest rate paths might affect the current policy rate. We explore whether this “forecast adherence” has influenced the monetary policies of the Reserve Bank of New Zealand and the Norges Bank, the two central banks with the longest history of publishing interest rate paths. We derive and estimate a policy rule for a central bank that is reluctant to deviate from its forecasts. The rule can nest a variety of interest rate rules. We find that policymakers appear to be constrained by their most recently announced forecasts. |
| Keywords: | Interest rates, forecasts, Taylor rule, adherence. |
| JEL: | E43 E52 E58 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2013:03&r=cba |
| By: | Saroj Bhattarai; Jae Won Lee; Woong Yong Park |
| Abstract: | We prove that the Generalized Taylor Principle, under which the nominal interest rate reacts more than one-for-one to inflation in the long run, is a necessary and (under some extra mild restrictions on parameters) sufficient condition for determinacy in a sticky price model with positive steady-state inflation, interest rate smoothing in monetary policy, partial dynamic price indexation, and habit formation in consumption. |
| Keywords: | Price levels ; Monetary policy ; Banks and banking, Central |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:152&r=cba |
| By: | Lars winkelmann; Markus Bibinger; Tobias Linzert; |
| Abstract: | This paper proposes a new econometric approach to disentangle two distinct response patterns of the yield curve to monetary policy announcements. Based on cojumps in intraday tick-data of a short and long term interest rate, we develop a day-wise test that detects the occurrence of a significant policy surprise and identifies the market perceived source of the surprise. The new test is applied to 133 policy announcements of the European Central Bank (ECB) in the period from 2001-2012. Our main findings indicate a good predictability of ECB policy decisions and remarkably stable perceptions about the ECB’s policy preferences. |
| Keywords: | Central bank communication; yield curve; spectral cojump estimator; high frequency tick-data |
| JEL: | E58 C14 C58 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2013-038&r=cba |
| By: | Jin Cao (Norges Bank (Central Bank of Norway), CESifo, Germany); Loran Chollete (UiS Business School, Norway) |
| Abstract: | Most theoretical central bank models use short horizons and focus on a single tradeoff. However, in reality, central banks play complex, long-horizon games and face more than one tradeoff. We account for these issues in a simple infinite-horizon game with a novel tradeoff: higher rates deter financial imbalances, but lower rates reduce the likelihood ofinsolvency. We term these factors discipline and stability effects, respectively. The centralbank's welfare decreases with dependence between real and financial shocks, so it may reduce costs with correlation-indexed securities. In our model, independent central banks cannot in general attain both low inflation and financial stability. |
| Keywords: | Central Bank, Correlation-indexed security, Discipline effect, Stability effect |
| JEL: | E50 G28 |
| Date: | 2013–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2013_21&r=cba |
| By: | Timo Henckel (Centre for Applied Macroeconomic Analysis, Australian National University); Gordon Menzies (Economics Discipline Group, University of Technology, Sydney); Daniel J. Zizzo (School of Economics and CBESS, University of East Anglia) |
| Abstract: | A puzzle from the Great Recession is an apparent mismatch between a fall in the persistence of European inflation rates, and the increased variability of expert forecasts of inflation. We explain this puzzle and show how country specific beliefs about inflation are still quite close to the European Central Bank target of 2% (what we call official target credibility) but the degree of anchoring to this target has gone down, implying an erosion of what we call anchoring credibility. A decline in anchoring credibility can explain increased forecast variance independently of any changes in inflation persistence, contrary to standard time series models. |
| Keywords: | Central bank credibility; excess volatility; euro; inferential expectations; inflation |
| JEL: | C51 D84 E31 E52 |
| Date: | 2013–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ecowps:13&r=cba |
| By: | Matteo Falagiarda; Stefan Reitz |
| Abstract: | This paper studies the effects of ECB communications about unconventional monetary policy operations on the perceived sovereign risk of Italy over the last five years. More than fifty events concerning non-standard operations are identified and classified with respect to the specific ECB program. The empirical results are derived from both an event-study analysis and a GARCH framework, which uses Italian long-term bond futures to disentangle expected from unexpected policy actions. We find that the ECB announcements about unconventional monetary policies substantially reduced Italian long-term government bond yield spread relative to German counterparts. Particularly, among the different types of measures, news about the Securities Markets Programme and the Outright Monetary Transactions are found to be effective in affecting the perceived sovereign risk of Italy |
| Keywords: | central bank communications, unconventional monetary policy, European sovereign debt crisis, event-study, GARCH models |
| JEL: | E43 E52 E58 G01 G12 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1866&r=cba |
| By: | Olivier Bruno (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université Nice Sophia Antipolis [UNS]); André Cartapanis (CHERPA - Croyance, Histoire, Espace, Régulation Politique et Administrative - Institut d'Études Politiques [IEP] - Aix-en-Provence - Aix-Marseille Université - AMU); Eric Nasica (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université Nice Sophia Antipolis [UNS]) |
| Abstract: | We analyse the determinants of banks' balance-sheet and leverage-ratio dynamics and their role in increasing financial fragility. Our results are twofold. First, we show that there is a value of bank's leverage that minimises financial fragility. Second, we show that this value depends on the overall business climate, the expected value of the collateral and the riskless interest rate. This result leads us to advocate the establishment of anadjustableleverage ratio, depending on economic conditions, rather than the fixed ratio provided for under the new Basel III regulation. |
| Keywords: | Bank Leverage, Leverage ratios, Financial Instability, Prudential Regulation |
| Date: | 2013–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00853701&r=cba |
| By: | Han, Rui; Melecky, Martin |
| Abstract: | In crisis times, depositors get anxious, can run on banks, and withdraw their deposits. Correlated withdrawals of bank deposits could be mitigated if bank deposits are more diversified, that is, held by more individuals. This paper examines the link between the broader access to bank deposits prior to the 2008 crisis and the dynamics of bank deposit growth during the crisis, while controlling for relevant covariates. Employing proxies for access to deposits and the use of bank deposits, the authors find that greater access to bank deposits can make the deposit funding base of banks more resilient in times of financial stress. Policy efforts to enhance financial stability should thus not only focus on macroprudential regulation, but also recognize the positive effect of broader access to bank deposits on financial stability. |
| Keywords: | Debt Markets,Banks&Banking Reform,Access to Finance,Deposit Insurance,Emerging Markets |
| Date: | 2013–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6577&r=cba |
| By: | Calebe de Roure; Steven Furnagiev; Stefan Reitz |
| Abstract: | This paper uses a microstructure approach to analyze the effectiveness of capital controls introduced in Brazil to counter an appreciation of the Real. Based on a rich data set from the Brazilian foreign exchange market, we estimate a reduced-form VAR to characterize the interaction of the central bank, financial and commercial customers in times of regulatory policy measures. Controlling for regular FX interventions we find that capital controls change market participants' behavior. Referring to thesource of order flow, we find no evidence that the appreciation of the Real is driven by financial customers’ activity. Instead, commercial customers seem to be a primary driver of the Real within our model. To the extent that capital controls influence commercial customers' order flow, this is the likely channel policy makers use to respond to a perceived loss of international competitiveness |
| Keywords: | Foreign Exchange,Sterilized Intervention, Macroprudential Policies, Market Microstructure |
| JEL: | F31 E58 G14 G15 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1865&r=cba |
| By: | Thomas I. Palley |
| Abstract: | This paper provides a novel analysis of quantitative easing (QE) that focuses on its implicit fiscal dimension. The first segment examines the theory of the liquidity trap and introduces a distinction between a "weak" and "strong" liquidity trap. The second segment analyzes the impact of QE under conditions of a weak and strong liquidity trap. In a weak liquidity trap QE is expansionary but subject to diminishing returns. As QE involves purchasing assets from the public, it transfers the income streams associated with those assets to the fiscal authority. This transfer generates a form of fiscal drag that can theoretically eventually render QE contractionary. In an open economy, exchange rate effects of QE also need to be taken account of and those tend to be expansionary. The third segment explores how to exit QE. The current suggestion of raising the policy interest rate and paying interest on reserves to check inflationary pressures is contradicted because paying interest constitutes an implicit tax cut. Instead, the paper suggests adopting a system of asset based reserve requirements. Requiring banks to hold increased reserves would permanently deactivate liquidity created by QE without recourse to interest payments and the implicit tax cut they represent. |
| Keywords: | quantitative easing, fiscal drag, interest on reserves, exit strategy, asset based reserve requirements |
| JEL: | E43 E44 E50 E52 E58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:113-2013&r=cba |
| By: | Rajesh Singh (Iowa State University) |
| Abstract: | This paper studies optimal monetary policy in a small open economy under flexible prices. The paper's key innovation is to analyze this question in the context of environments where only a fraction of agents participate in asset market transactions (i.e., asset markets are segmented). In this environment, we study three rules: the optimal state contingent monetary policy; the optimal non-state contingent money growth rule; and the optimal non-state contingent devaluation rate rule. We compare welfare and the volatility of macro aggegates like consumption, exchange rate, and money under the different rules. One of our key findings is that amongst non-state contingent rules, policies targeting the exchange rate are, in general, welfare dominated by policies which target monetary aggregates. Crucially, we find that fixed exchange rates are almost never optimal. On the other hand, under some conditions, a non-state contingent rule like a fixed money rule can even implement the first-best allocation. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:103&r=cba |
| By: | Ehsan U. Choudhri (Carleton University, Canada); Lawrence L. Schembri (Bank of Canada, Canada) |
| Abstract: | The paper examines the experience of Canada and the United States in the run-up to the two biggest financial crises in global history, in the 1920s and 2000s, and the roles of their monetary and financial stability policies. Comparing the Canadian and the U.S. experiences over the two periods is instructive because Canadian monetary policy was somewhat more conservative than U.S. monetary policy and there were important institutional differences in the two periods: Canada did not have a central bank in the 1920’s and followed different financial stability policies in the 2000’s. We present evidence that suggests two conclusions. Firstly, a more moderate Canadian monetary policy in the two booms affected Canada’s relative macroeconomic performance during the booms; in particular, the extent of the economic expansion was less. Secondly, this difference, however, by itself, does not explain why Canada fared better in the recent crisis, but not in the Great Depression. Indeed, the comparative evidence suggests that it was the difference in the effectiveness of financial stability policies, primarily financial regulation supervision with respect to banks and housing finance, that explains the better Canadian performance during the recent crisis. In contrast, in the 1920s, both countries lacked the financial policies to control excess credit growth and both suffered as a consequence. In addition, both countries made policy mistakes in aftermath of the stock market crash and credit collapses; in particular, Canada pursued inflexible interest and exchange rate policies that aggravated the economic downturn. |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:44_13&r=cba |
| By: | Juillard, Michel (Banque de France); Le Bihan, Herve (Banque de France); Millard, Stephen (Bank of England) |
| Abstract: | In many countries, wage changes tend to be clustered in the beginning of the year, with wages being set for fixed durations of typically one year. This has been, in particular, documented in recent years for European countries using microeconomic data. Motivated by this evidence we build a model of uneven wage staggering, embedded in a standard DSGE model of the euro area, and investigate the monetary policy consequences of non-synchronised wage-setting. The model has the potential to generate responses to monetary policy shocks that differ according to the timing of the shock. Using a realistic calibration of the seasonality in wage-setting, based on a wide survey of European firms, the quantitative difference across quarters turns out however to be moderate. Relatedly, we obtain that the optimal monetary policy rule does not vary much across quarters. |
| Keywords: | Wage-setting; wage-staggering; wage synchronisation; monetary policy shocks; optimal simple monetary policy rules |
| JEL: | E27 E52 |
| Date: | 2013–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0477&r=cba |
| By: | Beatrice D. Simo-Kengne (Department of Economics, University of Pretoria); Stephen M. Miller (College of Business, University of Las Vegas, Nevada); Rangan Gupta (Department of Economics, University of Pretoria) |
| Abstract: | This paper investigates whether changes in monetary transmission mechanism respond to variations in asset prices. We distinguish between bull and bear markets and employ a TVP-VAR approach with stochastic volatility to assess the evolution of the monetary policy in relation to housing and stock prices. We measure the relative importance of housing and stock prices in the conduct of monetary policy and their possible feedback effects over both time and horizon and across regimes. Empirical results from annual data on the US spanning the period from 1890 to 2012 indicate that monetary policy responds more strongly to asset prices during bull regimes. While the bigger monetary effect of stock price shocks occurs prior to the 1970s, monetary policy appears to respond more strongly to housing price than stock price shocks after the 1970s. Similarly, contractionary monetary policy exerts a larger effect on both asset categories during bull markets. Particularly, larger negative responses of house prices to monetary policy shocks occur after the 1980s, corresponding to the bull regime in the housing market. Conversely, the stock-price effect of monetary policy shocks dominates before the 1980s, where stock-market booms achieved more importance. |
| Keywords: | Monetary policy, house prices, stock prices, TVP-VAR |
| JEL: | C32 E52 G10 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201343&r=cba |
| By: | Daniel Sanches |
| Abstract: | Monetary economists have long recognized a tension between the benefits of fractional reserve banking, such as the ability to undertake more profitable (long-term) investment opportunities, and the difficulties associated with fractional reserve banking, such as the risk of insolvency for each bank. The goal of this paper is to show that a specific form of private bank coalition (a joint-liability arrangement) allows the members of the banking system to engage in fractional reserve banking in such a way that the solvency of each member bank is completely guaranteed. Under this arrangement, I show that a lower reserve ratio usually translates into a higher exchange value of bank liabilities, benefitting the consumers who use them as a means of payment. |
| Keywords: | Banks and banking ; Interbank market |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:13-32&r=cba |
| By: | Peter Fuleky (UHERO, University of Hawaii at Manoa); Luigi Ventura (Department of Economics and Law, Sapienza, University of Rome); Qianxue Zhao (UHERO, University of Hawaii at Manoa) |
| Abstract: | Existing studies of risk pooling among groups of countries are predicated upon the highly restrictive assumption that all countries have symmetric responses to aggregate shocks. We show that the conventional risk sharing test fails to isolate idiosyncratic fluctuations within countries and produces spurious results. To avoid these problems, we propose an alternative form of the risk sharing test that is robust to heterogeneous country characteristics. In our empirical example, we provide estimates using the proposed approach for various groupings of 158 countries. |
| Keywords: | Panel data, Cross-sectional dependence, International risk sharing, Consumption insurance |
| JEL: | C23 C51 E21 F36 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:hae:wpaper:2013-3r&r=cba |
| By: | Marius del Giudice Rodriguez; Thomas Wu |
| Abstract: | Has the recent wave of capital controls and prudential foreign exchange (FX) measures been effective in promoting exchange rate stability? We tackle this question by studying a panel of 25 countries/currencies from July 1, 2009, to June 30, 2011. We calculate daily measures of exchange rate volatility, absolute crash risk, and tail risk implied in currency option prices, and we construct indices of capital controls and prudential FX measures taking into account the exact date when policy changes are implemented. Using a difference-in-differences approach, we find evidence that (i) tightening controls on non-residents suppresses daily exchange rate fluctuations at the cost of increasing the frequency of outliers, (ii) easing controls on residents truly improves exchange rate stability over all dimensions, and (iii) tightening prudential FX measures not specific to derivative markets reduces absolute crash risk and tail risk, with no effect on volatility. |
| Keywords: | Foreign exchange |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2013-20&r=cba |
| By: | Eling, Martin; Pankoke, David |
| Abstract: | This paper analyzes the equity risk module of Solvency II, the new regulatory framework in the European Union. The equity risk module contains a symmetric adjustment mechanism called equity dampener which shall reduce procyclicality of capital requirements and thus systemic risk in the insurance sector. We critically review the equity risk module in three steps: we first analyze the sensitivities of the equity risk module with respect to the underlying technical basis, then work out potential basis risk (i.e., deviations of the insurers actual equity risk from the Solvency II equity risk), and — based on these results — measure the impact of the symmetric adjustment mechanism on the goals of Solvency II. The equity risk module is backward looking in nature and a substantial basis risk exists if realistic equity portfolios of insurers are considered. Both results underline the importance of the own risk and solvency assessment (ORSA) under Solvency II. Moreover, we show that the equity dampener leads to substantial deviations from the proposed 99.5% confidence level and thereby reduces procyclicality of capital requirements. Our results are helpful for academics interested in regulation and risk management as well as for practitioners and regulators working on the implementation of such models. |
| Keywords: | Solvency II, procyclicality, systemic risk, CoVaR, MES. |
| JEL: | G22 G28 G32 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2013:06&r=cba |
| By: | Nima Nonejad (Aarhus University and CREATES) |
| Abstract: | The restrictions implied by the theory of time-consistent monetary policy are imposed on empirical data. Model estimation is conducted using Bayesian Markov chain Monte Carlo techniques. We are able to identify two major regimes regarding the policy of the Federal Reserve from 1970 to 2008. Results show that the Federal Reserve places more weight on inflation stabilization throughout the bigger part of the 1980s and 1990s while on the other hand the Federal Reserve is pursuing a policy of placing more weight on its goals for unemployment reduction in the 1970s and from 2003 to 2008. |
| Keywords: | Time-consistency, Monetary policy, Gibbs sampling |
| JEL: | C11 C22 C51 E42 E52 |
| Date: | 2013–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2013-25&r=cba |
| By: | Lise Clain-Chamosset-Yvrard (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales [EHESS] - Ecole Centrale Marseille (ECM)); Thomas Seegmuller (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales [EHESS] - Ecole Centrale Marseille (ECM)) |
| Abstract: | We explore the existence of endogenous fluctuations with a rational bubble and the stabilizing role of fiscal and monetary policies. Consumers' credit constraints, the role of collateral and a portfolio choice are the key ingredients of our analysis. We consider an overlapping generations model where households realize a portfolio choice between three assets with different returns (capital, money and bonds). Expectation-driven fluctuations and the multiplicity of steady states occur under a positive bubble on bonds, gross substitutability and large input substitution because of credit market imperfections. Focusing on the stabilizing role of policies, we show that a progressive taxation on capital income may rule out expectation-driven fluctuations and the multiplicity of steady states. In contrast, a monetary policy under a Taylor rule has a mitigated stabilizing role, depending on the reactiveness of the policy rule and the concavity of the utility function. When the monetary authority decides instead to fix the nominal interest rate regardless the inflation, decreasing the level of the nominal interest rate can rule out expectation-driven fluctuations, restore the uniqueness of steady states, but can damage the welfare at the steady state. |
| Keywords: | indeterminacy; rational bubble; cash-in-advance constraint; collateral; progressive taxation; monetary policy |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00854536&r=cba |
| By: | Kyriacos Lambrias |
| Abstract: | We propose a fully flexible, complete-market model of the international business cycle that is consistent with two major empirical facts: positive cross-country co-movement of economic aggregates and a negative correlation between the real exchange rate and relative consumption (the Backus-Smith puzzle). The model features non-tradable goods, zero wealth effects on labour supply, imperfect substitutability of capital across sectors and variable capacity utilisation. The latter can generate strong Balassa-Samuelson effects that drive a low consumption-real exchange rate correlation. Cyclical movements across countries are also positively correlated. The novelty of our paper is to introduce changes in expectations (news-shocks) as an explanation to the Backus-Smith puzzle through the wealth effects of future changes in income, while being consistent with expectations-driven economic expansions. |
| Keywords: | News-Driven Cycles, Backus-Smith Puzzle, Real-Exchange Rates |
| JEL: | F41 F44 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp083&r=cba |
| By: | Vivien Brunel |
| Abstract: | Operational risk capital charge is very sensitive to the modeling assumptions. In this paper, we consider a class of exactly solvable models of operational risk and we obtain new results on the correlation problem. In particular, we show that incorporating model risk for correlations decreases the bank's capital charge. |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1308.5064&r=cba |
| By: | John H. Makin (American Enterprise Institute) |
| Abstract: | Central banks all over the world ought to leave well enough alone rather than raising already-elevated uncertainty with talk of phasing down (“tapering,” in US parlance) quantitative easing. |
| Keywords: | FOMC,Federal Reserve Chairman Ben Bernanke,federal reserve,economic recession,Economic policy outlook,economic outlook ,central banks,austerity measures |
| JEL: | A E |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:aei:rpaper:38198&r=cba |
| By: | Khan, Haider |
| Abstract: | This paper analyzes the problems of creating and expanding national macroeconomic policy space and economic governance for the developing countries in particular within a framework of overall global and regional financial architectures. It develops a critical constructivist evolutionary theory of international financial institutions and arrangements within a framework of dynamic complex adaptive economic systems(DCAES), and applies this particularly to the current problems of developing countries. More specifically, the paper analyzes the following aspects: • Proposed BASEL III reforms for more stringent capital requirements and their implications for the developing world in particular. • BIS proposals for better regulation of financial derivatives, including commodities futures, by moving away from OTC transactions towards organized exchanges. • The IMF’s response to recent and emerging global economic and challenges, and the evolving nature of its role. • The most appropriate role of regional arrangements in financial stabilization, based on experiences with such arrangements in this and prior episodes of crisis. The Basel reforms and the BIS proposals for regulating the derivatives markets have many positive features. However, they have not been designed with the needs of DCs and LDCs in mind. The consequences of Basel I and II and proposed Basel III are analyzed from the perspective of the developing countries. It turns out that specific concerns of developing countries have not received adequate attention within the Basel Reform Initiatives and more can be and needs to be done. Most importantly, the role of IMF under the present globalization arrangements and repeated financial crises is studied by following such a critical constructivist evolutionary theory of international financial institutions within a rigorous DCAES framework. Here, too, the key finding is that much more can be done to help the developing countries than has been done so far. Furthermore, the potential for such global reforms in the wake of the global financial crisis and the great recession is analyzed from a dialectical social constructivist viewpoint that combines the power of --sometimes conflicting-- norms and ideas with the underlying structural contradictions to produce a “critical-constructivist” analysis of the potential for change. It is shown that IMF must and can change in a direction which allows for greater national policy autonomy. It is also shown that the IMF needs complementary regional institutions of cooperation in order to create a stabilizing hybrid global financial architecture that will be more democratic and pro-development in terms of its governance structure and behavior. Thus regional financial architectures will need to be integral parts of any new global financial architecture (GFA).The tentative steps taken towards regional cooperation in Asia since Asian financial crisis are discussed to illustrate the opportunities and challenges posed by the need to evolve towards a hybrid GFA. The opportunities and challenges arising from the current global crisis are also analyzed in this context. |
| Keywords: | dynamic complex adaptive economic systems; financial crises; global financial architecture; regional financial architectures; a hybrid GFA; regional cooperation; BASEL III reforms; the BIS proposals; the IMF |
| JEL: | E5 F3 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49275&r=cba |
| By: | Tolga Umut Kuzubas; Inci Omercikoglu; Burak Saltoglu |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bou:wpaper:2013/12&r=cba |
| By: | Jagjit S. Chadha; Luisa Corrado; Sean Holly |
| Abstract: | Prior to the financial crisis mainstream monetary policy practice had become disconnected from money. We outline the basic rationale for this development using a simple model of money and credit in which we explore the conditions under which money matters directly for the conduct of policy. Then, drawing on Goodfriend and McCallum’s (2007) DSGE model, we examine the circumstances under which money becomes more closely linked to inflation. We find that money matters when the variance of the supply of lending dominates productivity and the velocity of money demand. This is because amplifying the role of loans supply leads to an expansion in aggregate demand, via a compression of the external finance premium, which is inflationary. We consider a number of alternative monetary policy rules, and find that a rule which exploits the joint information from money and the external finance premium performs best. |
| Keywords: | money, DSGE, policy rules, external finance premium |
| JEL: | E31 E40 E51 |
| Date: | 2013–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1329&r=cba |