|
on Monetary Economics |
| By: | Lorca-Susino, Maria |
| Abstract: | A monetary union is a group of states which share a single, or common, currency. An economic and monetary union (EMU), like the Eurozone, is characterized not only by a single currency, but also by a single market, as well as by a common economic and monetary policy. According to Cohen2, a monetary union represents the complete abandonment of all separate national currencies, and the full centralization of the monetary authority in a single joint institution, normally, a central bank. In theory, there are two possibilities for a monetary union. The first one is a situation where currencies may continue to be issued by individual governments, but tied together in an exchange-rate union. The second is to have member-states’ money replaced not by a joint currency, but rather by the money of a larger partner—an arrangement generically labelled “dollarization” after the United States dollar, the currency most widely used for this purpose. In the EMU3 member states give up their currencies and seigniorage revenues4 in favour of a common currency—the euro—following conversion between the former national currencies and the euro. |
| Keywords: | Euro; stabilizer; inflation; employment; business cycle |
| JEL: | E50 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7185&r=mon |
| By: | Martin Cihák; Sofia Bauducco; Ales Bulir |
| Abstract: | This paper contributes to the analysis of monetary policy in the face of financial instability. In particular, we extend the standard new Keynesian dynamic stochastic general equilibrium (DSGE) model with sticky prices to include a financial system. Our simulations suggest that if financial instability affects output and inflation with a lag and if the central bank has privileged information about credit risk, monetary policy that responds instantly to increased credit risk can trade off more output and inflation instability today for a faster return to the trend than a policy that follows the simple Taylor rule with only the contemporaneous output gap and inflation. |
| Keywords: | Monetary policy , Inflation , Credit risk , Financial stability , |
| Date: | 2008–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/18&r=mon |
| By: | Michael Ehrmann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marcel Fratzscher (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Despite substantial differences in monetary policy and communication strategies, many central banks share the practice of purdah, a self-imposed guideline of abstaining from communication around policy meetings or other important events. This practice is remarkable, as it seems to contradict the virtue of transparency by requiring central banks to withhold information precisely when it is sought after intensely. However, imposing such a limit to communication has often been justified on grounds that such communication may create excessive market volatility and unnecessary speculation. This short paper assesses the purdah for the Federal Reserve. The empirical results confirm the conjecture that financial markets are substantially more sensitive to central bank communication around policy meetings. Short-term interest rates react three to four times more strongly to statements in the purdah before FOMC meetings than during other times, and market volatility increases (compared to a volatility reduction induced by statements otherwise). The findings thus offer relevant insights about the limits to central bank transparency. JEL Classification: E58, E52, E43. |
| Keywords: | Purdah; communication, transparency, monetary policy, interest rates, effectiveness, Federal Reserve. |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080868&r=mon |
| By: | Yakov Ben-Haim (Technion-Israel Institute of Technology); Q. Farooq Akram (Norges Bank (Central Bank of Norway)); Øyvind Eitrheim (Norges Bank (Central Bank of Norway)) |
| Abstract: | We study monetary policy under uncertainty. A policy which ameliorates a worst case may differ from a policy which maximizes robustness and satisfices the performance. The former strategy is min-maxing and the latter strategy is robust-satisficing. We show an “observational equivalence” between robust-satisficing and min-maxing. However, there remains a “behavioral difference” between robust-satisficing and min-maxing. Policy makers often wish to respect specified bounds on target variables. The robust-satisficing policy can be more (and is never less) robust, and hence more dependable, than the min-max policy. We illustrate this in an empirical example where monetary policy making amounts to selecting the coefficients of a Taylor-type interest rate rule, subject to uncertainty in the persistence of shocks to inflation. |
| Keywords: | Knightian uncertainty, robustness, info-gap decision theory, monetary policy, minmax policy, robust-satisficing policy. |
| JEL: | E52 E58 |
| Date: | 2007–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2007_06&r=mon |
| By: | Boris Hofmann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper assesses the performance of monetary indicators as well as of a large range of economic and financial indicators in predicting euro area HICP inflation out-of-sample over the period first quarter 1999 till third quarter 2006 considering standard bivariate forecasting models, factor models, simple combination forecasts as well as trivariate two-pillar Phillips Curve forecasting models using both ex-post revised and real-time data. The results suggest that the predictive ability of money-based forecasts relative to a simple random walk benchmark model was high at medium-term forecasting horizons in the early years of EMU, but has substantially deteriorated recently. A significantly improved forecasting performance vis-à-vis the random walk can, however, be achieved based on the ECB’s internal M3 series corrected for the effects of portfolio shifts and by combining monetary and economic indicators. JEL Classification: E31, E40, C32. |
| Keywords: | Euro area, inflation, leading indicators, money. |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080867&r=mon |
| By: | Francis Y. Kumah |
| Abstract: | This paper characterizes exchange market pressure as a nonlinear Markov-switching phenomenon, and examines its dynamics in response to money growth and inflation over three regimes. The empirical results identify episodes of exchange market pressure in the Kyrgyz Republic and confirm the statistical superiority of the nonlinear regime-switching model over a linear VAR version in understanding exchange market pressure. The nonlinear empirical approach adequately characterizes the data generation process and yields results that are consistent with theoretical predictions, particularly the dampening effect of monetary contraction on depreciation pressure. During periods of appreciation pressure, however, the reverse policy option-monetary expansion-may not be efficient, particularly where PPP rather than UIP drives exchange rates. In addition, monetary expansion in such cases defeats the primary objective of monetary policy-price stability-and may exacerbate the instability. |
| Keywords: | Working Paper , Exchange rate regimes , Monetary policy , Price stabilization , Kyrgyz Republic , Economic models , |
| Date: | 2007–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/242&r=mon |
| By: | Giovanni Di Bartolomeo (University of Teramo); Marco Manzo; Francesco Giuli |
| Abstract: | This paper extends a well-known macroeconomic stabilization game between monetary and fiscal authorities introduced by Dixit and Lambertini (American Economic Review, 93: 1522-1542) to multiplicative (policy) uncertainty. We find that even if fiscal and monetary authorities share a common output and inflation target (i.e. the symbiosis assumption), the achievement of the common targets is no longer guaranteed; under multiplicative uncertainty, in fact, a time consistency problem arises unless policymakers¢ output target is equal to the natural level. |
| Keywords: | Monetary-fiscal policy interactions, uncertainty, symbiosis. |
| JEL: | E61 E63 |
| Date: | 2008–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:0802&r=mon |
| By: | Mathew Kofi Ocran |
| Abstract: | The study sought to ascertain the key determinants of inflation in Ghana for the past 40 years. Stylized facts about Ghana’s inflation experience indicate that since the country’s exit from the West African Currency Board soon after independence, inflation management has been ineffective despite two decades of vigorous reforms. Using the Johansen cointegration test and an error correction model, the paper identified inflation inertia, changes in money and changes in Government of Ghana treasury bill rates, as well as changes in the exchange rate, as determinants of inflation in the short run. Of these, inflation inertia is the dominant determinant of inflation in Ghana. It is therefore suggested that to make treasury bill rates more effective as a nominal anchor, inflationary expectations ought to be reduced considerably. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:aer:rpaper:rp_169&r=mon |
| By: | Ake Lonnberg; Peter Stella |
| Abstract: | Conventional economic policy models focus only on selected elements of the central bank balance sheet, in particular monetary liabilities and sometimes foreign reserves. The canonical model of an "independent" central bank assumes that it chooses money (or an interest rate), unconstrained by a need to generate seignorage for itself or government. While a long line of literature has emphasized the dangers of fiscal dominance influencing the conduct of monetary policy the idea that an independent central bank could be constrained in achieving its policy objectives by its own balance sheet situation is a relatively novel idea considered in this paper. If one accepts this potential constraint as a valid concern, the financial strength of the central bank as a stand alone entity becomes highly relevant for ascertaining monetary policy credibility. We consider several strands of evidence that clearly indicate fiscal backing for central banks cannot be assumed and hence financial independence is relevant to operational independence. First we examine 135 central bank laws to illustrate the variety of legal approaches adopted with respect to central bank financial independence. Second, we examine the same data set with regard to central bank recapitalization provisions to show that even in cases where the treasury is nominally responsible for maintaining the central bank financially strong, it may do so in purely a cosmetic fashion. Third, we show that, in actual practice, treasuries have frequently not provided central banks with genuine financial support on a timely basis leaving them excessively reliant on seignorage to finance their operations and/or forcing them to abandon policy objectives. |
| Keywords: | Central banks , Capital account , Capital flows , |
| Date: | 2008–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/37&r=mon |
| By: | Guillaume Rocheteau (none); Peter Rupert (University of California, Santa Barbara); Randall Wright (University of Pennsylvania) |
| Abstract: | When labor is indivisible, there exist efficient outcomes with some agents randomly unemployed (Rogerson 1988). We integrate this idea into the modern theory of monetary exchange, where some trade occurs in centralized markets and some in decentralized markets (as in Lagos and Wright 2006). This delivers a general equilibrium model of unemployment and money, with explicit microeconomic foundations. We show the implied relation between inflation and unemployment can be positive or negative, depending on simple preference conditions. Our Phillips Curve provides a long-run, exploitable, trade off for monetary policy; it turns out, however, that the optimal policy is the Freidman rule. |
| Keywords: | inflation, unemployment, Phillips Curve, |
| Date: | 2007–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:07-07&r=mon |
| By: | Maria Teresa Mota (Faculdade de Economia e Gestão - Universidade Católica Portuguesa (Porto)); Mariana Alves da Cunha (Faculdade de Economia e Gestão - Universidade Católica Portuguesa (Porto)); Carlos Santos (Faculdade de Economia e Gestão - Universidade Católica Portuguesa (Porto)) |
| Abstract: | Using the Bai-Perron test, we look for a shift in the conditional mean of an AR representation of Spanish CPI inflation over the period: 1978-2006. It is clear that Spain, as most OECD economies, experienced an inflation slowdown in the early eithgties, which can be related to some policy measures undertook by the government coming out of the 1982 elections. It is shown, that when the break is accounted for, there are no signs of persistence in Spanish CPI inflation. |
| Keywords: | inflation persistence; structural breaks; monetary policy |
| JEL: | E31 E65 C12 C22 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:cap:wpaper:022008&r=mon |
| By: | Lorca-Susino, Maria |
| Abstract: | Since the start of the European Monetary Union there has been an intense debate on whether the euro would challenge the U.S. dollar’s dominant role first as an international currency, and then as an official reserve currency. Five years after the euro was born, it is considered without doubt an international currency since it has been reported that ¨in December (2006) the currency came of age by overtaking the U.S. dollar in terms of the value of notes in circulation¨1. Moreover, since the euro has successfully developed a solid financial market, it is consequently eroding some of the advantages that historically supported the hegemony of the U.S. dollar as a reserve currency. There are two intertwined reasons that explain why the U.S. dollar remains the leading international currency. To begin with, there is (1) inertia in the use of the U.S. dollar due to years of currency pre-eminence which (2) has helped the U.S. dollar to have an edge over the euro in terms of the size, credit quality and liquidity of the dollar financial markets over the euro market. Despite all this, the euro has been enjoying a successful moment in the last years since it is appreciating against the U.S. dollar especially since mid-2002 |
| Keywords: | Euro; international currency; definition of money; |
| JEL: | G0 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7182&r=mon |
| By: | Kasai Ndahiriwe (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria) |
| Abstract: | This paper investigates the effectiveness of monetary policy on house prices in South Africa, before and after financial liberalisation, with financial liberalisation being identified with the recommendations of the De Kock Commission (1985). Using both impulse response and variance decomposition analysis performed on SVARs, we find that, irrespective of house sizes, during the period of financial liberalisation, interest rate shocks had relatively stronger effects on house price inflation. However, given that the size of these effects were nearly negligible, the result seems to indicate that house prices are exogenous, and, at least, are not driven by monetary policy shocks. |
| Keywords: | Financial liberalisation, Impulse Response, Variance Decomposition, Structural Decomposition. |
| JEL: | C01 C32 E52 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:200803&r=mon |
| By: | Robert D. J. Anderson |
| Abstract: | Central banks have become increasingly aware of the importance of consumer inflation expectations in meeting monetary policy objectives. US consumer year-ahead inflation expectations data is available as measured by the Michigan 'Survey of Consumer Attitudes and Behavior'. Using the detailed demographic information recorded as part of the interview process to accommodate forecast heterogeneity, results suggest the accuracy of forecasts is linked to the demographic characteristics of the respondent. This survey also contains a short-rotating panel dimension, with most respondents being reinterviewed six months after the initial interview. Uniquely, this paper uses these matched interviews to examine whether consumers learn about inflation, improving the accuracy of their forecast from initial to reinterview. Results suggest, having corrected for attrition bias, that being reinterviewed stimulates agents to learn and improve forecast accuracy, the level of improvement being dependent on the demographic characteristic of the interviewee. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:99&r=mon |
| By: | Liew , Venus Khim-Sen; Baharumshah, Ahmad Zubaidi; Habibullah, Muzafar Shah; Midi, Habshah |
| Abstract: | Using nonlinear testing procedures relevant to the recent literature, this study provides evidence of nonlinear adjustment of nominal exchange rate towards monetary fundamentals in the context of ASEAN-5 countries. While it supports earlier findings supportive of monetary exchange rate model in this region using the linear testing procedures, this study provides insightful information in explaining why persistent misalignments between nominal exchange rate and monetary fundamentals are often observed in the sample data. |
| Keywords: | monetary model; exchange rate; nonlinear; unit root test; linearity test; STAR model |
| JEL: | C32 F31 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7293&r=mon |
| By: | Vladimir Klyuev; Ondra Kamenik; Heesun Kiem; Douglas Laxton |
| Abstract: | One of the pioneers of inflation targeting (IT), the Bank of Canada is now considering a possibility of switching to price-level-path targeting (PLPT), where past deviations of inflation from the target would have to be offset in the future, bringing the price level back to a predetermined path. This paper draws attention to the fact that the price level in Canada has strayed little from the path implied by the two percent inflation target since its introduction in December 1994, and has tended to revert to that path after temporary deviations. Econometric analysis using Bayesian estimation suggests that a low probability can be assigned to explaining this behavior by sheer luck manifesting itself in mutually offsetting shocks. Much more plausible is the assumption that inflation expectations and interest rates are determined in a way that is consistent with an element of PLPT. This suggests that the difference between IT as it is actually practiced (or perceived) and PLPT may be less stark than what pure theoretical constructs posit, and that the transition to a fullfledged PLPT regime will likely be considerably easier than what was previously thought. The paper also shows that inflation expectations are a major driver of actual inflation in Canada, which makes it easier to keep inflation close to the target without large output costs. |
| Keywords: | Inflation targeting , Canada , Prices , Interest rates , Price stabilization , |
| Date: | 2008–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/25&r=mon |
| By: | Bassem Kamar; Samy Ben Naceur |
| Abstract: | Coordinating macroeconomic policies is a pre-requisite to a successful launch of the common currency in the GCC countries. Relying on the Behavioral Equilibrium Exchange Rate approach as a theoretical framework, we apply the Pooled Mean Group methodology to determine the similarity of the impact of a selected set of macroeconomic indicators on the real exchange rate in each country. Our empirical evidence points to a clear coordination of monetary policy, fiscal policy, government consumption, and openness across the member countries. While RER misalignments also show a substantial convergence building over time, differences in the misalignments of the two polar cases remain rather substantial, calling for further coordination and policy harmonization. |
| Keywords: | Working Paper , Cooperation Council for the Arab States of the Gulf , Monetary unions , Monetary policy , Financial integration , Foreign exchange , Economic policy , Central bank policy , |
| Date: | 2007–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/249&r=mon |
| By: | Franziska Ohnsorge; Nada Choueiri; Rachel van Elkan |
| Abstract: | This paper explores inflation determinants within the EU and implications for new members' euro adoption plans. Factor analysis partitions observed inflation in EU25 countries into common-origin and country-specific (idiosyncratic) components. Cross-country differences in common-origin inflation within the EU are found to depend on gaps in the initial price level, changes in the nominal effective exchange rate, the quality of institutions, and the economy's flexibility. Idiosyncratic inflation is generally small in magnitude. Nonetheless, the results show that country-specific shocks have systematically pushed down headline inflation, potentially influencing the assessment of compliance with the Maastricht inflation criterion. |
| Keywords: | Inflation , Euro Area , Globalization , Trade , |
| Date: | 2008–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/21&r=mon |
| By: | Luca Benati (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Paolo Surico (Bank of England and University of Bari,Postal address-Monetary Policy Committee Unit, Bank of England, Threadneedle Street, London EC2R 8AH, UK.) |
| Abstract: | Most analyses of the U.S. Great Moderation have been based on structural VAR methods, and have consistently pointed towards good luck as the main explanation for the greater macroeconomic stability of recent years. Based on an estimated New-Keynesian model in which the only source of change is the move from passive to active monetary policy, we show that VARs may misinterpret good policy for good luck. First, the policy shift is sufficient to generate decreases in the theoretical innovation variances for all series, and decreases in the variances of inflation and the output gap, without any need of sunspot shocks. With sunspots, the estimated model exhibits decreases in both variances and innovation variances for all series. Second, policy counterfactuals based on the theoretical structural VAR representations of the model under the two regimes fail to capture the truth, whereas impulse-response functions to a monetary policy shock exhibit little change across regimes. Since these results are in line with those found in the structural VARbased literature on the Great Moderation, our analysis suggests that existing VAR evidence is compatible with the ‘good policy’ explanation of the Great Moderation. JEL Classification: E38, E52. |
| Keywords: | Great Moderation; DSGE models; indeterminacy; vector autoregressions. |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080866&r=mon |
| By: | Joseph P. Daniels (Center for Global and Economic Studies, Marquette University); David D. VanHoose (Hanmaker School of Business, Baylor University) |
| Abstract: | This paper considers a model of an open economy in which the degree of income-tax progressivity influences the interaction among openness, central bank independence, and the inflation rate. Our model suggests that an increase in the progressivity of the tax system induces a smaller response in real output to a change in the price level. This implies that increased income-tax progressivity reduces the equilibrium inflation rate and that the effect of increased income-tax progressivity on inflation is smaller when the central bank places a higher weight on inflation or when there is greater openness. Examination of cross-country inflation data provides empirical support for these key predictions. |
| Keywords: | Openness, Tax Progressivity, Inflation |
| JEL: | F40 F41 F43 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:mrq:wpaper:0704&r=mon |
| By: | Crowley, Patrick (College of Business, Texas A&M University) |
| Abstract: | Optimal currency area theory suggests that business cycle co-movement is a sufficient condition for monetary union, particularly if there are low levels of labour mobility between potential members of the monetary union. Previous studies of co-movement of business cycle variables found that there was a core of member states in the EU that could be grouped together as having similar business cycle co-movements, but these studies have always used Germany as the country against which to compare. This study updates and extends corresponding previous analyses. More specifically, it correlates the countries against both German and euro area macroeconomic aggregates and uses more recent techniques in cluster analysis, namely model-based clustering. |
| Keywords: | business cycles; co-movement; optimal currency areas; model-based cluster analysis |
| JEL: | F15 F31 |
| Date: | 2008–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2008_003&r=mon |
| By: | Ashoka Mody; Franziska Ohnsorge |
| Abstract: | Globalization operates not only by reducing domestic pressures on inflation but also by reducing the scope of domestic authorities to influence the pace of inflation. First, as markets are integrated, the common, cross-border sources of inflation increase, reducing the extent of domestically-generated inflation. Based on a methodology identifying common time and sectoral trends, we find this to be especially the case in the countries of the eurozone, with their longer histories of product market integration. Second, even the domestically-generated component of inflation may be difficult to manipulate. Policies act, especially in the shortrun, through managing domestic demand. But the relationship between domestic demand (proxied by the output gap and unit labor cost growth) and inflation has been weak, constrained in part by trade openness. Moreover, the domestic component of inflation contains a country-specific international catch-up process that generates price equalization across countries. The evidence is that catch-up has accelerated with increasing market integration. Thus, for the eurozone economies, there may be limits on the use of fiscal and labor market policies to contain inflation. The new member states may not have policy leverage to meet the Maastricht inflation limit necessary for entering the eurozone. Casestudies show that fiscal consolidation needed to comply with the inflation criterion can be large and sustained only briefly to get under the Maastricht wire. |
| Keywords: | Inflation , Globalization , Euro , Markets , |
| Date: | 2007–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/257&r=mon |
| By: | Nuno Cassola (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | The theory of liquidity management under uncertainty predicts that, under certain conditions, commercial banks will accumulate minimum reserve requirements linearly over the reserve maintenance period. This prediction is empirically tested using daily data (from March 2004 until February 2007) on the current accounts and minimum reserve requirements of a panel of 79 commercial banks from the euro area. The linear accumulation hypothesis is not rejected by the data with the exception of small banks which build-up excess reserves. The empirical analysis suggest that idio-syncratic liquidity uncertainty is much higher than aggregate liquidity uncertainty. Nevertheless, on the penultimate day in the reserve maintenance period, the inverse demand schedule of the representative bank is relatively flat around the middle of the interest rate corridor set by the standing facilities. This suggests that liquidity effects on the overnight inter-bank rate should be very muted on this day. Our calibration exercise suggests that the probability of an individual bank's daily overdraft in the euro area is very low (less than 1.0%). This is confirmed by the analysis of the daily recourses to the marginal lending facility by the panel banks. JEL Classification: C23, E4, E5, G2. |
| Keywords: | Monetary policy implementation, Reserve requirements, Rate corridor, Liquidity management, Panel data. |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080869&r=mon |
| By: | Andolfatto, David |
| Abstract: | The business of money creation is conceptually distinct from that of intermediation. Yet, these two activities are frequently---but not always---combined together in the form of a banking system. We develop a simple model to examine the question: When is banking essential? There is a role for money due to a lack of record-keeping and a role for intermediation due to the existence of private information: both money and intermediation are essential. When monitoring costs associated with intermediation are sufficiently low, the two activities can be separated from one another. However, when monitoring costs are sufficiently high, a banking system that combines these two activities is essential. |
| Keywords: | Money; Record-keeping; Private Information; Delegated Monitoring |
| JEL: | E42 |
| Date: | 2008–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7321&r=mon |
| By: | Dale, Spencer (Board of Governors of the Federal Reserve System); Orphanides, Athanasios (Central Bank of Cyprus); Österholm, Pär (Department of Economics) |
| Abstract: | Much of the information communicated by central banks is noisy or imperfect. This paper considers the potential benefits and limitations of central bank communications in a model of imperfect knowledge and learning. It is shown that the value of communicating imperfect information is ambiguous. If the public is able to assess accurately the quality of the imperfect information communicated by a central bank, such communication can inform and improve the public`s decisions and expectations. But if not, communi-cating imperfect communication has the potential to mislead and distract. The risk that imperfect communication may detract from the publics understanding should be considered in the context of a central banks communications strategy. The risk of distraction means the central bank may prefer to focus its communi-cation policies on the information it knows most about. Indeed, conveying more certain information may improve the public`s under-standing to the extent that it "crowds out" a role for communicating imperfect information. |
| Keywords: | Transparency; Forecasts; Learning |
| JEL: | E52 E58 |
| Date: | 2008–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2008_003&r=mon |
| By: | Obasi O. Ukoha |
| Abstract: | The main objective of this study is to establish quantitative relationships among the relative price volatility of agricultural commodities, inflation and agricultural polices in Nigeria. The data for the study, covering the period 1970–2003, were obtained from publications of the Central Bank of Nigeria, Federal Office of Statistics, and Federal Ministry of Agriculture and Rural Development. Our results show that the effect of inflation on relative price variability among agricultural commodities in Nigeria is non-neutral. Inflation has a significant positive impact on relative price variability in both the long run and the short run. The findings suggest the need for policies that will buffer the agricultural sector from the effects of inflation in the short run, and in addition the crops subsector from the long-run effect of inflation. Similarly, policies that reduce the rate of inflation will minimize relative price variability among agricultural commodities and consequently reduce inefficiency, distortions and misallocation of resources in agriculture that might be caused by inflation. No data points in the study period showed negative inflation. As a result of this, the data could not provide evidence for the effect of deflation on relative price variability. Policies like the Green Revolution and structural adjustment programmes and post-SAP policies increased relative price variability among cash crops in the long run, but influenced food crop prices only in the short run. In addition to this, the Operation Feed the Nation project (OFN) had a significant positive short-run effect on food prices. Thus the agricultural policies under SAP, post-SAP and Green Revolution caused price changes that led to efficient reallocation of resources among cash crops in the long run and food crops in the short run. The policies should be considered in planning for the agricultural sector. On the other hand, the price control policy brought about a reduction in relative price variability among cash crops and consequently led to a misallocation of resources in the sector. Cash crop prices should be allowed to be determined by market forces of demand and supply, and no attempts should be made to fix prices administratively. |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:aer:rpaper:rp_171&r=mon |
| By: | Jacek Kotlowski (Warsaw School of Economics, National Bank of Poland) |
| Abstract: | The purpose of the article is to evaluate the forecasting performance of dynamic factor models in forecasting inflation in the Polish economy. The factor models are based on the assumption that the behavior of most macroeconomic variables can be well described by several unobservable factors, which are often interpreted as the driving factors in the economy. Such models are very often successfully used for forecasting. Employing several factors instead of a large number of explanatory variables may increase the number of degrees of freedom with the same information content. In the article we compare forecast accuracy of dynamic factor models with the forecast accuracy of three competitive models: univariate autoregressive model, VAR model and the model with leading indicator from the business survey. We have used 92 monthly time series from the Polish and world economy to conduct the out-of-sample real time forecasts of inflation (consumer price index). The results are encouraging. The dynamic factor model outperforms other models for both 1-step ahead and 3-step ahead forecast. The advantage of factor models is more straightforward for 1-month than for 3-month horizon. |
| Keywords: | inflation, forecasting, factor models |
| JEL: | C22 C53 E31 E37 |
| Date: | 2008–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:wse:wpaper:24&r=mon |
| By: | John Pippenger (University of California, Santa Barbara) |
| Abstract: | As support for traditional asset models of the foreign exchange market fades, there is growing interest in more general models that include flows from international trade and international investment. One advantage of flow models is that they fit naturally into the recent literature on microstructure, particularly the work on order flow. My objective here is to use intervention data to help discriminate between traditional asset models of the foreign exchange market and more general flow models. The evidence supports a flow approach. |
| Keywords: | exchange rates, foreign exchange markets, intervention, |
| Date: | 2007–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:16-07&r=mon |
| By: | David Hofman; Ruben Atoyan; Dimitri Tzanninis; Mauro Mecagni |
| Abstract: | This paper examines the duration of capital account crises. We develop a new index to identify both the start and the end of these crises. Applying the index to a sample of 18 crisis episodes, we derive stylized facts on crisis duration and review the economic and financial circumstances that prevailed at the dusk of crises, a relatively unexplored area. We use the econometric technique of duration analysis to gauge the relative importance of various factors affecting the probability of exiting a crisis. We find that initial and external conditions are key determinants. But fiscal and monetary policies can also help shorten crisis duration. |
| Keywords: | Financial crisis , Capital account , |
| Date: | 2007–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/258&r=mon |