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on Monetary Economics |
| By: | Ihrig, Jane E. (Board of Governors of the Federal Reserve System (U.S.)); Meade, Ellen E. (Board of Governors of the Federal Reserve System (U.S.)); Weinbach, Gretchen C. (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | The Federal Reserve conducts monetary policy in order to achieve its statutory mandate of maximum employment, stable prices, and moderate long-term interest rates as prescribed by the Congress and laid out in the Federal Reserve Act. For many years prior to the financial crisis, the FOMC set a target for the federal funds rate and achieved that target through purchases and sales of securities in the open market. In the aftermath of the financial crisis, with a superabundant level of reserve balances in the banking system having been created as a result of the Federal Reserve's large scale asset purchase programs, this approach to implementing monetary policy will no longer work. This paper provides a primer on the Fed's implementation of monetary policy. We use the standard textbook model to illustrate why the approach used by the Federal Reserve before the financial crisis to keep the federal funds rate near the FOMC's target will not work in current circumst ances, and explain the approach that the Committee intends to use instead when it decides to begin raising short-term interest rates. |
| Keywords: | FOMC; Federal Reserve; liftoff; monetary policy implementation; monetary policy normalization; monetary policy tools |
| JEL: | E43 E52 E58 |
| Date: | 2015–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2015-47&r=mon |
| By: | Koichiro Kamada (Bank of Japan); Jouchi Nakajima (Bank of Japan); Shusaku Nishiguchi (Bank of Japan) |
| Abstract: | This paper investigates household inflation expectations and discusses the central bank's ability to anchor them. We use micro-data from a household survey on inflation expectations and fit a normal inverse Gaussian distribution to the data to remove the distortions included in them. The underlying distribution thus obtained is examined to characterize household inflation expectations, particularly from the term-structure point of view. The analysis indicates that long-term expectations are immune to actual price developments, while short-term expectations are easily affected by actual inflation. The paper also investigates to what extent household inflation expectations have been influenced by the Bank of Japan's policy stance. The analysis shows that the price stability target and the quantitative and qualitative monetary easing, introduced by the Bank in 2013, contributed to strengthening the anchor of inflation expectations. Nonetheless, the anchor still needs to be improved so that household expectations are invulnerable to any disturbances in actual inflation rates. |
| Keywords: | inflation expectations; term structure; expectations dispersion; inflation target; inflation anchor; quantitative and qualitative monetary easing |
| JEL: | E31 E52 E58 |
| Date: | 2015–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp15e08&r=mon |
| By: | Anders Vredin |
| Abstract: | Experience from financial crises and central bank policies in the past decade has led to an intensified debate about the relationship between monetary policy and financial stability. Since there is no established theoretical framework for analysing the links between financial stability and monetary policy, it is very difficult to deliver precise recommendations for policy. |
| Keywords: | monetary policy, financial stability, inflation targeting, central banks, financial crisis, financial frictions |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:503&r=mon |
| By: | Yasin Kursat Onder (Central Bank of Turkey); Mauricio Villamizar-Villegas (Banco de la República de Colombia) |
| Abstract: | Many central banks that have opted for monetary autonomy have also been reluctant to relinquish control over the value of their currencies. As a result, they have operated through both interest rate and foreign exchange interventions. However, in the context of the monetary trilemma, both effects can potentially offset each other. Using daily data from the Central Bank of Turkey during the period of 2002 - 2010, we study the effects of simultaneous policies by first purging the intended monetary decisions from responses to real-time macroeconomic variables, and then determining their impact on economic activity. We find that the Central Bank of Turkey adjusted its policy rate mostly in response to inflation levels relative to both the yearly target and agents’ expectations, and conducted purchases and sales of foreign currency in response to exchange rate behavior. These responses varied depending on whether interventions were pre-announced. We also find that unannounced purchases of foreign currency had a significant effect in reducing exchange rate volatility but appeared to have no effect on exchange rate changes. On the other hand, changes in the policy rate significantly affected inflation but had no discernible effect on output growth. Classification JEL: E43, E52, E58, F31 |
| Keywords: | Central bank intervention, simultaneous policies, monetary shocks, price puzzle, monetary policy trilemma, foreign exchange intervention. |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:893&r=mon |
| By: | David Laidler (University of Western Ontario) |
| Abstract: | In Canada, targeting the inflation rate was intended as a temporary measure on a journey to price-level stability, but became a well-established monetary policy regime in its own right. This paper analyses the role of the interaction of economic ideas with the experience generated by their application to policy in bringing about this outcome. In the following account, changing beliefs about the stability or otherwise of ongoing inflation, the capacity of a flexible exchange rate to create a vicious circle of depreciation and rising domestic prices, and about the roles played by the natural unemployment rate and money growth in influencing economic outcomes are emphasised. Today’s standard DSGE approach to modelling inflation targeting arrived on the scene only after the Canadian regime was well established. |
| Keywords: | Money; Monetary Policy; Inflation; Inflation-targeting; Interest Rates; Unemployment; Exchange Rate |
| JEL: | B2 E5 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:epuwoc:20151&r=mon |
| By: | De Pooter, Michiel (Board of Governors of the Federal Reserve System (U.S.)); Rebecca, DeSimone (Columbia Business School); Martin, Robert F. (Barclays Capital); Pruitt, Seth (Arizona State University) |
| Abstract: | In 2010, in response to an ever-worsening fiscal crisis, the ECB began purchasing sovereign debt from troubled euro-area countries through its Securities Market Programme (SMP). This program was designed to improve market functioning and restore the monetary transmission mechanism within the euro area. This paper does not test those ideals. Rather, we test whether SMP purchases systematically lowered peripheral yields and spreads. We find limited evidence of purchase effects but large announcement effects. In addition, on days in which the ECB was believed to have made large purchases, yields moved down, independent of the size of the ECB's purchases or even if the ECB conducted any purchase at all that week. In all, we conclude that the ECB's SMP influenced yields through a confidence channel rather than through any direct purchase effect. In the appendix to this paper we provide a detailed timeline of SMP purchases and market beliefs about purchase timing. |
| Keywords: | Monetary policy; interest rates; recession; European Central Bank; asset purchases; euro area |
| JEL: | E20 E43 E52 F44 |
| Date: | 2015–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1139&r=mon |
| By: | Morais, Bernardo (Board of Governors of the Federal Reserve System (U.S.)); Peydro, Jose Luis (Universitat Pompeu Fabra); Ruiz, Claudia (World Bank) |
| Abstract: | We identify the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico, matched with firm and bank balance-sheet data, and by exploiting foreign monetary policy shocks, given the large presence of European and U.S. banks in Mexico. We find that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock affects supply via their respective banks (for example, U.K. monetary policy affects credit supply in Mexico via U.K. banks), in turn implying strong real effects, with substantially larger elasticities from monetary rates than QE. Moreover, low foreign monetary policy rates and expansive QE increase disproportionally more the supply of credit to borrowers with higher ex ante loan rates--reach-for-yield--and with substantially higher ex post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest that foreign QE increases risk-taking in emerging markets more than it improves the real outcomes of firms. |
| Keywords: | Credit channel of monetary policy; financial globalization; quantitative easing (QE); credit supply; risk-taking; foreign banks. |
| JEL: | E44 E52 E58 G01 G21 G28 |
| Date: | 2015–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1137&r=mon |
| By: | Stefano Micossi (Director General ASSONIME, Visiting Professor at the College of Europe) |
| Abstract: | This paper examines the policies pursued by the European Central Bank (ECB) since the inception of the euro. The ECB was originally set up to pursue price stability, with an eye also to economic growth and financial stability as subsidiary goals, once the primary goal was secured. The application of a single monetary policy to a diverse economic area has entailed a pronounced pro-cyclicality in its real economic effects on the eurozone periphery. Later, monetary policy became the main policy instrument to tackle financial instability elicited by the failure of Lehman Brothers and the sovereign debt crisis in the eurozone. In the process, the ECB emerged as the lender of last resort in the sovereign debt markets of participating countries. Persistent economic depression and deflation eventually brought the ECB into the uncharted waters of unconventional policies. That the ECB could legally perform all of these tasks bears witness to the flexibility of the TFEU and its Statute, but its tools and operating procedures were stretched to their limit. In the end, the place of the ECB amongst EU policy-making institutions has been greatly enhanced, but has entailed repeated intrusions into the broader domain of economic policies – not least because of its market intervention policies – whose consequences have yet to be ascertained. |
| Keywords: | Monetary Policy; European Central Bank; Quantitative easing; Financial and economic crisis |
| JEL: | E4 E5 F3 O52 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:coe:wpbeep:35&r=mon |
| By: | Eugene N. White |
| Abstract: | During the 1920-1921 recession, the Federal Reserve Bank of Atlanta resisted the deflationary policy sanctioned by the Federal Reserve Board and pursued by other Reserve banks. By borrowing gold reserves from other Reserve banks, it facilitated a reallocation of liquidity to its district during the contraction. Viewing the collapse of the price of cotton, the dominant crop in the region, as a systemic shock to the Sixth District, the Atlanta Fed increased discounting and enabled capital infusions to aid its member banks. The Atlanta Fed believed that it had to limit bank failures to prevent a fire sale of cotton collateral that would precipitate a general panic. In this previously unknown episode, the Federal Reserve Board applied considerable pressure on the Atlanta Fed to adhere to its policy and follow a simple Bagehot-style rule. The Atlanta Fed was vindicated when the shock to cotton prices proved to be temporary, and the Board conceded that the Reserve Bank had intervened appropriately. |
| JEL: | E58 G01 N12 N22 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21341&r=mon |
| By: | Saroj Bhattarai; Gauti B. Eggertsson; Bulat Gafarov |
| Abstract: | We present a signalling theory of Quantitative Easing (QE) at the zero lower bound on the short term nominal interest rate. QE is effective because it generates a credible signal of low future real interest rates in a time consistent equilibrium. We show these results in two models. One has coordinated monetary and fiscal policy. The other an independent central bank with balance sheet concerns. Numerical experiments show that the signalling effect can be substantial in both models. |
| JEL: | E31 E4 E42 E43 E5 E52 E62 E63 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21336&r=mon |
| By: | Kopoin, Alexandre; Moran, Kevin; Paré, Jean-Pierre |
| Abstract: | Recent empirical evidence suggests that the state of banks’ balance sheets plays an important role in the transmission of monetary policy and other shocks. This paper presents an open-economy DSGE framework with credit market frictions and an active bank capital channel to assess issues regarding the transmission of domestic and foreign shocks. The theoretical framework includes the financial accelerator mechanism developed by Bernanke et al. (1999), the bank capital channel and the exchange rate channel. Our simulations show that the exchange rate channel plays an amplification role in the propagation of shocks. Furthermore, with these three channels present, domestic and foreign shocks have an important quantitative role in explaining domestic aggregates like output, consumption, inflation and total bank’s lending. In addition, results suggest that economies whose banks remain well-capitalized when affected by adverse shock experience less severe downturns. Our results highlight the importance of bank capital in an international framework and can be used to inform the worldwide debate over banking regulation. |
| Keywords: | Bank capital; credit channel; exchange rate channel; monetary policy. |
| JEL: | E44 E52 G21 |
| Date: | 2014–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65512&r=mon |
| By: | Ungerer, Christoph T. (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | Expansionary monetary policy can increase household leverage by stimulating housing liquidity. Low mortgage rates encourage buyers to enter the housing market, raising the speed at which properties can be sold. Because lenders can resell seized foreclosure inventory at lower cost in such a hot housing market, ex-ante they are comfortable financing a larger fraction of the house purchase. Consistent with this mechanism, this study documents empirically that both the housing sales rate and loan-to-value ratios increase after expansionary monetary policy. Calibrating a New Keynesian macroeconomic model to fit the response of housing liquidity to monetary policy, the interaction between credit frictions and housing market search frictions generates endogenous movements in the loan-to-value ratio which amplify the economy's response to monetary policy. |
| Keywords: | Credit frictions; housing market; monetary policy; search frictions |
| JEL: | E32 E44 E52 R21 |
| Date: | 2015–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2015-48&r=mon |
| By: | Williamson, Stephen D. (Federal Reserve Bank of St. Louis) |
| Abstract: | This review essay is intended as a critical review of Humpage (2015), and it expands on the issues raised in that volume. Federal Reserve Policy during the financial crisis, and in its aftermath are addressed, along with the relationship to historical experience in the U.S. and elsewhere in the world. |
| Keywords: | Monetary policy; economic history |
| JEL: | E4 E5 N1 |
| Date: | 2015–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2015-015&r=mon |
| By: | Giorgios Argitis (National and Kapodistrian University of Athens) |
| Abstract: | This paper points out policy suggestions for modern central banks to improve their effectiveness in terms of successfully targeting financial stability and employment. The theoretical foundations of the proposed policy suggestions rely on Minsky’s conceptualization of financial fragility and instability. It is argued that Minsky’s Financial Instability Hypothesis contextualizes how the financial structure of the effective demand and financial markets predispose to endogenous non-sustainable leverage and liability structures that result from position-making operations. We stress that Minsky advances an approach to central banking that is based on a cash-flow examination procedure to capture changes in the quality of leverage, solvency and liquidity of firms and banks that destabilize the macroeconomic system. We underline that Minsky patterns central banking and monetary policy within Ponzi financial practices and interconnections among financial institutions and financial markets. Following Minsky, we suggest discount window central banking, lender of last resort operations and targeting Ponzi finance as the most appropriate policies of modern central banks to deal with financial and macroeconomic instability. |
| Keywords: | Financial Fragility and Instability, Central Banking, Monetary Policy |
| JEL: | E12 E52 E58 G18 |
| Date: | 2015–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:fes:wpaper:wpaper90&r=mon |
| By: | Mammadov, Fuad |
| Abstract: | The major goal of this study was analyze the effect of “credibility” shocks to the dynamics of inflation persistence in 20 countries using quarterly data for the period 1980-1998. To address this topic, we used recently developed heterogeneous panel time series methods and found that central bank credibility, as inferred from the black market premium, impacted the degree of inflation persistence associated with central bank interventions and that the magnitude of this effect was correlated with the degree of central bank autonomy. |
| Keywords: | Central bank credibility, black market exchange rate, heterogeneous dynamic panel, panel VAR |
| JEL: | C13 C23 E58 |
| Date: | 2014–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65572&r=mon |
| By: | Cavalieri, Duccio |
| Abstract: | This is a theoretical analysis of structural interdependence in monetary economics and of its connections with the theories of value and capital. Some recent attempts to integrate money and finance in the theory of income and expenditure – those of the ‘Stock-Flow Consistent Approach’ to macroeconomics, of ‘Modern Monetary Theory’ and of Circuit Theories – are examined. The surplus approach to the theory of value and capital is then formally considered in a model devoid of Sraffian misleading dichotomic connotations, where money plays a fundamental role and flows and stocks are coherently reconciled. In such framework, a method for measuring the unit cost of real capital is indicated and some reasons for reconsidering the traditional approaches to monetary theory and policy in a ‘late Marxian’ updated analytical perspective are highlighted. |
| Keywords: | monetary theory; monetary policy; fiscal policy; structural interdependence; Sraffian dichotomy; post-Keynesian economics; MEV. |
| JEL: | B22 E12 E44 E52 M41 |
| Date: | 2015–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65528&r=mon |
| By: | Tallman, Ellis W. (Federal Reserve Bank of Cleveland); Jacobson, Margaret M. (Indiana University) |
| Abstract: | The Federal Reserve System failed to prevent the collapse of intermediation during the Great Depression (1929-1933) and took action as if it was unaware of policies that should have been taken in the event of widespread bank runs. The National Banking Era panics and techniques to alleviate them should have been useful references for how to alleviate a financial crisis. We suggest that the overwhelming effort to finance World War I combined with a perspective held by contemporary Federal Reserve officials that the central bank legislation was sufficient to overcome financial crises are key reasons why the historical experiences were overlooked. |
| Keywords: | Crisis prevention; liquidity provision; Federal Reserve Act |
| JEL: | E58 E61 N22 |
| Date: | 2015–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1510&r=mon |
| By: | Felipe Serrano (Department of Applied Economics V, University of the Basque Country UPV/EHU); Amaia Altuzarra (Department of Applied Economics V, University of the Basque Country UPV/EHU) |
| Abstract: | The Global Financial Crisis has meant for developed countries to return to an economic situation similar to that experienced during the Great Recession. At the root of the crisis, again, is the financial system. Financial innovation, combined with stringent regulatory failures and with an overly loose monetary policy, allowed to expand private credit disproportionately, fuelling a speculative bubble that, when it burst, generated a demand shock that eventually turn a financial crisis into an economic crisis with lasting consequences. This work attempts to examine the economic policies implemented during the crisis. We focus exclusively on demand policies, with special attention to those implemented in the first phase of the crisis. The economic policy implemented to overcome the crisis has passed through different stages. In the first stage, the strategy was a combination of expansionary monetary and fiscal policies. In the second stage, the fiscal stimuli begin to be withdrawn, while an aggressive monetary policy to stimulate private credit through expanding the money supply is maintained. The third stage is scheduled to start in late 2014. This third phase would be characterized by the end of demand policies and the recovery of supply policies or structural adjustment policies, especially for the case of emerging economies as well as economies of southern Eurozone. |
| Keywords: | fiscal policy, monetary policy, Eurozone, emerging countries, developed countries, financial crisis |
| JEL: | E02 E52 E58 E62 |
| Date: | 2015–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fes:wpaper:wpaper&r=mon |
| By: | De Pooter, Michiel (Board of Governors of the Federal Reserve System (U.S.)); Martin, Robert F. (Board of Governors of the Federal Reserve System (U.S.)); Pruitt, Seth (Arizona State University) |
| Abstract: | To "ensure depth and liquidity," the European Central Bank in 2010 and 2011 repeatedly intervened in sovereign debt markets through its Securities Markets Programme. These purchases provide a unique natural experiment for testing the effects of large-scale asset purchases on risk premia arising from liquidity concerns. To explore how official intervention influences liquidity premia, we develop a search-based asset-pricing model. Consistent with our model's predictions, we find statistically and economically significant stock and flow effects on sovereign bonds' liquidity premia in response to official purchases. |
| Keywords: | Securities Markets Programme; European Central Bank; bond; liquidity risk; search and matching |
| JEL: | D83 E43 E58 G12 |
| Date: | 2015–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1138&r=mon |
| By: | Kei Imakubo (Bank of Japan); Jouchi Nakajima (Bank of Japan) |
| Abstract: | The inflation risk premium is an indicator of uncertainty about future inflation. While a positive premium on inflation risk implies more concern about the upside risk of inflation, a negative premium implies more concern about the downside risk. In Japan the inflation risk premium had been constantly negative over a period of time until the end of 2012, but turned positive in early 2013. This finding suggests that market concerns about future inflation have shifted to the upside risk along with a gradual increase in the expected inflation. |
| Keywords: | Inflation risk premia; Term premia; Term structure |
| JEL: | E31 E43 E52 G12 |
| Date: | 2015–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojlab:lab15e04&r=mon |
| By: | Paul Bergin (Economics Department University of California-Davis); Giancarlo Corsetti (Faculty of Economics University of Cambridge) |
| Abstract: | Motivated by the long-standing debate on the pros and cons of competitive devaluation, we propose a new perspective on how monetary and exchange rate policies can contribute to a country’s international competitiveness. We refocus the analysis on the implications of monetary stabilization for a country’s comparative advantage. We develop a two-country New-Keynesian model allowing for two tradable sectors in each country: while one sector is perfectly competitive, firms in the other sector produce differentiated goods under monopolistic competition subject to sunk entry costs and nominal rigidities, hence their performance is more sensitive to macroeconomic uncertainty. We show that, by stabilizing markups, monetary policy can foster the competitiveness of these firms, encouraging investment and entry in the differentiated goods sector, and ultimately affecting the composition of domestic output and exports. Panel regressions based on worldwide exports to the U.S. by sector lend empirical support to the theory. Constraining monetary policy with an exchange rate peg lowers a country’s share of differentiated goods in exports between 4 and 12 percent. |
| Keywords: | monetary policy, production location externality, firm entry, optimal tariff |
| JEL: | F41 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1516&r=mon |
| By: | Tomiyuki Kitamura (Bank of England); Ichiro Muto (Bank of Japan); Ikuo Takei (Bank of Japan) |
| Abstract: | We estimate interest rate pass-through in the loan market using an individual bank-based panel dataset from Japan. Previous studies using data from European countries have presented a number of common findings, including that banks with a high proportion of relationship lending tend to set lower pass-through. In this respect, we have obtained similar results using a dataset for Japan going back to the early 2000s. We further examine the influence of borrowing firms' balance sheet characteristics on loan interest rate pass-through, and find that these factors are also important determinants for pass-through dispersion. However, we also find that after the recent global financial crisis, even banks with a high proportion of relationship lending have largely lowered loan interest rates by raising pass-through, and that pass-through has not necessarily been determined in accordance with borrowing firms' balance sheet characteristics. These results differ from those of recent studies on European countries. Possible background factors explaining this change are that (i) pressure to lower loan interest rates has risen due to extensive monetary easing and greater lending competition among banks, while Japan's banking system as a whole has maintained its resilience in the post-crisis period; (ii) demand for bank loans has increased substantially due to disruptions in the market for alternative funding sources, such as commercial paper and corporate bonds; and (iii) public measures to increase bank loans have been broadly introduced in Japan. |
| Keywords: | Loan Interest Rate; Pass-Through; Relationship Lending; Financial Crisis |
| JEL: | E43 E44 G21 |
| Date: | 2015–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp15e06&r=mon |
| By: | Potter, Simon M. (Federal Reserve Bank of New York) |
| Abstract: | Remarks at the 2015 FX Week Conference, New York City. |
| Keywords: | Financial Stability Board; BIS Triennial Central Bank Survey; foreign-exchange swaps; spot market; FX market participation; inter-dealer market; FX market execution; collusion; Foreign Exchange Committee (FXC); Foreign Exchange Benchmarks Group (FXBG); Global Preamble |
| JEL: | F31 |
| Date: | 2015–07–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:176&r=mon |
| By: | Jean-Christophe Poutineau (CREM, UMR CNRS 6211, University of Rennes 1, France); Gauthier Vermandel (CREM, UMR CNRS 6211, University of Rennes 1, France) |
| Abstract: | This paper evaluates the role of financial intermediaries on the extensive margin of activity. We build a DSGE model that combines the endogenous determination of the number of firms with financial frictions giving rise to the financial accelerator. This model is estimated on US data between 1993Q1 to 2012Q3. We get three main results. First, financial frictions play a key role as a transmission channel for monetary policy shocks to get a standard drop in the number of new firms following a restrictive monetary policy decision. Second, in contrast with real macroeconomic shocks (where investment in existing production lines and the creation of new firms move in the opposite direction), financial shocks have a cumulative eect on the two margins of activity, amplifying macroeconomic fluctuations. Third, the critical role of financial factors is mainly observed in the period corresponding to the creation of new firms. In the long run, the variance of the effective entry share is almost explained by a combination of supply shocks. |
| Keywords: | Extensive Margin; Financial Frictions; Financial Accelerator; DSGE model; Bayesian estimation |
| JEL: | E31 E32 E52 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:201510&r=mon |
| By: | Fischer, Justina A.V.; Pastore, Francesco |
| Abstract: | This research note discusses the Euro crisis in Greece in light of the referendum of July the 5th. It lays out the social and political costs of a GREXIT, but also of a continuing austerity policy. It proposes a reform policy fostering growth in Greece and discusses the role of conditionality. Finally, the important role of mid-left parties is highlighted. |
| Keywords: | Europe; Euro; Greece; Germany; IMF; Monetary Union |
| JEL: | E12 E62 F15 F16 F33 F55 H12 H50 H63 O42 O43 |
| Date: | 2015–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65541&r=mon |
| By: | Piero Pasotti (University of Siena); Alessandro Vercelli (University of Siena) |
| Abstract: | This paper aims to assess to what extent the contributions of Kindleberger to the explanation and control of financial crises may still be a source of valuable insights for the present. Kindleberger had the great merit, to be shared with Minsky, of having resumed in the early 1970s, after an eclipses of more than two decades, the investigation on the intrinsic instability of credit and its impact on financial crises. Though his pure model may be considered less pregnant than that of Minsky, it extends its scope to the international and political aspects of financial crises. In addition Kindleberger provides a powerful support to the model by rooting it in the empirical evidence systematically investigated since the early 18th century. The application of Kindleberger’s model has been successfully extended, with the collaboration of Aliber, also to the financial crises occurred after the publication of his major book (Kindleberger, 1978). This paper argues that Kindleberger’s insights are still invaluable to understand the subprime crisis and the ensuing Great recession and to design the institutions and policies necessary to resume a sustainable path of economic progress. |
| Keywords: | Kindleberger, Financial Crises, International Lender of Last Resort |
| JEL: | B26 E52 E58 F33 F34 |
| Date: | 2015–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fes:wpaper:wpaper104&r=mon |
| By: | AMMOURI, Bilel; TOUMI, Hassen; Zitouna, Habib |
| Abstract: | This work presents a forecasting inflation model using a monthly database. Conventional models for forecasting inflation use a small number of macroeconomic variables. In the context of globalization and dependent economic world, models have to account a large number of information. This model is the goal of recent research in the various industrialized countries as well as developing countries. With Dynamic Factors Model the forecast values are closer to actual inflation than those obtained from conventional models in the short term. In our research we devise the inflation in to “free inflation and administered inflation” and we test the performance of the DFM in different types of inflation namely administered and free inflation. We found that dynamic factors model leads to substantial forecasting improvements over simple benchmark regressions. |
| Keywords: | Inflation, PCA, VAR, Dynamic Factors Model, Kalman Filter, algorithmic EM, Space-state, forecast. |
| JEL: | C13 C22 C53 E31 |
| Date: | 2015–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65514&r=mon |
| By: | Bouoiyour, Jamal; Selmi, Refk |
| Abstract: | To the mass public, Bitcoin is well known since its creation by its extreme volatility. However, Bitcoin’s declining fluctuations since the start 2015 has revived our attention to assess whether there is a coming Bitcoin market phase. Using an optimal GARCH model on daily data, we show that the volatility of Bitcoin price decreases notably when comparing the periods [December 2010-June 2015] and [January 2015-June 2015]. During the first interval, the Threshold- GARCH estimates reveal that there is a great duration of persistence and thus tends to follow a long memory process. For the second period, the chosen specification (Exponential-GARCH) displays less volatility persistence. Despite this remarkable volatility’s decrease, we cannot argue that Bitcoin market is mature, since the degree of asymmetry remains strong; Specifically, Bitcoin is likely to be driven by negative rather than positive shocks. |
| Keywords: | Bitcoin; volatility; optimal GARCH model. |
| JEL: | E3 E30 F3 |
| Date: | 2015–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65580&r=mon |
| By: | Murendo, Conrad; Wollni, Meike; de Brauw, Alan; Mugabi, Nicholas |
| Abstract: | Social networks play a vital role in generating social learning and information exchange that can drive the diffusion of new financial innovations. This is articularly relevant for developing countries where education, extension and financial information services are underprovided. The recent introduction of mobile money in Africa represents a case where imperfect financial markets, weak extension services and information asymmetries limit the ability of rural households to make informed decisions to take advantage of mobile money innovation. This article identifies the role of social networks in the adoption of mobile money in Uganda. Using data from a survey of 477 rural households, a probit model is estimated controlling for household characteristics, correlated effects, and other possible information sources. Results suggest that learning within social networks helps disseminate information about mobile money and has enhanced its adoption. Compared to poor households, non-poor households rely more on social networks for information about mobile money. Mobile money adoption is likely to be enhanced if promotion programs reach more social networks. |
| Keywords: | social networks, mobile money, adoption, Uganda, International Development, Research and Development/Tech Change/Emerging Technologies, D14, D83, O33, Q12, |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:gagfdp:198541&r=mon |
| By: | Zhou, Tim |
| Abstract: | We measure the negative externalities experienced by non-winning bidders and examine the determinants of these externalities in the Federal Deposit Insurance Corporation (FDIC) failed bank auctions. We show that unsuccessful bidders experience significantly negative cumulative abnormal returns when winning bidders enter non-winning bidders’ key markets as a new entrant by acquiring relatively larger targets and when infrequent bidders are involved. |
| Keywords: | FDIC, Banks, Auction, Externality |
| JEL: | D44 D62 G14 G21 G28 |
| Date: | 2015–07–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65587&r=mon |