A Sequential Test for Structural Breaks in the Causal Linkages Between the G7 Short-Term Interest Rates

This paper investigates changes in the causal structure linking the G-7 short-term rates by using a sequential test for the constancy of the adjustment coefficients in error correction equations. This technique allows us to detect permanent structural breaks in the causal linkages. In this instance, the hypotheses of interest are the US world-wide leadership, the disengagement of UK monetary policy from those pursued in the Eurozone after the collapse of the ERM, and the German leadership hypothesis (GLH) within the European Union (EU). While we do not find any examples of reversal of causality, the evidence points to a break in the causal linkages between the UK and the German rates after the third/fourth quarter of 1992. The empirical results are also consistent with a US world-wide leadership and a weak German leadership within the Eurozone.     

THE ROLE OF COMMODITY PRICES IN MACROECONOMIC POLICY IN SOUTH AFRICA

This paper examines whether commodity prices can be used as signal for informing macroeconomic policy in South Africa using the new approach for testing Granger causality developed by Toda and Yamamoto (1995 ). Evidence of causality from average gold price to interest rate, money, exchange rate and the consumer price index was observed. Again, evidence of causality was observed from metals price index to interest rate, money and exchange rate. The results suggest there is merit in using South Africa's average gold price and the metals price index of the International Monetary Fund as informational variables in setting monetary policy.     

中国经济周期波动中冲击构成的实证分析

利用SVAR模型对中国经济周期波动中冲击构成进行分析,同时运用ADF单位根检验、Granger因果关系检验、脉冲响应和方差分解等计量经济方法研究了产出、利率和财政支出与我国宏观经济波动的关系。研究结果表明：利率外生于系统,但产出和财政支出互为格兰杰因果关系;我国的货币政策在长期非中性,它可以直接影响到产出和其他实际变量;产出对源于产品市场的需求冲击和产品的供给冲击的响应均是正向的;经济周期波动中供给冲击所占比重小于需求冲击所占的比重。     

The Interactions of Stock Prices and Exchange Rates in the ASEAN-5 Countries: New Evidence Using a Bootstrap Panel Granger Causality Approach

Abstract

Using a data-set from the ASEAN-5 countries over the January 2000–August 2013 period, this paper revisits the Granger causal nexus between the equity and foreign exchange markets by employing the bootstrap panel Granger causality approach developed by Kònya, which allows for both cross-sectional dependency and heterogeneity across countries. The results indicate a unidirectional causality from stock prices to exchange rates in Malaysia, the Philippines and Thailand and from exchange rates to stock prices in Indonesia. These findings have important implications for policy-makers and institutional investors who should rigidly monitor the dynamic linkages between stock price and exchange rate movements across the ASEAN-5 financial markets when making policy decisions and investing in these countries.     

German,US and Central and Eastern European Stock Market Integration

This paper examines the long-term linkages between seven Central and Eastern European (CEE) emerging stock markets and two developed stock markets, namely the German and the US markets. The stability of the long-run relationships is studied using recursive cointegration analysis. The results reveal that the financial linkages between the CEE markets and the world markets increased with the beginning of the EU accession process. Furthermore, the application of the Gonzalo and Granger (J Bus Econ Stat 13:27–35, 1995) methodology indicates that the examined stock markets are partially integrated, while there is also evidence that the emerging stock markets of Central and Eastern Europe except for Estonia together with the German and the US stock markets, have a significant common permanent component, which drives this system of stock exchanges in the long run. Finally, it is worthwhile to note that the global financial crisis of 2007–2009 caused a slowdown in the convergence process. In addition we find evidence that the Slovenian stock market exhibits a moderate increase in the transitory component and this may be attributed to the Slovenian full membership in the euro area.     

International spillovers of U.S. monetary uncertainty and equity market volatility to China’s stock markets

Due to the global economy that is currently being increasingly integrated and liberalized, the cross-country transmission of U.S. monetary policy surprises has become a critical issue attracting scholarly attention. This research thus extends the existing literature by assessing the causal linkages among U.S. monetary policy uncertainty (USMPU), equity market volatility, and China’s stock price index over the period from January 1994 to August 2021. We apply Granger causality in quantile analysis to explore the relationships in each quantile of the distribution in a comprehensible manner. The results indicate that equity market volatility and China’s stock price dynamics play little role in affecting USMPU. We also find that only greater changes in both positive monetary policy uncertainty and stock prices lead to changes in equity market volatility. Furthermore, fluctuations in monetary policy uncertainty and equity market volatility in the United States Granger-cause China’s stock prices. Knowing such causality results could prevent market participants from adopting a one-size-fits-all strategy.     

German dominance in the EMS

The paper assesses the merit of the view according to which the Bundesbank dominates monetary policy-making in the European Monetary System. Our tests give a strong rejection of German dominance and suggest, instead, that monetary policymaking in the EMS is interactive. There is evidence that the Bundesbank pursues her own policy goals in the longer run. But German independence does not imply German dominance.     

International monetary transmission in East Asia: Floaters,non-floaters,and capital controls

This paper analyzes the impacts of the United States (US) monetary shocks on East Asian countries using structural vector-autoregression (VAR) model. We find that the impacts of the US monetary shocks on East Asian domestic interest rates and exchange rates contradict conventional wisdom. The conventional exchange rate channel is unlikely to play much role in the transmission of the US monetary policy shocks to floaters in East Asian countries, excluding Japan. In these countries, the domestic interest rates respond strongly to the US interest rate changes, by giving up monetary autonomy, probably because of fear of floating. However, the domestic interest rate does not respond much in countries with fixed exchange rate regimes and capital account restrictions, such as China and Malaysia. This may suggest that the countries with fixed exchange rate regimes enjoy a higher degree of monetary autonomy, most likely with the help of capital account restrictions.     

Worldwide Inflation and International Monetary Reform： Exchange Rates or Interest Rates？

The international dollar standard is malfunctioning. Near‐zero US short‐term interest rates launch massive hot money outflows into emerging markets (EM) in Asia and Latin America. Each EM central bank buys dollars to prevent its currency from appreciating but loses monetary control. Despite some appreciation, average inflation in EMs is now much higher than in the old industrial economies and world commodity prices are bid up sharply. This inflation on the dollar's periphery only registers in the US CPI with a long lag. However, the more immediate effect of the Fed's zero interest rate is to upset the process of bank intermediation within the American economy. Bank credit continues to decline while employment languishes. Therefore, constructive international monetary reform calls for the Fed to abandon its zero‐interest rate policy, which is best done in cooperation with the European Central Bank, the Bank of Japan, and the Bank of England also abandoning their ultra low interest rates.     

Autonomy and Effectiveness of Chinese Monetary Policy under the De Facto Fixed Exchange Rate System

This paper uses monthly data to examine the autonomy and effectiveness of monetary policy in China under the de facto fixed exchange rate arrangement in place from 1998 to 2005. The results obtained from Granger causality tests in a vector autoregression framework indicate that： （i） China actually conducted independent monetary policy during the fixed exchange rate period; and （ii） market-oriented policy measures are impotent in influencing real output and prices. The framework of the investigation into the autonomy of monetary policy adapts to the Chinese economic condition that primary loan and deposit rates are set by the central bank. Based on the empirical results, the present paper provides alternative strategies to improve the effectiveness of monetary policy in China, including developing the financial system and solidifying microeconomic fundamentals instead of forcing the adaptation of a more flexible exchange rate regime.     

The linkage of interest rates within the EMS

The Linkage of Interest Rates within the EMS. — The paper explores the linkage between interest rates in Germany and the United States with those on other currencies within the Exchange Rate Mechanism (ERM) of the European Monetary System. Monthly data on money market interest rates and rolling window cointegration techniques are used. The principal findings are that during the early part of the sample period (1979–1995), there is widespread cointegration between both US and German interest rates and those on other currencies in the ERM; but during the later part of the sample, this “worldwide” linkage disintegrates, cointegration between German and other ERM interest rates strengthening whilst that with the US disappears.     

Monetary Policy Impulses and Retail Interest Rate Pass‐Through in Asian Banking Markets

This paper considers the integration of financial markets and mutual influences of monetary policies in the USA and Asia based on monthly data from 1994 to 2007. We used panel‐type and time‐series and quantile panel‐type error correction models to test the influences of expected and unexpected monetary policy impulses on the interest rate pass‐through mechanism in the financial markets of 9 Asian countries and the USA. The empirics show that if interest rate integration exists in the financial markets, the following effects are observed: (i) positive impulses of unexpected monetary policy will lead to an increase in the long‐run multiplier of the retail interest rate; (ii) the adjustment of retail interest rates with short‐run disequilibrium will lead to an increase in the long‐run markup; and (iii) the empirical results of quantile regression prove that when the interest variation is greater than the 0.5th quantile and unexpected monetary policy impulses are greater than the expected monetary policy impulses, the short‐run interest rate pass‐through mechanism becomes more unstable.     

The Monetary Transmission Mechanism, Non-residential Fixed Investment and Housing

We specify a vector autoregression (VAR) model for the U.S. for 1980–2008 to investigate the statistical causal relationships between private non-residential fixed investment, the effective Federal funds rate, personal consumption expenditures, nonfinancial corporate profits, and the nonfinancial corporate credit market debt to test the validity of macroeconomic relationships in a macro model. The VAR utilizes the Toda-Yamamote procedure to test for Granger causality. Our preliminary results show that the transmission mechanism does not work as expected; we find that fixed investment depends on the level of demand in the economy and profits but not on the interest rate. This casts doubt on the usual assumptions about how the monetary transmission mechanism is expected to work. The second part of the paper investigates the effects of the change in the monetary regime towards low and stable interest rates, a policy pursued by the U.S. Fed since the beginning of the 1990s. We find that the new monetary policy regime has the following effects: (1) our VAR model does not support the hypothesis that low interest rates lead to higher fixed nonresidential investment; (2) low interest rates led to a search for higher yields through increasing risk, and (3) they led to an increase in the demand for securitized assets, especially mortgage-backed securities, which eventually resulted in a housing bubble. The overall results therefore raise doubts about the effectiveness of low interest rates as a policy regime designed as a component of a counter-cyclical policy.     

China—macroeconomic cycles in the 1980S

This paper explores the links between reforms, macroeconomic management and the occurence of macroeconomic instability in China during the last decade, drawing upon previous analytical work and also employing a Granger causality test. It was observed that macroeconomic cycle characteristics were modified by structural changes in the economy. It is further argued that the incompleteness of reforms (which renders macroeconomic management difficult) had the effect of exacerbating the cycles by increasing their amplitude and frequency. Finally, results from the Granger tests suggest that broad money would be a good intermediate target for monetary policy.     

利率调整对股票价格的短长期效应研究

股票市场在资本市场中扮演重要角色,基准利率的利率调整是货币当局调控股票市场的重要工具。本文从定性和定量两个角度研究基准利率的利率调整对股票价格变动的短长期影响。本文采用Granger因果检验对存款基准利率的调整与上证指数的变动的关系进行研究,结果发现二者不存在因果关系。     

Exchange-rate arrangements and financial integration in East Asia: on a collision course?

Financial integration in East Asia is actively being pursued and will in due course lead to substantial mobility of capital between economies in the region. Plans for monetary cooperation as a prelude to monetary integration and ultimately monetary unification are also proposed. These plans often suggest that central banks should adopt some form of common exchange rate policy in the transition period towards full monetary union. This paper argues that this is a dangerous path in the context of highly integrated financial markets. An alternative approach is proposed where independent central banks coordinate their monetary policies through the adoption of common objectives and by building an appropriate institutional framework. When this coordination process has progressed to the point where interest rate developments are similar across the region, and if in the meantime the required institutional infrastructure has been build, the next step towards monetary unification can be taken among those central banks that so desire. The claim is that this transition path is likely to be robust and will limit the risk of currency crises.     

Central bank communication and correlation between financial markets: Canada and the United States

We study the correlation between pairs of bond and stock markets in Canada and the United States between January 1998 and December 2009 in the framework of diagonal-BEKK models. Our research question is whether monetary policy actions and communications by the Bank of Canada and the Federal Reserve significantly affect the conditional co-movement of financial markets (i) within Canada and (ii) between Canada and the United States. We find that central bank communication significantly increases the correlation of financial markets within and across the two countries and is particularly important for the correlation of Canadian and US long-term interest rates.     

The Yield Curve as a Predictor and Emerging Economies

This paper tests whether the slope of the yield curve in emerging economies predicts inflation and growth. It also investigates whether the USA and euro area curves help to predict. It finds that the yield curve in emerging economies contains information for future inflation and growth, with differences across countries being seemingly linked to market liquidity. The US and euro area yield curves are also found to contain information for future inflation and growth in emerging economies. In particular, for those economies with exchange rates pegged to the US dollar, the US yield curve is often a better predictor than the domestic curves and causes their movements. This suggests that monetary policy changes in the USA are drivers of international financial linkages through base interest pass-through and the low end of the yield curve.     

Responding to a Monetary Superpower: Investigating the Behavioral Spillovers of U.S. Monetary Policy

Between 2002 and 2006, the Federal Reserve set interest rates significantly below the rates suggested by well-known monetary policy rules. There is a growing body of research suggesting that this helped fuel an excess of liquidity in the U.S. that contributed to the 2008 worldwide financial crash. It is less well known that a number of other central banks also lowered interest rates during this period. An important question, then, is what role the Federal Reserve played in influencing other central banks to alter their own monetary policies, which could have magnified the Fed’s actions in creating global liquidity. This paper addresses the issue by showing how spillovers in central bank behavior occur in theoretical rational expectations models. It then establishes empirically how U.S. monetary policy actions affect the actions of other major central banks, particularly in terms of interest rates and currency interventions. The models and data suggest that the U.S. lowering its policy rate, either in general or in reference to a monetary policy rule, influences other central banks to lower their own policy rates and intervene in currency markets, even when controlling for worldwide macroeconomic trends. It thus appears that U.S. actions were a factor in the worldwide lowering of interest rates and the increase in currency reserves in the early 2000s that may have contributed to the subsequent global liquidity boom.     

我国货币政策利率传导渠道实证分析

本文选取2000～2009年数据,运用基于向量自回归模型的协整检验,格兰杰因果检验,脉冲响应函数和方差分解等计量方法,对我国货币政策利率传导渠道进行实证分析。研究结果表明我我国货币政策利率传导渠道存在一定的梗阻。本文在此基础上提出通过进一步推进利率市场化、加快企业与金融机构改革来完善货币政策利率传导渠道。