Australian money supply analysis: The relationship between the monetary base,secondary reserves and the money supply

Utilising the criteria of predictability, stability over time, and instrument stability this paper examines the relationship between the reserve base and the money supply in Australia. Various modifications to the money supply function are made to incorporate the influence of direct monetary controls, of the overdraft lending system, and of the increased substitutability of government securities for high powered money arising from the Reserve Bank of Australia's policy of pegging government security yields. Doubt is cast on the ability of the Australian authorities to control the primary monetary aggregates on a short-run basis.     

Discount window borrowing,monetary policy,and the post-October 6, 1979 federal reserve operating procedure

A demand schedule for discount window borrowing based on profit-maximizing bank behavior is derived. A feature of non-price rationing at the discount window making longer duration borrowing more costly is shown to make lagged borrowing and expected future spreads between the Federal funds rate and the discount rate relevant to the current borrowing decision. Consequently, both the size of the coefficients in the borrowing functions as well as the form of the function itself depend on expected Fed policy toward the spread. The demand function for discount window borrowing provides the critical link by which non-borrowed reserve control affects short-term interest rates and ultimately the money supply under post-October 6, 1979 reserve targeting. The analysis suggests some reasons why the Fed has experienced difficulty in specifying, estimating, and utilizing a discount window borrowing function in the non-borrowed reserve operating procedure.     

Controlling Monetary Aggregates: The Discount Window

This paper argues that current discount window policy, coupled with non-borrowed reserve targeting of the Federal Reserve, makes the quantity of high-powered money endogenous. Examination of the advisability of this procedure in a stochastic environment is conducted using a general equilibrium financial model. It is concluded that the current policy reduces the destabilizing effects of shifts between various depository financial assets, but increases the effect of other asset portfolio shifts and aggregate supply disturbances. These results are consistent with the work of Poole inasmuch as the current debate over discount policy is a repackaging of the debate over interest rate or aggregates control for monetary policy.     

Integration of LIBOR and Treasury bill yields over different monetary regimes

In this paper, tests are conducted for cointegration and Granger-causality relationships between monthly yields on 90-day maturities for London Interbank Borrowing Rate (LIBOR) and Treasury bills (T-bills). Unlike prior studies, there is no evidence of increased integration between LIBOR and T-bill yields over time. Findings in this study suggest that tests of integration of global dollar markets are sensitive to sample periods and different monetary regimes. Integration relationships are strongest under interest rate target regimes and weakest under non-borrowed reserve regimes, as predicted. Under the current regime of borrowed reserve targets, a hybrid of money supply and interest rate targeting, LIBOR and T-bill yields are integrated to a lesser extent than under interest rate target regimes prior to 1979.     

The effects of shifts in monetary policy and reserve accounting regimes on bank reserve management behavior in the federal funds market

This paper looks at the effects on Fed fund rates and Fed fund purchasing behavior of large banks resulting from (i) the 1982 regime switch from non-borrowed to borrowed reserve targeting by the Fed and (ii) the 1984 switch from lagged to almost contemporaneous reserve accounting (CRA). Whether we analyse changes in the interest-rate or quantity dimensions, the shift in monetary policy targets appeared to have had a more profound effect on the market for bank reserves than the shift in reserve accounting regime. These results, therefore, tend to support the contention that a shift to CRA by itself will have little effect on bank reserve management behavior unless combined with its logical counterpart — a total reserves target.     

The short-run volatility of money stock targeting

The altered allocations of money market volatility obtained by alternative monetary policy procedures are illustrated by stochastic simulations of a staff monthly model. The results indicate the nature of the tradeoff between short-run volatility in the money stock and in the funds rate that is available to money stock targeting procedures.     

Irrepressible monetarist conclusions from a non-monetarist model

This paper presents monetary/fiscal multiplier results from the MPS Econometric Model which give irrepressible monetarist conclusions. Albert Ando's challenge to monetarist to develop their own model may now be reserved. Weak fiscal policy is supported by the MPS Model and reflects the dominant role of money in the short-run macro economic adjustment process.     

国库库存纳入货币统计口径的可行性分析

货币供应量是我国货币政策的中介目标,目前我国货币供应量调控成本巨大,调控目标越来越难以实现,一些经济学家提出扩大货币统计口径的范围,给出了M3、M4等货币供应量指标,以引起货币当局对全社会资金的重视。与此同时,我国国库库存余额逐年加大,季节性波动明显,国库库存变动对与货币供应量和宏观经济的影响越来越大,在货币政策操作中需要密切关注国库库存的运行变化。本文首先描述了我国国库库存与货币供应量的特征,并分析了两者关系;接着探讨了将国库库存纳入货币统计口径的理论依据;然后利用近十年的数据检验将国库库存纳入货币统计口径后的实际效应;最后得出:货币当局将国库库存变量纳入中介目标监控体系,将有助于提高货币政策的有效性,并在结论的基础上给出相应的政策建议。     

The impact of monetary and fiscal policies on the French financial system

This paper presents a model of the French financial system and analyses the influence of policy instruments on one price (the interest rate) and two quantities (the stocks of bank credit and money). The development of hypotheses as to the behavior of the banking system and the public leads to a theoretical construct of the monetary system. After a comparative static analysis, the model is tested and the influence of policy instruments on the above mentioned three variables is empirically ascertained. Among other things, it is shown that the required reserve system is not optimally established and that some institutional reforms would improve the authorities' control over monetary processes.     

A note on reserve requirements and monetary control with a flexible deposit rate

This paper examines the relationship between reserve ratios and monetary control when deposit rates are flexible in the short run. For a total reserves operating target, it is shown that an increase in the deposit reserve ration may raise the variance of a monetary aggregate. Under an interest rate operating target, it is also shown that the deposit reserve ratio affects both the expected value and the variance of a monetary aggregate. These findings for the two alternative operating targets differ sharply from previous results which were based on the assumption of fixed deposit rates.     

A Clower constraint model of unbacked money

The stylized monetary facts — (1) money growth causes inflation, (2) inflation is bad, (3) money demand depends upon the nominal interest rate, (4) the real interest rate equals a parametrically fixed rate of time preference, and (5) investment depends upon the real interest rate — are produced in a Grandmont-Younes modified Clower constraint model of money. Inflation is distorting, but is no one's intertemporal rate of substitution. Inflation discourages trade, but not investment. As a by-product the Friedman hypothesis, that the optimal deflation equals the rate of time preference, is confirmed in the model.     

Linkages between the ADR market and home country macroeconomic fundamentals: Evidence in the context of the BRICs

This study investigates the long-run and short-run lead–lag linkages between American Depositary Receipt (ADR) prices and home country economic fundamentals in the context of the BRICs (Brazil, Russia, India and China). In order to obtain an indication of the segmentation or integration between the ADR market and its underlying stock market, the same investigation is also undertaken in relation to the latter. We find that in the long run, economic growth positively drives ADR returns in the cases of Brazil and China but negatively in the cases of Russia and India. In the short-run, economic growth and money supply lead ADR prices but ADR prices predict inflation and oil prices with regard to Brazil while in Russia, oil prices predict ADR returns but the ADR market leads monetary policies and real economic activity. As regards India, in the short run, oil prices and economic growth lead ADR prices but ADR prices predict money supply changes. Finally, with respect to China, the ADR index lead economic growth and inflation but economic variables do not predict ADR prices in the short-run. In the long run, with the exception of China, we find the same kind of linkages between these economic fundamentals and the underlying stock market although the linkages are somewhat stronger. The short run dynamics for ADRs with respect to economic fundamentals are, however, different for that of the respective home country stock market. This would imply that the ADR market and its underlying stock market, as far as the BRICs are concerned, are integrated in the long-run but not in the short-run.     

U.S. monetary policy indicators and international stock returns: 1970-2001

It is documented in the literature that U.S. and many international stock returns series are sensitive to U.S. monetary policy. Using monthly data, this empirical study examines the short-term sensitivity of six international stock indices (the Standard & Poor 500 [S&P] Stock Index, the Morgan Stanley Capital International [MSCI] European Stock Index, the MSCI Pacific Stock Index, and three MSCI country stock indices: Germany, Japan, and the United Kingdom) to two major groups of U.S. monetary policy indicators. These two groups, which have been suggested by recent research to influence stock returns, are based on the U.S. discount rate and the federal funds rate. The first group focuses on two binary variables designed to indicate the stance in monetary policy. The second group of monetary indicators involves the federal funds rate and includes the average federal funds rate, the change in the federal funds rate, and the spread of the federal funds rate to 10-year Treasury note yield. Dividing the sample period (1970-2001) into three monetary operating regimes, we find that not all policy indicators influence international stock returns during all U.S. monetary operating periods or regimes. Our results imply that the operating procedure and/or target vehicle used by the Federal Reserve Board (Fed) influences the efficacy of the policy indicator. We suggest caution in using any monetary policy variable to explain and possibly forecast U.S. and international stock returns in all monetary conditions.     

Dynamic behavior of capital accumulation in a cash-in-advance model

This paper analyzes the dynamic behavior of capital accumulation in Stockman's cash-in-advance model. If the cash-in-advance constraint applies only to consumption, then money is superneutral along the transition path as well as in the long run. Alternatively, if the cash-in-advance constraint applies to gross investment as well as consumption, then a permanent increase in the rate of monetary growth reduces the steady state capital stock. The effect on the speed of adjustment depends on the sign of a certain simple function of the parameters of preferences and technology.     

Financial capital movements and central bank behavior in a two-country,short-run portfolio balance model

This paper analyzes financial capital movements in a two-country, short-run, portfolio balance model which includes two securities that are imperfect substitutes. Following a disturbance, equilibrium is, in general, reattained, but the effects on interest rates, money supplies, and international reserve holdings depend on the monetary and reserve asset management policies of the two central banks. Special attention is focused on the case in which one central bank holds its international reserves in the form of ‘key currency’ securities, thereby sterilizing for the ‘key currency’ country. There are several applications of the central result that, for any disturbance, the less changes in international reserves are allowed to affect money supplies, the larger the change in reserves required to reestablish equilibrium.     

Money,interest, inflation and growth in Turkey

This paper estimates a two equation model of inflation and growth in Turkey over the period 1950–1977. Inflation is determined by the difference between the rates of change in nominal money supply and real money demand. The short-run growth function consists of an expectations augmented Phillips curve, to which a credit availability effect is added. Under Turkey's disequilibrium institutional interest rate and exchange control systems, the real supply of domestic credit is determined, in large part, by real money demand which is, in turn, influenced by the real deposit rate of interest. The central bank can use both the nominal money supply and the nominal deposit rate of interest as policy instruments for stabilisation purposes.     

MONETARY AND FISCAL POLICIES AND STOCK PRICES

Investigations into business cycles have found money supply to be a lead variable to stock prices. However, some would argue that the stock market, being efficient, anticipates money supply changes and therefore, stock prices are lead variables to money supply changes. Recent developments in time series methods have facilitated the testing of these relationships through identifying bivariate and multivariate autoregressive models. However, in many cases, the results using different procedures contradict themselves and are in conflict with theoretical reasonings. In this paper the causal relationship is tested between fiscal and monetary policies and stock prices using Canadian data and bivariate andmultivariate autoregressive models.     

Monetary instruments and policy rules in a rational expectations environment

This paper explores the implications of rational expectations and the aggregate supply theory advanced by Lucas (1973) and Barro (1976) for analysis of optimal monetary policy under uncertainty along the lines of Poole (1970), returning to a topic initially treated by Sargent and Wallace (1975). Not surprisingly, these two ‘classical’ concepts alter both the menu of feasible policy choice and the desirability of certain policy actions. In our setup, unlike that of Sargent and Wallace (1975), the systematic component of monetary policy is a relevant determinant of the magnitude of ‘business fluctuations’ that arise from shocks to the system. Central bank behavior — both the selection of monetary instruments and the framing of overall policy response to economic conditions — can work to diminish or increase the magnitude of business fluctuations. However, the ‘activist’ policies stressed by the present discussion bear little (if any) relationship to the policy options rationalized by the conventional analysis of monetary policy under uncertainty. In particular, in contrast to Poole's analysis, money supply responses to the nominal interest rate are not important determinants of real economic activity. Rather, the central bank should focus on policies that make movements in the general price level readily identifiable by economic agents.     

Medium-Term Money Neutrality and the Effective Lower Bound

Conventional wisdom suggests that medium-term money neutrality imposes strong limitations on the effects of monetary policy. The point of this paper is that models with medium- and long-term money neutrality are prone to generate nonexistence of equilibria at the effective lower bound (ELB) on interest rates. Nonexistence is suggestive of sharp output contractions—so-called contractionary black holes—at the ELB. Paradoxically, the case for expansionary monetary policy at the ELB is even stronger in models that feature near money neutrality. The results highlight the benefits of a monetary policy regime in which the central bank temporarily overshoots its inflation target once confronted by the ELB.     

Predicting the money multiplier: A case study for the U.S. and the Netherlands

A Box-Jenkins model has been developed to predict the U.S. money multiplier. The forecasts are approximately 30% more accurate than those produced by the regression methods which Burger and others have used in recent work. Similar models are then applied to three different money multipliers for the Netherlands, taken from Korteweg's reformulation of the Brunner-Meltzer money supply scheme for this open economy. The results suggest that if the Dutch Central Bank invested more resources in the collection of data from the banks, then predictions could be made sufficiently accurate for use in the control of the money stock.