Monetary policy,fiscal policy and cross signal jamming

This paper considers the issue of rule versus discretion when the central bank and the government share private information but have different preferences over inflation and output. We demonstrate that if the monetary policy is rule-based, Intuitive Criterion selects the unique separating equilibrium in which the central bank signals a low supply shock by a low interest rate. Interestingly, discretion may be better than the rule for the central bank, contrary to the case of complete information. Also, we examine the effect of information asymmetry on the monetary and fiscal policy mix. We show that cross signal jamming whereby the monetary authority and the fiscal authority successfully jams an unfavorable signal of each other does not occur in equilibrium.     

Sovereign credit ratings and central banks: Why do analysts pay attention to institutions?

This paper studies the effect of the governance of modern central banks on the ratings assigned by the credit rating agencies Standard and Poor's and Moody's. Until recently, the rating process was not public. Even still, the factors or precise methodologies used by the agencies remain uncertain and analyst judgment remains important. We argue that, given uncertainty over the future paths of countries, the quality of the central bank governance serves as a useful heuristic for a stable and favorable country trajectory. In particular, the central bank's independence signals that the government is committed to general macroeconomic stability, including debt repayment. Additionally, central bank transparency clarifies who is the principal of the bank and provides information about how the central bank understands the economy and monetary policy. Finally, tensions between the central bank and the government, as reflected by irregular turnover of central bank governors, raise doubts about countries’ future prospects. Empirically, we use a variety of models, including mediation analysis, to ensure that the effect we identify stems from the central bank governance itself, as a heuristic for the future paths of countries, and not the central bank's direct contribution to the macroeconomy, as reflected in the available data.     

Stabilization policy in a Keynes–Goodwin model with debt accumulation

In this paper, we investigate the macroeconomic impact of government's stabilization policy by using an analytical framework of Keynes–Goodwin model of growth cycle with debt accumulation. Formally, our model is formulated as a five-dimensional system of non-linear differential equations. We consider both of private debt and public debt, and we explicitly formulate the budget constraint of the ‘consolidated government’ including the central bank. We mainly study the case of ‘liquidity trap’ under money and debt financing of the government deficit.We study the local stability/instability of the system and the conditions for the existence of cyclical fluctuations analytically by means of the linear approximation method. We show that the sufficiently active monetary/fiscal policy can stabilize the intrinsically unstable economy if the inflation targeting by the central bank is sufficiently credible. We also present some numerical examples, which support our analysis.     

货币政策有效性与货币政策透明制度的兴起

本文着重探讨货币政策透明性与货币政策有效性之间的关系,目的在于说明货币政策透明制度能够兴起的一个关键因素在于货币政策的透明性有利于提高货币政策的有效性。在标准的“时间不一致性”理论里面,货币政策是否透明对货币政策的效应是没有影响的,因为在这类理论里面,经济主体能够使用所有可获得的信息形成与经济系统相一致的、无偏的估计。但问题的关键在于,这种假设的基本前提在实践中并不完全成立。当考虑到经济主体对经济运行结果和经济运行过程的不完全认知时,货币政策透明性对于促进经济主体的学习过程,稳定和引导公众的通胀预期,进而提高货币政策的有效性就起着至关重要的作用。     

Inflation targeting in a learning economy: An ABM perspective

This paper investigates the performances of an inflation targeting regime in a learning economy framed as an Agent-Based Model (ABM). We keep our ABM as close as possible to the original New Keynesian (NK) model, but we model the individual behaviour of the agents under procedural rationality à la Simon. Accordingly, we assume that their behaviour is guided by simple rules of thumb – or heuristics – while a continuous learning process governs the evolution of those rules. Under these assumptions that also allow the emergence of agents heterogeneity, we analyze the dynamics of the economy without assuming rational expectations, and study the role that a central bank, implementing an inflation targeting regime via a monetary policy rule, can play in the orientation of these dynamics. Consequently, our main goal is to analyse the interplay between the learning mechanisms operating at the individual level and the features and performances of the inflation targeting regime. Our results point to the prime importance of the credibility of central bank's inflation target regarding macroeconomic stabilisation, as well as the beneficial role played by that target as an anchoring device for private inflation expectations. We also establish the potential welfare cost of imperfect public information and contribute to the current debate on optimal monetary policy rules under imperfect common knowledge and uncertainty.     

Does clarity of central bank communication affect credibility? Evidences considering governor-specific effects

Central banks have made great efforts to increase transparency and accountability to the public. Since then, studies seek empirical evidences about the effects of monetary policy communication over agent’s expectations. The recent literature on central bank communication draws attention to the importance of clarity of central bank communication. However, researches on this theme are still scarce, and there are few empirical studies with conclusive findings. Our study seeks empirical evidences on the relation between clarity of central bank communication and credibility of monetary policy. Estimates through different methods aim to identify whether clarity of central bank communication improves credibility. The study is the first to provide empirical evidence that a clearer communication can improve credibility. We also consider the differences between the two governors who ruled the Central Bank of Brazil in the period under analysis. The results indicate that a clear communication can improve credibility, but it depends on the commitment of the central banker with the goal of inflation control. Furthermore, estimates based on quantile regression indicate that the benefit brought by the clarity to the credibility depends on the commitment of the monetary authority with the goal guiding inflation expectations.     

Measuring agents’ reaction to private and public information in games with strategic complementarities

In games with strategic complementarities, public information about the state of the world has a larger impact on equilibrium actions than private information of the same precision, because public signals are more informative about the likely behavior of others. We present an experiment in which agents’ optimal actions are a weighted average of the fundamental state and their expectations of other agents’ actions. We measure the responses to public and private signals. We find that, on average, subjects put a larger weight on the public signal. In line with theoretical predictions, as the relative weight of the coordination component in a player’s utility increases, players put more weight on the public signal when making their choices. However, the weight is smaller than in equilibrium, which indicates that subjects underestimate the information contained in public signals about other players’ beliefs.     

INTERACTION BETWEEN MONETARY AND FISCAL AUTHORITIES UNDER INCOMPLETE INFORMATION

This paper analyzes the interaction between monetary and fiscal authorities under incomplete information. The inflation goal of the central bank is assumed to be unknown to the fiscal authority and the public. The central bank signals the goal by choosing the first‐period monetary policy before the fiscal authority joins the policy‐making game. If the central bank would like the fiscal authority and the public to believe that it is wet (dry), the central bank would distort the money supply upward (downward) in order to reveal its actual type.     

Information sharing and the volume of private credit in transition: Evidence from Ukrainian bank-level panel data

The effect of lenders' information sharing on the volume of credit is ambiguous in theory and underexplored empirically. Departing from the scant existing literature, which draws on country-level aggregate data, we study the impact of information sharing on the volume of private credit by examining unique bank-level panel data from Ukraine, a transition economy where information sharing among banks is only a recent phenomenon. Employing the fixed-effects framework and dynamic panel methods to address endogeneity due to the non-exogenous nature of banks' choice to participate in information sharing, we find no credit volume effect of information sharing when information sharing takes place through the central bank-administered public credit registry. In contrast, information sharing through private credit bureaus is associated with an increase in the volume of bank lending, in particular when a bank is partner of multiple private credit bureaus. This effect is robust and non-negligible in magnitude.     

Credit Policy in times of Financial Distress

This essay evaluates two central bank policy tools, capital requirements and lending of last resort, designed to avert financial panics in the context of endowment economies with complete markets and limited borrower commitment. Credit panics are self-fulfilling shocks to expected credit conditions which cause transitions from an optimal but fragile steady state to a suboptimal state with zero unsecured credit. The main findings are: (i) Countercyclical reserve policies protect the optimal equilibrium against modest shocks but are powerless against large shocks. (ii) If we ignore private information and central bank inefficiencies, this class of models bears out Bagehot’s 1873 claim in Lombard Street: panics are averted if central banks stand ready to lend at a rate somewhat above the one associated with the optimal state.     

外汇市场干预信号渠道与投机头寸相关性研究

文章主要通过研究外汇市场干预操作与货币政策改变之间是否存在相关性,来考察中央银行在外汇市场上进行冲销干预的效果。在央行拥有内部信息,投机者拥有基本面私有信息的条件下,文章使用GARCH时间序列模型,以期货市场上能够反映市场参与者对公开及私有信息理解的投机净头寸(变化)数据作为预期的代理变量展开分析。文章的结论不支持信号渠道,外汇市场上的可预期干预结果更可能与央行期望的干预方向相反,并且过去的投机者净头寸持有量可以促使干预发生。     

Policy credibility and alternative approaches to disinflation

This paper examines how central bank credibility affects the merits of a “gradualist” versus “cold turkey” approach to disinflation in a DSGE model in which private agents use optimal filtering to infer the central bank’s nominal anchor. Our analysis is applied to two episodes of sharp and deliberate monetary tightening in the United States – the post-WWI deflation and the Volcker disinflation. For a policy regime with relatively high credibility, our analysis highlights the benefits of a gradualist approach; thus, the aggressive tightening that occurred in 1920–21 did not seem warranted. In contrast, for a policy regime with relatively low credibility (such as the Federal Reserve in late 1980), an aggressive policy stance can play an important signalling role by making the policy shift more evident to private agents.     

Speculative Attacks with Multiple Sources of Public Information*

We propose a speculative attack model in which agents receive multiple public signals. Diverse pieces of public information can be taken into account differently by different players and are likely to lead to different appreciations ex post. This process defines players' expected private values of a successful attack. The main result shows that equilibrium uniqueness depends on two conditions: (i) signals are sufficiently dispersed and (ii) private beliefs about signals' relative precision differ sufficiently. We derive some implications for information dissemination policy. Transparency in this context is multidimensional: it concerns the publicity of announcements, the number of signals disclosed and their precision.     

Perfect competition in asymmetric information economies: compatibility of efficiency and incentives

The idea of perfect competition for an economy with asymmetric information is formalized via an idiosyncratic signal process in which the private signals of almost every individual agent can influence only a negligible group of agents, and the individual agents’ relevant signals are essentially pairwise independent conditioned on the true states of nature. Thus, there is no incentive for an individual agent to manipulate her private information. The existence of incentive compatible, ex post Walrasian allocations is shown for such a perfectly competitive asymmetric information economy with or without “common values”. Consequently, the conflict between incentive compatibility and Pareto efficiency is resolved exactly, and its asymptotic version is derived for a sequence of large, but finite private information economies.     

Central bank forecasts and private expectations: An empirical assessment from three emerging economies

As part of their monetary policy strategy, many central banks are attempting to manage private sector expectations about key macroeconomic variables. In this article, we investigate whether forecasts provided by central banks in three inflation targeting emerging economies (Brazil, Mexico, and Poland) affect the expectations of private forecasters. In particular, we analyze whether the disagreement between the central bank and private sector forecasts applies to explain changes in private sector expectations regarding inflation and economic growth. The findings show that while central bank forecasts are higher than those made by private sector forecasters, the result is an update upwards of private forecasts and that this effect is stronger for GDP growth forecasts than for inflation forecasts.     

Optimal monetary policy regime for oil producing developing economies: Implications for post-war Iraq

This paper theoretically investigates optimal monetary policy regime for oil producing developing countries. We analyze credibility and reputation of the Central Bank and macroeconomic dynamics under alternative monetary policy regimes. We construct a detailed and realistic model that can be used to analyze macroecomic structure and expectation dynamics of an oil producing open economy. We take into account the asymmetric information between the public and the central bank and theoretically investigate how this asymmetric information impacts the real economy and the credibility of the central bank. The simulation results indicate that central bank achieves higher credibility and lower inflation under dollarization and higher output levels under currency board regime. The model constructed in this paper has many policy implications for oil producing open economies. Using the implications of the model, we make monetary policy regime recommendations for post-war Iraq.     

Price–quality competition in a mixed duopoly

We examine competition between a private and a public provider in markets for merit goods, such as education, healthcare, housing, recreation, or culture. The private firm provides a high‐price/high‐quality variety of the good and serves richer individuals, whereas the public firm provides a low‐price/low‐quality variety and serves poorer individuals. We first characterize the private competitor’s best response to changes in the public firm’s price and quality. This enables us to examine the distributional effects of policies that affect the price or quality of the public firm’s product. We then numerically characterize the public firm’s optimal provision policy, taking the private response into consideration. Our results have implications for the financing of publicly provided goods, and for whether additional resources, if available, should be spent on reducing the price or enhancing the quality of these goods.     

Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?

A recent strand of literature shows that multiple equilibria in models of markets for pegged currencies vanish if there is slightly diverse information among traders; see Morris and Shin (2001). It is known that this approach works only if the common knowledge in the market is not too precise. This has led to the conclusion that central banks should try to avoid making their information common knowledge. We develop a model in which more transparency of the central bank implies better private information, because each trader utilises public information according to her own private information. Thus, transparency makes multiple equilibria less likely.     

碳金融交易金融支持路径选择——建立地方性碳金融政策性银行

低碳经济是当前全世界关注的话题.我国发展低碳经济也十分必要和紧迫,但同时也面临着能源结构以煤为主,技术相对落后的局面.在低碳经济引发碳金融市场迅速发展的过程中,政策性银行的作用应该得到发挥,特别是在上海建设国际金融中心的过程中,可以尝试建立地方性碳金融政策性银行.文章从建立碳金融政策性银行的理论依据入手,即碳减排产品的公共特征和外部特征,政策性银行的政策性和银行性两大特点,分析了建立地方性碳金融政策性银行在理论上有依据,政策层面上有支持,以及技术层面上的可行性.从而得出了应该抓住机遇,尝试性建立地方性碳金融政策性银行,促进我国的碳减排的结论.     

Public capital,deficit financing,and economic growth in a stochastic economy

This paper examines the relationship among deficit-financing fiscal policy, risk and economic growth in a stochastic endogenous growth model with private and public capital. We show that there are positive balanced-growth rate and a debt-to-GDP ratio that depend on deep parameters such as the income tax rate and the standard deviation of the growth rate of private and public capital. Investment and fiscal shocks influence the mean and variance of the growth rate and the debt dependency rate through portfolio changes and capital accumulation. In particular, an increase in the risk of private investment destabilizes the economy and reduces the mean growth rate if the portfolio change is drastic, and this increase in risk increases the debt-to-GDP ratio. In contrast, an increase in the income tax rate stabilizes the economy, increases the mean growth rate, and has a positive or negative effect on the debt-to-GDP ratio according to the ratio of public to private capital if the income tax rate is sufficiently small.