Disinflation costs in China and monetary policy regimes

This paper investigates the real effects of a disinflationary policy in China, in which we conduct a disinflation experiment in a medium-scale New Keynesian model. We highlight two key features of China's economy: the relevance of money to monetary policy rules and household inequality. For the former, we consider two monetary policy regimes: an expanded Taylor rule with money and a money supply rule. For the latter, we take into account a share of the population that is limited in its ability to participate in assets markets. Our analysis suggests that a disinflation policy is more costly when the central bank controls the money supply than the case in which the nominal interest rate is the policy instrument. Our results are driven by the different impacts of disinflation on nominal and real interest rates under the two regimes.     

Temporary bubbles

This article studies the dynamics of an overlapping generations model with capital, money and cash-in-advance constraints. The economy can exhibit two different regimes. In the first one, the cash-in-advance constraint is binding and money is a dominated asset. In the second one, the constraint is strictly satisfied and money has the same return as capital. When the second regime holds on a finite number of periods, we say that the economy experiences a temporary bubble. We prove that temporary bubbles can exist in an economy, which would experience under-accumulation without money. We also show that cyclical bubbles may occur.     

Growth and Welfare Effects of Monetary Expansion in an Overlapping-generations Economy

This paper studies the relation between money supply and the long-run economic growth in the context of an endogenous growth model with overlapping generations. We present detailed analyses of growth and welfare effects of monetary expansion under alternative money supply rules. It is shown that, although monetary expansion has a growth-enhancing effect in the long run, in general it is not a Pareto-improving policy. We also pay much attention to the presence of multiple equilbria in endogenous money supply regimes.
JEL Classification Numbers: E51, E62, O42.     

我国货币政策对股票价格的影响——基于Markov区制转换VAR模型的实证分析

本文利用1996年1月～2010年4月的数据,运用MSIH(2)-VAR(4)模型和脉冲响应分析不同区制下货币政策对股票价格的影响。发现利用非线性模型是合理的,并在不同区制下货币政策工具对股票价格的影响效果在时间、方向和程度上表现不同,同时,对于上证A股和深证A股影响也是不同的。对于货币供应量,在股市低迷期,它的变化会立即正向影响到股票价格,但在股市膨胀期,则滞后1个月后才会正向影响股票价格;对于银行信贷,在股市低迷期,它的提高并不能提高股价,而在股市膨胀期,它的提高才会使股价上扬;对于利率,在两个区制下,它的提高都会使股价下跌,并且在滞后1个月才会表现出来。但是,相比较而言,利率对股票市场的影响在股市膨胀期效果更明显。并且总体上货币政策对股市的影响较大,尤其是在股票低迷期。     

IS THERE LONG‐RUN MONEY NEUTRALITY UNDER DIFFERENT EXCHANGE RATE REGIMES?

Abstract.  This paper tests the long-run money neutrality across different exchange rate regimes, empirically extending the concept of M. E. Fisher and J. J. Seater. Strong evidence shows the non-neutrality of two forms of money for the Hong Kong economy across the two regimes. While the Hong Kong M1 is marginally non-neutral under the float, it is clearly not neutral afterwards. The M2 is non-neutral both before and after the linked exchange rate.     

A simple analytical model of the adverse real effects of inflation

Abstract

The essential insight advanced in this paper is that the claim that inflation can impair growth makes most sense in the context of a monetary production economy, wherein a role for money in the determination of real activity is posited from the very start. We construct a model of inflation and growth that distinguishes between the properties of various qualitatively different inflation regimes. It is then shown how some of these regimes, by undermining confidence in various nominal contracts that are central to the process of accumulation in a monetary production economy, can adversely affect growth.     

Towards a consistent comparison of alternative exchange rate systems

Equilibrium allocations of alternative exchange rate regimes are compared in an intertemporal framework. When money serves only as a store of value, the same real allocations are attainable under all regimes. However, if money also serves other functions, there are equilibria under the fixed rate system that eliminate those under floating rates, and vice versa.     

The Endogeneity of Money: Evidence from the G7

For many years economists have argued that the money supply is endogenously determined. However, it has often been suggested that monetary regimes differ in important institutional respects and it may be that endogeneity may be true for some regimes and not for others. The aim of this paper is to test for endogeneity of money supply in the G7 countries and also to detect the existence of any interaction between the demand for bank lending and the demand for money by using recently developed techniques of causality tests. Our findings suggest that broad money is endogenous. However, the ability of the demand for loans to cause deposits is not, it seems, unconstrained by the demand for those deposits. Agents do not simply absorb whatever flow of new deposits loans might create.     

论欧洲货币一体化的不可逆转性——基于退出成本的分析

通过对欧洲货币一体化的历史进程进行分析,发现多数欧元成员国偏向选择固定汇率制度。本文根据合作程度不同对各国汇率制度进行了重新分类,并通过模型的构建,对三种不同合作程度的固定汇率制度的退出成本进行了比较。结果表明：退出成本最高的欧洲单一货币形式的固定汇率制度较为稳健且不易受到“投机”的攻击,因此《欧盟宪法条约》受挫之后部分成员国发出退出欧元区的威胁是不可置信的;欧洲货币一体化进程不可避免,也不可逆转。     

Central bank instruments, fiscal policy regimes, and the requirements for equilibrium determinacy

This paper examines the role of the monetary instrument choice for local equilibrium determinacy under sticky prices and different fiscal policy regimes. Corresponding to Benhabib et al.'s results for interest rate feedback rules [Benhabib, J., Schmitt-Grohé, S., Uribe, M., 2001. Monetary policy and multiple equilibria. American Economic Review 91, 167–185], the money growth rate should not rise by more than one for one with inflation when the primary surplus is raised with public debt. Under an exogenous primary surplus, money supply should be accommodating—such that real balances grow with inflation—to ensure local equilibrium determinacy. When the central bank links the supply of money to government bonds by controlling the bond-to-money ratio, an inflation stabilizing policy can be implemented for both fiscal policy regimes. Local determinacy is then ensured when the bond-to-money ratio is not extremely sensitive to inflation, or when interest payments on public debt are entirely tax financed, i.e., the budget is balanced.     

Currency Substitution: A Multicurrency Study for Canada

In this paper we examine currency substitution in Canadian money demand ls-a-vis the currencies of seven industrialized countries. A multicurrency variant of the money demand function is estimated to test for the presence and extent of this substitution. The results (except for the British pound) conform to expectations and show complementarity between currencies. It is also found that the degree of currency substitution under flexible rates exceeds that under fixed rates. We also question the validity of the tests for the presence of currency substitution which do not distinguish between exchange rate regimes. [430]     

The theory of fiat money and private money as alternative media of exchange

A random-matching model with a clearinghouse is constructed to investigate the impact of private money on economic efficiency and social welfare in three monetary regimes. A subset of agents, called bankers, whose credit histories are recorded by the clearinghouse, are allowed to issue private banknotes in order to consume. Those private liabilities may serve as media of exchange, either by themselves, or alongside a stock of fiat money. Under certain conditions, welfare in a monetary steady state with private money is strictly higher than that attained in a steady state where private money is prohibited.     

Fiscal developments and financial stress: a threshold VAR analysis

We use a threshold VAR analysis to study the linkages between changes in the debt ratio, economic activity and financial stress within different financial regimes. We use quarterly data for the US, the UK, Germany and Italy, for the period 1980:4–2014:1, encompassing macro, fiscal and financial variables, and use nonlinear impulse responses allowing for endogenous regime-switches in response to structural shocks. The results show that output reacts mostly positively to an increase in the debt ratio in both financial stress regimes; however, the differences in estimated multipliers across regimes are relatively small. Furthermore, a financial stress shock has a negative effect on output and worsens the fiscal situation. The large time-variation and the estimated nonlinear impulse responses suggest that the size of the fiscal multipliers was higher than average in the 2008–2009 crisis.     

Time vs. money — The supply of voluntary labor and charitable donations across Europe

In spite of its importance for civil society, we know relatively little about the way in which individuals spend their time and money in the charitable provision of goods and services. In this paper, we provide a comprehensive picture of the philanthropic behavior in Europe by analyzing both, the correlates of individuals' charitable cash donations and volunteer labor as well as their interdependence. Using data from the European Social Survey, we document a positive correlation between time and money contributions on the individual as well as on the country level. In addition, we find evidence that individuals substitute time donations by money donations as their time offered to the market increases. Moreover, analyzing philanthropic behavior on the disaggregated level reveals large differences in the determinants and the relationship of time and money donations in Europe – both across different types of voluntary organizations and across different welfare regimes.     

Fixed Exchange Rates and Banking Crises: When Does the Former Prevent the Latter?

Because monetary policy is constrained in fixed exchange rate regimes, banks should expect fewer money‐financed bailouts and therefore manage their risks more carefully when exchange rates are fixed than when they are flexible. It follows that we should observe fewer banking crises in countries with formal currency pegs. The 1990s however are littered with occurrences of banking crises in countries with fixed exchange rates. This paper asks whether banks in those countries could have adopted excess risk expecting money‐financed bailouts or whether their pegs discouraged such moral hazard‐type risks.     

Comparing Tax and Tax Reallocation Payments in Financing Rail Noise Abatement Programmes: Results from a Stated Choice Valuation Study in Italy

The paper examines the use of stated choice experiments (SC) to assess the economic value of alternative rail noise reduction interventions on the Brennero railway in Italy. The paper formally tests the econometric robustness of the SC estimates under three payment regimes: (a) a regional tax, where consumers must trade off welfare gains due to noise reduction for part of their income; (b) a transport tax reallocation scheme, where consumers must trade off a part of the tax payments that are currently spent on the public transport sector; and (c) an administration tax reallocation scheme, where consumers must trade off a part of the tax payments that are currently spent on the administration sector. The test results are varied. On the one hand, the SC estimates are found to be statistically different for the tax reallocation and the tax introduction regimes. This confirms previous valuation research results, and thus reiterates the hypothesis that states the inequality between marginal values of private income and public money. On the other hand, the SC estimates are not found to be statistically different for the two proposed tax reallocation regimes, suggesting that, in the case study investigated here, the marginal value of public money does not depend upon the budget source.     

What to stabilize in the open economy*

We consider the question how “best” to maintain price‐level stability in an open economy, and evaluate three possible policy choices: (a) a constant money growth rate rule; (b) a fixed exchange rate; and (c) a policy of explicit commitment to a price‐level target. In each case we assume that policy is conducted by injecting reserves into or withdrawing reserves from the “banking system.” In evaluating the three regimes, we adopt the criterion that the “best” policy should leave the least scope for indeterminacy and “excessive” economic volatility. In a steady‐state equilibrium, the choice of regime is largely irrelevant; any steady‐state equilibrium under one regime can be duplicated by an appropriate choice of the “control” variable under any other regime. However, we show that the sets of equilibria under the three regimes are dramatically different. When all countries follow the policy of fixing a constant rate of money growth, there are no equilibria displaying endogenously arising volatility and there is no indeterminacy of equilibrium. Under a regime of fixed exchange rates, indeterminacies and endogenously arising fluctuations are impossible if and only if the country with the low “reserve‐to‐deposit” ratio is charged with maintaining the fixed rate. Finally, when one country targets the time path of its price level, under very weak conditions, there will be indeterminacy of equilibrium and endogenously arising volatility driven by expectations.     

Monetary policy regimes and beliefs*

This article investigates the role of beliefs over monetary policy in propagating the effects of monetary policy shocks within the context of a dynamic, stochastic general equilibrium model. In our model, monetary policy periodically switches between low and high money growth regimes. When individuals are unable to observe the regime directly, they form inferences over regime‐type based on historical money growth rates. For an empirically plausible money growth process, beliefs evolve slowly in the wake of a regime change. As a result, our model is able to capture some of the observed persistence of real and nominal variables following such a regime change.     

Effective supply failures and structural adjustment: a real-financial model with reference to India

Using a multiperiod real–financial CGE model, this paperidentifies the impact of budgetary policy on credit supply asa possible factor limiting the effectiveness of structural adjustmentprogrammes. Focusing on credit rather than money, and explicitlyanalysing the relation between the budget and the credit creationprocess, the model goes beyond earlier modelling approachesby (1) incorporating credit rationing, (2) recognising the dualrole of credit for working capital and investment, and (3) allowingfor endogenous switches between credit-constrained, capacity-constrainedand demand-constrained regimes. With this approach, the relationbetween money, output and prices, and issues of crowding inversus crowding out, are solved endogenously rather than assumeda priori.     

A joint analysis of market indexes in credit default swap,volatility and stock markets

This paper analyses the joint dynamics of the CDS, volatility and stock markets using both VAR and Markov regime-switching VAR models with market index data. It shows that the joint behaviour of the three markets is better characterized by the Markov model with two regimes corresponding to low- and high-volatile market conditions. The relationship between changes in the market indexes under a regime is consistent with theory and persistent; the information transmission process of shocks to the markets is similar for the two regimes with a more important role for CDS shock; and the volatility in the money market is an important determinant of regime-switching. The findings have practical implications, particularly for hedging strategies with market indexes under different market conditions.