Monetary policy strategies in the New Normal: A model-based analysis for the euro area

A calibrated New Keynesian model of the euro area is used to evaluate the stabilization properties of alternative monetary policy strategies when the natural rate of interest is low (“new normal”) and the probability of reaching the effective lower bound (ELB) is non-negligible. Price level targeting is the most effective strategy in terms of stabilizing inflation and output and reducing the duration and frequency of ELB episodes. Temporary price level targeting is also effective in mitigating the ELB constraint, although its stabilization properties are inferior to those of price level targeting. Backward-looking average inflation targeting performs well and is preferable to inflation targeting. The effectiveness of these alternative strategies hinges upon the commitment of a central bank to keeping the policy rate “lower for longer” and is influenced by agents’ expectation formation mechanism.     

The shadow rate as a predictor of real activity and inflation: evidence from a data-rich environment

This article examines the predictive content of the shadow rates for US real activity and inflation in a data-rich environment. We find that the shadow rates contain substantial out-of-sample predictive power for inflation in nonzero lower bound and zero lower bound periods. In contrast, the shadow rates are uninformative about future real activity.     

Teaching Economics to Undergraduates in Europe: Volume,Structure, and Contents

The structure and contents of undergraduate programs in economics and management sciences differ among the major European universities. Based on analyses of curriculums, course syllabuses, and adopted textbooks, the author looks at how much time is spent in pertinent programs, how time is allocated among different courses within programs, what common thematic denominators exist, and finally and most importantly, whether and in what way content taught in micro and macro courses differs. Based on examinations of how the coverage in major textbooks has evolved through successive editions, he also looks for trends and cycles in what is taught in undergraduate micro and macroeconomics.     

The lower bound and the causes of monetary policy inertia: evidence from Sweden

In 2009, in the midst of a global recession, Sweden’s Riksbank approached a lower bound on nominal interest rates. This encounter with the lower bound provides a natural experiment for investigating the causes of monetary policy inertia. To exploit this experiment, we estimate Taylor rules with Tobit specifications that permit both interest rate smoothing and persistent shocks (serial correlation) as explanations for inertia. The interest rate smoothing hypothesis leads to a specification in which lagged actual values of the dependent variable appear on the right-hand side of the Taylor rule, while the persistent shocks hypothesis leads to a specification in which lagged values of an unobserved latent dependent variable appear on the right-hand side of the Taylor rule. The divergence of actual and latent dependent variables that occurs at the lower bound provides leverage in distinguishing the two hypotheses. For a conventional Taylor rule, we find evidence of both sources of inertia. For a modified Taylor rule that includes a measure of financial stress, our evidence suggests that interest rate smoothing is the principal source of monetary policy inertia.     

Understanding Benign Liquidity Traps: The Case of Japan

Japan has been in a benign liquidity trap since the 1990s. In a benign liquidity trap, interest rates approach zero and monetary policy is ineffective but output and employment perform decently. Such a pattern contradicts traditional macro theories. This paper introduces a monetary general equilibrium model that is compatible with Japan's performance and resolves puzzles associated with liquidity traps. Possible conclusions for Anglo‐Saxon countries and eurozone members are also discussed.     

The Committee on Economic Education: Its Effect on the Introductory Course and Women in Economics

The percentage of women economics majors has stagnated for decades. This is creating a bottleneck in the pipeline of female economists. The Committee on Economic Education (CEE) of the American Economic Association (AEA) is charged with fostering economic understanding and effective teaching. An examination of its structure, membership and activities over the past 35 years, however, suggests that it has narrowed the scope of economic ideas presented in introductory economics and has not convinced instructors of the benefits of a more active learning environment. The task of engaging students in the search for greater knowledge has largely been left to heterodox “visionaries,” members of the profession who have tried to find ways to make economics courses more interesting and inviting to all students, and especially to under-represented groups. We conclude that the CEE’s membership and structure contribute to the small percentage of the increasingly female undergraduate population who major in economics.     

The BMW Model: A New Framework for Teaching Monetary Economics

Abstract: Although the IS/LM-AS/AD model is still the central tool of macroeconomic teaching in most macroeconomic textbooks, it has been criticized by several economists. Colander (1995) demonstrated that the framework is logically inconsistent, Romer (2000) showed that it is unable to deal with a monetary policy that uses the interest rate as its operating target, and Walsh criticized that it is not well suited for an analysis of inflation targeting. The authors present a framework that develops the Romer approach into a very simple but, at the same time, comprehensive macroeconomic model. In spite of its simplicity, it can carry the main insights of the New Keynesian macroeconomics to an intermediate level and deal with issues like inflation targeting, monetary policy rules, and central bank credibility.     

Demographics and real interest rates: Inspecting the mechanism

The demographic transition can affect the equilibrium real interest rate through three channels. An increase in longevity—or expectations thereof—puts downward pressure on the real interest rate, as agents build up their savings in anticipation of a longer retirement period. A reduction in the population growth rate has two counteracting effects. On the one hand, capital per-worker rises, thus inducing lower real interest rates through a reduction in the marginal product of capital. On the other hand, the decline in population growth eventually leads to a higher dependency ratio (the fraction of retirees to workers). Because retirees save less than workers, this compositional effect lowers the aggregate savings rate and pushes real rates up. We calibrate a tractable life-cycle model to capture salient features of the demographic transition in developed economies, and find that its overall effect is a reduction of the equilibrium interest rate by at least one and a half percentage points between 1990 and 2014. Demographic trends have important implications for the conduct of monetary policy, especially in light of the zero lower bound on nominal interest rates. Other policies can offset the negative effects of the demographic transition on real rates with different degrees of success.     

Links between trust in the ECB and its interest rate policy

We analyse determinants of trust in the European Central Bank (ECB). Our main finding is that when households have pessimistic expectations, aggressive cuts in interest rates have an adverse effect on their trust in central bank. This result is in accordance with the ‘lack-of-confidence shock’ hypothesis developed by Schmitt-Grohé and Uribe (2012) and in contrast with the ‘fundamental shock’ hypothesis which implies positive effects of aggressive cuts for trust in the ECB. The result is robust to various changes in the modelling approach.     

Interest rate gaps and monetary policy in the work of Henry Thornton: Beyond a retrospective Wicksellian reading *

Abstract

This paper revisits the theory of interest rates propounded by Henry Thornton (1760 – 1815). Particular attention is paid to Thornton's examination of the inflationary effects of the gap between the Bank of England's discount rate and the current rate of profit. The paper shows that Thornton is also concerned, unlike Wicksell, about the consequences of a gap between the Bank of England's discount rate and the effective bank lending rate on the market for loanable funds, which results mainly from the usury laws. Thornton's analyses offer then a framework for regulating the value of money through adjustments to the bank rate.     

中国货币政策的福利损失及中介目标的选择——基于新凯恩斯DSGE模型的分析

文章运用新凯恩斯框架下的DSGE模型对中国货币政策的福利损失进行分析,研究表明:(1)名义利率对通货膨胀的反应越是敏感,则福利损失越小,因此,货币当局应该充分利用利率政策稳定价格水平;(2)名义利率对产出的反应越是敏感,则福利损失越大,因此,货币当局不宜运用利率政策影响经济增长速度;(3)利率平滑对福利的影响不大,货币当局的利率政策应该直接针对通货膨胀,而不应该追求利率本身的稳定;(4)在一定条件下,不同的利率政策规则造成的福利损失差别不大,货币当局可以从便利的角度出发,根据上期的通货膨胀率和产出水平来设定当期的名义利率;(5)与利率变动相比,货币供应量的变动造成福利损失更大,因此,货币政策的中介目标应该逐步由货币供应量转向利率。     

Deleveraging,deflation and depreciation in the euro area

During the post-crisis period, economic performance has been highly heterogenous across the euro area. While some economies rebounded quickly after the 2009 output collapse, others are undergoing a protracted further decline as part of an extensive deleveraging process. At the same time, inflation has been subdued throughout the whole of the euro area and intra-euro-area exchange rates have hardly moved. We interpret these facts through the lens of a two-country model of a currency union. We find that deleveraging in one country generates deflationary spillovers which cannot be contained by monetary policy, as it becomes constrained by the zero lower bound. As a result, the real exchange rate response becomes muted, and the output collapse—concentrated in the deleveraging economies.     

“物价闯关”带给利率市场化的启示：原则、基础与方法

利率市场化是中国金融改革攻坚克难的重要领地,也是政界学界热切关注的焦点所在。目前,从国外实践案例汲取改革经验的文献不可胜数,但从国内历史角度寻求改革规律的研究较少。拟从后一思路出发,梳理中国20世纪八九十年代经历的商品价格市场化改革,并将之与正在进行的利率市场化比较研究。归纳总结了以渐进式改革为原则,以培育市场化的经济主体为基础,以契合政治经济形势、惩治腐败、加强试点、敢于反复为方法的改革经验,为利率市场化的后续推进和经济体制改革的持续深化建言献策。     

泰勒规则与我国货币政策反应函数——基于潜在产出、自然利率与均衡汇率的研究

潜在产出、自然利率和均衡汇率是货币政策决策和效果评价的重要参考基准。通过状态空间模型对我国潜在产出、自然利率和均衡汇率水平进行联合估计,并在此基础上通过建立一个包含汇率因素的"混合型"泰勒规则对我国货币政策反应函数进行估计,结果显示,我国货币政策行为对通货膨胀、产出缺口和汇率波动作出了较为及时和稳定的反应,但货币政策的前瞻性有待提高。     

垄断与产权:我国利率市场化的制度性障碍

在缺乏竞争的金融体系下，借贷价格偏离均衡价格，消费剩余减少，资源配置扭曲，金融运行效率降低。在我国，资金供应依然主要由居于垄断地位的国有商业银行及其变种组成和资金需求依然主要由国有企业及其变种组成的情况下，利率市场化会使得资金价格扭曲和变形，理论上推演的利率市场化预期效果在很大程度上无法实现。我国利率市场化的时间表只能视微观经济主体市场化的进程而定。     

Equilibrium real interest rates and the financial cycle: Empirical evidence for Euro area member countries

We estimate the equilibrium real interest rate for nine Euro area member countries and the Euro area as a whole using quarterly data from 1995 to 2015. We expand the standard model of estimating real equilibrium interest rates to incorporate the financial cycle for the private sector. We show that adding the financial cycle indeed alters the equilibrium real interest rate estimates and, in line with previous studies, that there is a fall in the equilibrium real interest rate over time. Our results indicate that in most member countries the real rate is lower than its equilibrium level. Hence, they should not worry about secular stagnation now. This is because secular stagnation is likely to occur when real interest rates are higher than their equilibrium levels. This result can serve as a starting point for further research in this field, e.g. by adding public sector financial cycles or disentangling the roles of households, corporations and the government.     

经济学研究的两大基本内容及其对知识结构的要求——对日益狭隘化的现代主流经济学之反思

经济学的根本目的是提高国民和社会的福利,这不仅关涉到自然资源的利用问题,而且关涉到人与人之间的社会关系。相应地,经济学的研究内容包含了伦理学和工程学两个方面:它们是相辅相成的,共同构建了整个经济学的理论大厦。事实上,不仅经济学与伦理学之间的关系源远流长,而且即使是专注于研究自然资源配置问题的主流经济学,也根本无法脱离具体的社会关系。正因如此,经济学的研究需要非常广泛的知识;否则,根本无法理解具体的经济现象,也无法提供合理的政策建议。然而,现代主流经济学日益局限于工程学一个方面,并极端地采取抽象化的分析路线,偏重于数理的训练而疏忽其他社会科学领域知识的吸收,从而造成了理论与现实的脱节。     

Monetary and banking policy transmission through interest rates: an empirical application to the USA,Canada, the UK and the Eurozone

The main purpose of this paper is an examination of the pass‐through interest rate transmission from the wholesale rates (central bank and/or money market rates) to the retail rates (deposit and lending rates) of the banking system. Knowledge of the transmission substantially helps us to calculate the pass‐through interest rate margin or mark‐up in the banking systems under examination (USA, Canada, the UK and the Eurozone). The selection of the wholesale interest rate is also an important part of this pass‐through transmission framework because it is related to the money supply process and therefore the central bank's policy capabilities. In the empirical part, a Johansen (1988) cointegration based error‐correction procedure (ECM‐GE) is implemented for the wholesale interest rate selection. Then an LSE–Hendry general‐to‐specific model (GETS) is applied, for the revelation of the banking sector pass‐through interest rate behaviour. In the empirical part, on the issue of the wholesale interest rate selection, the USA and the Eurozone seem to favour the Money Market rate while the UK and Canada favour the central bank policy rate. The results indicate two types of interest rate pass‐through behaviour, with market structure implication – namely, the US and UK banking systems contrasted with Canada–Eurozone.     

Educational Attainment and the Gender Wage Gap: A Comparison of Young Men and Women in 1984 and 2007

This study pools data from two sources to investigate the role of educational attainment in determining the gender wage gap. The empirical analysis reveals that the returns to education remained largely unchanged for young men but declined significantly for young women over the period 1984–2007. We find significant evidence of a decline in the returns to a Bachelor's degree for young women as well as evidence of increasing wage inequality over time among young men and women with a Bachelor's degree. Also, in 2007, the gender wage gap between young men and women was largest for those with a Bachelor's degree. Further, our analysis suggests that young women with a college education may confront more discrimination in the labor market than young women without a college education. We conclude that promoting educational attainment among young women may be a necessary but not sufficient condition for addressing the gender wage gap.