THE SWEDISH MARKET PRICE APPROACH TO MONETARY POLICY OF THE 1930s

Recently, some analysts have prescribed the combined use of certain market prices as a useful strategy for monetary policy. In light of problems with conventional (time-series) empirical tests of the approach, one may consider an alternative "test" of this strategy: examining historical episodes when the strategy was employed. The Swedish experience during the early 1930s provides one such example. This experience, fathered by Knut Wicksell, is an example of a fiat money-flexible exchange rate regime in which (i) a short-term interest rate was used as a policy instrument, (ii) market prices were used as policy guides or intermediate indicators, and (Hi) price stability was the explicitly voiced goal of monetary policy. Monetary or reserve aggregates were neither proposed nor employed as policy guides or targets in pursuing this price stabilization objective. This Swedish experience is important since it provides a rare example of a market price approach to monetary policy. This paper demonstrates that the approach worked remarkably well.     

THE SWEDISH MARKET PRICE APPROACH TO MONETARY POLICY OF THE 1930s

Recently, some analysts have prescribed the combined use of certain market prices as a useful strategy for monetary policy. In light of problems with conventional (time-series) empirical tests of the approach, one may consider an alternative "test" of this strategy: examining historical episodes when the strategy was employed. The Swedish experience during the early 1930s provides one such example. This experience, fathered by Knut Wicksell, is an example of a fiat money-flexible exchange rate regime in which (i) a short-term interest rate was used as a policy instrument, (ii) market prices were used as policy guides or intermediate indicators, and (Hi) price stability was the explicitly voiced goal of monetary policy. Monetary or reserve aggregates were neither proposed nor employed as policy guides or targets in pursuing this price stabilization objective. This Swedish experience is important since it provides a rare example of a market price approach to monetary policy. This paper demonstrates that the approach worked remarkably well.     

Is the relationship between monetary policy and house prices asymmetric across bull and bear markets in South Africa? Evidence from a Markov-switching vector autoregressive model

This paper examines asymmetries in the impact of monetary policy on the middle segment of the South African housing market from 1966:M2 to 2011:M12. We use Markov-switching vector autoregressive (MS-VAR) model in which parameters change according to the phase of the housing cycle. The results suggest that monetary policy is not neutral as house price growth decreases substantially with a contractionary monetary policy. We find that the impact of monetary policy is larger in bear regime than in bull regime; indicating the role of information asymmetry in reinforcing the financial constraint of economic agents. As expected, monetary policy reaction to a positive house price shock is found to be stronger in the bull regime. This suggests that the central bank reacts more in bull regime in order to prevent potential crisis related to the subsequent bust in house prices bubbles which are more prominent in bull markets. These results substantiate important asymmetries in the dynamics of house prices in relation to monetary policy, vindicating the advantages of generating regime dependent impulse response functions.     

Transport Modal Choice by Multinational Firms: Firm-level Evidence from Southeast Asia

The impacts of trade liberalization on poverty status of farm households in Africa often come through its effects on prices, government revenues, and employment, among other things. For the case of Ethiopia, the main channel through which trade liberalization affects farm households is changes in the prices of inputs and outputs. The aim of this study is to empirically examine the impacts of trade reform on poverty status in rural Ethiopia. The results show that, although households’ resource endowment had consistent and significant improvement impacts, trade liberalization had mixed effects on change in poverty status. As a result of trade liberalization, contrary to expectation, changes in the prices of cash crops (i.e. chat and coffee) had increased the probability of remaining poor and falling into poverty. On the other hand, changes in the relative prices of staple food crops (i.e. teff and wheat), together with access to credit and schools, had increased the probability of escaping poverty and remaining above the poverty line.     

Liquidity traps, learning and stagnation

We examine global economic dynamics under learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. Under normal monetary and fiscal policy, the intended steady state is locally but not globally stable. Large pessimistic shocks to expectations can lead to deflationary spirals with falling prices and falling output. To avoid this outcome we recommend augmenting normal policies with aggressive monetary and fiscal policy that guarantee a lower bound on inflation. In contrast, policies geared toward ensuring an output lower bound are insufficient for avoiding deflationary spirals.     

Welfare change and the elimination of the shortage economy in Russia: some representative-household results1

The welfare consequences of eliminating the shortage economy for the representative Russian household are quantitatively assessed. Before price liberalization, households either bought goods and services at state prices and paid searching and queuing costs, or they bought on parallel markets at higher monetary prices. An equation is derived that permits empirical evaluation of the extent to which welfare gains from eliminating searching and queuing costs offset welfare losses from falling real consumption. Available data suggest that when regime change was initiated in Russia in 1992, welfare gains from eliminating shortage were substantial and may have completely offset welfare losses from falling real consumption.     

Endogenous Restrictions for Least Developed Economies

The paper explores appropriate trade restrictions for least developed countries facing external terms-of-trade disturbances in terms of minimizing variations in the real sphere of the economy. Two alternative models are explored: export-subsidy versus import-tariff endogeneity. The theoretical model indicates that the tariff regime is a more appropriate policy. Empirical evidence from Sudan (1950– 1991) suggests that, although there is some discernable evidence that Sudan followed the tariff regime, the country did not apply the policy correctly, adjusting the tariff mainly in response to foreign import prices rather than foreign export prices, which are more unstable.     

A QUANTITATIVE ANALYSIS OF SUBURBANIZATION AND THE DIFFUSION OF THE AUTOMOBILE*

Suburbanization in the United States between 1910 and 1970 was concurrent with the diffusion of the automobile. A circular city model is developed in order to access quantitatively the contribution of automobiles and rising incomes to suburbanization. The model incorporates a number of driving forces of suburbanization and car adoption, including falling automobile prices, rising real incomes, changing costs of traveling by car and with public transportation, and urban population growth. According to the model, 60% of postwar (1940–1970) suburbanization can be explained by these factors. Rising real incomes and falling automobile prices are shown to be the key drivers of suburbanization.     

Impact of government intervention in the housing market: evidence from the housing purchase restriction policy in China

In 2010, a housing purchase restriction policy was announced by China’s central government and implemented gradually by several prefecture governments. In this article, we empirically investigate this policy’s effect on the housing market. Using a difference-in-difference framework, we show that the housing purchase restriction policy reduces housing prices and transaction amounts but does not influence the housing investment or construction markets. Moreover, upstream industry suffers more than downstream industry. The results are robust to a battery of robustness checks. Heterogeneity exists across cities. We find that first- and second-tier cities as well as highly urbanized cities experience great declines in housing prices after the policy’s implementation, especially cites that had high housing prices in 2010 and cities with high real estate investment as a proportion of fixed asset investment. However, the housing policy is less effective in curbing speculative demand.     

Structural VAR models for Malaysian monetary policy analysis during the pre- and post-1997 Asian crisis periods

This article conducts an in-depth investigation into building a Structural Vector Autoregression (SVAR) model and analysing the Malaysian monetary policy. Considerable attention is paid to: (i) the selection of foreign, policy and target variables; (ii) establish identifying restrictions and improve the estimates of impulse response functions; (iii) assess the importance of intermediate channels in transmitting monetary policy mechanism; and (iv) the way in which the 1997 Asian financial crisis affected the working of monetary policy. Malaysia is an interesting small open economy to study because, following this crisis, the government imposed capital and exchange rate control measures. The overall results suggest that the crisis and the subsequent major shift in the exchange rate regime have significantly affected the Malaysian ‘Black Box’. In the pre-crisis period, domestic variables appear to be more vulnerable to foreign monetary shocks. Further, the exchange rate played a significant role in transmitting the interest rate shocks, whereas credit and asset prices helped to propagate the money shock. In the post-crisis period however, asset prices play a more domineering role in intensifying the effects of both interest rate and money shocks on output, and the economy was insulated from foreign shocks.     

Revenue Sharing Rules for International Telephony

The method for settling telecommunications payments between operators in different countries is the reciprocal accounting rate system. This is a discriminatory system, because different operators pay different prices to access the same national network and these price differences are not related to different costs of providing the service.Reforms of the accounting rate system are currently under discussion in international organizations. In this paper we study the effects of the existing regime and of the main alternative proposal, the international traffic terminating fee, on the retail price of international telephone calls.Our main result is that the current regime of reciprocal accounting rates may determine lower prices than the proposed alternative system.     

Agricultural policy regime change assessment: Austrian accession to the European union

Policy regime change evaluation involves assessing what would have been had the policy not changed. In this paper, we empirically assess the impact on Austrian pig producers of the 1995 decision of Austria to join the European Union. Applying a recently developed Hausman–Wu-Type cointegration test, we confirm the existence of a cointegrating relationship between Austrian and EU pig prices series. This relationship is used to forecast the counterfactual time path of prices. Within an expected utility framework, we compute the Austrian producer’s willingness to pay to remain under the pre-accession policy. Accounting for the dual income and insurance effects, we found producers to have been under-compensated. Conventional welfare measures which do not include the insurance component would significantly underestimate the total welfare impact.     

Should the dangers of deflation be dismissed?

Deflation has emerged as a concern for Asian policy makers. The traditional view is this concern is warranted – that deflation can lead to a vicious cycle of falling demand and prices, and is therefore a dangerous condition. However, another revisionist school of thought emphasizes the role of positive supply shocks in deflation and takes a more benign view of the phenomenon. In a recent paper, Borio et al. (2015) find some evidence which casts doubt on the traditional view. In this paper, we re-visit these findings using alternative measures of deflation. While we find some grounds for concern about the harmful effect of deflation on growth, our results also raise significant questions about the revisionist view.     

房地产“限购令”的调控机制与政策反思*——基于单中心双环城市模型的分析

近年来中国城市住房价格快速上涨,政府推出房地产“限购令”,以期调整房地产市场,控制城市房价。本文构建了带“限购令”政策约束条件的单中心双环城市住房市场模型,利用数值模拟的方法,从理论上分析房地产“限购令”的政策效果和作用机制。结果显示,限购政策使大中小城市房价均有所下跌,中小城市房价的下降幅度大于大城市的幅度,城市的投机性住房需求越大,限购政策的效果越明显。本文认为“限购令”作为非市场调控手段,仅可作权宜之计而非长久之策,应充分考虑城市的异质性特征,对限购政策进行辨证选择。     

The determinants of production-related carbon emissions in West Germany, 1985–1990: assessing the role of technology and trade

This paper examines the determinants of the substantial decline of West German production-related carbon intensity in the face of falling energy prices. A computable general equilibrium model is used to determine the simulated effects of observed changes of world energy prices and domestic energy policy on the sectoral patterns of carbon emissions, energy consumption, output, value-added and other indicators of structural change. The structural changes not accounted for by energy prices and energy policy are attributed to changing patterns of productivity growth in Germany and the rest of the world (ROW) and changing patterns of ROW demand. Weights on these driving forces are selected by least squares. One key finding is that the contribution of ROW productivity and demand patterns to emission-relevant structural change unaccounted for by energy prices and energy policy is just under 30%. The remainder is split almost equally among patterns of domestic autonomous energy efficiency improvement and domestic labor efficiency patterns.     

Residential water demand responds asymmetrically to rising and falling prices

This paper econometrically estimates residential water consumption in Germany between 2007 and 2013 based on a panel of almost 3000 supply areas. In particular, the analysis distinguishes periods of rising and falling water and sewage water prices. The short-run (long-run) price elasticity is estimated at around 4.2% (13%), but water demand appears to respond asymmetrically to rising and falling prices. When prices are rising, the short-run (long-run) price elasticity is around 6.5% (17%). When prices are falling, the short-run price elasticity is not statistically different from zero, and the long-run price elasticity is estimated at around 12%. Additional results illustrate that employing average prices instead of marginal prices results in substantially overestimating the price elasticity. These findings are particularly relevant for utilities and regulators planning to alter the tariff structure towards a higher fixed fee and a lower volumetric fee.     

The Impact of the EU ETS on Prices,Profits and Emissions in the Power Sector: Simulation Results with the COMPETES EU20 Model

This paper analyses the impact of the EU Emissions Trading Scheme (ETS) on electricity prices, in particular on wholesale power markets across the EU. To study this impact, this paper discusses the major results of a bottom-up modelling analysis of the implications of emissions trading for the performance of the wholesale power market in 20 European countries. The analyses show that a significant part of the costs of (freely allocated) CO₂ emission allowances is passed through to power prices, resulting in higher electricity prices for consumers and additional (‘windfall’) profits for power producers, even in cases of full auctioning. In addition, they show that the ETS-induced increases in power prices depend not only on the level of CO₂ prices but also on the structure of the power market, i.e., the incidence of market power, and the price responsiveness of power demand. Finally, the analyses show that the internalization and pass-through of carbon costs are crucial elements in a policy regime to reduce CO₂ emissions by both changing the mix of power generation technologies and lowering total electricity demand.     

Credit Constraint and the Asymmetric Monetary Policy Effect on House Prices

We study the possible asymmetric effect of monetary policy on house prices under different credit regimes. We first derive the implications of a theoretical model in which agents may be collateral‐constrained. We then empirically examine the implications of the model using the threshold vector autoregression model. Two different measures reflecting the tightness of the credit market are computed to serve as the threshold variable. We find that house prices react to a monetary shock initially more strongly but the effect is less persistent in a credit boom regime than in a normal credit regime. This result is consistent with the findings of our theoretical model.     

Access pricing and investment: a real options approach

This paper examines a three-period model of an investment decision in a network industry characterized by demand uncertainty, economies of scale and sunk costs. In the absence of regulation we identify the market conditions under which a monopolist decides to invest early as well as the overall welfare generated by this decision. In a regulated environment, we consider a vertically integrated network provider that is required to provide access to downstream competitors and compare two distinct access pricing methodologies: the Efficient Component Pricing Rule (ECPR) and the Option to Delay Pricing Rule (ODPR). We identify the welfare-maximizing access prices using the unregulated market output as a benchmark and show that optimal access regulation depends on market conditions (that is, the nature of demand) with two possible outcomes: (i) access prices that provide a positive payoff to the incumbent, that is, provide a positive compensation to account for the option to delay; and (ii) access prices that yield a zero payoff to the incumbent. Moreover, unlike the earlier literature that argues in favor of an ECPR-type methodology to account for the interaction between irreversibility and demand uncertainty, we find that, except under very specific conditions, an access price that accounts for the option to delay value is welfare-superior to the ECPR.