Germany and Italy: conflicting policy paradigms towards European monetary integration?

In the literature on European monetary integration Germany and Italy are mostly strongly contrasted. However, this paper argues that there were important similarities between the policy paradigms in these two countries, in particular if a broader historical perspective is adopted. This work analyses the policy paradigms towards European monetary integration in Italy and Germany. Moreover, it contextualises these paradigms into the national institutional setting: while Germany was characterised by power sharing institutions, Italy featured power fragmentation (something which also affected the economic performance of both countries). There were significant differences between the policy paradigms of foreign policy-makers and economic policy-makers. Foreign policy makers, in both countries, under the influence of a European federalist vision, were strongly in favour of European monetary integration. These beliefs of foreign policy decision makers were crucial in charting EMU policy at history-making moments. The pro EMU policy paradigms of foreign policymakers contrasted, during most of the period covered, with the more sceptical beliefs of economic policy makers. In both countries, economic policy-makers, at different moments, had doubts whether enough “convergence” had been reached to make a more stable exchange rate system sustainable.

The Phillips Curve and Optimal Policy in a Structural Signal Extraction Model

We study a monetary economy subject to “signal extraction” problems, and investigate within that framework the positive and normative aspects of monetary policy. As in Lucas (1972, Journal of Economic Theory,4, 103–124; 1973, American Economic Review, 63, 326–334), imperfect signal perception generates macroeconomic correlations similar to those found in the “Phillips curve” literature. Moving to normative aspects, we find that, when aggregate shocks are present, traditional nonactivist policies do not permit reaching the first best, and that an intelligent activist policy always leads to better outcomes. The specific characteristics and effectiveness of this optimal policy also depend crucially on the problem of signal extraction. Journal of Economic Literature Classification Number: E5.     

A new ICEEMDAN-based transfer entropy quantifying information flow between real estate and policy uncertainty

We quantify the dependence between real estate indices and global economic policy uncertainty for 12 top-advanced countries. Generally, real estate investments are found to be highly risky to information flow from global economic policy uncertainty. amidst policy uncertainty, we find diversification, safe haven, and hedging prospects – based on the market conditions – at short term frequencies only, for the pairs between (a) Japan and the US; (b) Singapore and the US; (c) China and Canada; (d) China and Hong Kong. Our findings underscore market efficiency (inefficiency) at mid-and long-term (short-term) frequencies. In the presence of policy uncertainty, our findings underscore the operability of ingrained market dynamics between real estate investments in the mid-and long-term horizons. It is prudent for investors to combine real estate investments with other asset classes that are less risky to (or are positive recipients of) information flow from global EPU to hedge against adverse market shocks from any asset in the portfolio based on market conditions. Practically, not only should legislations be flexible to the changing market trends in the short term, but they should also be strategically crafted to retain the fundamental market dynamics between real estate investments in the mid-and long-term economic horizons.     

Money,activity and prices: Some inter-country evidence

The paper explores the relationships between monetary variables and real economic activity and prices in the six largest industrialized economies. Univariate and multivariate time series forecasting models are used to break down monetary policy variables into anticipated and unanticipated components. Overall monetary policy variables, particularly domestic credit expansion, appear to be significant leading indicators for subsequent real economic activity and prices. Additionally, anticipated components of monetary policy are shown to have as much forecasting ability for subsequently realized economic variables as unanticipated components. This does not appear to be consistent with the implications of pure rational expectations models. It was also noted that results differed significantly according to the choice of monetary variable and across individual countries. In particular the results implied no contradiction with previous findings for the impact of unanticipated money supply in the U.S., though such contradictions would have appeared if DCE had been used as the monetary variable.     

Macroeconomic stabilization,monetary-fiscal interactions,and Europe's monetary union

The euro area recently experienced a prolonged period of weak economic activity and very low inflation. This paper reviews models of business cycle stabilization with an eye to formulating lessons for policy in the euro area. According to standard models, after a large recessionary shock accommodative monetary and fiscal policy together may be necessary to stabilize economic activity and inflation. The paper describes practical ways for the euro area to be able to implement an effective monetary-fiscal policy mix.     

Tariffs,trade and unemployment in a disequilibrium model: issues and policies

This paper studies the disequilibrium transition process engaged by increased openness to trade, and the effect of institutions, market behaviors and economic policies on that transition. The issue is analyzed with a simple two country (north and south), two goods model, amended in order to take into account the time dimension of both the production and the decision processes. Investigating the consequences of a tariff decrease by means of numerical simulations, we show to what extent wage and price setting, and the degree of tightness of monetary policy affect the outcome of the disequilibrium process. The main result is that capturing the gains associated with international trade requires market behaviors and economic policies, which are rather different from what is usually prescribed.

Value at Risk and Economic Growth

The improvement of data statistics as well as the econometrician methods have facilitated the introduction the new variables and factors I the economic growth analysis. In this sense, real variables have mainly been considered in the economic growth studies, but not financial or risk management aspects. In this sense, it is interesting to analyze the relationship between economic growth and value at risk and the feed-back process. The goal of the paper is to analyze the relationship between economic growth and risk management and the feed-back process. We will consider economic variables, including economic growth, rule of law, human capital, fiscal policy and monetary policy, among others, in our analysis. We will analyze the theoretical relationships between these variables and risk and the effects of risk on economic growth. We will also develop an empirical analysis considering the case of 15 European Union countries.

Inflation persistence during periods of structural change: an assessment using Greek data

The paper estimates inflation persistence in Greece from 1975 to 2003, a period of high variation in inflation and changes in policy regimes. Two empirical methodologies, univariate autoregressive (AR) modelling and second-generation random coefficient (RC) modelling, are employed to estimate inflation persistence. The empirical results from all the procedures suggest that inflation persistence was high till 1996, while it started to decline after 1997, when inflationary expectations seem to have been stabilised, and thus, monetary policy was effective at reducing inflation. Empirical findings also detect a sluggish response of inflation to changes in monetary policy. This observed delay seems to have changed little over time.

Taylor Rule in Practice: Evidence from Turkey

This paper estimates the backward-looking and forward-looking monetary policy reaction functions of the Central Bank of the Republic of Turkey (CBRT) by considering the post-crisis period from August 2001 to September 2006, with a special emphasis on inflation targeting. Policies which the CBRT applied are analyzed according to the Taylor rule. The empirical results indicate that the CBRT followed the Taylor rule in its interest setting behaviour. In forward-looking models, the response coefficient of inflation and the output gap is greater than that of backward-looking models. The results of forward-looking models reflect, the policies conducted in Turkey. In the post-crisis period, expected inflation has been the main reaction variable for the CBRT. This suggests that monetary policy over the post-crisis period was not accommodating increases in expected inflation. The main conclusion is that ‘Taylor rule’ based monetary policies were effective in inflation targeting in Turkey.

Unconventional monetary policy,liquidity trap,and asset prices

This article offers a fundamental critique of monetary policy implemented in the United States following the 2007–8 global financial crisis. It aims to show that the misunderstanding of the mainstream theoretical thinking underlying monetary policy actions led to the ineffectiveness of the policy response to the 2007–8 global financial crisis. The conventional view that monetary policy is the stabilization tool has serious flaws and is ineffective for bringing about economic recovery. The Federal Reserve’s experiment with the so-called unconventional monetary policy exposed the weakness of the conventional belief in understanding how banks operate, how the monetary authority can influence the yield curve, and how the monetary transmission mechanism works, resulting in prescribing an ineffective treatment to boost economic activity. In this regard, it is argued that the Federal Reserve’s decision to let long-term interest rates be market determined represents a significant self-imposed constraint, which limits policy options regarding monetary policy actions and the effective control of long-term interest rates. By limiting the setting of policy rates only to the overnight interest rate, the ability of the monetary authority to influence long-term interest rates is both weak and indirect.     

House price,mortgage premium,and business fluctuations

This paper investigates the transmission mechanism of mortgage premium to characterize the relationship between the housing market and business cycle for the U.S. We find that mortgage premium is crucial for the amplification and propagation of the model to match the main properties of U.S. housing market and business cycles. The counterfactual analysis suggests that had the Federal Reserve raised the interest rate in 2003Q1, it would have curbed the housing market boom before the crisis, yet failed to alleviate the precipitous decline in housing market activity after the crisis. Moreover, the pre-emptive monetary policy aimed to contain the housing market boom can effectively lower volatilities of major economic aggregates; however, it also exerts a significantly negative effect on the levels of these economic aggregates. Thus, using monetary policy to stabilize asset price inflation involves a trade-off between the volatility and the level of economic activity.     

The effect of capital requirement regulation on the transmission of monetary policy: evidence from Austria

This paper analyzes the role of banks’ regulatory capitalization in the transmission of monetary policy. We use a confidential dataset for Austrian banks spanning from the first quarter of 1997 to the fourth quarter of 2003. We find evidence that Austrian banks react in an asymmetric way to monetary policy depending on their regulatory excess capitalization, i.e. low capitalized banks react more restrictively to a monetary tightening than their highly capitalized peers.

货币政策、金融周期及其宏观经济效应

本文综合金融市场的多维信息,利用主成分分析法合成我国的金融周期指数。在此基础上,构建TVP SV VAR模型研究2003—2017年间我国货币政策、金融周期及宏观经济变量间的时变互动关系。研究发现：（1）我国货币政策、金融周期和宏观经济变量之间存在显著的时变互动关系。（2）金融传导渠道可能扭曲货币政策效力,通过金融传导渠道,货币政策不仅会抑制经济增长,还可能加剧通货膨胀。（3）金融周期对货币政策产出效应的影响滞后于对价格效应的影响。短期来看,货币政策产出效应的时变特征与金融传导渠道无太大关联,但随时间推移,金融繁荣对产出的负面影响可能最终使货币政策产出效应发生反转。货币当局应警惕金融繁荣对货币政策效力的扭曲,审慎操作,且不宜承担过多刺激产出的任务。     

The effects of economic policy uncertainty on China’s economy: evidence from time-varying parameter FAVAR

ABSTRACT

This article explores the effects of China’s economic policy uncertainty (EPU) on its fiscal policy, monetary policy and a wide range of macro-economic variables using a time-varying parameter FAVAR model. Based on monthly data from 07/2003 to 08/2017, the time-varying structure of the model allows us to capture the time-varying characteristics of the macro-economic variables and which channel is relevant. Empirical results reveal that the reaction of monetary and fiscal policies to EPU is highly asymmetric across macro-economic circumstances. Loose monetary and fiscal policies are adopted in response to EPU shocks during the financial crisis, while policies are moderately tightened after the crisis. The China Interbank Offered Rate (Chibor) responds more sensitively and severely than M2 to EPU shocks. Additionally, EPU shocks have a significant and negative impact on economic growth, consumption, exchange rates, bonds and the stock market, but showing a positive impact on credit, real estate and fixed asset investment (which might be due to China’s special economic market environment and the high investment return). The results indicate that EPU shocks significantly affect macroeconomic fundamentals through precautionary savings and financial market channels but lose their effectiveness through a ‘real options’ effect.     

Monetary policy as bad medicine: The volatile relationship between business cycles and asset prices

Austrian business cycle theory has become an important point of focus in controversial mainstream discussions regarding the role of asset prices in monetary policy. In this article, the relation between asset prices and the Austrian business cycle theory is examined. The analysis focuses on how central banking supports optimism, resulting in the redirection of entrepreneurial activity and knowledge via asset price bubbles. The crucial role of credit expansion for asset price booms is also analyzed. Following this analysis, the implications for monetary policy are deduced.

Risk-taking channel,bank lending channel and the “paradox of credibility”: Evidence from Brazil

If from one hand credibility is important for the conduct of monetary policy, on the other hand, greater credibility may eventually stimulate the creation of bubbles in the credit market and asset prices through the risk-taking channel, and as a consequence, bring to reality the “paradox of credibility”. The “paradox of credibility” is the new dilemma posed to central banking in the effort to conciliate monetary policy and banking regulation under inflation targeting regimes. Thus, the present work aims to: (i) analyze the impact of central bank actions and the macroeconomic environment on the risk perception of banks, and; (ii) analyze the influence of this risk perception of banks on the credit spread, considering both the credit channel and the risk-taking channel. Based on an econometric analysis, the work provides evidence about: (i) the “paradox of credibility” and the risk-taking channel; (ii) the influence of monetary policies on the risk perception of banks and, as a consequence, on the credit spread; (iii) the procyclical nature of banks in relation to economic activity, and; (iv) the adherence of the countercyclical indicator (called credit gap) proposed in Basel III for the Brazilian case.     

Financial stress,economic activity and monetary policy in the ASEAN-5 economies

This article uses a structural vector autoregression approach to analyse the impact of financial stress on the economy and the relationship between monetary policy and financial stress in the ASEAN-5 economies (Indonesia, Malaysia, Philippines, Singapore and Thailand). We find that an increase in financial stress leads to tighter credit conditions and lower economic activity in all five countries. The estimated impact on the real economy displays an initial rapid decline followed by a gradual dissipation. In Malaysia, the Philippines and Thailand, the central banks tend to reduce policy interest rates (IRs) when financial stress increases, although there is substantial cross-country variation in the magnitude and time dynamics. The lower policy IRs are found to have little significant effects in lowering financial stress, but are still effective in stimulating economic activity through other channels. These findings imply that easing monetary policy is likely necessary but insufficient to address growth slowdowns associated with financial stress. Monetary easing should instead be complemented with other policy measures which are targeted at restoring financial stress to normal levels.     

How does monetary policy transmission mechanism work in Fiji?

The study aims to examine the impact of changes in policy variables namely, monetary aggregate (M1), exchange rate and interest rate on two monetary goal variables, namely output and price level in Fiji from 1970 to 2006 by applying the procedures of variance decomposition and impulse response functions. We conclude that the money channel is the most effective channel of transmission mechanism among the three channels.

中国货币供给与经济增长关系的实证研究

金融危机爆发后,为了保持经济平稳高速增长,中国制定了一揽子财政政策和货币政策。将货币政策的中介指标货币供给量与经济增长之间的关系进行实证研究,结果表明:中国实际货币供给量与实际经济增长之间有长期稳定的均衡关系;中国实际经济增长率是实际货币供给增长率的格兰杰原因,但实际货币增长率却不是实际经济增长率的格兰杰原因。     

The joint dynamics of inflation, unemployment and interest rate in the United States since 1980

In this paper, by using a combination of long-run and short-run restrictions, we identify a small structural VECM which includes inflation, unemployment and the federal funds rate and study the dynamic interactions at different frequencies among these variables. Our results show that: (a) in accordance with the traditional view of economic fluctuations, aggregate demand shocks and monetary policy shocks push inflation and unemployment in opposite directions in the short run; (b) the permanent supply shock explains the long-run movement of inflation and unemployment. These conclusions are at odds with the prediction of “natural-rate” models but are consistent with the idea of a propagation mechanism which links productivity shocks to inflation and unemployment at medium and low frequencies. Thus, with respect to some recent studies (e.g. Beyer and Farmer, ECB Working Paper 121, 2002, and Ireland, J Monet Econ 44:279–291, 1999), we offer a different interpretation of the low-frequency comovements between inflation and unemployment characterizing the US economy in the last decades.