The Impact of Monetary Surprises on Australian Financial Futures Markets: An Insight into Cash Rate Target Announcements

This paper investigates the impact of unanticipated Australian monetary policy changes on AUD/USD exchange rate futures, and 3‐year and 10‐year Australian Treasury bond futures, during the period from January 1997 to April 2010. Our study contributes to the literature by using both the 30‐day and the 90‐day bank accepted bill (BAB) rates to disentangle the unexpected surprise component of monetary policy changes from overall cash rate target changes in the Australian money market, and by concurrently modelling the effects of monetary surprises and other key macroeconomic announcements in Australia. The empirical results suggest that the 30‐day BAB rate is the best proxy for the expected monetary policy actions. We find that the effect of monetary surprises on the volatility of the 3‐ and 10‐year bond future instruments is significant and persistent. We have also documented a strong monetary policy effect on the mean returns of the exchange rate futures, indicating that unexpected monetary policy adjustments have a significant impact on the level of the exchange rate movements rather than on the volatility of the FX futures market.     

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.     

Examining the stochastic behavior of REIT returns: Evidence from the regime switching approach

In this paper the stochastic behavior of the returns on real estate investment trusts (REITs) is examined by using the unobserved component Markov switching (UC-MS) model. This approach endogenously permits the volatility to switch as the date and regime change and allows us to decompose the permanent and transitory components in REIT returns at monthly frequencies. The empirical evidence clearly shows that, for all of the REIT returns, the overall variance of the transitory component is significantly smaller than the corresponding variance for the permanent component. The durations of the high-variance regimes for both the fundamental and transitory components are short-lived and revert to normal levels quickly.     

Housing market dynamics and macroprudential policies

In this paper, we analyze the implications of macroprudential and monetary policies for credit cycles, housing market stability and spillovers to consumption. We consider a countercyclical loan‐to‐value (LTV) policy that responds to a credit‐to‐income ratio, and we compare its effectiveness with a permanent tightening of the LTV ratio and a monetary policy rule that responds to credit. To this end, we construct a dynamic stochastic general equilibrium model with housing market, household debt and collateral constraints, and we estimate it with Canadian data using Bayesian methods. Our study suggests that a countercyclical LTV ratio is a useful policy to reduce spillovers from the housing market into consumption and to lean against housing market boom–bust cycles. It performs better than the permanent tightening of the LTV ratio—a policy that has been used in a number of countries—and the monetary policy rule, both in terms of the stabilization of household indebtedness and spillovers into consumption. Monetary policy that leans against the wind is the least desirable due to its large adverse consequences on the real economy.     

Fiscal policy and stock market efficiency: An ARDL Bounds Testing approach

The aim of this paper is to investigate the semi-strong market efficiency hypothesis with respect to fiscal policy information, in the context of the Bucharest Stock Exchange. Taking into account that macroeconomic data series of emerging countries usually have a limited size and may be plagued by inconsistencies and structural breaks, this paper proposes an ARDL Bounds testing approach for studying the relationship between stock returns and lagged macroeconomic variables. Moreover, this approach allows us to examine both the long and short-term relationship between fiscal policy and stock returns. The results indicate that, in the long run, stock prices fully and efficiently reflect information on past fiscal policy. However, in the short run, the Romanian stock market reacts efficiently only to unexpected fiscal policy news, while anticipated fiscal policy information displays a significant lagged relationship with current stock returns. In addition, the results also showed that monetary policy information is not incorporated efficiently into stock prices, both in the short and the long run, and its impact on stock returns is larger than the one exerted by fiscal policy.     

中国货币政策的区域经济稳定效应分析——基于2000-2008年省份月度数据的实证研究

文章基于TVP-GARCH模型构建货币政策反应函数,利用时变参数模型构建包含货币政策变量的省份宏观经济波动模型,发现货币政策对各省份经济的稳定性作用并不明显,可预期的货币政策的省份稳定效应高于不可预期的货币政策,而经济冲击和货币政策制定层面引发的货币增长的不确定性,加大了省份经济波动;货币政策的经济稳定能力存在明显的省份差异,和经济周期同步性以及货币、信用和汇率三个传导渠道的省份特征密切相关。     

我国货币政策与股票市场的实证分析

资本市场是现代金融市场最主要构成部分之一,对实际经济生活的影响日益增大。通过我国股票市场与经济增长的实证检验可知,货币政策与资本市场是一种互动关系。一方面,中央银行的货币政策会直接或间接地影响资本市场;另一方面,资本市场的发展对货币政策及其传导机制有深刻的影响。     

Bank excess returns and unconventional monetary policy

During the Global Recession, the Federal Reserve Board (Fed) and the European Central Bank have implemented a series of unconventional monetary policy (UMP) measures. We argue that these programmes increased bank equity values in both the US and Europe via asset pricing channels. Using an event-study approach, we find that announcement of UMP actions amplified bank excess returns, especially during the first round of quantitative easing in the US and outright monetary transaction programmes in Europe. We also find evidence supporting market beta shifts subsequent of some major UMP announcements. Using the estimated shadow rates, we provide further empirical evidence on the continuous effect of monetary policy shocks on bank excess returns. Our results show that bank excess returns responded at least twice as stronger to monetary policy actions at the zero lower bound.     

Monetary policy and the transmission of oil shocks

This paper provides evidence on the role played by monetary policy in the transmission of oil shocks to the US economy. We show that for the period since 1986, oil shocks have had a negative effect on stock returns, regardless of whether the oil shock is defined as the percentage change in the price of oil or a nonlinear transformation of that series. We then demonstrate that there is no relationship between the reaction of individual stock prices to oil shocks and to monetary policy shocks. This implies that oil shocks do have effects on the economy beyond their effect on monetary policy. We conclude that systematic monetary policy is not as effective as suggested in some previous studies.     

Carry trades and US monetary policy

I document that Federal Reserve expansionary monetary policy has a positive impact on the excess returns arising from currency carry trades. I show that expansive monetary surprises are associated with an increase in future real interest differentials between high interest rate currencies and the US dollar, which leads to higher capital flows toward those currencies and an increase in their returns. Since this increase is not fully compensated by a decrease in the returns from the short position in low interest rate currencies, unexpected monetary expansions in the US result in higher carry trade returns.     

The effect of relative monetary surprises on spot exchange rates

This paper examines the hypothetical relationship between US and Canadian monetary surprises and the behaviour of US-Canadian spot exchange rates. Past studies have found that positive US monetary surprises were correlated with an appreciating US dollar in foreign exchange markets.

In this paper, it is argued that monetary surprises in the US must be measured relative to foreign monetary innovation (rather than in the conventional absolute sense) when examining their impact on exchange markets. Rational investors consider expected returns and risk differentials in the US and local markets jointly in determining whether to be net buyers or sellers of US dollars. The monetary actions of both the Fed and the Central Bank operating in the local (foreign) economy will be considered in the foreign exchange market. Because of the close synchronization between the weekly money supply announcements in Canada and the US, it is possible to examine whether the relative or absolute US monetary surprise is more significant in the foreign exchange market. The empirical findings provide considerable support for the relative over the absolute measure of US monetary innovations. With monetary innovations measured in relative terms, the empirical results provide support for the policy reaction over the inflation expectation hypothesis.     

Monetary shocks,equity returns and volatility: a firm-level panel data analysis

This article studies the impact of monetary policy shocks on equity returns and their volatility among nine industries and their affiliated firms in the United States. We use an extension of the traditional CAPM as the analytical framework and approximate policy shocks with the unexpected component of the federal funds rate. Data on the characteristics of firms and industries are obtained from Compustat and the Center for Research in Security Prices, covering a sample period from 1987 to 2009. Our results clearly show that responses to policy shocks vary by industry and across firms. Furthermore, credit availability matters in certain industries, and small, financially constrained, and bank-dependent firms are found to be more vulnerable to unexpected federal funds rate shocks.     

Trend inflation as a workers’ discipline device

The paper shows that a monetary policy regime that allows for a positive inflation rate disciplines monopolistic wages setters if these, when setting contracts, internalize the consequences of their choices for economic outcomes over the life of the contract. We also show that discretionary monetary policy has real effects when wage setters are non atomistic, whereas commitment to a positive inflation rate is effective irrespective of the degree of labor market centralization. Finally, the model may explain the different unemployment dynamics in Europe and in the United States, following the 1980 disinflationary episode. Our approach suggests that disinflation induced an adverse effect on the labor market wedge and that such effect was stronger in Europe, due to the particular importance of large wage setters.     

我国资产价格波动与货币政策关系研究

随着金融自由化的逐步推进,资本市场存量日益增大.这既体现了金融深化程度的提高,又意味着货币供应与国民经济主要指标之间稳定性的弱化.资产价格对货币政策的制订和执行会产生深刻的影响.其中股价、房价等资产价格在货币政策传导机制中扮演的角色越来越重要.本文从实证角度出发,通过构建VAR模型检验我国资产价格对货币政策的反应以及资产价格对货币政策目标的影响,发现资产价格、货币政策及货币政策目标间存在长期协整关系,资产价格对产出有正向冲击作用,股市显著影响通货膨胀,但房地产市场对通货膨胀推动作用不明显,资产价格受货币政策的冲击影响显著,其中股市对货币政策冲击的反应明显大于房地产市场.     

Fiscal consolidation under imperfect credibility

This paper examines the effects of expenditure-based fiscal consolidation when credibility as to whether the cuts will be long-lasting is imperfect. We contrast the impact limited credibility has when the consolidating country has the means to tailor monetary policy to its own needs, with the impact when the country is a small member of a currency union with a negligible effect on interest rates and on nominal exchange rates of the currency union. We find two key results. First, in the case of an independent monetary policy, the adverse impact of limited credibility is relatively small, and consolidation can be expected to reduce government debt at a relatively low output cost given that monetary policy provides more accommodation than it would under perfect credibility. Second, the lack of monetary accommodation under currency union membership implies that the output cost may be significantly larger, and that progress in reducing government debt in the short and medium term may be limited under imperfect credibility.     

论中国的货币政策目标

货币政策目标是货币政策的核心 ,货币政策效果如何 ,表现为货币政策目标是否实现。本文回顾了中国两种不同货币政策目标的形成原因 ,认为近期内中国货币政策目标不会发生变化 ,从长期来看有可能变为四大目标。尽管把金融市场的稳定作为货币政策目标存在着操作上的困难 ,但中国的货币政策应该关注金融市场的稳定。     

Monetary policy surprises and firm-level stock return predictability: evidence from a new panel-based approach

We employ a new panel-based testing procedure that is robust to the uncertain persistence of regressors, time-varying volatility and cross-sectional error dependence in studying the predictive dynamics between conventional US monetary policy surprises and firm-level stock returns. We find that accounting for cross-sectional dependence by means of (estimated) factors considerably alters the predictive significance of monetary policy surprises depending on the sample period being studied. Concretely, during the period 1990–2000, monetary policy has no influence on future stock returns when cross-sectional dependence is accounted for by means of common factor augmentation. By contrast, the predictive power of monetary policy is even boosted when introducing common factors into the model when the period of analysis covers 2002–2007.     

The effectiveness of monetary policy in steering money market rates during the financial crisis

The financial crisis has deeply affected money markets and thus, potentially, the proper functioning of the interest rate channel of monetary policy transmission. Therefore, we analyze the effectiveness of monetary policy in steering euro area money market rates by looking at (i) the predictability of money market rates on the basis of monetary policy expectations and (ii) the impact of extraordinary central bank measures on money market rates. We find that during the crisis money market rates up to 12 months still respond to revisions in the expected path of future rates, even though to a lesser extent than before August 2007. We attribute part of the loss in monetary policy effectiveness to money market rates being driven by higher liquidity premia and increased uncertainty about future interest rates. Our results also indicate that the ECB’s non-standard monetary policy measures as of October 2008 were effective in addressing the disruptions in the euro area money market. In fact, our estimates suggest that non-standard monetary policy measures helped to lower Euribor rates by more than 80 basis points. These findings show that central banks have effective tools at hand to conduct monetary policy in times of crises.     

Credit growth,monetary policy and economic activity in a three-regime TVAR model

We employ a Threshold Vector Autoregression (TVAR) methodology in order to examine the nonlinear nature of the interactions among credit market conditions, monetary policy and economic activity. We depart from the existing literature on the subject along two dimensions. First, we focus on a model in which the relevant threshold variable describes the state of economic activity rather than credit market conditions. Second, in contrast to the existing TVAR literature, which concentrates exclusively on single-threshold models, we allow for the presence of a second threshold, which is overwhelmingly supported by all relevant statistical tests. Our results indicate that the dynamics of the interactions among credit market conditions, monetary policy and economic activity change considerably as the economy moves from one phase of the business cycle to another and that single-threshold TVAR models are too restrictive to fully capture the nonlinear nature of those interactions. The impact of most shocks tends to be largest during periods of subpar economic activity and smallest during times of moderate economic growth. By contrast, credit risk shocks have the largest impact when output growth is considerably above its long-term trend.     

Inflation targeting in Latin America: Empirical analysis using GARCH models

This paper studies inflation dynamics in eight Latin American countries, some of which have adopted formal inflation targets (IT) as their monetary policy frameworks. We analyze the possible benefits associated with IT, not only in terms of inflation level and volatility, but also regarding other nonlinear characteristics of these series, such as volatility persistence or the fulfillment of the Friedman hypothesis. To describe inflation dynamics we use an unobserved components model, where each component can follow a GARCH type process. Once we estimate the model, the main findings of the empirical exercise confirm the favorable performance of IT.