WHAT YOU DON'T KNOW CAN HURT YOU: KNOWLEDGE PROBLEMS IN MONETARY POLICY

Many economists hold that monetary policy missteps played a role in causing or prolonging the 2007–2008 financial crisis. In light of the perceived failure of monetary orthodoxy, models are being theoretically refined and empirically recalibrated. Absent from these technical debates is a recognition of the immense knowledge burdens inherent in monetary policy. We argue that Fed authorities do not have the knowledge required to achieve their own monetary objectives, given their inability to approximately measure or predict changes in the demand for money. Finally, we evaluate the ability of free banking to overcome this knowledge problem. (JEL E42, E52, E58, E61, P16)     

中国的城乡移民-我们知道什么,我们还应该知道什么?

该文综述了中国农村到城镇迁移问题的经济学研究.综述主要的关注点有四个:(1)城乡分割和移民的演化;(2)对于农村到城镇迁移的解释;(3)迁移与劳动力市场演变的互动关系,特别是劳动力市场的分割、劳动力市场的柔性和工资差距;(4)今后进一步研究的方向.     

中国的城乡移民-我们知道什么,我们还应该知道什么?

该文综述了中国农村到城镇迁移问题的经济学研究.综述主要的关注点有四个:(1)城乡分割和移民的演化;(2)对于农村到城镇迁移的解释;(3)迁移与劳动力市场演变的互动关系,特别是劳动力市场的分割、劳动力市场的柔性和工资差距;(4)今后进一步研究的方向.     

Monetary policy in open economies

The recent literature on monetary policy in open economies has produced a strong presumption in favor of activistic policy and flexible exchange rates. We argue that this result may owe much to the combination of two commonly made assumptions: That nominal goods prices are rigid. And that the monetary authorities have a lot of information about the economy. When the source of nominal rigidity is found in wages and monetary policy is conducted according to less information demanding rules (such as a standard interest rate rule) policies that stabilize the money supply or the nominal exchange rate may perform better.     

Deflationary policy under digital and fiat currency competition

I examine the implications of digital and fiat currency competition on optimal monetary policy according to the Friedman rule (a standard deflationary policy) in a Fernández-Villaverde and Sanches (2016) framework, with no search friction. Consistent with the existing literature, first, I find that monetary equilibrium under a purely private arrangement of digital currencies will not deliver a socially efficient allocation. Second, I place restrictions on the available supply of digital currencies and find that a socially efficient allocation is possible only if the upper bound on digital currency circulation is equal to the rate of time-preference, albeit some degree of government intervention is required to curb the profit-maximizing incentive of the miners. Third, I find that optimal monetary policy at the Friedman rule will be socially inefficient when digital currencies compete with government-issued fiat money. Finally, I show that the Friedman rule is a socially desirable policy only in a purely fiat monetary regime.     

Gains from commitment in monetary policy: Implications of the cost channel

Many empirical studies find robust evidence that marginal cost of production directly depends on the nominal rate of interest. This relationship induces a cost channel for monetary policy transmission. Although the empirical literature provides ample evidence for a cost channel, studies that evaluate the welfare gains from monetary policy commitment have so far entirely ignored its presence. This study shows that, overlooking the cost channel, one significantly underestimates the welfare gains from monetary policy commitment. I find that there is a robust positive relationship between the size of the cost channel and welfare gains from monetary policy commitment. Using a version of the new Keynesian model calibrated to the US economy, I find that failure to take into account the presence of a cost channel leads to an understatement of the gains from monetary policy commitment by an amount equivalent to a 0.48 percentage points permanent cut in quarterly inflation.     

An inventory of simple monetary policy rules in a New Keynesian macroeconomic model

We derive necessary and sufficient conditions for simple monetary policy rules that guarantee equilibrium determinacy in the New Keynesian monetary model. Our modeling framework is derived from a fully specified optimization model that is amenable to analytical characterisation. The monetary rules analyzed are variants of the basic Taylor rules ranging from simple inflation targeting (current, forward, backward) to canonical Taylor rules with and without inertial nominal interest rates. We establish that determinacy obtains for a wide range of policy parameters, especially when the monetary authority targets output and smoothes interest rates. Contrary to other results in the literature, we do not find a case for super-inertial interest rate policy.     

我国货币政策的实效分析

本文运用希克斯－汉森模型作为基本分析工具,采用实证计量分析手段,对我国改革 开放以来的ＭＰＣ、ＭＰＳ及居民实物储蓄、货币储蓄和金融储蓄数据进行分析,将其纳入希克斯 －汉森模型,作出ＩＳ曲线陡峭, ＬＭ曲线平缓的现实模拟模型,由此分析得出我国近几年来货 币政策尤其是自１９９８年以来货币政策效果微弱的结论 。笔者列举了货币政策微弱的原因：没有 一个足以发挥政策的场地,资本市场非市场化,各行为人不能平等进入资本市场,从而导致利 率扭曲和贷款不真实,及Ｓ不能及时转化为Ｉ,造成严重的投资需求不足。解决的办法是：短 期内,加大投资,将Ｓ转化为Ⅰ,它将比刺激消费更有效。长期内,将资本推向市场,使货币 政策真正发挥作用。     

Do natural disasters affect monetary policy? A quasi-experiment of earthquakes

This study explores whether the economic consequences of earthquakes affect the policy interest rate set by the central bank. The direction of this effect is not immediately clear beforehand since earthquakes create a classic monetary policy dilemma: how to accommodate the real shock in the short-run with the objective of anchoring inflation when these two competing objectives demand opposite policy actions. One can therefore argue that the question of whether, and if so, in which direction natural disasters influence monetary policy is ultimately an empirical one. For this purpose, I estimate a dynamic panel model including about 400 major earthquakes from about 85 countries that occurred between 1960 and 2015. The key findings of this study clearly point out that on average the short-run policy interest rate falls in the first year after the earthquake. This result implies that monetary authorities prioritize short-run economic recovery above price stability. However, this interest rate effect is not the same across countries. It turns out that central banks that have a specific policy target, such as a fixed exchange rate, are more likely to raise the interest rate in the period following a disaster to fight the inflationary pressure. In turn, monetary authorities that have much freedom in their policy decisions are more inclined to lower the interest rate to stimulate economic recovery.     

The evolution of the monetary policy regimes in the U.S.

The existing literature on U.S. monetary policy provides no sense of a consensus regarding the existence of a monetary policy regime. This article explores the evolution of U.S. monetary policy regimes via the development of a Markov-switching model predicated on narrative and statistical evidence of a monetary policy regime. We identified five regimes for the period spanning 1956:I?C2005:IV and they roughly corresponded to the Chairman term of the Federal Reserve, except for the Greenspan era. More importantly, we demonstrate that the conflicting results regarding the response to inflation for the pre-Volcker period in the existing literature is not attributable to the different data but due to different samples, and also provided an insight regarding the Great Inflation??namely, that the near non-response to inflation in the early 1960s appears to have constituted the initial seed of the Great Inflation. We also find via analysis of the Markov-switching model for the U.S. real interest rate, that the regime changes in the real interest rate follow the regime changes in monetary policy within 2?years and that the evolution of real interest rate regimes provides a good explanation for the conflicting results regarding the dynamics of real interest rate.     

Identifying the Interdependence Between Monetary Policy and Financial Stress: Evidence from China

We estimate the interdependence between Chinese monetary policy and financial stress using structural vector autoregression. To solve the simultaneity problem, we employ a strategy including both short‐run and long‐run restrictions that maintains the qualitative properties of monetary policy shocks derived from the literature. This method is applied to Chinese monthly data, together with a newly constructed index of financial stress in this paper. Our findings suggest there exists strong interdependence between monetary policy and financial stress. The financial stress index increases immediately by 0.4 of its standard deviation after a monetary policy shock that raises the M2 growth rate by 1 percentage point. An increase of financial stress by one standard deviation leads to a decline in the M2 growth rate by 2 percentage points.     

Market efficiency broadcasted live: ECB code words and euro exchange rates

This paper examines the impact of the European Central Bank (ECB) monetary policy on euro exchange rate returns using an event study with intraday data for five currencies (the euro exchange rate versus the US dollar, the British pound, the Canadian dollar, the Swiss franc, and the Japanese yen). I construct two indicators of news about monetary policy stemming separately from policy decisions and the press conference. Estimation results show that the surprise component of communication has highly statistically significant effects on exchange rates, whereas the response of euro exchange rates to the unanticipated change in the policy rate is more muted. I also estimate the financial market impact on euro exchange rates of US, European and German macroeconomic news, and I show that the impact of the ECB press conference is economically important. The process of fully incorporating the ECB news shock takes about 1 h, and thus this result suggests that the whole press conference (both the Introductory Statement and the Q&A part) provides valuable information to market participants.     

How Monetary Policy Affects Your Gross Domestic Product

During the financial crisis, monetary policy was loosened significantly. Debate continues about the extent to which low interest rates and quantitative easing (QE) may have had adverse distributional impacts, whether by income, wealth, age or region. Using quantified simulations on micro data, I show that looser monetary policy had a significantly positive financial impact on the majority of cohorts of UK society. The impact of monetary policy loosening on income and wealth inequality was small and the overall impact on household welfare significantly positive. These results differ from public perceptions of monetary policy. Personalised information on the impact of monetary policy on household balance sheets could help to correct these misperceptions.     

The role of banks in the Czech monetary policy transmission mechanism

With this work, I aim to enrich the knowledge about the monetary policy transmission mechanism in the Czech Republic with empirical evidence on the impact of monetary policy on bank lending. Using a panel of quarterly time series for Czech commercial banks for the period 1996–2001, I study the overall effect of monetary policy changes on the growth rate of loans and the characteristics of the supply of loans. The characterization of the credit market's supply side allows us to make inferences on the operativeness of the credit channel (the bank lending channel and the broad credit channel) of the monetary transmission mechanism. I find that changes in monetary policy alter the growth rate of loans, with considerably stronger magnitude in the period 1999–2001 than in the period 1996–1998. From the analysis intended to capture the characteristics of the supply of loans, I conclude that the lending channel was operative in the period 1996–1998: I find cross‐sectional differences in the lending reactions to monetary policy shocks due to the degree of capitalization and to liquidity. For the subsequent period 1999–2001, the results also show distributional effects of monetary policy due to bank size and its bank's proportion of classified loans. In the context of steadily decreasing interest rates, this can bolster the supposition of financial frictions between borrowers and lenders and hence, that of an operative broad credit channel.     

Monetary transmission mechanisms in a small open economy: a Bayesian structural VAR approach

Abstract This paper develops a Bayesian structural VAR model for Canada in order to estimate the effects of monetary policy shocks, using the overnight rate target as the policy instrument. I allow the policy variable and other home and foreign variables to interact with each other contemporaneously. The key finding is that monetary policy affects the real economy through both the market interest rate and the exchange rate. I also find that the Bank of Canada responds to any home and foreign variables that embodies information about future inflation and that external shocks are an important source of output fluctuations.     

Monetary policies to counter the zero interest rate: an overview of research

Many central banks have lowered their interest rates close to zero in response to the crisis since 2008. In standard monetary models the zero lower bound (ZLB) constraint implies the existence of a second steady state in addition to the inflation-targeting steady state. Large scale asset purchases (APP) have been used as a tool for easing of monetary policy in the ZLB regime. I provide a theoretical discussion of these issues using a stylized general equilibrium model in a global nonlinear setting. I also review briefly the empirical literature about effects of APP’s.     

An overhaul of Federal Reserve doctrine: Nominal income and the Great Moderation

The Great Moderation is often characterized by the decline in the variability of output and inflation from earlier periods. While a multitude of explanations for the Great Moderation exist, notable research has focused on the role of monetary policy. Specifically, early evidence suggested that this increased stability is the result of monetary policy that responded much more strongly to realized inflation. Recent evidence casts doubt on this change in monetary policy. An alternative hypothesis is that the change in monetary policy was the result of a change in doctrine; specifically the rejection of the view that inflation was largely a cost-push phenomenon. As a result, this alternative hypothesis suggests that the change in monetary policy beginning in 1979 is reflected in the Federal Reserve’s response to expectations of nominal income growth rather than realized inflation as previously argued. I provide evidence for this hypothesis by estimating the parameters of a monetary policy rule in which policy adjusts to forecasts of nominal GDP for the pre- and post-Volcker eras. Finally, I embed the rule in two dynamic stochastic general equilibrium models with gradual price adjustment to determine whether the overhaul of doctrine can explain the reduction in the volatility of inflation and the output gap.     

Robust central banking under wage bargaining: Is monetary policy transparency beneficial?

We study the role of transparency in an environment of robust monetary policy under wage bargaining. The standard view from the game-theoretical literature is that, with unionised labour markets, monetary policy transparency is unambiguously “bad” (it induces increases in wage and price inflation, unemployment and may lead to higher inflation uncertainty). The empirical literature is instead ambiguous about the macroeconomic effects of transparency. By recasting the earlier theory into a robust monetary policy environment, and focusing transparency on the uncertainty about the preference for price stability, we show that the macroeconomic effects of transparency are more favourable than normally found. The impact on nominal wages, inflation and real variables (real wages and unemployment) is not parameter-free but depends on the public's informedness about this coefficient. The impact on real variables is found to disappear in case unions do not internalise the effect of wage decisions on the economy (i.e. in the case of atomistic unions). Finally, we find that the effect of transparency on inflation uncertainty is more complex than in the standard approach. We show that transparency may have the beneficial effect of reducing inflation variability not only when monetary uncertainty is low (as previously reported), but also when monetary uncertainty exceeds an upper threshold.     

Monetary transmission in Spain: a structural cointegrated VAR approach

This paper analyses the monetary policy channels in Spain using a cointegrated structural VAR approach which explicitly accounts for endogenous policy reactions in a small open economy. Evidence is found of one cointegrating relation which is identified as a long-run money demand function. In addition, stability tests are applied to this relationship to assess whether there has been a change of monetary regime. The impulse-responses for the non-monetary shocks as well as the absence of the puzzles traditionally found in the empirical literature, suggest that the model specification identifies the monetary policy shocks correctly. Thus, according to our results, a monetary contraction causes a weak downward response in the price level, as well as an increase in both short and long-run nominal interest rates, a decrease in aggregate output and an exchange rate appreciation.     

THE EMERGENCE OF COPYING TECHNOLOGIES: WHAT HAVE WE LEARNED?

The past few decades have seen dramatic advancements in the technology of copying and the diffusion of copying technology to the general public. This paper surveys some of the recent academic literature dealing with this issue. We focus on (i) the effect of varying the extent of property rights enforcement by the government, and (ii) possible responses by producers of originals to consumers' ability to produce copies. The traditional view is that as the government increases property rights enforcement, there is a decrease in the social welfare loss due to underproduction and an increase in the social welfare loss due to under-utilization. In the first half of the paper, we show how the analyses contained in a number of recent studies throw doubt on this traditional viewpoint. In particular, varying the extent of property rights enforcement has effects that the traditional analysis ignores. As a result, the social welfare losses mentioned above can move in ways not recognized previously. The conclusion is that, contrary to what is sometimes suggested, choosing an optimal level of property rights enforcement by the government should not be viewed as a simple trade-off between these two social welfare losses. In the second half of the paper, we discuss possible market responses to consumers' ability to produce copies. Among other responses, we consider the role of price discrimination and complementary products when copying is possible.