Fluctuations in the foreign exchange market: How important are monetary policy shocks?

We study the effects of U.S. monetary policy shocks on the bilateral exchange rate between the U.S. and each of the G7 countries. We also estimate deviations from uncovered interest rate parity conditional on these shocks. The analysis is based on a structural vector autoregression in which monetary policy shocks are identified through the conditional heteroscedasticity of the structural disturbances. Unlike earlier work in this area, our empirical methodology avoids making arbitrary assumptions about the relevant policy indicator or transmission mechanism in order to achieve identification. At the same time, it allows us to assess the implications of imposing invalid identifying restrictions. Our results indicate that the nominal exchange rate exhibits delayed overshooting in response to a monetary expansion, depreciating for roughly ten months before starting to appreciate. The shock also leads to large and persistent departures from uncovered interest rate parity. Variance-decomposition results indicate that monetary policy shocks account for a non-trivial proportion of exchange rate fluctuations.     

An Empirical Analysis of the Determinants of Interest Rates in Ghana

ABSTRACT

This paper provides an empirical analysis of the determinants of the bank lending rate in Ghana using annual time series data from 1970 to 2013. We found evidence of a long-run equilibrium relationship between the average lending rate charged by commercial banks and its determining factors. In the long run, bank lending rates in Ghana are positively influenced by nominal exchange rates and Bank of Ghana’s monetary policy rate but negatively with fiscal deficit, real GDP and inflation. We also find positive dependence of the bank lending rate on exchange rates, and the monetary policy rate both in the short and long run. Specifically, our findings reveal that the Bank of Ghana’s monetary policy rate and the exchange rate, by far, show strong contemporaneous effects on the average bank lending rate in Ghana.     

美联储量化宽松货币政策正常化与人民币汇率变动——基于时变参数向量自相关模型的研究

2015年后,随着量化宽松货币政策正常化和人民币汇率进入双向波动新常态,美国货币政策对人民币汇率的外溢效应日益显著。通过构建时变参数向量自相关模型对2008-2018年美联储量化宽松货币政策的实施和退出对人民币汇率的溢出效应进行研究,结果表明：美联储加息在滞后一季度作用人民币兑美元先升值后贬值,加息通过中美利差、产出差、货币供给之差分别作用于人民币兑美元贬值、升值和升值,利差渠道是主要作用渠道;美联储资产负债表扩张和缩减分别带来人民币汇率的升值和贬值,且扩张的升值影响大于缩减的贬值影响;美联储资产负债表和利率政策有一定替代性,替代关系存在明显的结构效应;美联储资产负债表的扩张和缩减分别带来中国银行间市场利率的下降和回升,两国利率表现出一定联动性。     

Inflation targeting rules and welfare in an asymmetric currency area

This paper studies the effect on monetary policy of differing degrees of competition and differing degrees of nominal rigidity between the members of a monetary union. In particular, we assess the welfare loss brought about by the use of a simple interest rate rule that does not take into account such structural differences. Our results show that, ceteris paribus, to maximize welfare the central bank should react more strongly to inflation pressure generated by the more competitive economies. Our work extends the results of Benigno [Benigno, P., 2004. Optimal monetary policy in a currency area. Journal of International Economics 63, 293-320] by showing that, if the degree of competition differs between countries, the optimal rule could involve placing a greater weight on the more “flexible” countries. Our study suggests that the size of the welfare losses generated by failure to take account of these asymmetries depends crucially on the actual combination of the various asymmetries. As a consequence, we show that, if the optimal weights are chosen under incomplete information regarding the extent and type of asymmetries, the resulting level of welfare could be lower than that produced by the symmetric rule.     

Monetary policy,exchange rate fluctuation,and herding behavior in the stock market

Interest rate and exchange rate are two important macroeconomic variables that exert considerable effects on the stock market. In this study, we investigate whether variations in interest and exchange rates induce herding behavior in the Chinese stock market. Empirical results indicate that interest rate increase and Chinese currency (CNY) depreciation will induce herding and this phenomenon is mainly manifested in down markets. Moreover, the herding level of the highest idiosyncratic volatility quintile portfolio is twice that of the lowest quintile portfolio which we consider evidence of intentional herding. This result is consistent with those of previous studies, which report that retail investors prefer and overweigh lottery-type stocks. Finally, we investigate the effects of monetary policy announcements and extreme exchange rate volatility on herding because these events elicit considerable public attention and may trigger collective behavior in the aggregate market.     

On the Link Between Exchange‐rate Regimes,Capital Controls and Monetary Policy Autonomy in Small European Countries, 1979–2000

We investigate international monetary‐policy transmission under different exchange‐rate and capital‐account regimes in eleven small, open economies during the 1980s and 1990s. We find no systematic link between ex‐post monetary‐policy autonomy and exchange‐rate regimes. Capital controls appear to have provided a degree of temporal insulation from foreign monetary policy shocks, though not strict autonomy. The results are consistent both with short‐term autonomy for small countries even under fixed exchange rates and an open capital account, and with long‐term dependence under flexible exchange rates and an independent stability target. Results also indicate that euro‐area market interest rates are significantly more responsive to the development of the corresponding US rate than were the previous national rates.     

The monetary model strikes back: Evidence from the world

We revisit the dramatic failure of monetary models in explaining exchange rate movements. Using the information content from 98 countries, we find strong evidence for cointegration between nominal exchange rates and monetary fundamentals. We also find fundamentals-based models very successful in beating a random walk in out-of-sample prediction.     

汇率、货币政策变动对我国通货膨胀的影响分析——基于协整和状态空间模型的实证研究

本文通过协整分析构建状态空间模型,结合中国实际情况实证研究了人民币汇率传递和货币政策变动对以消费者价格指数(CPI)为主要衡量指标的通货膨胀的影响.结果显示,汇率、货币政策变动和CPI之间存在长期协整关系,汇率传递在我国是不完全的,汇率变化对通货膨胀的影响为负向且程度较低,货币政策变动对物价的调控也是低效的.     

The short run efficacy of monetary policy under floating exchange rates reconsidered

This paper disputes the argument that the short-run effectiveness of monetary policy in stabilizing domestic output under floating rates is necessarily reduced if elasticities of demand for imports and exports with respect to the current exchange rate are low and capital flows depend on the exchange rate. It is shown that the relative efficacy of monetary changes is determined by the interest rate elasticity of international interest payments and receipts and the effect of exchange rate variations on the demand for money in addition to the exchange rate elasticities of trade and capital flows.     

中国货币政策对美国货币政策独立性的实证分析

在外汇储备快速增加和汇率制度面临选择的背景下,中国货币政策的独立性备受关注。本文运用Ordered Probit模型,对中国货币政策相对美国货币政策的独立性进行了实证分析。结果表明:1998年1月至2011年6月,中国基本保持了货币政策的独立性;从1998年1月至2005年6月和2005年7月至2011年6月汇率浮动幅度有明显差异的两个时段分析我国货币政策的独立性的差异,发现人民币汇率浮动幅度的放宽并未导致中国货币政策独立性的增强,放宽汇率管制并不能增强中国货币政策的独立性。     

Real-time effects of central bank intervention in the euro market

This paper investigates the real-time effects of sterilized foreign exchange intervention using official intraday intervention data provided by the Danish central bank. Our analysis employs a two-step weighted least squares estimation procedure. We control for macro surprises, address the issue of endogeneity, and carry out an array of robustness tests. Only when the direction of intervention is consistent with the monetary policy stance do we find that intervention exerts a significant influence on exchange rate returns.     

The Decline in the Natural Rate of Interest

With the Federal Reserve widely expected to begin normalization of monetary policy in the wake of the Great Recession—perhaps in 2015—an important question for public policy and private-sector planning is what the “new normal” for interest rates is likely to be. In particular, are real interest rates likely to be lower in the future than in recent decades? An investigation through the use of the Kalman filter shows that the natural rate of interest—the real federal funds rate consistent with the economy operating at its full potential—has declined since 1980, especially after the Great Recession. This will have important implications for monetary policy and for the private sector, including recognition that the natural rate of interest is not fixed.     

Measuring the effect of the zero lower bound on yields and exchange rates in the U.K. and Germany

The zero lower bound on nominal interest rates began to constrain many central banks' setting of short-term interest rates in late 2008 or early 2009. According to standard macroeconomic models, this should have greatly reduced the effectiveness of monetary policy and increased the efficacy of fiscal policy. However, these models also imply that asset prices and private-sector decisions depend on the entire path of expected future short-term interest rates, not just the current level of the monetary policy rate. Thus, interest rates with a year or more to maturity are arguably more relevant for asset prices and the economy, and it is unclear to what extent those yields have been affected by the zero lower bound. In this paper, we apply the methods of Swanson and Williams (2013) to medium- and longer-term yields and exchange rates in the U.K. and Germany. In particular, we compare the sensitivity of these rates to macroeconomic news during periods when short-term interest rates were very low to that during normal times. We find that: 1) USD/GBP and USD/EUR exchange rates have been essentially unaffected by the zero lower bound, 2) yields on German bunds were essentially unconstrained by the zero bound until late 2012, and 3) yields on U.K. gilts were substantially constrained by the zero lower bound in 2009 and 2012, but were surprisingly responsive to news in 2010–11. We compare these findings to the U.S. and discuss their broader implications.     

International transmission of transitory and persistent monetary shocks under imperfect information

We analyze the transmission of monetary shocks in a new open-economy macroeconomics model with one-period nominal contracts and imperfect information. Shocks may have transitory and persistent components that can be disentangled only through the accumulation of information over time. As a consequence, the responses to shocks are significantly altered compared with the case of full information. There are persistent effects on international relative prices, and delayed exchange-rate overshooting is possible following a persistent shock. In some cases, there are (ex post) excess returns as a positive interest rate spread is accompanied by an appreciating currency (or vice versa). Lastly, it is demonstrated that staggering reinforces persistence.     

Monetary policy and U.S. long-term interest rates: How close are the linkages?

The effect of monetary policy on long-term interest rates has been a question of interest in recent years. A number of papers, relying on single-equation estimation techniques, have presented evidence that long-term interest rates exhibit sizable and significant responses to unanticipated changes in the Federal Reserve's target federal funds rate. This paper examines these findings in light of conflicting findings from VAR studies, which indicate negligible effects of innovations in the federal funds rate on long-term rates. To address the issue we use a single-equation approach where unanticipated changes in the federal funds rate are measured as residuals from policy reaction functions. We also estimate VAR specifications, which incorporate information about the timing of changes in the Federal Reserve's target federal funds rate. Our single-equation estimates provide evidence of strong responses of long rates to unanticipated changes in the federal funds rate both for the Greenspan period and for a longer period back to the mid-1960s. It seems likely that estimated VARs for the post-1987 years are less successful in isolating monetary policy surprises than was the case for earlier years.     

Openness and optimal monetary policy

We show that the composition of international trade has important implications for the optimal volatility of the exchange rate, above and beyond the size of trade flows. Using an analytically tractable small open economy model, we characterize the impact of the trade composition on the policy trade-off and on the role played by the exchange rate in correcting for price misalignments. Contrary to models where openness can be summarized by the degree of home bias, we find that openness can be a poor proxy of the welfare impact of alternative monetary policies. Using input–output data for 25 countries we document substantial differences in the import and non-tradable content of final demand components, and in the role played by imported inputs in domestic production. The estimates are used in a richer small-open-economy DSGE model to quantify the loss from an exchange rate peg relative to the Ramsey policy conditional on the composition of imports. We find that the main determinant of the losses is the share of non-traded goods in final demand.     

中国货币条件指数的理论研究与动态分析

本文首先讨论了货币条件指数的理论基础,同时论述了货币政策信贷传导渠道在中国的发展现状,并且剖析了其特征。然后笔者构建了中国的动态货币条件指数模型,其中包含了体现中国货币政策利率传导渠道的实际利率、汇率传导渠道的实际有效汇率以及信贷传导渠道的贷款增长率。在计算出实际利率、实际有效汇率和贷款增长率的动态权重后,得出中国的动态货币条件指数,其自2000年以来出现了先提高、后降低、再升高的交替态势,表明中国的货币状况自2000年以来处于由紧到松再紧的动态走势。本文最后还根据动态权重的大小及其走势分析了中国货币状况呈现该趋势的主要原因。     

Can monetary policy tame Harrodian instability?

The paper introduces monetary policy into the canonical Kaleckian growth model with a built‐in Harrodian instability. It abstains, however, from the simple and immediately stabilizing interest rate inverse IS curve. Instead, more indirect effects are examined, which realistically will take time to work out. In particular, (a) the trend rate of growth governing the investment decisions additionally responds to the difference between the profit rate and the real rate of interest; and (b) the real interest rate may enter dynamic adjustments of the price markup. The main finding is that the Harrodian forces could still be overcome and stability of the steady state position is re‐established provided that the profitability motive in (a) and the responsiveness in the Taylor policy rule are both sufficiently strong. By contrast, the indirect feedback effects produced by (b) broaden the scope for instability. In sum, monetary policy in this extended framework can favour stability but is not necessarily the stabilizing panacea that the New Consensus considers it to be.     

Monetary policy, foreign exchange intervention, and the exchange rate in a unifying framework

The structural VAR model is developed to jointly analyze the effects of foreign exchange intervention and (money or interest rate setting) conventional monetary policy on the exchange rate, the two types of policy reactions to the exchange rate, and interactions between the two types of policies. First, many interactions among the two types of policies and the exchange rate are found, which suggests that a joint analysis is important. Second, foreign exchange intervention has substantial effects on the exchange rate, reacts to the exchange rate significantly (to stabilize the exchange rate), and signals future conventional monetary policy stance changes (to back up the intervention). This suggests the importance of modeling foreign exchange intervention explicitly in the study of monetary policy and exchange rate behaviors. Many other interesting results on the interactions among the two types of policies and the exchange rate are also documented.     

股票市场开放条件下的货币政策效应分析

本文探讨了在股票市场开放条件下,股票市场的国际资本流动对货币政策的影响。在开放经济条件下,对在东道国投资的国际投资者来说,如果股票投资比债券投资更重要,那么货币政策比财政政策相对有效的观点难以成立。扩张性货币政策使国内利率下降,但利率下降会增加股票投资的预期收益,这会吸引国际资本流入,从而导致本币升值,因而扩张性货币政策对产出的净影响是不确定的。浮动汇率体制有利于减缓外部冲击。