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.     

货币政策工具与中介目标选择:基于法定准备金操作的研究

利率和货币量哪个更适合作为货币政策中介目标是一个很有争议的问题,目前许多文献对这个问题的研究并不涉及货币政策工具与利率以及货币量之间的关系。这样的研究实际上隐含了一个前提,即货币政策工具和利率以及货币量之间存在明确的、稳定的关系,从而保证利率目标或者货币量是可控的。基于法定准备金操作的研究表明,法定准备金操作和货币量之间存在确定的关系,而和利率之间的关系是不确定的。导致利率和法定准备金操作关系不确定的主要原因,则是IS曲线斜率正负性的不确定性;同时,对现阶段中国IS曲线斜率稳定性的实证研究表明,其斜率正负性是不稳定的。因此,利率不适合作为货币政策中介目标。     

Constructing the Monetary Conditions Index for China

How can we fit different monetary transmission channels together to understand the effect of China’s monetary policy? This paper focuses on China’s monetary conditions and aggregate demand in terms of the monetary conditions index (MCI), which has been widely used as an important indicator for central banks, financial institutions, and scholars. To construct an MCI in the context of China over 1987Q1–2010Q2, we consider three channels through which monetary conditions might influence aggregate demand: the primary lending rate, the real effective exchange rate, and the bank credit. The weights of the component variables are obtained by estimating both the IS equation and the vector autoregressive model (VAR), which yield somewhat similar results. Further empirical tests show that the MCIs we derived contain useful information about future output growth and inflation in China over the short and medium term. From a historical perspective, the MCI we derived is more informative than individual monetary variables for the understanding of the development of China’s monetary conditions between 1987 and 2010.     

The Taylor Rule and Dynamic Stability in a Small Macroeconomic Model

In this paper, we embed the Taylor interest rate rule in a simple macroeconomic model with Calvo contracts. We contrast this with the case in which the interest rate is determined by the conventional LM curve along with a fixed value for the monetary aggregate. We derive conditions under which the adjustment of the economy is characterized by a unique saddle–path and show that the conditions required for this to be the case are more stringent when the authorities adopt the Taylor rule. In both cases, the possible failure of the saddle–path condition arises when there are debt–deflation effects in the IS curve. If interest rates are set according to the Taylor rule, then debt–deflation is always enough to cause the failure of the saddle–path condition. However, when interest rates are determined by the LM curve then it is possible that the real balance effect from the LM curve may offset the debt–deflation effect and produce a saddle–path.
(J.E.L. E4, E5).     

Macro effects of interest-sensitive aggregate supply

This paper investigates the implications of the negative effect of the real interest rate on aggregate supply. The micro foundations of this effect are first explained. The effect is then incorporated into a dynamic macro model with inflation and rational expectations. If the wealth effect on consumption is large, an increased interest sensitivity of aggregate supply enhances stability. If the wealth effect is small, increased interest sensitivity of supply is stabilizing up to a point, and destabilizing beyond that. Furthermore, an increased interest sensitivity of aggregate supply enhances the positive effect of the monetary growth rate upon steady-state output, and it enhances the negative effect of government spending upon steady-state output.     

Painless disinflation? Monetary policy rules in Hungary, 1991‐99

We estimate a small structural model for inflation, the output gap, the domestic interest rate and the exchange rate for Hungary during the period of the transition (1991-99). The transmission of monetary policy impulses to macro variables is characterized in a similar fashion to that of advanced open industrial countries. In particular, in the context of our rational expectations, forward-looking model, the interest rate channel on aggregate demand and the exchange rate channel work together as parts of the same disinflation policy. We draw several conclusions on understanding and modeling the effects of monetary policy, and also on the desirable design of policy rules during the process of disinflation.
JEL classification: E17, E52, P24.     

Substitution Between Money and Near-Monies in Switzerland

This paper investigates the substitutability between money and near-money assets during the period 1976 to 1996 in Switzerland. Financial developments have made a variety of instruments available to store wealth and conduct economic transactions. These developments have generated a “near money” component in households’ and businesses’ portfolio balances. It is important to evaluate the effect of “near-money” on money demand and the effectiveness of monetary policy. Towards this goal, five monetary assets: currency and demand deposits at commercial banks, demand deposits with the postal system, deposits on transaction accounts with banks, savings deposits and time deposits are considered. We evaluate the degree of substitutability among these assets using the Morishima elasticity. Results show that various monetary assets substitute for one another. Consistent with a high degree of diversification, the Morishima elasticity is significantly larger when adjustment takes place in the price of a relatively broader monetary asset as compared with a narrower one. Targeting a broad monetary aggregate captures a variety of assets that contribute to liquidity and aggregate demand, enhancing the effectiveness of monetary policy. Nonetheless, high elasticity of substitution between monetary assets has made it increasingly difficult to target money demand via changes in the interest rate. As a result, in 1999 the Swiss National Bank abandoned monetary targeting in favor of an expected inflation target.

     

Inflation dynamics and the cost channel of monetary transmission

Evidence from vector autoregressions indicates that the impact of interest rate shocks on macroeconomic aggregates can substantially be affected by the so-called cost channel of monetary transmission. In this paper, we apply a structural approach to examine the relevance of the cost channel for inflation dynamics in G7 countries. Since firms’ costs of working capital increase with interest rates, we augment a (hybrid) New Keynesian Phillips curve by including the short-run nominal interest rate. We find significant and varying direct interest rate effects for the majority of countries, including member countries of the EMU. Simulations further demonstrate that the estimated interest rate coefficients can substantially affect inflation responses to monetary policy shocks, and can even lead to inverse inflation responses, when the cost channel is - relative to the demand channel - sufficiently strong.     

‘Talking down monetary policy’ – a note

There is a recent debate about whether ultra-expansionary monetary policy is no longer effective in stimulating demand, a concern often voiced in the euro area in light of persistently low and even negative inflation. As a response, the European Central Bank (ECB) warns against ‘talking down monetary policy’ (ECB Vice-President Vítor Constâncio, 2016). This note uses a textbook model of optimal monetary policy to study a situation in which the public misperceives the interest rate elasticity of aggregate demand, which reflects policy effectiveness. We show that as a result of underestimating policy effectiveness demand shocks can no longer be stabilized perfectly, thus resulting in inefficient inflation and output dynamics. In the presence of misperceptions, a negative demand shock leads to a prolonged period of negative inflation rates.     

International Monetary Policy: A Global Taylor Rule

John Taylors rule for setting interest rates provides a framework for studying the global monetary policy generated by individual countries pursing their own policy goals. The study reflects the global nature of monetary policy by modeling an aggregate short-term interest rate as a function of measures of worldwide inflation and the GDP gap. Multiple specifications are estimated to correspond to past studies of the U.S. relationships between these variables. The authors find that Taylor rule is a useful tool for characterizing the global monetary environment as his equation provides a good fit to the data in every specification explored by the authors. However, the international response to inflation is slightly less robust despite claims of inflation targeting by the bulk of the larger economies in the sample.     

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。     

On the permanent effect of an aggregate demand shock: Evidence from the G-7 countries

This paper extends the work of Cover, Enders and Hueng (2006) to examine the idea that an aggregate demand shock may have permanent effect on the output level by indirectly shifting the aggregate supply curve. We utilize the bivariate SVAR modeling and adopt an identification scheme, which allows for the possibility that a shift in the aggregate demand curve may induce the long-run aggregate supply curve to shift. We have shown that aggregate supply shocks are positively affected by the demand shocks in each of the G-7 countries. It is found that a one-time positive aggregate demand shock increases the output level permanently in these industrialized economies. We have also shown that our decomposition strategy can help resolve anomalies in the responses of inflation to a positive aggregate supply shock observed in a simple Blanchard-Quah decomposition.     

Monetary policy through the ‘credit-cost channel’: Italy and Germany pre- and post-EMU

We present an empirical analysis of the ‘Credit-Cost Channel’ (CCC) of monetary policy transmission. This channel combines bank credit supply and interest rates on loans as a cost to firms. The thrust of the CCC is that it makes both aggregate demand and aggregate supply dependent on monetary policy. As a consequence (1) credit market conditions (e.g. risk spreads) are important sources and indicators of macroeconomic shocks, (2) the real effects of monetary policy are larger and persistent. We have applied the Cointegrated Vector Autoregression (CVAR) econometric methodology to Italy and Germany in the ‘hard’ EMS period and in the European Monetary Union (EMU) period. The short-run and long-run effects of the CCC are detectable for both countries in both periods. Simulation of the estimated model also confirms that inflation-targeting by way of inter-bank rate control stabilizes inflation through structural shifts of the stochastic equilibrium paths of both inflation and the output.     

Variability in the effects of uncertainty shocks: New stylized facts from OECD countries

This study examines variability in the effects of uncertainty shocks using a panel of international data. It first evaluates variability in the effects of uncertainty shocks by applying rolling sample and time-varying parameter Vector Autoregression models to US data covering the past 70 years. The results reveal that the effects of uncertainty shocks on the US economy have changed substantially over time. First, the negative effect of uncertainty shocks on the output decreased until the recent period, in which monetary policy rules are constrained by the zero lower bound. Second, contrary to the negative aggregate demand interpretation in the recent literature, uncertainty shocks acted as a negative aggregate supply shock in the earlier periods. From the past 50 years’ data for 12 small open economies, I find that the negative effect of uncertainty shocks on output has increased, contrary to the US case. Additionally, the exchange rate and inflation responses are heterogeneous across countries, and the country’s commodity exporter or safe haven status is critical in determining the sign of these responses. Finally, the increased vulnerability of small open economies to uncertainty shocks is associated with an increase in international trade.     

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.     

Monetary transmission mechanism in Turkey under the monetary conditions index: an alternative policy rule

This study analyses monetary transmission mechanism in Turkey using a small structural macroeconomic model. The core equations of the model consist of aggregate demand, wage-price setting, uncovered interest rate parity, foreign sector and a monetary policy rule. The aim of the paper is to analyse the disinflation path, the output gap, the output level, the exchange rate and the interest rate, and also the output–inflation variance frontier of the economy under various scenarios. The first scenario assumes that a standard Taylor rule is implemented as the policy rule. In the alternative scenario, instead of the standard Taylor rule, the MCI, Monetary Conditions Index – combination of the changes in the short-term real interest rate and in the real effective exchange rate in a single variable – is used as a policy instrument. The results indicate that the economy stabilizes much more quickly and shows significantly less volatility under this new setting. Therefore, the paper concludes that the policymakers should consider using MCI as an instrument when conducting monetary policy.     

Growth of developing countries and world interest rates

On the basis of aggregate data covering the period 1973–1982, this note argues that the rate of growth of non-oil developing countries is influenced significantly by the growth performance of industrial countries and by the level of the real rate of interest on world markets. At the same time, no evidence was found to support the hypothesis that the nominal rate of interest has an effect on growth in non-oil developing countries.     

Is there an asymmetric effect of monetary policy over time? A Bayesian analysis using Austrian data.

The present paper assesses whether monetary policy effects are asymmetric over the business cycle by estimating a univariate model for GDP including additionally the first difference of the 3-month Austrian interest rate as a measure for monetary policy. The asymmetry of the effects is captured by allowing for state-dependent parameters where the latent state variable follows a Markov switching process. The model is estimated within a Bayesian framework using Markov Chain Monte Carlo simulation methods. Model selection and specification tests are performed by means of marginal likelihood. The results document significant negative effects of monetary policy during periods of below-average growth, while the effect seems insignificant during periods of normal or above-average growth. These results corroborate those derived in theoretical models assuming price rigidities and implying a convex supply curve. Additionally, the concern of using appropriate state-identifying restrictions is raised to obtain an unbiased posterior inference. Finally, the analysis concludes by assessing the robustness of the results with respect to alternative measures of monetary policy. First Version Received: December 2000/Final Version Received: May 2001     

MISPERCEPTIONS AND MONETARY POLICY IN A NEW-KEYNESIAN MODEL

This paper studies the consequences for the monetary policy design of information shortages on the part of the private sector. We model these shortages as exogenous shocks to expected income, which through an IS curve, disturb aggregate demand. We constrain policymakers to follow Taylor‐like rules but allow them to optimise coefficients: we find that the presence of misperceptions makes the optimised Taylor rule respond more aggressively to inflation and the output gap. We also find that if the policymaker is uncertain about misperceptions, then it is less costly to assume they are pervasive when they are not than the reverse. In other words, setting policy on the basis that the private sector is subject to misperceptions is a ‘robust’ policy.     

Monetary policy and exchange market pressure–evidence from sub-Saharan Africa

The purpose of this study was to assess the impact of monetary policy on foreign exchange market pressure (EMP) in developing country contexts for some selected countries in sub-Saharan Africa (SSA) and to measure the ability of monetary policy to significantly address currency pressures that arise from trading on the global market. This study was motivated by the fact that most of the SSA countries are developing economies that have negative net export positions and stand to lose significantly from consistently deteriorating foreign exchange position. The study, therefore, employs a dynamic panel model to test the hypothesis that a tighter monetary policy stance lends strength to a currency and vice versa, using 20 SSA economies for the period from 1991 to 2010. This study finds a negative and significant relationship between monetary policy and EMP, implying an easing of EMP in the face of contractionary monetary policy. The findings also point to significant relations between aggregate output, levels of public debt, the current account balance, terms of trade and EMP. Findings of this study have important implications as regards the policy direction on exchange rate and currency management.