Assessing the performance of inflation targeting in East Asian economies

This paper examines the implementation and performance of inflation targeting (IT) in four East Asian emerging market economies: Indonesia, Korea, the Philippines, and Thailand. It also examines monetary policy in Malaysia, a country that has not adopted IT. The study estimates policy reaction functions to test the links between the adoption of IT and use of a monetary policy rule. The impulse responses of prices to a monetary policy shock are also estimated to identify monetary policy impacts on prices. The findings on the monetary policies of the five economies can be summarised as follows. Korea has taken an inflation‐responsive and forward‐looking policy stance under inflation targeting, which has had an effect on the stability of prices. Indonesia and Thailand have conducted inflation‐responsive but backward‐looking policy stances, which have had no impact in terms of price stabilisation. The Philippines (which adopted IT but under a pegged exchange rate regime) and Malaysia have neither followed inflation‐responsive rules nor had policy impacts in terms of controlling inflation.     

The impact of financial development on the effectiveness of inflation targeting in developing economies

An ever-increasing number of developing economies with varied levels of financial development have adopted Inflation Targeting (IT) frameworks to guide monetary policy. Using a panel dataset of 54 developing economies over the period 1980 to 2015 (30 of which have IT frameworks), we re-visit the rather controversial issue of whether adoption of an IT framework leads to superior outcomes in terms of reducing inflation and its variability. After controlling for potential endogeneity and self-selection concerns of policy adoption, our main empirical finding is that IT frameworks appear to reduce inflation rates in developing economies regardless of the level of financial development, while it reduces variability of inflation rates only when we control for levels of financial market development. We further find that the effectiveness of IT framework on inflation is highly dependent on financial inclusion and bank characteristics, while the effect on inflation variability is more associated with components of capital market development.     

Monetary Policy Implementation and Volatility Transmission Along the Yield Curve: The Case of Kenya

This paper analyses the degree to which volatility in interbank interest rates leads to volatility in financial instruments with longer maturities (e.g. T‐bills) in Kenya since 2012, year in which the monetary policy framework switched to a forward‐looking approach, relative to seven other inflation targeting (IT) countries (Ghana, Hungary, Poland, South Africa, Sweden, Thailand and Uganda). Kenya shows strong volatility transmission and high persistence similar to other countries in transition to a more forwardlooking monetary policy framework. These results emphasize the importance of a strong commitment to an interbank rate as an operational target and suggest that the central bank could reduce uncertainty in short‐term yields significantly by smoothing out the overnight interest rates around the policy rate.     

MONETARY POLICY IN RWANDA: A COINTEGRATION ANALYSIS

Countries in Africa are increasingly becoming similar in outlook, especially as regards monetary policy. With a view to conducting a long‐term study of monetary policy in Africa, we apply an empirical test for the coherence of inflation targeting, first conducted by Nell (2003 ) for South Africa, to data from Rwanda. We find that like South Africa, Rwanda has a stable money demand function and the adoption of an inflation target is a wise policy option. Also, the Rwandan money market needs just over five quarters to eliminate half of any monetary disequilibrium. These results are of some interest to economists and policy makers for all the countries in the increasingly interconnected continent of Africa.     

WHAT PRICE‐LEVEL DATA CAN TELL US ABOUT PRICING CONDUCT IN SOUTH AFRICA

This article reports the findings of a study of two unique microdata sets, which are the unit level basis of South Africa's measured Consumer Price Index and Producer Price Index, over the period December 2001‐December 2007. In particular, based on techniques that have been used in comparable international studies, findings are reported on the frequency and magnitude of price changes, the duration of prices, and heterogeneity in pricing. The results for South Africa are compared with the stylised facts for pricing conduct, which have been presented in recent international studies. The article offers an illustration of how microdata‐based findings on pricing conduct may impact on the modelling of monetary policy by introducing micro‐founded results into an open economy dynamic stochastic general equilibrium model for the South African economy. The article concludes by identifying areas for further research, where it has not as yet been determined how South African pricing conduct compares with certain stylised pricing facts identified in the international literature.     

The euro—the experience of the past 2 years

The article analyses the experience of the first 2 years of the euro, focusing on the monetary policy of the ECB and explaining why it should be considered a success story. As a starting point, it gives a look at “what is” the euro area and the structure of its economy. It then reviews the institutional setting of the single monetary policy, the monetary policy strategy of the ECB and the monetary policy instruments at the disposal of the Eurosystem. The article then analyses the conduct of monetary policy in the years 1999–2000 and highlights the importance attached by the ECB to the transparency of the decision making process. Finally it is explained why the euro should be seen as a success story.     

通胀目标制：功能机理、政策绩效与启示

通货膨胀目标制是20世纪90年代初西方发达国家兴起的一种货币政策框架。文章从理论阐释了通胀目标制的功能机理,运用48个国家的相关数据对通胀目标制的绩效进行了实证分析,实证结果表明:通货膨胀目标制有助于锚住通胀预期,降低通货膨胀,稳定产出,是一种比较成功的货币政策框架。这一结论对货币政策框架需要调整的我国具有一定的政策启示。     

DSGE模型框架下我国货币政策规则的比较分析

货币政策规则是中央银行为了保持通货膨胀和产出稳定并使经济更快发展所使用的货币政策的指导原则。目前,通行于各个国家的货币政策规则主要有利率规则和货币供应量规则。过去一段时间以来,西方发达国家都已逐渐从货币供应量规则过渡到利率规则,而在我国不管是应用方面还是理论研究方面,对于哪一个货币政策规则更适合我国始终都还没有定论。因此,本文试图在DSGE模型的框架下,对我国的货币政策规则进行比较分析。结果得出,相比于货币供应量规则,利率规则下:(1)货币政策更有效;(2)技术冲击所引起的通货膨胀和产出波动更小;(3)技术冲击对通货膨胀和产出的影响更短暂。因此,研究得出,我国更适合使用利率的货币政策规则。     

Inflation Targeting and the Pass‐through Rate in East Asian Economies

There has been serious debate regarding whether the inflation targeting (IT) framework for the emerging market economies has been an effective nominal anchor. Focusing on Korea, Thailand and the Philippines, this article aims to contribute to the debate by providing empirical evidence on a decline in the ‘pass‐through’ effect with IT adoption. Our main findings are as follows. First, under the IT framework, Korea has followed an inflation responsive rule in a forward‐looking manner, while Thailand has adopted the rule in a backward‐looking manner. Second, only Korea experiences a reduction in the pass‐through effect under IT adoption, thereby showing a linkage between the forward‐looking inflation responsive rule and the pass‐through effect. Finally, a test of the sensitivity of inflation expectations to external price shocks in Korea supports this linkage.     

Spillovers of the Conventional and Unconventional Monetary Policy from the US to South Africa

This paper assesses the effect of US monetary policy on South Africa during the period 1990–2018. We separately analyse and compare the effect of conventional monetary policy, before the Global Financial Crisis, and unconventional monetary policy, after the US monetary policy reached the zero-lower bound. Our impulse response function results indicate that monetary policy in South Africa responds mainly to local inflation, economic activity and financial conditions. While there is strong correlation between the global and South African financial cycle, the financial cycle is not transmitted to the real economy because of the sluggish response of industrial production and domestic credit, especially after the global financial crisis. We see this as an indication of the effects of structural issues to the real economy and constrained households’ balance sheet which has prevented the local economy to take advantage of low local interest rates and the global economic recovery after the crisis.     

Can inflation targeting regimes be effective in developing countries? The Turkish experience

This paper examines the performance of Turkey's inflation targeting (IT) experience. We find the IT regime to be an effective framework. Our judgment is based on three broad conclusions supported by empirical analyses. First, fiscal stability is an effective tool for a successful monetary policy. Second, the overnight policy of the Central Bank of Turkey rate is a significant determinant of the changes in market lending rates, which is the preliminary step in the monetary transmission mechanism. Third, recent developments on the broader issue of the effectiveness of interest rate policy in controlling inflation through aggregate demand management and through other channels are encouraging. Based on our findings, we argue that the impact of policy rate changes on economic activity and inflation have become more predictable and changed in the direction in line with theory, improving the transmission capacity of monetary policy.     

THE CYCLICALITY OF MONETARY AND FISCAL POLICY IN SOUTH AFRICA SINCE 1994

This paper uses a structural vector‐autoregression approach to discuss the cyclicality of fiscal and monetary policy in South Africa since 1994. There is substantial South African literature on this topic, but much disagreement remains. Though not undisputed, there is growing consensus that monetary policy has contributed to the remarkable stabilisation of the South African economy over this period. The evaluation of the role of fiscal policy in stabilisation has been less favourable and there is little evidence that a countercyclical fiscal stance was a priority over this period. This paper considers these issues in an empirical framework that addresses some of the shortcomings in the literature. Specifically, it constructs a structural model in contrast with the reduced form models typically used in the South African literature, incorporates the dynamic interaction between monetary and fiscal shocks on the demand side and supply shocks on the other, and avoids controversy over “neutral” base years and the size of fiscal elasticities. The model confirms the consensus on monetary policy, finding it to have been largely countercyclical since 1994. On fiscal policy, this paper finds evidence of pro‐cyclicality, especially in the more recent period, though the policy simulations suggest that the pro‐cyclicality of fiscal policy has had little destabilising impact on real output.     

货币政策透明性制度的国际比较:以央行沟通方式为基调

自20世纪90年代末期以来,世界绝大多数央行的货币政策透明性有了显著提高,但是未表现出一致性收敛特征。各国央行的货币政策信息沟通面临着不同程度的现实约束,有的央行在某些方面透明性还非常有限。在央行信息沟通方面还有许多值得研究的策略性、细节性技巧,处理不当就可能损害央行信誉。我国货币政策透明度还处于较低水平,需要进一步提高。     

INFLATION TARGETING AND THE FISHER EFFECT IN SOUTH AFRICA: AN EMPIRICAL INVESTIGATION

The paper analyses the relationship between expected inflation and nominal interest rates during a period of inflation targeting in South Africa, i.e. from 2000 to 2005. Specifically, it investigates the Fisher hypothesis that nominal interest rates move one‐to‐one with expected inflation, leaving the real interest rate unaffected. The analysis distinguishes between a short‐run Fisher effect and a long‐run Fisher effect. Using cointegration and error correction models (for monthly data for the period April 2000 to July 2005), it was found that the short‐run Fisher hypothesis did not hold during the relevant period under the inflation targeting monetary policy framework in South Africa. This is attributed to a combination of the South African Reserve Bank's (SARB) control over short‐term interest rates and the effects of the monetary transmission mechanism. The long‐run Fisher hypothesis could not be confirmed in its strictest form: while changes in inflation expectations move in the same direction as the nominal long‐term interest rate. This suggests that monetary policy has an influence on the real long‐term interest rate, which has positive implications for general economic activity, thus confirming the credibility of the inflation targeting framework.     

美联储货币政策对中国货币政策的溢出效应研究

文章主要研究了美国货币政策对中国货币政策的溢出效应,理论部分分析了在开放经济条件下两国模型关于货币政策跨国传输等相关问题。货币供给分为国内供给和外部输入,通过中央银行资产负债表中资产负债的变化可以分析外部货币的输入影响到基础货币的被动投放,在流通过程中由于乘数效应影响了货币供给量。外部货币的输入影响央行调控独立性的发挥,外部货币的输入容易形成对国内货币市场和产品市场某种程度的冲击,央行货币政策调控的难度增加。经验分析发现,美元输入对中国货币政策存在溢出效应,影响到中国的基础货币投放,影响到中国的货币政策的独立性以及执行的效果。     

TOWARDS IMPLEMENTATION OF INFLATION TARGETING IN INDONESIA

The experience of high inflation accompanying the economic crisis in 1998 has brought back painful memories of hyperinflation in the 1960s. Success with inflation targeting (IT) in other countries has prompted Indonesia to consider this framework as the basis for monetary policy,a response that seems justified on at least two grounds. First, monetary policy needs a new anchor after the abandonment in 1997 of the previous regime of managed floating. Second, the central bank law enacted in 1999 prescribes stability of the value of the rupiah as Bank Indonesia's sole objective. This paper explores the future framework of monetary policy under a formal IT approach and highlights the constraints Bank Indonesia faces in implementing such an approach. It discusses the monetary policy framework before and during the crisis, and in the post-crisis period. It then goes on to outline a preliminary design for a suitable IT framework for Indonesia.     

Sudden Stops and Current Account Reversals: Potential Macroeconomic Consequences for South Africa

South Africa is one of the emerging market countries that have received a relatively large amount of foreign capital since the mid‐2000s. In South Africa's case, these inflows were partly used to build the country's foreign exchange reserves, but more particularly to finance continued large current account deficits. During the course of the past two years, however, adverse domestic political developments, combined with the potential negative impacts of the unwinding of quantitative easing policies and the normalising of monetary policy in the United States on emerging markets in general, has raised the spectre of a sharp slowdown in foreign capital flows to South Africa and an associated reversal of the current deficit. This paper explores the potential impact of such a development on macroeconomic conditions in South Africa. The analysis consists of macroeconometric model‐based alternative scenarios backed up by both the international evidence on the impact of such events and South Africa's own history.     

ASSESSING MONETARY POLICY IN SOUTH AFRICA IN A DATA‐RICH ENVIRONMENT

This paper examines the efficacy of monetary policy in the South African economy using a data‐rich framework. We use the Factor‐Augmented Vector Autoregressive (FAVAR) methodology, which contains 110 monthly variables for the period 1985:02‐2007:11. The results, based on impulse‐response functions, provide no evidence of the price puzzle observed in traditional Structural Vector Autoregressive analysis and confirm that monetary policy in South Africa is effective in stabilising prices. Unlike the traditional vector autoregressive approach, the FAVAR methodology allows further analysis of a large number of variables. Variables from real and financial variables react negatively to a contractionary monetary policy shock. Finally, we find evidence of the importance of a confidence channel transmission following a monetary policy shock.     

Bank profitability and the bank lending channel: Evidence from China

This paper uses bank-level data to investigate whether the impact of monetary policy on bank lending depends on the characteristics of Chinese banks during the period 1985–2007. We find that the impact of monetary policy on lending is weaker for larger banks and banks with lower levels of liquidity, and that banks’ responses to monetary policy do not necessarily vary according to their capital. Further, to identify the bank lending channel more clearly, we test whether the impact of monetary policy varies according to profitability. The results show that profitable banks tend to be less sensitive to monetary policy, because when tight monetary policy leads to a fall in deposits, less profitable banks face a higher cost of capital.     

政策操作透明度下的货币政策传导机制研究

货币政策的有效性在很大程度上取决于货币政策传导机制的灵活畅通。通过增加货币政策的透明度,从而提高货币政策的可信性和有效性,成为当前各国中央银行关注的焦点。文章介绍了货币政策透明度的内涵,分析了增强货币政策透明度对提高货币政策传导机制的作用,并对改进我国货币政策透明度问题进行了探讨。