Varying monetary policy regimes: A vector autoregressive investigation

Recently, two stylized facts about the behavior of the U.S. economy have emerged: first, macroeconomic aggregates appear to be less volatile post-1984 than in the preceding 2 decades; second, monetary policy appears more responsive to inflationary pressures – and thereby more “stabilizing” – during the Volcker/Greenspan chairmanships relative to earlier regimes. Does a causal relationship exist between these two observations? In particular, has “better” policy by the Federal Reserve Board contributed significantly to the lessened volatility of the U.S. economy? This paper uses a structural vector autoregressive (VAR) specification to address these questions, examining the advantages and limitations of such an approach. In contrast with much of the existing research on these topics, I find that most of the quantitatively significant changes in volatility are attributed to breaks in the non-policy portion of the structural VAR, and not to the identified policy equation.     

European monetary policy: Institutional design and policy experience

The following article examines design issues relevant to European monetary policy: central bank independence, and the accountability and transparency of monetary policy strategy. An empirical approach is then applied which allows a comparison between the ECB and other central banks. It also enables an investigation of whether the ECB simply follows the US Federal Reserve Bank, as is sometimes claimed.     

International monetary policy surprise spillovers

This is the first paper to examine international monetary surprise spillovers and to estimate the response of security prices to monetary and nonmonetary surprises. Monetary surprises have a slope effect on the domestic yield curve—short maturity yields adjust much more than longer maturity yields. These results are similar to other studies. The following results are new. US monetary surprises spill over and affect Australian yields and equity returns. Australian monetary surprises do not spill over to the US. Nonmonetary surprises are much more important than monetary policy surprises in explaining longer maturity yield changes and equity returns.     

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.     

Global monetary policy under a dollar standard

This paper derives an optimal monetary policy in a world with a dollar standard, defined as an environment in which all traded goods prices are set in US dollars, so that exchange rate pass-through into the US price level is zero. We show that the US is essentially indifferent to exchange rate volatility, while the rest of the world places a high weight on exchange rate volatility. In a Nash equilibrium of the monetary policy game, US preferences dominate; the equilibrium is identical to one where the US alone chooses world monetary policy. Despite this, we find surprisingly that the US loses from the dollar's role as an international currency, since the absence of exchange rate pass-through leads to inefficient expenditure allocations within the US. Finally, we derive the conditions for a dollar standard to exist.     

Consumer credit and monetary policy in Malaysia

What is the impact of monetary policy on the Malaysian consumer? The study addresses this issue by empirically investigating the consequences of interest rate shocks on consumer credit in Malaysia. The study relies on the impulse response functions and the variance decomposition analysis based on the structural Vector Auto‐regression methodology. Apart from analysing the responses of aggregate consumer loans (ACL) to interest rate changes, further disaggregation is made in efforts to arrive at more detailed findings. In particular, the ACL data are categorized into loans for purchase of residential property, loans for personal uses, loans for credit cards, loans for purchase of consumer durables, loans for purchase of passenger cars and loans for purchase of securities. Through this disaggregation, the study shows the relative sensitivity of the various types of consumer loans to interest rate shocks.     

Threats to monetary policy independence: reasons to be concerned

Several legislative efforts are under way that aim to impose greater congressional oversight of and influence on the monetary policy decision making of the Federal Reserve System. Some of these initiatives might do little harm or even make marginal improvements. But others pose more serious threats to the operational independence of monetary policy. Proposals to require the Federal Reserve to frame monetary policy decisions according to a mathematical formula imply a concrete simplicity of policy that is inaccurate and misleading. And the reporting requirements associated with these proposals threaten to negate the major advantage of monetary policy as a countercyclical weapon—speed. Proposals to subject the non-monetary policy functions of the Fed to the appropriations process provide Congress with additional leverage that could be used to apply pressure to monetary policy decisions. For its part, the Fed should continue to increase transparency through more timely and complete release of relevant information and analysis. To best promote the objectives of stable prices and maximum employment, the operational independence of the Federal Reserve’s monetary policy decision making needs to be preserved and protected.     

Optimal monetary policy in a currency area

This paper investigates how monetary policy should be conducted in a two-region general equilibrium model with monopolistic competition and price stickiness. This framework delivers a simple welfare criterion based on the utility of the consumers that can be used to evaluate monetary policy in a currency area. If the two regions share the same degree of nominal rigidity, the terms of trade are completely insulated from monetary policy and the optimal outcome is obtained by targeting a weighted average of the regional inflation rates. These weights coincide with the economic sizes of the region. If the degrees of rigidity are different, the optimal plan implies a high degree of inertia in the inflation rate. But an inflation targeting policy in which higher weight is given to the inflation in the region with higher degree of nominal rigidity is nearly optimal.     

Coalition formation in international monetary policy games

This paper analyses coalition formation in monetary policy coordination games between n countries. We show that some but not all countries may join if the decision to be a member of the coalition is incentive-compatible for the individual country. Positive spillovers of the coalition formation process and the resulting free-rider problem limit the stable coalition size: since the coalition members are bound by the union’s discipline, an outsider can successfully export inflation without fearing that the insiders will try to do the same. These ‘gains from staying out’ arise even in the case of symmetric shocks.     

The impact of monetary policy on oil price persistence: An application of the smooth regime-switching model

This paper employs the smooth transition autoregressive model to evaluate the persistence of oil price changes, and chooses monetary policy variables as transition variables of the model to assess their roles in the persistence effects. The empirical results show that oil price changes displayed asymmetric adjustments within different regimes and were more sensitive to the movement of interest rates than inflation rate. In addition, high inflation rate would give rise to low oil price persistence, and expansionary monetary policy would bring about higher oil price persistence. Moreover, when the short- and long-term interest rates were over their threshold values, the persistence effects of oil price changes were opposite. In the present relatively low US interest rates, adopting either an inflation-targeting policy or/and a debt-financing policy to stimulate economic growth, the timing is appropriate and the effect will be positive and expected because of low persistence of oil price changes.     

Altruistic eWOM marketing: More than an alternative to monetary incentives

As a form of word of mouth, online reviews are used to reduce uncertainty about service quality and direct consumer attitudes and behavior. As a consequence of the high persuasiveness and the broad accessibility of electronic word of mouth (eWOM), companies are very interested to proactively managing this form of customer-to-customer communication. Compared with traditional advertising provides, eWOM marketing is a more credible and low-cost alternative. So far marketers have commonly used monetary incentives to influence customer-to-customer communication. However, this form also includes potential negative consequences such as credibility loss through consumer skepticism and crowding-out effects. This study analyzed two new incentive programs for increasing recommendation likelihood that considered the activation of an altruistic form of motivation to overcome these drawbacks. Therefore, an experiment was designed with three experimental groups (incentive programs) vs. a control group (no incentive). Finally, the results are discussed while taking into account the advantages and drawbacks of the particular incentive program to deduce practical implications.     

国债规模:在财政与金融之间寻求平衡

本文从财政政策和货币政策协调配合角度,探讨了国债在金融体系中的特殊地位和作用,着重分析了国债市场作为核心金融市场在提供市场流动性方面的不可替代的作用.本文的政策含义就是,为了给我国的金融市场运行创造一个良好的基础,我们的国债政策应当超越单纯财政的财政眼光.     

Currency mismatches and monetary policy: A tale of two equilibria

We develop a model of a small economy whose residents choose whether to borrow in domestic or foreign currency. The central bank, in turn, chooses fixed or flexible exchange rates, taking the currency denomination of debts as given. We characterize the simultaneous determination of portfolios and exchange rate regime. Both floating and fixed rates can occur as equilibrium outcomes. “Fear of floating” may emerge endogenously and in association with a currency mismatch in assets and liabilities. If equilibria with both fixed rates and floating rates coexist, the latter is Pareto superior. Lessons for current “de-dollarization” proposals are discussed.     

A simple approach to international monetary policy coordination

This paper analyzes the strategic interaction between the monetary policymakers of two countries, in an intertemporal general equilibrium model with nominal rigidities and imperfect competition. It offers an excursus on non-cooperative towards cooperative solutions. In a non-cooperative equilibrium the monopolistic allocation prevails in both countries, because of the incentive to use strategically the terms of trade. In a cooperative solution where both policymakers internalize the externalities given by the terms of trade, the competitive allocation is reached. However, cooperation can be counterproductive. We then characterize a problem of delegation in which the set of choice is restricted to the Pareto efficient allocations and in which the participation constraints implied by the non-cooperative equilibrium are taken into account.     

Fiscal policy,monetary policy and external imbalances: Cross-country evidence from Africa's three largest economies

This paper determines which of the three policy approaches: fiscal, monetary and exchange rate can better address external imbalances in the three largest African economies, Nigeria, South Africa and Egypt. To this end, use is made of the panel vector autoregressive model to assess the dynamic effects of shocks emanating from the three policy approaches. The findings of the paper indicate that unlike in many emerging and developed economies the current accounts of these three economies react to fiscal, monetary and exchange rate shocks. More particular, the results of the empirical analysis show that the appreciations of the currencies in the three economies lead to current account surpluses. This is mainly attributed to the fact that most African economies have a high propensity to import with limited productive capacity for exports.     

Financial liberalization and money demand in Peru: Implications for monetary policy

In 1990 a process of financial liberalization was begun in Peru with the aim of achieving economic stability and sustained development. Due to the economic policies that had been applied throughout the second half of the 1980s, this took place in a context of hyperinflation and financial repression. This article examines the effects that financial liberalization has had on the demand for real balances in Peru and discusses the implications for the conduct of monetary policy.     

当前适度宽松货币政策之冷思考

百年不遇的国际金融危机沉重打击了世界经济,也给中国经济发展带来了严重影响,危机面前,中国政府积极应对。但是,全球形势瞬息万变,中国经济回稳的基础尚不巩固,宏观经济未来走势仍有较大不确定性。首先分析当前适度宽松货币政策的必要性,然后从银行风险、通货膨胀压力、资产泡沫滋生风险来探讨当前货币政策的潜在风险,最后提出了防范以上潜在风险的措施。     

Optimal monetary and fiscal policy in a currency union

We lay out a tractable model for the analysis of optimal monetary and fiscal policy in a currency union. The monetary authority sets a common interest rate for the union, whereas fiscal policy is implemented at the country level, through the choice of government spending. In the presence of country-specific shocks and nominal rigidities, the policy mix that is optimal from the viewpoint of the union as a whole requires that inflation be stabilized at the union level by the common central bank, whereas fiscal policy has a country-specific stabilization role, one beyond the efficient provision of public goods.