Using Romer and Romer's new measure of monetary policy shocks to identify the AD and AS shocks

This article re-examines the series of (exogenous) Federal Funds Rate (FFR) shocks created by Romer and Romer (2004) for the period 1969:01–1996:12. We hypothesize that if Romer and Romer have constructed a reasonable set of monetary policy shocks, then including them in a small Vector Autoregression (VAR) should help to identify other structural shocks that affected the United States economy during their sample period. Using a sample period of 1971:01–1996:12 we are easily able to identify both an Aggregate Demand (AD) shock and an Aggregate Supply (AS) shock without imposing any sign or long-run restrictions. We present historical decompositions that allow us to compare the relative importance of these shocks with that of the exogenous monetary policy shocks in explaining output fluctuations during the 1973–1975, 1980–1984 and 1990–1991 business cycle episodes.     

US monetary policy shocks and the Chinese economy: a GVAR approach

Using a global vector auto regressive (GVAR) methodology, this article examines the impact of US monetary policy shocks on China’s major macroeconomic indicators. Our analysis reveals that a positive shock to the US money supply growth rate initially increases China’s inflation rate but after some time this effect completely disappears. This shock also raises China’s short-term interest rate and the Chinese currency appreciates against the US dollar. A positive shock to the US short-term interest rate increases China’s short-term interest rate but the real output growth and inflation rates decline and the Chinese currency appreciates.     

Monetary policy shocks and productivity measures in the G-7 countries

An implication of two-country international real business cycle models is that total factor productivity should be an exogenous stochastic process. Economic theories which feature labor hoarding, variable capacity utilization, and increasing returns predict that measured productivity shifts are not exogenous; instead, expansionary aggregate demand shocks should lead to an increase in measured productivity. For each of the G-7 countries, this paper measures quarterly aggregate total factor productivity for the domestic country and its rest-of-world (G-6) counterpart. In each case the domestic productivity measures are not strictly exogenous: expansionary U.S. monetary policy shocks, as well as other G-6 monetary policy shocks, lead to productivity expansions. The evidence indicates that international business cycle models are misspecified unless they feature endogenous productivity mechanisms.Received: June 2001, Accepted: December 2001, JEL Classification: E5, F4Correspondence to: Charles L. EvansFor their helpful comments, we thank Mario Crucini, Patricia Reynolds, and Steve Strongin. The views expressed in this paper do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.     

Monetary policy and real wage cyclicality

This article points to the potential role of monetary policy in affecting the degree of real wage cyclicality. We show that the degree and direction of real wage cyclicality is determined by the interaction of (i) the returns to scale in production, (ii) the nature of aggregate shocks and (iii) monetary policy. Given that production technology is fairly constant in the short run, we suggest that variations in the real wage – output covariance depend largely on the combination of the latter two. Identifying well-documented monetary policy phases in six major Organization for Economic Co-operation and Development (OECD) countries and accounting for both aggregate demand and supply shocks, we provide empirical evidence to support our main theoretical claim.     

Monetary policy, oil shocks, and TFP: Accounting for the decline in US volatility

An equilibrium model is used to assess the quantitative importance of monetary policy for the post-1984 decline in US inflation and output volatility. The principal finding is that monetary policy played a substantial role in reducing inflation volatility, but a small role in reducing real output volatility. The model attributes much of the decline in real output volatility to smaller TFP shocks. We also investigate the pattern of output and inflation volatility under an optimal monetary policy counterfactual. We find that real output volatility would have been somewhat lower, and inflation volatility substantially lower, had monetary policy been set optimally.     

Optimal Monetary Policy and Sectoral Shocks: Is International Monetary Cooperation Beneficial?

A stochastic general‐equilibrium model is used to explore the welfare effects of optimal monetary policy and the potential benefits of policy coordination. Cross‐country perfectly symmetric shocks in the traded goods sectors and imperfectly correlated shocks in the non‐traded goods sectors are considered. In this set‐up, monetary policy may not be able to achieve efficient sectoral resource allocations within countries and avoid inefficient relative price changes across countries. Welfare gains from coordination are sizable if the shocks to the traded and non‐traded goods sectors are negatively correlated and both sectors are of roughly equal size.     

Monetary policy in the UK

The authors argue that the institutional dimension of the Bankof England monetary policy and the role the UK HM Treasury assumesin this framework are both firmly based on the New Consensusin Macroeconomics (NCM). This is also the theoretical frameworkupon which the inflation targeting element of monetary policyis firmly based. This paper discusses these aspects of UK monetarypolicy, and then assesses the policy that has been pursued since1997 (with some reference made to the period between 1992 and1997 when a version of the framework was introduced). The strategyhas been successful in terms of keeping UK inflation rates withinthe targets set by HM Treasury. However, a number of problematicissues are highlighted and discussed.     

Monetary policy co-movement and spillover of shocks among BRICS economies

The 2008 global financial crisis has revealed the possibility of cross-border spillover effects of domestic Monetary Policy (MP) on financial stability and capital flows around the world. Recognizing these facts, Central Banks in Advanced Economies (AE) have undertaken simultaneous Monetary Policy actions to minimize collateral damage and contain financial risks. In this paper, we investigate whether a similar spillover and co-movement of Monetary Policy exist among BRICS countries. Specifically, we study the transmission of monetary policy shocks among the member countries using monthly data. We use the method of Principal Component Analysis (PCA) and Vector Autoregression Model to identify possible dynamic relationships. Our results indicate possible co-movement in interest rates and significant cross-border transmission of monetary policy shocks among the BRICS countries.     

析货币政策的科学性与艺术性

货币政策的制定和实施离不开科学原则作指导,但货币政策的实时决策又是极其复杂的,需要中央银行家的审时度势和敏锐判断,也即货币政策的艺术性。详细分析了货币政策科学性和艺术性的具体表现,认为货币政策的科学性与艺术性在实践中是难以分割和同等重要的,好的货币政策总是需要好的政策实施者,需要将科学性原则与中央银行家们的决策艺术完美地结合起来。     

Monetary and fiscal policy interactions in a post Keynesian open-economy model

Using a post Keynesian model, this study aims to analyze the stabilizing role of fiscal and monetary policies in an open economy with a managed exchange rate regime. The real exchange rate is modeled as an endogenous variable and inflation explained using the conflicting claims approach. The dynamic properties of macroeconomic equilibrium are evaluated in different regimes of fiscal and monetary policies. The main result of this study suggests that the preferred policy regime is the one in which economic authorities are complementary and fiscal policy plays an explicitly active role. In this regime, the fiscal policy must commit to the target for the rate of capacity utilization and the monetary authority must commit to the inflation target.     

Monetary and banking policy transmission through interest rates: an empirical application to the USA,Canada, the UK and the Eurozone

The main purpose of this paper is an examination of the pass‐through interest rate transmission from the wholesale rates (central bank and/or money market rates) to the retail rates (deposit and lending rates) of the banking system. Knowledge of the transmission substantially helps us to calculate the pass‐through interest rate margin or mark‐up in the banking systems under examination (USA, Canada, the UK and the Eurozone). The selection of the wholesale interest rate is also an important part of this pass‐through transmission framework because it is related to the money supply process and therefore the central bank's policy capabilities. In the empirical part, a Johansen (1988) cointegration based error‐correction procedure (ECM‐GE) is implemented for the wholesale interest rate selection. Then an LSE–Hendry general‐to‐specific model (GETS) is applied, for the revelation of the banking sector pass‐through interest rate behaviour. In the empirical part, on the issue of the wholesale interest rate selection, the USA and the Eurozone seem to favour the Money Market rate while the UK and Canada favour the central bank policy rate. The results indicate two types of interest rate pass‐through behaviour, with market structure implication – namely, the US and UK banking systems contrasted with Canada–Eurozone.     

Learning and international transmission of shocks

This paper studies the implications of adaptive learning in the modelling of inter-country linkages in a two-region MSG G-cubed model built on micro-founded behaviors of firms and households. The nature of the transmission process under rational expectations versus adaptive learning is explored. We investigate the propagation mechanism within and across borders for various shocks and policy changes within the United States: change in inflation target, fiscal policy, productivity shock, and rise in equity risk. Adaptive learning is found to change the short run sign of transmission in most cases but this also depends on the fraction of forward-looking agents in the economy.     

Optimal choice of monetary policy instruments under velocity and fiscal shocks

This paper, in the spirit of Poole [Poole, William, 1970. The Optimal Choice of Monetary Policy Instruments in a Simple Macro Model. Quarterly Journal of Economics, 84, 192–216.], studies how differently monetary and fiscal shocks influence the appropriate choice of the monetary policy regime. Velocity shocks are introduced by embedding a stochastic cash-in-advance constraint within the New Keynesian framework. In addition to optimal policy under discretion, three classic rules, interest rate targeting, monetary targeting, and the Taylor rule are ranked under both fiscal and velocity shocks. The non-stationarity of prices under the Taylor rule makes it inferior to the other rules under which prices are stationary. Monetary targeting, by stabilizing aggregate demand under fiscal shocks, outperforms interest rate targeting, while the latter provides a better insulation against velocity shocks. Monetary targeting (under fiscal shocks) and interest rate targeting (under velocity shocks) even outperform the optimal policy under discretion for sufficiently high intertemporal elasticities of consumption substitution.     

略论中国货币政策有效性

在界定货币政策有效性的概念基础上对中国的货币政策效果进行实证分析,进而提出提高中国货币政策有效性的对策建议。货币政策目标的实现程度是衡量货币政策有效性的标志。货币政策有效性的内涵就是货币政策具有真实效应,能够对真实经济变量产生影响。货币政策有效性就是货币政策能够在保持物价稳定、国际收支平衡的前提下促进经济增长和降低失业。     

The transmission mechanism of monetary policy: Microeconomic aspects of macroeconomic issues

The article analyzes the transmission mechanism of monetary policy in light of microeconomic theory. We address the influence of microeconomic factors on the transmission of monetary policy while taking into account the contributions of conventional price formation and competition theory and heterodox microeconomic theories, including work inspired by the post Keynesians. We found a multiplicity of results regarding changes in price levels and inflation derived from shifts in demand and costs. These results challenge the conventional view, which postulates a single behavior in the circuit from changes in interest rates to demand, prices, and inflation. We conclude that microeconomic and macroeconomic aspects should be integrated to properly explain monetary policy and analyze its effects and transmission mechanism.     

货币政策是否应关注资产价格——基于货币稳定的视角

货币稳定是一个伴随着货币交易范围扩展而不断拓展的概念,资产交易规模使资产价格波动能严重影响货币稳定和社会福利,因此,货币稳定应当包括资产价格稳定。利用中国1998-2009年月度、季度数据,以及协整检验、误差修正估计和方差分析等方法研究后得出:资产价格与传统通货膨胀指标现值及预期值存在联动性、与经济运行中的货币存量具有显著的数量解释关系,资产价格通过影响消费、投资等经济因素冲击着货币政策效果;货币政策对维护包括资产价格在内的货币稳定并非无能为力,经验表明资产价格往往对货币政策调整做出积极反应。因此,货币稳定指标应根据传统通货膨胀指标和资产价格指标综合计算,即货币政策应根据资产价格传导机制,精确分析资产价格与货币中介目标的关系,准确采取政策工具。     

The lean times in the Peruvian economy

The growth rate of “nonprimary gross domestic product (GDP)” (Perú’s urban economy) dropped to 3.6 percent in 2014 and to 2.4 percent in 2015, far below the annual average of 7.3 percent recorded over the previous decade; moreover, an equally low growth rate of 2.8 percent per year is projected in 2016. In the macroeconomic history of Peru, the times of plenty —that is, the more or less prolonged booms—are also times of high prices of the commodities that the country exports; meanwhile, the lean times—that is, the more or less intense recessions in which economic activity slows down—are times of low commodity prices. This article describes the negative external shock undergone by the Peruvian economy and its recessionary and inflationary effects over 2014–15, analyzes the fiscal and monetary policies applied in response to the external shock, and outlines the macroeconomic challenges faced by the new government of Pedro Pablo Kuczynski.     

MCIs研究概述及对我国货币政策操作的启示

汇率在经济运行中作用的凸显,推动了学术界对货币状况指数(MCIs)研究的不断深入.以功能研究、缺陷研究、应用研究为线索,对MCIs的研究脉络作了系统分析,并试图通过分析,对MCIs在我国货币政策操作中的运用提供一些借鉴.     

Monetary policy effectiveness and stock market cycles in ASEAN-5

This article examines the asymmetric effects of monetary policy on real output in bull and bear phases of stock market in five ASEAN economies (Malaysia, Singapore, Indonesia, the Philippines and Thailand) using the recently developed pooled mean group (PMG) technique. Stock market cycles are identified by employing Markov switching models and the rule-based nonparametric approach. Estimating the models using monthly data from 1991:1 to 2011:12, the results show that monetary policy (measured by short-term interest rate) has a negative and statistically significant long-run effect on real output in bull and bear market periods while the effects are stronger in bear periods than bulls. In the short run, there is no statistically significant relationship between monetary policy and real output. These results are consistent with finance constraints (capital market imperfection) models that predict that monetary policy is more effective during bear periods than bulls.     

Monetary policy, macroeconomic adjustment and currency speculation under floating exchange rates: the case of Bulgaria

This paper deals with the Bulgarian experience with exchange rate policy and the related macroeconomic adjustment in the transition period. It is argued that in the context of the Bulgarian macroeconomic environment, the exchange rate regime and the exchange rate policy (or the lack of such) did play a crucial role in determining the patterns of macroeconomic adjustment in this period. A simple general equilibrium model is suggested that provides some insights into the stylized performance of an economy under certain assumptions, similar to those characterizing the transitional state of the Bulgarian economy. Finally, some aspects of Bulgarian macroeconomic performance in recent years are analysed on the basis of the available empirical information and using the framework of the theoretical model. The paper concludes with the policy lessons of this experience.