A multilevel government model of deficits and inflation

In this paper, an attempt is made to properly identify the link between deficits and the rate of inflation by using two alternate macroeconomic models—one based on adaptive expectations and the other on rational expectations—for a multilevel government system. It is assumed that unlike federal deficits, state deficits cannot be monetized. Nonetheless, the interaction between state and federal inflation is explicitly incorporated into the model. When expectations are formed adaptively, the model confirms the positive link between deficits and rate of inflation. However, with rational expectations, the model shows that inflation is, in part, explained by the forecast error. It is proposed that only empirical testing of the theoretical models would give credence to such conclusions.     

我国CPI重回2时代背景下的货币政策调整

2012年我国再度迎来CPI的2时代,证明在2012年我国的通货膨胀水平开始回落。然而由于短期的季节性原因和长期国际国内环境的制约,在未来的一段时期内仍然存在着高通货膨胀预期。我国应该抓住此次通货膨胀走低的机会,同时也要审慎考虑高通货膨胀率的预期,与时俱进,根据上一阶段的货币政策执行情况审时度势,调整我国货币政策的实施重点。以经济增长为首要目标,配合适度的通货膨胀容忍度,采取调控存款准备金率、改革利率制度、优化信贷支持结构等措施,促进宏观经济又好又快发展。     

Spatial propagation of macroeconomic shocks in Europe

This paper implements a spatial vector autoregressive model that takes into account both the time and the spatial dimensions of economic shocks. We apply this framework to analyze the propagation through space and time of macroeconomic (inflation, output gap and interest rate) shocks in Europe. The empirical analysis identifies an economically and statistically significant spatial component in the transmission of macroeconomic shocks in Europe.     

What Drives Monetary Policy in Post-Crisis East Asia? Interest Rate or Exchange Rate Monetary Policy Rules

This paper estimates a simple small open macroeconomic model to analyse the effectiveness of monetary policy rules (MPRs) where either the nominal interest rate or the nominal exchange rate is the policy instrument. The aim is to ascertain which of those MPRs are best suited for a selection of inflation targeting economies of Asia. Normally, one would associate inflation targeting with interest rate rules but it is thought that, due to fear of floating, exchange rate rules may well be more effective given the openness of these economies. It is found that interest rate rules seem to better reflect the prevailing policy regime than exchange rate rules. It is also found that stronger relationships pertaining to the interest rate rules are found in the case of Korea and Thailand than for Indonesia and the Philippines. Exchange rates appear to be very influential in determining the value of the nominal interest rate but not in a policy sense.     

The Political Economy of Exchange Rate Regimes: Evidence from Hong Kong and Taiwan

This paper investigates whether the macroeconomic performance of a small- open economy depends on the choice of exchange rate regimes. Hong Kong and Taiwan - two economies with many similar macroeconomic characteristics, but different in their choices of exchange rate regimes - provide a good setting to study the relation between the choice of exchange rate regime and macro-economic performance. We examine the basic facts of growth and inflation and the coefficients' stability of their vector autoregression (VAR), as well as cyclical characters of other aggregate variables in Hong Kong and Taiwan. Our empiric finding indicates that macroeconomic performance is not systematically related to exchange rate regimes.     

Credibility and monetary policy in a model with growth

We examine the implications for monetary policy design of includinglearning-by-doing effects in a macroeconomic model. We showthat an inflation bias arises because monetary surprises maybe exploited to maximise potential output by temporarily raisingthe rate of human capital accumulation. Our model also providesan alternative explanation for the empirical evidence linkinginflation and growth, where the causal link goes from slow growthto high inflation. Unlike traditional credibility models, aninflationary bias can persist even when the authorities do notwish to offset labour market distortions through monetary surpriseswhich undercut the median voter's income.     

Inflation targeting in India: A comparison with the multiple indicator approach

The empirical literature on identification and measurement of the impact of monetary policy shocks on the real side of the economy is fairly comprehensive for developed economies, but very limited for emerging and transition economies. In this study, we propose an identification scheme for a developing economy (taking India as a case study), which is able to capture the monetary transmission mechanism for that economy without giving rise to empirical anomalies. Using a VAR approach with recursive contemporaneous restrictions, we identify monetary policy shocks by modelling the reaction function of the central bank and structure of that economy. The effect of monetary policy shocks on the exchange rate and other macroeconomic variables is consistent with the predictions of a broad set of theoretical models. This set-up is used to build a hypothetical case of inflation targeting where the monetary policy instrument is set after assessing the current values of inflation only. This is in contrast with the ‘multiple indicator approach’ currently followed by the Reserve Bank of India (RBI). The results in this study suggest that the demand effects of interest rate are stronger than the exchange rate effects. There is also evidence of the mitigation of potential conflict between exchange rate and interest rate, one of main monetary policy dilemmas of the RBI in inflation targeting.     

THE SENSITIVITY OF SOUTH AFRICAN INFLATION EXPECTATIONS TO SURPRISES

Price stability is widely recognised as the primary goal of modern monetary policy, and the management of private sector inflation expectations has become an essential channel through which this goal is achieved. This evaluation aims to improve the understanding of how the sensitivity of private sector inflation expectations to macroeconomic surprises in South Africa compares internationally, as this provides an indication of the contribution of monetary policy in South Africa to anchoring inflation expectations. If a central bank is credible, the financial markets should react less sensitively to macroeconomics surprises, because they trust the central bank to manage these incidents and achieve the objectives they communicated over the medium to long term. In this paper, the methodology of Gurkaynack et al. is adopted in order to measure the sensitivity of South African inflation expectations to surprises. A comparison of South Africa's results with those of countries in the original studies supports the contention that the SARB (South African Reserve Bank) has encouraged inflation expectations to be relatively insensitive to macroeconomic surprises, and offers support for the inflation-targeting framework as a means to help anchor inflation expectations.     

基于非对称通胀偏好的最优货币政策规则

与传统的L-Q货币政策分析框架相异,本文通过Linex函数,在央行损失函数中引入非对称通胀目标偏好。新的货币政策动态优化模型分析结果表明,最优货币政策规则中,名义利率对通胀的反应是非线性的,利率工具不仅对通胀水平作出反应,而且对通胀的波动性也作出反应,利率对通胀的变化还产生符号与大小上的非对称。     

The liquidity effect in a flexible-price monetary model

This paper examines the impact of macroeconomic policy shocksin a flexible-price dynamic stochastic general equilibrium (DSGE)model with money. Rather than adopting a money supply rule,monetary policy is modelled as a central bank using a simpleinterest rate rule (Taylor rule). Without assuming price stickinessor frictions in financial markets, this model is found to accountfor liquidity effects, generate higher persistence in outputand inflation, and capture the positive unconditional cross-correlationsrelating inflation and output.     

Business Cycle in China since the Lehman Crisis： Interaction among Macroeconomic Policy,Economic Growth and Inflation

The major objectives of China＇s macroeconomic policy are to stabilize economic growth and inflation, which, in turn, are important factors determining key prices, such as the policy interest rate, the renminbi exchange rate and stockprices. In a framework that distinguishes different phases of the business cycle based on whether the current period＇s economic growth rate and inflation rate are above or below their ＂＇normal＂ values, this paper analyzes the interaction among macroeconomic policy, economic growth and inflation in China since the Lehman crisis, and the implications for these key prices. The path of China＇s economy indicates that stimulus measures taken by the government during the recession phase and tightening measures implemented during the overheating phase have helped minimize the fluctuation over the business cycle. Our analysis shows that Chinese authorities tend to rely more on adjusting the exchange rate than the interest rate to stabilize the economy. Comparing with conditions at the time of the post-Lehman recession, the current slowpace of economie growth in China may reflect not only weakening demand, but also a lowerpotential growth rate associated with the arrival of the Lewis turning point.     

宏观调控面面观

市场经济运行不能没有宏观调控，这是我国改革以来的重要经验。当前宏观调控面临着新的情况，出现了“保经济增长”还是“遏制通贷膨胀”的争论。本文认为，两者是统一的。经济增长回到9％左右，不能说是“滑坡”；物价上涨控制在5％以下，却有难度。一定要运用计划、规划和适度从紧的货币政策和财政政策，力争实现平稳较快增长，治理通胀，不损害中低收入者的利益。     

(De-)Stabilizing two-country macroeconomic interactions in an estimated model of the U.S. and the Euro Area

In this paper a semi-structural macroeconomic model based on gradually adjusting wages and prices and hybrid, cross-over inflation expectation formation is analyzed and estimated with aggregate data of the U.S. and the Euro Area. Besides comparing, among other things, the determinants of the wage- and price inflation dynamics in both economies, the role of different macroeconomic transmission channels for the stability of the two-country system is investigated.     

On the conduct of monetary policy in Vietnam

Vietnam has the highest inflation rate in Southeast Asia (over 20 per cent year‐on‐year in 2011). This paper examines the extent to which inflation in Vietnam is due to its conduct of monetary policy. It is argued that, had the central bank implemented policy on a more timely basis, inflation would not have been as high as it was, but the more fundamental problem is that the central bank does not have the tools it needs to conduct monetary policy effectively. Monetary policy is further complicated by Vietnam's exchange rate policy. By choosing to peg the currency and maintain fairly free capital mobility, the country has all but given up the ability to pursue an independent monetary policy. As a consequence, the central bank is forced to attempt to sterilise its foreign exchange interventions, which it is ill‐equipped to do. The paper argues that financial sector liberalisation is needed not only to promote growth but also to maintain macroeconomic stability.     

Estimates of the fisher effect: A neo-Keynesian approach

Conclusion This paper has presented estimates of a structural model designed to study the processes by which inflationary expectations affect nominal interest rates. The theoretical framework expands upon previous analyses of the effects of expected inflation primarily by analyzing a wider range of resulting substitution effects both among financial assets as a group, and between financial assets and commodities. A possible substitution effect between leisure and both these groupings (commodities and financial assets) was also considered. The empirical work differs from previous studies in that we estimate the effects of inflationary expectations on nominal interest rates within the structure of a complete macroeconomic system rather than using the single-equation approach outlined in section II above. The results provide evidence on the magnitude of the Fisher effect and the market mechanisms which comprise this effect as estimated within the neo-Keynesian system. These market mechanisms were found to consist of direct effects in the long-term bond market and on the aggregate demand for and supply of commodities. The total adjustment consists of changes in all the endogenous variables with the final outcome being an increase in each of the nominal interest rates in the model. The implied increase in nominal interest rates is less than a full-adjustment to the increase in the expected inflation rate, thus for the time period considered here, the estimates imply a fall in the real rate of interest. Prices and nominal income were also found to vary positively with the expected inflation rate. The authors wish to thank an unknown referee of this journal for helpful comments.     

Speculative attacks and currency crises: The Mexican experience

By using data from the Mexican economy, this paper estimates a speculative attack model of currency crises in order to identify the role of macroeconomic fundamentals and early warning signals of a potential currency crisis. A deterioration in fundamentals appears to generate high one-step-ahead probabilities for the observed regime changes during the sample period 1982–1994. Particularly, foreign reserve losses, expansionary output, monetary and fiscal policies, an increase in inflation differentials and the share of short-term foreign currency-indexed debt, and an appreciation of the real exchange rate appear to have contributed to the speculative pressures and the associated regime changes.     

MACROECONOMIC PERFORMANCE AND INEQUALITY: BRAZIL, 1983–94

We examine how poor macroeconomic performance, mainly in terms of high rates of inflation, affected earnings inequality in the 1980s and early 1990s in Brazil. The results, based initially on aggregate time series, and then on sub‐national panel time‐series data and analysis, show that the extreme inflation, combined with an imperfect process of financial adaptation and incomplete indexation coverage, had a regressive and significant impact on inequality. The implication of the results is that sound macroeconomic policies, which keep inflation low and stable in the long run, should be a necessary first step of any policy package implemented to alleviate inequality in Brazil.     

MACROECONOMIC UNCERTAINTY AND AGGREGATE PRIVATE INVESTMENT IN SOUTH AFRICA

This paper investigates the effects of time varying uncertainty on aggregate private fixed investment in South Africa. The GARCH generated measures of volatility of selected macroeconomic variables indicating five measures of uncertainty are used in the analysis. These are output growth uncertainty, uncertainty about changes in the real effective exchange rate, uncertainty about changes in the real interest rate, producer inflation uncertainty, and terms of trade uncertainty. The results of the estimation by an empirical ECM model of conventional investment determinants controlling for the effects of uncertainty indicated that, over all, time varying macroeconomic uncertainty significantly reduces private fixed investment.     

Seigniorage,Dollarization and Public Debt: The Lebanese Civil War and Recovery Experience, 1982–97

The paper develops theoretical frameworks to explain the phenomena of seigniorage, dollarization, and public debt; and then applies them to the Lebanese macroeconomic situation over 1982–97. More specifically, it analyzes the implications of seigniorage and dollarization to see what extent they were responsible for the inflation and exchange rate depreciations during the civil war period. It also studies the sustainability of postwar debt. The conclusions that emerge from the analysis are that budget deficits were only one of the reasons behind the war inflation and depreciations, dollarization could still impose some problems for macroeconomic stability, and tax reforms are essential for fiscal balance.     

Income distribution,macroeconomic analysis and barriers to full employment

This paper seeks to reassert the significance of income distribution for macroeconomic analysis. It argues that the non accelerating inflation rate of unemployment, which has been central to mainstream macroeconomic analysis, should be viewed as a distributional constraint on the achievement of full employment with the implication that mechanisms to resolve distributional conflict without resort to the weapon of unemployment are required if full employment is to be secured. The significance of income distribution for aggregate demand is then been examined, and it is argued that higher profit shares in the past 15 years have harmed the prospects for high levels of economic activity and employment, and that rising profitability does not appear to have stimulated investment. It is then finally argued that monetary policy should not be seen as a technical matter but rather as a policy with significant distributional impacts.