Shortages, Hoarding and Parallel-Market Premia in an Economy with Administered Prices

This paper examines the implications of a number of policy changes in the context of a dynamic model of an economy with administered prices. Official prices below the market-clearing level give rise to shortages, hording, and parallel-market activity. The paper examines the implications for consumption, hoarding, and the parallel-market premium of changes in official prices and wages, a crackdown on hoarding, and a monetary reform.     

Money-Hoarding as a Behaviour Towards Uninsured Idiosyncratic Risk

This paper explores the implications of the presence of uninsured idiosyncratic risks for the hoarding of intrinsically useless fiat money in an overlapping-generations model. It is shown that: (a) monetary equilibria exist in almost all cases; (b) the valuation of money is not necessarily Pareto-improving since the non-monetary steady state may Pareto-dominate the monetary one; and (c) the accelerating inflation may, moreover, reduce the long-run capital stock.
JEL Classification Number: E41.     

Robust control and central banking behaviour

This paper seeks to explain the recent behaviour of the two main central banks in the recent financial crisis, applying a robust control tool through a Neo-Keynesian monetary policy model. The direct forbearer of this paper is the Giordani and Söderlind (2004) study. It begins with the origin, purpose and theoretical grounds of robust control, indicating that it is one way to face model uncertainty, as an alternative to the Bayesian approach. In the middle section, we seek to obtain the course of the model's main variables: interest rates, inflation and output. The model constructor also wants the participating agents to have the same doubts that he has regarding its validity; therefore, robust control is considered as a “fine-tuning” of the rational expectations approach. The impulse-response functions are obtained, with the monetary authority acting as a Stackelberg-type leader, affected by a perturbation on the supply side. The two relevant equilibria are obtained and compared in robust control with dynamic economy (the reference equilibrium and the worst possible case equilibrium) with that obtained when operating with rational expectations. The alternative course for the reference model set forth in the paper by Dennis (2008) is also analysed. We mainly find that the different results depend on the behaviour of the law of motion of the state variables, specifically the shadow prices that influence the private sector's expectations. Lastly, the paper relates the recent monetary policy performance when facing the financial crisis that began in the summer of 2007.     

Money growth,uncertainty and macroeconomic activity: a multivariate GARCH analysis

The impact uncertainty has on money growth has received much attention in recent years and is an issue of critical importance to central banks, particularly for those, such as the European Central Bank (ECB), which place a strong emphasis on monetary analysis in monetary policy formulation. Some recent papers examining this issue use ad hoc estimates and measure variability rather than uncertainty. We employ a multivariate GARCH model, which measures uncertainty by the conditional variance of the data series, to investigate whether macroeconomic uncertainty and monetary uncertainty Granger-cause changes in real money. The estimated model also allows us to investigate how monetary uncertainty impacts economic activity. We find that macroeconomic uncertainty impacts positively on US real M2 growth over a two-year horizon but that monetary uncertainty does not cause changes in real M2. Instead, our results indicate that real money growth causes monetary uncertainty. Monetary uncertainty is found to have a negative effect on real economic activity and on macroeconomic uncertainty. We conclude by discussing the implications of these results and the methodological approach used for institutions such as the ECB that give monetary analysis a prominent role in their monetary policy strategy.     

Household debt,macroprudential rules,and monetary policy

Today's Canadian economy features a historic high of household debt and persistently low growth rate. The average debt-to-GDP ratio has reached the level experienced in the U.S. just prior to the recent financial crisis. In this paper, we ask whether monetary policy should lean against the household indebtedness or macroprudential policies are better suited for the task. To provide a quantitative answer, we develop a small open economy dynamic stochastic general equilibrium model featuring a micro-founded banking sector. We estimate the model using Canadian data and conduct policy experiments. Our findings favor macroprudential approach to reining in indebtedness: using monetary policy that reacts to household debt increases inflation volatility and lowers borrowers' welfare, while using macroprudential policies such as lowering the loan-to-value ratio limit increases borrowers' welfare.     

Housing Collateral and the Monetary Transmission Mechanism

In this paper, we quantify the effects of the recent increase in the housing loan‐to‐value ratio (LTV) on the monetary transmission mechanism. We set up a two‐sector dynamic stochastic general equilibrium model with collateral constraints and production of goods and housing. Using Bayesian methods, we quantify the component of the monetary transmission mechanism that is generated by housing collateral. We find that this component is substantial and strongly increasing in the LTV. We conclude that in order to properly understand the monetary transmission mechanism, we need to take into account the effects of housing‐related collateral constraints and their changing nature.     

央行货币政策操作效果非对称性实证研究

货币政策操作效果的对称与非对称性研究,近年来在国外金融界十分关注。研究表明:紧缩性货币政策与扩张性货币政策在抑制经济过热和治理经济衰退的效果上存在极大的差异,并且,不同国家和地区的货币政策运用效果及特点也有明显差别。KimD .H .( 2 0 0 2 )使用Hanmilton( 2 0 0 1 )提出的浮动法,分析了美国的货币政策。他得出的结论认为,1 979年前美国货币政策具有显著的非线性特征,即效果不对称,而在其后这一特征则不够明显。Bruinshoofd和Candelon( 2 0 0 4)使用STR模型和LM统计量检验了欧洲几个国家的货币政策效力,却得出与美国几乎相反的结论。那么,我国的货币政策操作效果是否具有对称性,目前还未见到相关的报道。本文采用LSTR模型和LM检验统计量,对此问题进行了深入细致的探讨。研究结果表明:在1 993年第1季度至2 0 0 4年第2季度期间,我国货币政策操作在效果上表现出明显的非对称性,具有很强的非线性特征。     

The Effects of Macroeconomic Policies in a Mercantilist Economy

By introducing money and foreign exchange in the Zou (1997) model of mercantilism, the paper shows the effects of macroeconomic policies in mercantilist economies. It is shown that in the long run, consumption and foreign asset accumulation increases as a result of stronger mercantilist sentiments, permanent increases in the consumption tax, increases in the monetary growth rate and purchases of foreign bonds. In the short run, however, macroeconomic disturbances including the mercantilist sentiments, the monetary growth rate, and the consumption tax have negative effects on current consumption and positive effects on current foreign asset accumulation, while purchasing foreign bonds has positive effects on both current consumption and current foreign asset accumulation. The theoretical explorations may provide a theoretical structure for hoarding international reserves and export-led growth strategy utilized by emerging market economies.     

Price rules, wage indexing, and optimal monetary policy

There has been a recent increased interest in a monetary price rule. This paper analyzes the efficiency of such a monetary rule within the context of a rational expectations macro model. We compare the price rule with the standard money rule and interest rate rule. We find that as the supply shock variance approaches zero the price rule dominates both a money and interest rate rule. We then investigate the efficiency of these alternative money rules when we allow wage indexation to the price level.     

Monetary Policy in the Open Economy Revisited: Price Setting and Exchange-Rate Flexibility

This paper develops a welfare-based model of monetary policy in an open economy. We examine the optimal monetary policy under commitment, focusing on the nature of price adjustment in determining policy. We investigate the implications of these policies for exchange-rate flexibility. The traditional approach maintains that exchange-rate flexibility is desirable in the presence of real country-specific shocks that require adjustment in relative prices. However, in the light of empirical evidence on nominal price response to exchange-rate changes—specifically, that there appears to be a large degree of local-currency pricing (LCP) in industrialized countries—the expenditure-switching role played by nominal exchange rates may be exaggerated in the traditional literature. In the presence of LCP, we find that the optimal monetary policy leads to a fixed exchange rate, even in the presence of country-specific shocks. This is true whether monetary policy is chosen cooperatively or non-cooperatively among countries.     

On Marx's Analysis of Money Hoarding in the Turnover of Capital

The formation of money hoards, which underpins the demand for money, is typically treated by mainstream monetary theory as originating in the motives of the rational individual. In contrast, Marx's discussion of money hoarding treats hoard formation as a necessary tendency of capitalist production and circulation rather than as a result of the individual's predilections. Based on Marx's analysis, this article identifies several structural reasons for money hoard formation in the circuit of capital. It is also shown that Marx's discussion, despite its insight, suffers from a technical error in analysing the overlapping of production and circulation time in the circuit, and in drawing the implications for hoarding. Finally, it is argued that the broader significance of capitalist money hoarding lies in the foundations it provides for the emergence of the credit system.     

Macroeconomic effects of monetary policy in Korea: A time-varying coefficient VAR approach

Using a time-varying coefficient vector autoregressive (TVC-VAR) model, we assess how the efficacy of monetary policy innovations in stimulating real activity has evolved over time in Korea, as an example of emerging market countries, since 2000. We show that the responsiveness of output toward monetary policy innovations has decreased gradually since the early to mid-2000s, but monetary policy remains effective in boosting output even for the most recent sample. In addition, we find that the volatility of exogenous disturbances has decreased dramatically in the post-2000 period, and that this is the main driver of the recent volatility reductions of both output and inflation.     

Bank behavior, incomplete interest rate pass-through, and the cost channel of monetary policy transmission

This paper employs a New Keynesian DSGE model to explore the role of banks within the cost channel of monetary policy transmission for shaping the interest rate pass-through from money market rates to loan rates. Banks extend loans to firms in an environment of monopolistic competition by setting their loan rates in a staggered way, which means that the adjustment of the aggregate loan rate to a monetary policy shock is sticky. We estimate the model for the euro area by adopting a minimum distance approach. Our findings exhibit that (i) financial costs are an important factor for price changes, (ii) frictions in the loan market have an effect on the propagation of monetary policy shocks as the pass-through from a change in money market rates to loan rates is incomplete, and (iii) the strength of the cost channel is mitigated as banks shelter firms from monetary policy shocks by smoothing loan rates.     

Rational expectations,market shocks,and the exchange rate

The world economy has been subjected to numerous real shocks in recent years. In addition, purchasing-power parity seems to have collapsed. Critics of the monetary approach to the exchange rate have been quick to draw attention to these facts. This paper extends the basic framework of the monetary approach so that it provides a useful tool for explaining the impact of real shocks on the exchange rate and so that it is compatible with the existence of significant deviations from purchasing-power parity. The real shocks that are discussed include changes in commercial policy, the terms of trade, and productivity. It is demonstrated that real shocks influence the exchange rate through two distinct channels—a real-income channel and a deviations from purchasing-power-parity channel.     

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.     

Further insights on endogenous money and the liquidity preference theory of interest

Abstract

We present a simple stock-flow consistent (SFC) model to discuss some recent claims made by Angel Asensio in a paper published in this journal regarding the relationship between endogenous money theory and the liquidity preference theory of the rate of interest. We incorporate Asensio’s assumptions as far as possible and use simulation experiments to investigate his arguments regarding the presence of a crowding-out effect, the relationship between interest rates and credit demand, and the ability of the central bank to steer interest rates through varying the stock of money. We show that in a fully-specified SFC model, some of Asensio’s conclusions are not generally valid (most importantly, the presence of a crowding-out effect is ambiguous), and that in any case, his use of a non-SFC framework leads him to leave aside important mechanisms which can contribute to a better understanding of the behavior of interest rates. More generally, this paper once more demonstrates the utility of the SFC approach in research on monetary economics.     

Financial development,institutional quality and maximizing-growth trade-off in government finance

This paper studies monetary and fiscal policies in an endogenous growth model with transaction costs. We show that the relation between long-run economic growth and both monetary and fiscal policies is subject to threshold effects, a result that gives account of a number of recent empirical findings. Furthermore, the model shows that, to finance public expenditures, growth-maximizing governments must choose relatively high seigniorage (respectively income taxation), if “institutional quality” and “financial development” indicators are low (respectively high). Thus, our model may explain why some governments resort to seigniorage and inflationary finance, and others rather resort to high tax rates, as a result of growth-maximizing strategies in different structural environments (notably concerning institutional and financial development contexts). In addition, the model allows examining how the optimal mix of government finance changes in response to different public debt contexts. A short empirical section confirms our theoretical results.     

Changes in the relationship between short‐term interest rate,inflation and growth: evidence from the UK, 1820–2014

This paper examines the dynamic relationship between interest rates, inflation and economic growth using a long dataset for the UK. The approach adopted enables us to identify structural breaks in the dynamic system (vector autoregression (VAR)). We find interest rates respond much more strongly to growth and inflation over recent decades, and forecast error variance decomposition analysis indicates there is increasing interconnectedness between the variables in recent years. Economic policymakers need to carefully monitor the linkages between these variables and be prepared to adjust their monetary policy tools when faced with structural changes.     

货币紧缩、产权性质与公司现金持有

宏观经济政策如何影响公司微观行为是最近几年比较新的领域。本文运用中国上市公司2001—2011年的年度数据,探讨了货币紧缩政策对公司现金持有的影响以及产权性质对这种影响的作用。本文发现,货币紧缩政策对公司的现金持有具有负向影响,即处于货币政策紧缩阶段,公司的现金持有会显著减少。相比于国有企业,货币紧缩政策对民营企业的现金持有影响更大,民营企业的现金持有在货币紧缩阶段减少得更多。本文进一步分析发现,在货币紧缩阶段,公司当期投资并未出现下降。这说明在货币紧缩阶段,为确保当期投资顺利进行,公司会使用自有现金来补充由于银行信贷减少引起的资金不足。     

Arbitrage and knowledge

I investigate in depth the contemporary, nation-wide arbitrage phenomenon of copper penny hoarding. While penny hoarding represents a “pure arbitrage” opportunity, it also clearly demonstrates the knowledge problems that face those entrepreneurs who are fully informed about intra-market price differences. This paper contrasts the Neoclassical and Austrian views on the role of information and knowledge in arbitrage, emphasizing the greater depth in understanding to be gained from the knowledge-based Austrian approach, as opposed to the information-based Neoclassical approach.