MONETARY POLICY AND LONG-TERM INTEREST RATES

Movements in long-term interest rates Granger-cause movements in the target federal funds rate, but not vice versa, during 1990–2001. This implies that changes in the monetary policy stance, as measured by the target rate, are predicted by the bond market. Moreover, even innovations to the target rate have little effect on long-term interest rates. The policy instrument seems to be responding to information that is already impounded in the bond market. In sharp contrast, during an earlier period, changes in the target federal funds rate are mostly unanticipated by the bond market, and innovations to the policy target have a large and significant effect on long-term interest rate. ( JEL E52, E43)     

预期到的与未预期到的财政政策冲击及其宏观影响*

本文根据1999-2014年中国宏观经济季度数据,在动态随机一般均衡模型框架下,考察了预期到的与未预期到的财政政策的宏观经济效应及其传导机制。本文研究发现：第一,预期到的与未预期到的财政政策均具有显著的宏观经济效应,二者合起来可以解释3634%的产出波动、1424%的就业波动和618%的物价波动;第二,与未预期到的财政政策直接影响经济均衡系统不同,预期到的财政政策主要是通过影响经济主体关于未来经济状态的信念来改变经济的均衡配置;第三,财政政策的宏观经济效应不仅取决于所选取的政策类型,而且受公众预期的影响。因此,政府不仅应当根据宏观经济目标理性选择财政政策工具,而且需要合理引导公众预期,以增强财政政策的针对性和有效性。     

Stochastic and structural fiscal policy in a monetary stationary economy

In the framework of a monetary asset pricing model which is simple enough to generate closed form formulae for equilibrium price functions the interactions between output, fiscal policy, and asset markets is investigated. With money yielding liquidity services in the exchange process real stock prices are negatively correlated with anticipated (stochastic) fiscal policy changes, while the impact of unanticipated (structural) fiscal policy on the stock market depends qualitatively on the ‘business cycle’ of the economy. It is shown that the monetary character of the economy, more precisely the role of money in the exchange process, is critical for the relationship between fiscal policy and real share prices. Moreover, while contingent fiscal policy measures may be successful in stabilizing the real interest rate on money they are incapable of achieving a stable term structure of the real rate on stocks. In contrast, uncontingently higher public expenditures generally promote the volatility of the real rates on financial assets.     

FINANCIAL MARKET RESPONSES TO MONETARY POLICY CHANGES IN THE 1990S

The operating target for monetary policy in the United States has changed from borrowings in the late 1980s to a target range for the fed funds rate to a specific fed funds target. In addition, secrecy about the policy target has largely disappeared, and since 1994 policy targets have been announced immediately. This article explores the impact of policy decisions on short-term interest rates as the policy announcements have changed. The authors find that the policy changes had a larger impact when the Fed moved to a specific emphasis on the fed funds rate. However, since the Fed began to announce the targets, policy changes have had a lesser effect on rates.     

Monetary policy and long-term US interest rates

This paper assesses the effect of federal funds rate innovations on longer-term US nominal interest rates across different periods. The evidence suggests that these responses change with changes in the monetary policy regime. Time periods considered are pre- and post-1979 and different Federal Reserve Chairman’s tenure. The response of longer-term interest rates to federal funds rate innovations are shown to be smaller and less persistent in the post-1979 period when the Federal Reserve placed more emphasis on inflation.     

Chinese Shadow Banking: The Case of Trust Funds

Abstract:

This study provides an updated analysis of Chinese trust funds—a specialized and important type of shadow banking. This study is the first to estimate the contribution of Chinese trust funds to economic growth, and also the first to examine the association between trust funds and the volatility of Chinese stock markets. It makes a novel contribution in showing that Chinese trust loans play a negative role in interest rate passthrough from the policy rate to the lending rates of commercial banks.     

Interest rate dispersion and volatility in the market for daily funds

The purpose of this paper is to study the determinants of equilibrium in the market for daily funds. We use the EONIA panel database which includes daily information on the lending rates applied by contributing commercial banks. The data clearly show an increase in both the time series volatility and the cross-section dispersion of rates towards the end of the reserve maintenance period. These increases are highly correlated. We design a model to account for these empirical facts. Our theoretical model shows how the operational framework of monetary policy causes a reduction in the elasticity of the supply of funds by banks throughout the reserve maintenance period. This reduction in the elasticity together with market segmentation and heterogeneity is able to generate distributions for the interest rates and quantities traded with the same properties as in the data. We also investigate the effects of the changes in the Eurosystem's operational framework, enacted on March 2004, for interest rate behaviour.     

The Impact of Monetary Surprises on Australian Financial Futures Markets: An Insight into Cash Rate Target Announcements

This paper investigates the impact of unanticipated Australian monetary policy changes on AUD/USD exchange rate futures, and 3‐year and 10‐year Australian Treasury bond futures, during the period from January 1997 to April 2010. Our study contributes to the literature by using both the 30‐day and the 90‐day bank accepted bill (BAB) rates to disentangle the unexpected surprise component of monetary policy changes from overall cash rate target changes in the Australian money market, and by concurrently modelling the effects of monetary surprises and other key macroeconomic announcements in Australia. The empirical results suggest that the 30‐day BAB rate is the best proxy for the expected monetary policy actions. We find that the effect of monetary surprises on the volatility of the 3‐ and 10‐year bond future instruments is significant and persistent. We have also documented a strong monetary policy effect on the mean returns of the exchange rate futures, indicating that unexpected monetary policy adjustments have a significant impact on the level of the exchange rate movements rather than on the volatility of the FX futures market.     

The Effect of Changes in Monetary Policy on Consumer and Business Confidence

This article examines the response of consumer and business confidence to five measures of change in Australian monetary policy. Actual, expected and surprise increases in the official cash rate target and related interest rates are shown to negatively impact consumer sentiment. Business confidence is less affected by increases in the cash rate target, but is negatively affected by an increase in the 90-day bank accepted bill rate. Tests for model stability and asymmetries in the response of sentiment to increases and decreases in interest rates otherwise find only limited evidence for monetary policy having a perverse signalling effect on sentiment.     

Financial leverage and market volatility with diverse beliefs

We study a general equilibrium model of asset trading with financial leverage, where the investors can engage in speculative trading with diverse beliefs about the asset??s fundamental value. We show that an increase in the leverage ratio causes the stock price to rise in the current period through a ??leverage effect??, and will result in more borrowing and more stock purchase that pumps the stock price higher in the subsequent period, known as the ??pyramiding effect??. There can also be a ??depyramiding effect?? when the price falls because lenders issue margin calls and force stock sales, contributing to further stock price plummeting. Price changes from depyramiding effect, however, may not take effect when margin calls are not triggered. We demonstrate that, under certain conditions, decreasing leverage ratios leads to lower stock price volatility, measured by the variation of prices caused by an exogenous shock, when the shock is unanticipated. The influences of dispersion of beliefs and available investment funds on the relation between financial leverage and market volatility are also examined. When the shock is anticipated, we demonstrate that reducing leverage ratios may not lower stock price volatility, which poses an important challenge to future studies on this issue.     

我国货币政策能减小宏观经济波动吗?基于货币政策反应函数的分析

我国宏观经济过去20年间的一大特征就是高增长、高波动,但1996年后波动性有所减小.本文目的就在于考察我国货币政策对宏观经济稳定的影响.通过构建反映我国利率双轨制以及相应汇率制度的前瞻性货币政策反应函数,从管制利率和市场化利率两个维度,用GMM模型实证估计了1987-2007年间以及1996年前后的反应函数,结果发现其可作为衡量我国货币政策实施效果的基准;同时管制利率在1996年以前有放大经济波动的效果,而1996年以后对产出表现出显著的逆周期调控特征,但央行利率调控效果因没有从管制利率有效传导到市场化利率而减弱.此外,我国管制和市场利率都对通胀反应不足,这使得通胀在我国有自我实现的可能.     

Mortgage contracts in a general equilibrium model when there are inflation shocks

This paper examines the general equilibrium effects of anticipated and unanticipated inflation shocks when an asset such as housing is financed by long-term contracts. Unlike other analyses of housing and mortgage finance, this model specifies that financial markets are fully integrated. Within a simple three-period overlapping generations model, agents obtain a mortgage in the first period and maximize utility under the constraint that no borrowing for consumption is allowed. Following inflation shocks, transition paths of endogenous interest rates, house prices, and welfare can be traced in simulations of the economy under the assumption of rational expectations. When nominal contracts prevail, an unexpected increase in the inflation rate causes a decline in the real rate of interest, owing to adjustments in the loanable funds market. Thus, real effects emerge even in the absence of tax distortions or explicit modelling of uncertainty. I contrast these real effects, given loans in the form of adjustable rate mortgages, with the absence of such effects when loans are price-level-adjusted mortgages.     

The reaction of spot and forward rates to new information

This paper examines the impact of new information on the term structure of exchange rates. In particular, the response of spot and forward exchange rates to anticipated and unanticipated weekly U.S. and Canadian money growth announcements, and the speed of adjustment of the foreign exchange market to these announcements are investigated. The results indicate that the unanticipated component of the announced changes in the U.S. money supply has an immediate negative effect on the foreign value of the U.S. dollar. This is entirely consistent with the assetmarket theory of exchange rate determination that postulates that exchange rates immediately adjust to reflect ‘new information’. The response of the forward market, however, appears to be weaker, lending support to the overshooting hypothesis.     

The effects on output of anticipated and unanticipated money growth: a case study of an oil-producing country

The new classical macroeconomic hypotheisis regarding the effecs of money growth on real variables sugggests that the anticipated changes in money supply on real variables are neutral, irrespective of the time horizon; whereas, the unanticipated changes in the money supply, although neutral in the long run, exert, significant influence on real variables in the short run. This proposition has produced unsettled empirical results. The present study attempts to verify empirically the new classical hypothesis in the case of a developing oil-producing Middle Eastern country, Iraq. Our study suggests that the anticipated components of money growth rates have positive and significant influence on real variables. The results of this study do not lend support to the new classical hypothesis. Instead they suggest that a steady growth rate of money supply that is fully anticipated by economic agents builds confidence by reducing errors in expectation regarding the behaviour of the money supply and provides easier access to liquid funds for capital formation.     

From Peg to Float: Exchange Market Pressure and Monetary Policy in the Czech Republic

Exchange market pressure (EMP) in the Czech Republic is calculated for 1995–2006, when the Czech National Bank transitioned to inflation targeting (IT). EMP is a useful indicator of incipient foreign exchange market pressures, a signal of the need for policy adjustments and a clear delineator of monetary policy regime change. VAR estimates clearly identify quite different policy responses during the two regimes. During 1995–98, interest rate and domestic credit responses to EMP were statistically significant and in accord with traditional theory, i.e. domestic credit creation and interest rates were managed to maintain the exchange rate target as if policymakers were explicitly responding to changes in EMP. During the 1998–2006 IT regime there is a link between domestic credit creation and EMP, with no interest rate effects. Exchange market interventions were incidental and supportive of IT goals. Impulse response functions mirror the VAR and Granger causality results.     

Financial market imperfections and monetary policy strategy

In a model with imperfect money, credit and reserve markets, we examine if an inflation-targeting central bank applying the funds rate operating procedure to indirectly control market interest rates also needs a monetary aggregate as policy instrument. We show that if private agents use information extracted from money and financial markets to form inflation expectations and if interest rate pass-through is incomplete, the central bank can use a narrow monetary aggregate and the discount interest rate as independent and complementary policy instruments to reinforce the credibility of its announcements and the role of inflation target as a nominal anchor for inflation expectations. This study shows how a monetary policy strategy combining inflation targeting and monetary targeting can be conceived to guarantee macroeconomic stability and the credibility of monetary policy. Friedman's k-percent money growth rule, which can generate dynamic instability, and two alternative stabilizing feedback monetary targeting rules are examined.     

The effect of FOMC statements on asset prices

Given their increased importance during recent years, FOMC (Federal Open Market Committee) statements can have a significant impact on asset prices. To capture the effect of FOMC statements on asset prices, an indicator variable is created that takes into account the information content of policy statements. Results show that both ‘interest rate surprises’ and ‘FOMC statements’ affect the mean and the volatility of asset prices. The volatility impact is tent-shaped, jumping within the policy announcement interval and declining before and after the release. FOMC statements have a much more pronounced impact on stock returns, intermediate and long-term yields, while short-term rates are largely driven by target rate decisions. We also find that the evolution of the language of the FOMC statements does matter to market participants and, in particular, the ‘forward-looking’ language adopted in mid-2003 has reduced market volatility associated with ‘interest rate surprises’ on announcement days.     

How to avoid the consequences of anticipated monetary policies

Summary. This paper analyzes how monetary policy in an overlapping generations model can be designed to avoid inflationary consequences of anticipated changes of monetary policies. Avoiding these inflationary consequences will require a once and for all increase (decrease) in monetary growth immediately before the policy switch takes place if the relative risk aversion is greater (less) than unity. If the relative risk aversion is greater than unity, the avoidance of inflationary consequences is also time-consistent. Moreover, a general monetary feedback rule ensures that the economy picks the steady state with the lowest inflation rate. Our results suggest that the difference between unanticipated and anticipated policy switches may not be as important as generally assumed, because the consequences of the latter can be neutralized. Received: September 19, 1995; revised version: July 27, 1998     

Inflation Expectations and Monetary Policy Surprises*

We estimate monetary policy surprises for European consumers over time, based on monetary policy changes that were unanticipated according to consumers’ stated beliefs. We find that such monetary policy surprises have the opposite impact on inflation expectations from the impact found when assuming that consumers are well informed. Relaxing the latter assumption by focusing on consumers’ stated beliefs, unanticipated increases in the interest rate raise inflation expectations before the 2008 financial crisis. This is consistent with imperfect information theoretical settings where interest rate hikes are interpreted as positive news about the state of the economy by consumers who know that policymakers have relatively more information.     

Output and unemployment dynamics in transition

This paper examines transition dynamics in a search economy. We contrast two extreme cases: a completely unexpected reform and a fully anticipated reform. We show that announcing the reform in advance leads to stagnation in anticipation and output cycles after the implementation, that are more volatile than had a reform of identical magnitude been implemented immediately. However, the more volatile output trajectory of the anticipated case yields a higher PDV of output than an unanticipated reform of equal magnitude. This suggests that an anticipated reform is better than an unanticipated reform, even though the former induces greater volatility.