Understanding China’s monetary policy: an institutional perspective

Given China’s status as a large transitional economy, analysing the country’s monetary policy requires an understanding of the institutional and policy environment within which monetary policy operates. As China’s monetary policy has multiple objectives and the central bank is subordinate to the State Council in monetary policy decisions, addressing deep-rooted structural issues and improving governance and institutions are essential so that monetary policy can be more focused and effective. Confronted with the Impossible Trinity dilemma, China faces daunting challenges in tackling the inevitable policy choice between monetary autonomy and exchange rate control as its capital account increasingly liberalises. This article analyses China’s unique and evolving monetary policy framework from an institutional perspective and evaluates the challenges to monetary management and reforms. Relevant policy implications for monetary policy implementation are also discussed.     

The effectiveness of FERC’s transmission policy: is transmission used efficiently and when is it scarce?

We investigate the impact of FERC’s policy to create Independent System Operators (ISOs) that independently manage regional electricity transmission resources and institute regional electricity exchange markets. Our analysis examines how the formation of the PJM ISO affected inter-regional electricity trading costs during the period from March 1997 to June 2002. We also examine how ISO formation affected the likelihood of encountering “congestion” in trading electricity between PJM and adjoining regions (particularly the New York ISO and the more loosely organized East Central Area of Reliability (ECAR)). In addition, our analysis estimates the marginal economic value of increased inter-regional transfer capability.      

Monetary policy: Why money matters (and interest rates don’t)

Since the late 1980s the Fed has implemented monetary policy by adjusting its target for the overnight federal funds rate. Money’s role in monetary policy has been tertiary, at best. Indeed, several influential economists suggest that money is irrelevant for monetary policy because central banks affect economic activity and inflation by (i) controlling a very short-term nominal interest rate and (ii) influencing financial market participants’ expectation of the future policy rate. I offer an alternative perspective: Money is essential for monetary policy because it is essential for controlling the price level, and the monetary authority’s ability to control interest rates is greatly exaggerated.     

Is social justice for or against liberty? The philosophical foundations of Mill and Hayek’s theory of liberty

By comparing the philosophical foundations of Mill and Hayek’s theory of liberty, this paper shows that some similarities in the economic theories of Mill and Hayek are actually based on different rationales. It follows that any attempt to find a common thread in Mill and Hayek to provide reasonable guidance for social policy can be promising only if we can find the common ground from their social philosophy. While analyzing the rationales behind their opinions regarding the role of government and taxation policies, this paper will focus on exploring the role of two philosophical ideas, liberty, and justice. This will clarify the relationship between social justice and liberty as well as their status in relation to the ultimate principle of rules in the philosophy of Mill and Hayek. This paper will offer an explanation why, in Mill’s utilitarian philosophy, the pursuit of social justice aligns with the real freedom of everyone, but in Hayek’s philosophy, it is a hindrance.     

Time-varying transmission efficiency of China’s monetary policy

This paper tries to investigate the time-varying characteristics of China’s monetary policy transmission from the impulse response evidence of both open-economy DSGE model and TVP-VAR model. We find that the transmission efficiency of price-based monetary policy has significantly improved over the sample period, while quantity-based monetary policy is weakening. The resume of exchange reform in 2010 also strengthens the exchange rate channel especially in terms of price-based monetary policy. Combining with the evidence from DSGE model underlines the importance of further interest rate liberalization and price-based monetary policy Taylor rule should also consider the exchange rate stability.     

Hayek’s monetary theory and policy: A note on alleged inconsistency

Challenging the dominant view, we claim that Hayek’s monetary views did not significantly change over his lifetime. The prevalent perception of early Hayek as a money stream stabilizer and late Hayek as a price level stabilizer is attributable to an unjustified normative interpretation of Hayek’s positive analysis. We argue that in his contributions to monetary theory, Hayek took the goals of monetary policy as exogenously given and analysed the efficiency of different means of achieving them. Hayek’s allegedly inconsistent transformation from a critic to an advocate of price level stabilization is explained by a change of issues under his focus, rather than by a change in his positive views. We also claim that Hayek was always aware that every practical monetary policy involves difficult trade-offs and that he was therefore reluctant to impose his own value judgments on what people should strive for.     

The European Commission’s new NAIRU: Does it deliver?

The non-accelerating inflation rate of unemployment (NAIRU) is a key component of potential output and as such critically affects output gap estimates. In May 2014, the European Commission changed its specification of the NAIRU for several countries and lowered its NAIRU estimates – in the case of Spain from 26.6% to 20.7% for 2015. To test the dependence of the new NAIRU on unemployment versus structural factors, we run counterfactual simulations applying 1SD shocks to actual unemployment and to the structural variable – real unit labour costs. We find that the NAIRU in its new specification is still largely determined by actual unemployment. This calls in question both the interpretation of potential output estimates as barriers to more vigorous inflation-stable economic activity and the accuracy of structural deficit figures.     

Gender imbalance in China’s marriage migration: Quantitative evidence and policy implications

While gender-imbalanced marriage migration across borders and regions and its socioeconomic impacts have been widely reported in developing nations, this paper reports empirical findings based on data from China since 1980. China’s international marriages were characterized with more than 95% of brides from mainland China in the 1980s but the proportion has dropped gradually to around 60% in recent years. Analysis of China’s census data and a panel dataset from Shanghai suggests that proportionally more women migrated from relatively less-developed to more-developed regions through marriage and the variation in income across regions is the key factor behind the migration pattern. China’s gender-imbalanced marriage migration has caused problems such as male marriage squeeze in poor rural areas and “leftover women” in large cities like Shanghai. Policies for poverty reduction and more balanced economic development across regions are recommended for reducing such gender imbalance and the associated socioeconomic problems.     

China’s direct investment in the European Union: challenges and policy responses

The dramatic rise of Chinese direct investment into the European Union (EU) has sparked a debate about the control that China may be seeking to take over European economies. Quite naturally, these concerns have led to repeated calls that action be taken to slow down, if not to halt entirely, this growing trend. The objective of the article is to shed light on this debate. Following a thorough analysis of Chinese direct investment in the EU, this article suggests that the challenges posed by these inflows are widely overblown. Despite this, the article concludes that it is necessary to have a systematic approach to regulating inbound foreign investment (including from China) in the EU. Such an approach may help guard against the risk of a protectionist drift inside the EU, as well as the possibility that some investors may one day pose a threat to national security. This article concludes that although the current fragmented regulatory approach is unsatisfactory, because of the difficulties associated with a unified EU-wide review process, the most realistic option is to promote a more systematic and coordinated use of existing mechanisms such as competition policy. Also, pushing for the negotiation of a China–EU BIT is certainly a promising avenue to enhance the EU’s bargaining leverage based on the principle of positive reciprocity.     

Technology transfer: economic factors that influence transferor and transferee’s choice*

ABSTRACT

This research presents itself as one of the earliest studies to consider economic factors that influence decision making in an international technology transfer while considering the perspectives of the transferor and transferee individually. Unlike previous studies, this study takes a multi-variable analysis approach in considering these factors through the development of a common analytical framework that can be applied to similar studies. The methodology used herein is quantitative and involves a multiple regression analysis, which combines variables examined unilaterally in earlier studies. The results show that economic factors that influence a transferor’s choice of a transferee include inflation rate, currency exchange rate, and foreign direct investment while in the converse relationship, the results prove that in addition to inflation rate, currency exchange rate, and foreign direct investment, official development assistance was also relevant.     

South Africa’s monetary policy independence: evidence from a Global New-Keynesian DSGE model

We study the response of South African monetary policy decisions to foreign monetary policy shocks. We estimate the extent of foreign monetary policy pass through by augmenting standard Taylor rules and comparing the results within the context of a Global New-Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. The general equilibrium model captures important spill-over effects that would otherwise have been ignored in a single equation set-up. The results show that the relationship between foreign monetary policy shocks and South African interest rates is complicated – South Africa does not import foreign monetary policy directly, but is still affected. Except for the US, an increase in foreign interest rates leads to a decrease in South African interest rates – highlighting the complex channels that the monetary policy authority has to monitor outside of its economy.     

China’s house price: Affected by economic fundamentals or real estate policy?

Many theory and empirical literature conclude that house price can reflect economic fundamentals in the long-term. However, by using China’s panel data of 35 main cities stretching from 1998 to 2007, we find that there is no stable relationship between house price and economic fundamentals. House price has deviated upward from the economic fundamentals since government started macro-control of the real estate market. We consider that the mechanism between the house price and economic fundamentals is distorted by China’s real estate policy, especially its land policy. Meanwhile the policy itself is an important factor in explaining the changes of China’s house price. Then we estimate the dynamic panel data model on house price and the variables which are controlled by real estate policy. The result shows: land supply has negative effects on house price; financial mortgages for real estate have positive effects on house price; and the area of housing sold and the area of vacant housing, which reflects the supply and demand of the housing market, has negative effects on house price. We also find some differences in house price influence factor between eastern and mid-western cities. Finally, we propose policy suggestions according to the empirical results.     

International spillovers of ECB’s unconventional monetary policy: the effect on Central Europe

We examine how unconventional monetary policy of the European Central Bank (ECB) influences macroeconomic stability in three Central European economies. We estimate various panel vector autoregressions (PVARs) using monthly data from 2008 to 2014. Using the shadow policy rate and central bank assets as measures of unconventional policies, we find that output growth and inflation in Central Europe temporarily increase following an expansionary unconventional monetary policy shock by the ECB. Using both impulse responses and variance decompositions, we find that the effect of unconventional policies on output growth is much stronger than the effect on inflation.     

More than words: the effects of cheap talk in a volunteer’s dilemma

We theoretically and experimentally investigate a game in which exactly one person should make a costly effort to achieve a socially efficient outcome. This setting is commonly known as the volunteer’s dilemma. We implement one-way communication by allowing one player to send a message indicating whether she intends to volunteer and investigate the message’s effects on behavior and efficiency in the subsequent game. We theoretically demonstrate that there are asymmetric mixed-strategy equilibria in the volunteer’s dilemma and argue that one of these is likely to emerge through one-way communication. The experimental data support this notion. We find that the actions of both the sender and receiver of the message are crucially affected by the cheap talk stage and that efficiency in the volunteer’s dilemma increases with one-way communication.     

Keynes’s liquidity preference and the usury doctrine: their connection and continuing policy relevance

The purpose of this paper is to support the spirit of the early medieval prohibition of payment for the use of money, with arguments based on the economics of Keynes. At the heart of the usury doctrine is the idea that a creditor cannot expect both the security of a claim on a fixed sum of money and to derive an income from it; security comes at a price, one way or another. The consequences of the unwillingness of modern society to accept this are illustrated by reference to two problems of the modern international financial and monetary system: bank bailouts and the lack of a supranational reserve currency.