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| Author | : Jiri Podpiera |
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| Total Pages | : |
| Release | : 2005 |
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| Author | : Konstantinos Mavromatis |
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| Total Pages | : |
| Release | : 2012 |
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The thesis consists of three chapters of self-contained empirical and theoretical studies. In Chapter 1, I examine whether the Balassa-Samuelson effect is indeed the reason behind the behaviour of the currencies of transition economies. So far, in the literature, transition Economies appear to be subject to the Balassa-Samuelson effect. This implies that their currencies experience a prolonged appreciation in real terms as their convergence goes on. However, in the current literature, the effects of the capital account have not been analyzed extensively. In this paper I show that the capital account, rather than productivity, is a key determinant of the appreciation of the currencies of transition economies. I find that a long-run relationship exists between the real exchange rate, productivity, the real interest rate differential and the capital account. Moreover, those variables are found to cointegrate in a nonlinear fashion according to a smooth transition autoregressive model. This implies that a multivariate smooth transition error correction model is the appropriate model to describe their short-run and long-run dynamics. In Chapter 2, I examine the importance of a real exchange rate target in the monetary policy of a central bank. I address that question both empirically and theoretically. Using monthly data I estimate of a structural VAR model for the Eurozone providing evidence in favour of real exchange rate targeting. I examine this case theoretically using a twocountry DSGE model; I find that when the home central bank includes a real exchange rate target in its interest rate rule, it achieves lower welfare losses compared to the Taylor rule. Contrary to similar papers, I compute the optimized coefficients in the interest rate rules considered. I show that the benefits from real exchange rate targeting at home rise as persistence in inflation and output increases. In the robustness analysis I show that a rise in the fraction of backward looking consumers affects negatively the performance of the real exchange rate targeting rule and positively that of the Taylor rule. Asymmetries in the degree of rule-of-thumb behavior in consumption have important effects, as regards the performance of a real exchange rate targeting rule. The performance of both rules is not sensitive to variations in the degree of backward looking price setting behavior . In Chapter 3, I show, using both empirical and theoretical analysis, that changes in monetary policy in one country can have important effects on other economies. My new empirical evidence shows that changes in the monetary policy behaviour of the Fed since the start of the Euro, well captured by a Markov-switching Taylor rule, have had significant effects on the behaviour of inflation and output in the Eurozone even though ECB's monetary policy is found to be fairly stable. Using a two-country DSGE model, I examine this case theoretically; monetary policy in one of the countries (labelled foreign) switches regimes according to a Markov-switching process and this has nonnegligible effects in the other (home) country. Switching by the foreign central bank renders commitment to a time invariant interest rate rule suboptimal for the home central bank. This is because home agents expectations change as foreign monetary policy changes which affects the dynamics of home inflation and output. Optimal policy in the home country instead reacts to the regime of the foreign monetary policy and so implies a time-varying reaction of the home Central Bank. Following this time-varying optimal policy at home eliminates the effects in the home country of foreign regime shifts, and also reduces dramatically the effects in the foreign country. Therefore, changes in foreign monetary regimes should not be neglected in considering monetary policy at home.
| Author | : Christoph Himmels |
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| Total Pages | : |
| Release | : 2012 |
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This thesis consists of three essays on optimal monetary policy. In the first essay I study time-consistent monetary policy in an small open economy model with incomplete financial markets. I demonstrate the existence of two discretionary equilibria. The model is capable of explaining periods of different exchange rate volatilities as well as the transition between those regimes. Following a shock the economy can be stabilised either `quickly' or `slow', where both dynamic paths satisfy the conditions of optimality and time-consistency. I also show that a policy of partially targeting the exchange rate results in far worse welfare outcomes relative to a strict inflation targeting policy. In the second essay, I analyse how a policy maker can avoid expectation traps and coordination failures. Using a framework developed by Schaumburg and Tambalotti (2007) and Debortoli and Nunes (2010) in which a policy maker may or may not default on past promises I show that already mild degrees of precommitment are sufficient to generate uniqueness of the Pareto-preferred equilibrium. In the last chapter, I examine optimal monetary policy from an empirical perspective. I estimate a simple small open economy model separately for a policy maker acting under commitment and discretion and find that the data favours the commitment approach. Furthermore, the data suggest that the Bank of Canada did not target the nominal exchange rate in the inspected time period.
| Author | : Saksit Budsayaplakorn |
| Publisher | : |
| Total Pages | : 408 |
| Release | : 2004 |
| Genre | : Anti-inflationary policies |
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| Author | : Vladimir Nikolayevich Klyuev |
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| Total Pages | : 135 |
| Release | : 2000 |
| Genre | : Foreign exchange rates |
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| Author | : Tuan Anh Phan |
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| Total Pages | : 0 |
| Release | : 2015 |
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This thesis presents four self-contained empirical research papers on monetary policy and monetary transmission using vector autoregression (VAR), structural VAR (SVAR), and Bayesian time-varying parameter VAR (TVP-VAR) models. The first two papers compare aspects of monetary policy and transmission in selected developed countries: Australia, the US, and the Euro area (Chapter 3); and Australia, the US, UK, and Canada (Chapter 4). The last two papers (Chapters 5 and 6) explore monetary policy and effects of monetary policy on inflation in Vietnam - a transition developing country. The empirical results indicate that the investment channel of monetary policy transmission plays a more important role than the consumption channel in Australia. Meanwhile the investment channel and the consumption channel make similar contributions to the overall transmission of monetary policy in the Euro area and the US. The difference between Australia and the Euro area appears to come from differences in housing investment responses, whereas Australia differs from the US mainly because it has a lower share of household consumption in total demand. Results from TVP-VAR models suggest that there were comovements in the monetary policy reactions to unemployment across countries before the recent Global Financial Crisis (GFC). The policy rate seems to react more strongly to unemployment changes in more recent years, especially in the US and UK. Monetary policy responses to inflation/deflation are observed to be divided into two groups, with the responses in the US and UK showing a different pattern to the responses in Canada and Australia. Monetary policy seems to react most aggressively against inflation/deflation in the US. The effects of monetary policy shocks on unemployment and inflation are similar across countries, and seem to have weakened over time. Results also suggest that monetary policy transmission to inflation in a transition country like Vietnam appears to work in a similar way to as in developed countries. The impulse response functions of inflation to shocks in monetary policy are plausible and robust across the VAR and SVAR models. The policy interest rate plays an important role in affecting inflation. For the case of Vietnam as a small, open economy, shocks to output and prices in trading partners also appear to have strong effects on domestic inflation. Allowing for the time-varying nature of the parameters and variance/covariance matrices, the results suggest that the State Bank of Vietnam (SBV) appears to have been steadily using monetary policy tools to contain inflation. TVP-VAR results also confirm that monetary policy in Vietnam appears to lead to reasonable inflation responses. The evidence therefore supports the argument that Vietnam's monetary policy might be more effective than expected.
| Author | : Kihyun Park |
| Publisher | : |
| Total Pages | : 147 |
| Release | : 2010 |
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This dissertation studies the dynamic effects of various economic shocks in a two-sector small open economy. It is divided into three essays. Essays 1 and 2 have a theoretical focus; they involve the developing of intertemporal optimizing models of a small open economy. In these essays, we use the representative-agent framework to derive dynamic macroeconomic effects. Specifically, in the first essay we examine the effects of monetary policy targeted at an inflation rate in a small open economy. We adopt a two-sector dependent economy where money is introduced through various cash-in-advance (CIA) constraints. Results are very significant and sensitive to various CIA constraints as well as relative capital intensities. Higher inflation will generate more investment in the economy leading to a higher level of capital stock and a lower level of net foreign assets in the long-run when the nontraded sector is more capital intensive and households need cash for purchasing tradable goods. However, the long-run effects are completely opposite if households need real balances for purchasing nontradable goods instead. In the second essay we examine the effects and the associated dynamics of an increase in international oil prices and domestic inflation. We show that an increase in oil prices or higher domestic inflation lowers the level of investment, production, and consumption in the long-run. The economy experiences a current account surplus along with a fall in capital stock by holding more foreign traded bonds. Transitional dynamics significantly depend on sectoral capital intensity as well. In essay 3 we investigate the explanatory power of yield spread in predicting economic activities in developing economies. We employ both the Markov regime switching model (MS) and the probit model to estimate the probability of recessions during the Asian financial crisis. We find that three-regime MS model is better predictor of recessions than tworegime MS model. The MS results are also compared with that of the standard probit model for comparison. The MS model does not significantly improve the forecasting ability of the yield spread in forecasting business cycles.
| Author | : International Monetary Fund |
| Publisher | : International Monetary Fund |
| Total Pages | : 33 |
| Release | : 1998-03-01 |
| Genre | : Business & Economics |
| ISBN | : 1451844239 |
Recently, monetary authorities have increasingly focused on implementing policies to ensure price stability and strengthen central bank independence. Simultaneously, in the fiscal area, market development has allowed public debt managers to focus more on cost minimization. This “divorce” of monetary and debt management functions in no way lessens the need for effective coordination of monetary and fiscal policy if overall economic performance is to be optimized and maintained in the long term. This paper analyzes these issues based on a review of the relevant literature and of country experiences from an institutional and operational perspective.
| Author | : Ramon Antonio Gonzalez Hernandez |
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| Release | : 2008 |
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Research macroeconomists have witnessed remarkable methodological developments in mathematical, statistical, and computational tools during the last two decades. The three essays in this dissertation took advantage of these advances to analyze important macroeconomic issues. The first essay, " Habit Formation, Adjustments Costs, and International Business Cycle Puzzles" analyzes the extent to which incorporating habit formation and adjustment costs in investment in a one-good two-country general equilibrium model would help overcome some of the international business cycle puzzles. Unlike standard results in the literature, the model generates persistent, cyclical adjustment paths in response to shocks. It also yields positive cross-country correlations in consumption, employment, investment, and output. Cross-country correlations in output are higher than the ones in consumption. This is qualitatively consistent with the stylized facts. These results are particularly striking given the predicted negative correlations in investment, employment, and output that are typically found in the literature. The second essay, "Comparison Utility, Endogenous Time Preference, and Economic Growth," uses World War II as a natural experiment to analyze the degree to which a model where consumers' preferences exhibit comparison-based utility and endogenous discounting is able to improve upon existing models in mimicking the transitional dynamics of an economy after a shock that destroys part of its capital stock. The model outperforms existing ones in replicating the behavior of the saving rate (both on impact and along the transient paths) after this historical event. This result brings additional support to the endogenous rate of time preference being a crucial element in growth models. The last essay, "Monetary Policy under Fear of Floating: Modeling the Dominican Economy," presents a small scale macroeconomic model for a country (Dominican Republic) characterized by a strong pr
| Author | : Gergő Motyovszki |
| Publisher | : |
| Total Pages | : 156 |
| Release | : 2021 |
| Genre | : Macroeconomics |
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This thesis is composed of three independent chapters, but all centered around the broader topic of how macroeconomic policies interact with various aspects of household heterogeneity. Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high and less-skilled workers. In particular, this effect is prominent in sectors intensive in less-skilled labor, that exhibit high degree of capital-skill complementarity (CSC) and are subject to matching inefficiencies. To rationalize these findings we build a New Keynesian DSGE model with asymmetric search and matching (SAM) frictions across the two types of workers and CSC in the production function. We show that CSC on its own introduces a dynamic demand amplification mechanism: the increase in high-skilled employment after a monetary expansion makes complementary capital more productive, encouraging a further rise in investment demand and creating a multiplier effect. SAM asymmetries magnify this channel. Monetary-Fiscal Interactions and Redistribution in Small Open Economies Ballooning public debts in the wake of the covid-19 pandemic can present monetary-fiscal policies with a dilemma if and when neutral real interest rates rise, which might arrive sooner in emerging markets: policymakers can stabilize debts either by relying on fiscal adjustments (AM-PF) or by tolerating higher inflation (PM-AF). The choice between these policy mixes affects the efficacy of the fiscal expansion already today and can interact with the distributive properties of the stimulus across heterogeneous households. To study this, I build a two agent New Keynesian (TANK) small open economy model with monetary-fiscal interactions. Targeting fiscal transfers more towards high-MPC agents increases the output multiplier of a fiscal stimulus, while raising the degree of deficitfinancing for these transfers also helps. However, precise targeting is much more important under the AM-PF regime than the question of financing, while the opposite is the case with a PM-AF policy mix: then deficit-spending is crucial for the size of the multiplier, and targeting matters less. Under the PM-AF regime fiscal stimulus entails a real exchange rate depreciation which might offset "import leakage" by stimulating net exports, if the share of hand-to-mouth households is low and trade is price elastic enough. Therefore, a PM-AF policy mix might break the Mundell-Fleming prediction that open economies have smaller fiscal multipliers relative to closed economies. Weak Wage Recovery and Precautionary Motives after a Credit Crunch During the economic recovery following the financial crisis many advanced economies saw subdued wage dynamics, in spite of falling unemployment and an increasingly tight labour market. We propose a mechanism which can account for this puzzle and work against usual aggregate demand channels. In a heterogeneous agent model with incomplete markets we endogenize uninsurable idiosyncratic risk through search-and-matching (SAM) frictions in the labour market. In this setting, apart from the usual precautionary saving behaviour, households can self-insure also by settling for lower wages in order to secure a job and thereby avoid becoming borrowing constrained. This channel is especially pronounced for asset-poor agents, already close to the constraint. We introduce a credit crunch into this framework modelled as a gradual tightening of the borrowing constraint (and utilizing a continuous time approach, known as HACT). The perfect foresight transition dynamics feature falling wages despite a tightening labour market and expanding employment. As households suddenly find themselves closer to the borrowing constraint, the increased precautionary motive drives them to accept lower wages in the bargaining process, while firms respond to this by posting more vacancies, leading to a tighter labour market and falling unemployment. If the household deleveraging pressure is persistent enough after the credit crunch, it can explain the weak wage recovery in spite of already stronger aggregate demand.
