Is monetary policy in New Zealand similar to
|
|
- Tamsin Summers
- 6 years ago
- Views:
Transcription
1 Is monetary policy in New Zealand similar to that in Australia and the United States? Angela Huang, Economics Department 1 Introduction Monetary policy in New Zealand is often compared with monetary policy in other countries, such as Australia and the United States of America. Comments are often made suggesting that the Reserve Bank of New Zealand should be more like the Reserve Bank of Australia or the United States Federal Reserve in the operation of monetary policy. It is therefore instructive to assess how different monetary policy in New Zealand would be if other central banks particularly the United States Federal Reserve and the Reserve Bank of Australia were running monetary policy here. This paper examines New Zealand s monetary policy and asks the question: Would the United States Federal Reserve (the Fed) or the Reserve Bank of Australia (the RBA) have operated monetary policy in New Zealand differently if they were in our shoes? Applying estimation results from the internal research of the Bank and research from the Fed, we find that the Taylor rule appears a reasonable characterisation of the broad pattern of interest rates in the United States, Australia and New Zealand. The estimated Taylor rule assumes that the monetary authority responds to deviations of contemporaneous inflation from the inflation target and deviations of current output from potential output, but also allows for interest rate smoothing. Our approach enables us to examine the effects of adopting the somewhat different responses of the Fed and the RBA, and to derive the implied policy path they might have taken if they were charged with controlling monetary policy in New Zealand. The analysis suggests that, over the past decade, both the Fed and the RBA might have acted broadly in much the same way as did the Reserve Bank of New Zealand (RBNZ). Furthermore, we also find some evidence that under the Official Cash Rate (OCR) regime the 1 I am grateful for comments and suggestions from a number of my colleagues, in particular, Chris Plantier, Leni Hunter, David Hargreaves, David Archer, Geof Mortlock and Nils Bjorksten. I take full responsibility for remaining errors and omissions. Bank s policy adjustment appears to have become more flexible, and more like that of the Fed. Have we become more gradualist in our approach? The Taylor rule, first proposed by John Taylor in 1993, has become a popular and useful tool for analysing monetary policy operations. The standard rule postulates that the monetary authority sets short-term nominal interest rates equal to a constant and reacts to deviations of contemporaneous inflation from the inflation target and deviations of current output from potential output (the output gap) 3. The constant in this rule represents an amalgam of the neutral real interest rate and the inflation target. However, many researchers have since found the lagged interest rate to be a significant variable in estimated monetary policy rules. For example, in a recent Federal Reserve Board discussion paper, English, Nelson, and Sack () analyse how well a Taylor rule with interest rate smoothing characterises the broad pattern of the Fed s target interest rate during the Greenspan era. They find that the Taylor rule with interest rate smoothing works well, and that some previous criticisms do not affect the result. We employ the For a non-technical exposition of the Taylor rule, particularly in the New Zealand context, see Plantier L.C. and Scrimgeour D. (), The Taylor rule and its relevance to New Zealand monetary policy, Reserve Bank of New Zealand Bulletin Vol. No The standard Taylor rule can be specified as: i* t = b + b p.p t + b y.y t, where i* t is the Taylor rule short-term interest rate, b is the constant, p is inflation, and y is the output gap. b p and b y are the response coefficients to inflation and the output gap, respectively. The constant term is defined as b = r*- b p.p T, where r* is the neutral real interest rate and p T the inflation target. English W.B, Nelson W. R., and Sack B.P. (), Interpreting the significance of the lagged interest rate in estimated monetary policy rules, Board of Governors of the Federal Reserve System Discussion Paper #. See Rudebusch G.D, (), Term structure evidence on interest rate smoothing and monetary policy inertia, Journal of Monetary Economics (9), THE POLICY TARGETS AGREEMENT: RESERVE BANK BRIEFING NOTE AND RELATED PAPERS, SEPTEMBER 1
2 same technique on data for Australia and New Zealand, and discuss the nature of our policy adjustment before and after we began targeting overnight interest rates in March 1999 (ie the OCR period). Specifically, we estimate two different sample periods for New Zealand one that includes the OCR period and the other that excludes it. Table 1 displays our results for Australia and New Zealand during the Brash era compared with the results generated by English et al () for the United States. The estimates should be viewed as a general indication of monetary policymakers possible reaction, rather than specific coefficient values that add up to prescribe actual interest rate settings. The first three coefficients in Table 1 represent the standard Taylor rule estimated using English et al s () specification. For example, the results in Table 1 for the United States suggest that if inflation increased by one percentage point, all else constant, the Fed would raise policy rates by approximately 1 basis points. On the other hand, if the output gap increases by one percentage point, all else being equal, the output gap coefficient of.7 indicates that the Fed would wish to increase interest rates by around 7 basis points. The next coefficient in Table 1, the weight on last period s interest rate, indicates whether the monetary authority adjusts gradually towards the interest rate implied by the Taylor rule. Again, interpreting the results in Table 1 for the United States, a weight of. on last period s interest rate implies that a weight of. (=1-.) is placed on closing the gap between the current interest rate and the Taylor rule rate, given the reaction coefficients. The fifth coefficient displayed in Table 1 is the coefficient on serially correlated errors. Sometimes in an estimated equation, we may see patterns in the error term, which points to the possibility of omitting significant variables. Hence, to account for this possibility, English et al s () approach includes a coefficient on serially correlated errors to test whether significant factors that explain actual interest rate changes are missing. A striking difference between the results in Table 1 is that the constant appears to be higher in Australia and New Zealand compared with the United States constant. This result is consistent with a common finding that Australia and New Zealand generally have higher real interest rates than in the United States. This finding may relate to a number of factors, including the depth of United States capital markets, Australia s and New Zealand s greater susceptibility to economic shocks, given that they are small open economies, and, in the case of New Zealand at least, a risk premium for the relatively high level of New Zealand s external debt. In comparison with the Fed, the RBNZ in its conduct of monetary policy seemed to place less emphasis on the fluctuations of output around potential GDP, and more emphasis on inflation, prior to the introduction of the OCR regime in This is reflected in the greater volatility of output and interest rates in New Zealand in the period leading up to the adoption of the OCR. Subsequent to the introduction of the OCR, the data indicates a lower level of interest rate and output volatility, reflecting (among other matters) the greater flexibility and interest rate-smoothing capacity of the OCR regime. Interestingly, this estimation approach suggests that the New Zealand response to inflation and output does not seem much different than the United States responses. This similarity contrasts with the generally lower response to inflation in Australia. In fact, the Australian response to inflation is less than 1, although not significantly so. The lower inflation coefficient value of.91 implies that on average for every percentage point increase in inflation, the RBA would increase nominal rates by approximately 91 basis points. Yet, a less than one-for-one response to inflation, particularly during an inflationary episode, would likely lead to an unstable inflationary process, where policy rates do not rise aggressively enough to bring inflation down. For consistency reasons, we impose a coefficient of 1 for the Australian inflation response in the graphs in this paper, given that we only want to see how interest rate settings in New Zealand might change if we responded less aggressively to observed inflation 7. Another key finding is that our policy adjustment appears to have become more gradual under the OCR regime, and that the amount of interest rate smoothing does not look substantially different than in the cases of Australia or the 7 Imposing 1 on Australia s inflation response does not significantly alter other estimated coefficients. THE POLICY TARGETS AGREEMENT: RESERVE BANK BRIEFING NOTE AND RELATED PAPERS, SEPTEMBER
3 Table 1 Estimated monetary policy rule allowing both partial adjustment and serially correlated errors Coefficient NZ (Pre-OCR) NZ (Including OCR) US Australia (19Q-1999Q) (19Q-Q1) (197Q1-Q) (197Q1-Q1) Constant (b ) (.77) (.7) (.) (3.93) Inflation (p) (.3) (3.9) (.) (1.9) Output gap (y) (3.) (1.) (.) (1.37) Weight on last period s (.39) (9.) (.) (.9) interest rate (l) Serially correlated errors (1.) (.1) (.7) (.3) (r) R Note: (1) The estimated monetary policy rule (see footnote ) is made up of the following components: i* t = b + b p.p t + b y.y t (Standard Taylor rule) i t-1 = (1-l).i* t + l.i t-1 + n t n t = r.n t-1 + e t, where n t is a serially correlated error term and other variables are defined in footnote 3 and. () R is reported for regressions in levels. (3) The values in brackets are t-statistics. () United States results are extracted from English et al (). United States. Also, because this technique allows for serially correlated errors as well as interest rate smoothing, the results are more robust than the Bank s previous work on interest rate smoothing. In any case, the coefficient values for serially correlated errors for New Zealand are lower than those of the United States and Australia, indicating that omitted factors may be less of a problem for New Zealand than they are for the United States. Overall, this analysis of the Bank s interest rate settings supports the view that, even with the New Zealand economy s greater susceptibility to shocks, the Bank operates monetary policy in a broadly similar way to that of the Fed. The English et al () estimation approach incorporates the standard Taylor rule in a policy decision rule that includes interest rate smoothing and allows for the possibility of serially correlated errors. The coefficient for serially correlated errors tests whether the lagged interest rate s presence is justified in a monetary policy rule, and also indicates whether there are omitted factors that may cause serially correlated errors. The estimated policy rule in first difference is specified as follows: Di t = (1-l).Di* t + (1-l).(1-r).(i* t-1-i t-1) + l.r.di t-1 + e t, where i t is the actual interest rate and i* t is the Taylor rule rate. l, the weight on last period s interest rate, indicates the inertial movement of the policy rate towards the Taylor rule rate, so the higher the l, the more gradual the policy in moving towards the Taylor rule rate. r is the coefficient on serially correlated errors. Drew A. and Plantier L. C. (), Interest rate smoothing in New Zealand and other dollar bloc countries, Reserve Bank of New Zealand Discussion Paper Series, DP/. New Zealand interest rates compared to interest rates in Australia and the United States From Figure 1 we can see that, during the period from 19Q to Q1, New Zealand s short-term interest rates have moved through a slightly bigger range than have the Fed funds rates 9. Casual observation suggests that our policy 9 US Federal funds rates are very similar to US bankers acceptance 9 day discount rates, thus are comparable with our 9-day bank bill rates. THE POLICY TARGETS AGREEMENT: RESERVE BANK BRIEFING NOTE AND RELATED PAPERS, SEPTEMBER 3
4 is somewhat more reactive, with more turning points, especially over the late 199s, during the Monetary Conditions Index (MCI) period. The difference in the interest rate settings over the period under review may have contributed to perceived differences in the way we operate monetary policy from some other central banks, such as the Fed. However, in considering the different interest rate trends and levels in New Zealand and the United States, it is important to bear in mind that the New Zealand and United States economies are often not in the same stage of the business cycle at the same time and are influenced by different factors. For example, the New Zealand economy has been experiencing relatively robust growth in the last two years, while the United States economy has been in a period of slowdown following its earlier vigorous growth. It is therefore not surprising that New Zealand s interest rates have been following a quite different trend in the last two years than in the United States. Comparisons of interest rate trends and levels between economies therefore need to take into account the different stages of the business cycle and underlying growth rates of the respective economies if meaningful conclusions are to be drawn about the conduct of monetary policy. Figure 1 9 day Bank Bill Rate versus US Federal Funds Rate 19Q-Q1 9-day rate Fed funds rate day Fed Funds bear in mind that the Australian and New Zealand economies are more likely to share similar economic cycles than the United States and New Zealand economies. Therefore, similarity of the broad pattern and level between Australian and New Zealand interest rates does not necessarily mean that the Bank s behaviour is more RBA-like than Fed-like. Figure 9 day Bank Bill Rate versus Australian 13 week Treasury Bill Rate 19Q-Q day AU 13-week T-bill Before deriving implied policy paths for how policy-makers at the Fed and the RBA might operate monetary policy in New Zealand, we require a proxy of how policy-makers operate within their own countries. This is where the Taylor rule comes in. To trace the Taylor rule paths for each country, we apply the estimated coefficients in Table 1. Figures 3, and plot actual interest rates against the Taylor rule rates for the United States, Australia and New Zealand respectively. Figure 3 US Taylor Rule Rates versus US Fed Funds Rates 1 1 Fed Funds US Taylor Rule Figure compares our 9 day bank bill interest rates with Australian 13 week Treasury bill rates over the same period. Our actual interest rate settings appear to be closer to those of the RBA than those of the Fed. While this observation may seem at odds with the results in Table 1, which suggests that the Bank acts more like the Fed than the RBA, one should The Taylor rule rates are derived by imposing the estimated coefficients (including weight on last period s interest rate implied by the Taylor rule) on the each country s data. THE POLICY TARGETS AGREEMENT: RESERVE BANK BRIEFING NOTE AND RELATED PAPERS, SEPTEMBER
5 Figure Australian Taylor Rule Rates versus Australian 13 week T-bill Rates AU T-bills AU Taylor Rule Figure New Zealand Taylor Rule Rates versus 9 day Rates 1 9-day NZ Taylor Rule For New Zealand, the Taylor rule (with a fixed neutral real interest rate) provides a close match to the actual path of short term interest rates for most periods, but fails to explain the relatively low interest rates after. This may reflect a gradual decline in New Zealand s neutral real rate as Plantier and Scrimgeour () suggest 11, or omission of other factors not associated with deviation from potential output or inflation responses. Overall though, the Taylor rule appears to be a reasonable characterisation of actual policy for both the United States and Australia, and for New Zealand for most periods. Therefore, we can use the Taylor rule as a proxy for United States and Australian policy-makers likely response if they were operating monetary policy in New Zealand. Of course, 11 Plantier L.C. and Scrimgeour (), Estimating a Taylor rule for New Zealand with a time-varying neutral real rate, Reserve Bank of New Zealand Discussion Paper Series, DP/ there are significant caveats to this analysis. In particular, we are assuming that the Fed and the RBA would still respond in the same manner when faced with our economic conditions, and that policy responses would not change if policy-makers are faced with real-time inflation and output gap information. Implied policy paths of the Fed and the RBA if they operated monetary policy in New Zealand We derive the Fed s and the RBA s implied policy paths for monetary policy in New Zealand by imposing estimated United States and Australian Taylor rule coefficients on New Zealand data. Figure shows a possible representation of the Fed s reaction and Figure 7 illustrates the implied path for the RBA 13. Interestingly, prior to 1991, it seems that the RBA may have prescribed lower interest rates than did the Bank. Nevertheless, given that our primary focus at the time was to bring inflation down to much lower levels, our actual policy path would appear consistent with this objective. Another observation is that actual interest rates in the last two years of the sample are persistently lower than what the Taylor rule would suggest. As previously mentioned, a recent fall in the neutral real interest rate after the Asian crisis may be one of a few plausible explanations for this trend. See Huang A., Margaritis D., and Mayes D. (1), Monetary policy rules in practice: evidence from New Zealand, Bank of Finland Discussion Papers #1. They show that real-time data does not drastically change NZ Taylor rule estimates. 13 Given that our neutral real interest rate is higher than that of the United States, a constant of.3 is applied to the Taylor rule to form the line US- the Fed s possible path. This constant is derived by imposing the Fed s estimated output gap and inflation coefficients on New Zealand data. A constant of. is applied to the Taylor rule to form the line AU- the RBA s possible path, derived the same way as for the United States. 1 Although not reported, the conclusion remains the same even when we adopt the forward-looking U.S. Taylor rule coefficients using real-time forecast data estimated by a Fed economist. See Orphanides A. (199) Monetary policy rules based on real-time data, Board of Governors of the Federal Reserve System Discussion Paper #3. THE POLICY TARGETS AGREEMENT: RESERVE BANK BRIEFING NOTE AND RELATED PAPERS, SEPTEMBER
6 For the most part, the paths for the Fed and the RBA appear quite similar to our actual policy path 1. Perhaps unsurprisingly, the Fed s implied path is very close to our actual interest rates, as the United States and New Zealand estimated coefficients adopted from table 1 are not substantially different. Nevertheless, from this analysis we tentatively conclude that the Fed and the RBA may not have acted very differently over the last decade if they were faced with our shocks. The timing differences in the hypothesised RBA interest rate settings would necessarily cause some changes in inflation and output variability. However, because inflation variability would likely rise and output variability would likely fall, we do not know whether interest rate variability would be rise or fall in response to these timing differences. Figure Implied Taylor Rule Path for the Fed and 9 day Bank Bill Rates in New Zealand 9-day US Conclusion Over the last two decades, our policy interest rates covered a larger range than those of the Fed, and appear more volatile prior to This variation is at least partly the result of our greater susceptibility to external shocks and the fact that we are occasionally in different stages of the business cycle as compared with the United States. One way to compare monetary policy operation between the central banks is to simulate the Fed s and the RBA s policy responses for New Zealand. We estimate Taylor rules and find that they perform reasonably well in characterising the broad pattern of policy interest rates in the United States, Australia, and New Zealand. The estimation results and the implied policy paths suggest that the Fed and the RBA might not have operated significantly differently if they had been charged with controlling monetary policy in New Zealand. Furthermore, we also find some evidence that under the Official Cash Rate (OCR) regime, the Bank s monetary policy adjustment has become more flexible, and as a result even more Fed-like Figure 7 Implied Taylor Rule Path for the RBA and 9 day Bank Bill Rates in New Zealand 1 9-day AU THE POLICY TARGETS AGREEMENT: RESERVE BANK BRIEFING NOTE AND RELATED PAPERS, SEPTEMBER
Commentary: Challenges for Monetary Policy: New and Old
Commentary: Challenges for Monetary Policy: New and Old John B. Taylor Mervyn King s paper is jam-packed with interesting ideas and good common sense about monetary policy. I admire the clearly stated
There is considerable interest in determining whether monetary policy
Economic Quarterly Volume 93, Number 3 Summer 2007 Pages 229 250 A Taylor Rule and the Greenspan Era Yash P. Mehra and Brian D. Minton There is considerable interest in determining whether monetary policy
THE ROLE OF EXCHANGE RATES IN MONETARY POLICY RULE: THE CASE OF INFLATION TARGETING COUNTRIES
THE ROLE OF EXCHANGE RATES IN MONETARY POLICY RULE: THE CASE OF INFLATION TARGETING COUNTRIES Mahir Binici Central Bank of Turkey Istiklal Cad. No:10 Ulus, Ankara/Turkey E-mail: mahir.binici@tcmb.gov.tr
Monetary Policy and Medium-Term Fiscal Planning
Doug Hostland Department of Finance Working Paper * 2001-20 * The views expressed in this paper are those of the author and do not reflect those of the Department of Finance. A previous version of this
Chapter Eighteen 4/19/2018. Linking Tools to Objectives. Linking Tools to Objectives
Chapter Eighteen Chapter 18 Monetary Policy: Stabilizing the Domestic Economy Part 3 Linking Tools to Objectives Tools OMO Discount Rate Reserve Req. Deposit rate Linking Tools to Objectives Monetary goals
Characteristics of the euro area business cycle in the 1990s
Characteristics of the euro area business cycle in the 1990s As part of its monetary policy strategy, the ECB regularly monitors the development of a wide range of indicators and assesses their implications
AN2018/11. Punnoose Jacob and Amber Wadsworth. November Reserve Bank of New Zealand Analytical Note Series ISSN
Reserve Bank of New Zealand Analytical Notes Estimated policy rules for different monetary regimes: Flexible inflation targeting versus a dual mandate AN2018/11 Punnoose Jacob and Amber Wadsworth November
Monetary policy and uncertainty
By Nicoletta Batini, Ben Martin and Chris Salmon of the Bank s Monetary Assessment and Strategy Division. This article describes various types of uncertainty that policy-makers may face. It summarises
FRBSF ECONOMIC LETTER
FRBSF ECONOMIC LETTER 15- July, 15 Assessing the Recent Behavior of Inflation BY KEVIN J. LANSING Inflation has remained below the FOMC s long-run target of % for more than three years. But this sustained
Estimating a Monetary Policy Rule for India
MPRA Munich Personal RePEc Archive Estimating a Monetary Policy Rule for India Michael Hutchison and Rajeswari Sengupta and Nirvikar Singh University of California Santa Cruz 3. March 2010 Online at http://mpra.ub.uni-muenchen.de/21106/
II.2. Member State vulnerability to changes in the euro exchange rate ( 35 )
II.2. Member State vulnerability to changes in the euro exchange rate ( 35 ) There have been significant fluctuations in the euro exchange rate since the start of the monetary union. This section assesses
Using Monetary Policy Rules in Emerging Market Economies * John B. Taylor. Stanford University. December (Revised)
Using Monetary Policy Rules in Emerging Market Economies * By John B. Taylor Stanford University December 2000 (Revised) Abstract: This paper shows that the use of monetary policy rules in emerging market
Inflation Targeting and Output Stabilization in Australia
6 Inflation Targeting and Output Stabilization in Australia Guy Debelle 1 Inflation targeting has been adopted as the framework for monetary policy in a number of countries, including Australia, over the
A Small Estimated Model (SEM) for New Zealand
PLEASE DO NOT QUOTE Preliminary and incomplete 1 A Small Estimated Model (SEM) for New Zealand working paper prepared for the 2002 Australasian Macro Workshop Authors: Yuong Ha (email hay@rbnz.govt.nz)
Administered Prices and Inflation Targeting in Thailand Kanin Peerawattanachart
Administered Prices and Targeting in Thailand Kanin Peerawattanachart Presentation at Bank of Thailand November 19, 2015 1 Jan-96 Oct-96 Jul-97 Apr-98 Jan-99 Oct-99 Jul-00 Apr-01 Jan-02 Oct-02 Jul-03 Apr-04
An Assessment of ECB Action
European Parliament COMMITTEE FOR ECONOMIC AND MONETARY AFFAIRS Briefing paper n - February 2005 An Assessment of ECB Action Jean-Paul Fitoussi Executive Summary An assessment of the conduct of monetary
Estimating the Impact of Changes in the Federal Funds Target Rate on Market Interest Rates from the 1980s to the Present Day
Estimating the Impact of Changes in the Federal Funds Target Rate on Market Interest Rates from the 1980s to the Present Day Donal O Cofaigh Senior Sophister In this paper, Donal O Cofaigh quantifies the
Has the Inflation Process Changed?
Has the Inflation Process Changed? by S. Cecchetti and G. Debelle Discussion by I. Angeloni (ECB) * Cecchetti and Debelle (CD) could hardly have chosen a more relevant and timely topic for their paper.
Interest Rate Smoothing and Calvo-Type Interest Rate Rules: A Comment on Levine, McAdam, and Pearlman (2007)
Interest Rate Smoothing and Calvo-Type Interest Rate Rules: A Comment on Levine, McAdam, and Pearlman (2007) Ida Wolden Bache a, Øistein Røisland a, and Kjersti Næss Torstensen a,b a Norges Bank (Central
Analyzing Properties of the MC Model 12.1 Introduction
12 Analyzing Properties of the MC Model 12.1 Introduction The properties of the MC model are examined in this chapter. This chapter is the counterpart of Chapter 11 for the US model. As was the case with
Monetary Policy Revised: January 9, 2008
Global Economy Chris Edmond Monetary Policy Revised: January 9, 2008 In most countries, central banks manage interest rates in an attempt to produce stable and predictable prices. In some countries they
Data Dependence and U.S. Monetary Policy. Remarks by. Richard H. Clarida. Vice Chairman. Board of Governors of the Federal Reserve System
For release on delivery 8:30 a.m. EST November 27, 2018 Data Dependence and U.S. Monetary Policy Remarks by Richard H. Clarida Vice Chairman Board of Governors of the Federal Reserve System at The Clearing
The impact of interest rates and the housing market on the UK economy
The impact of interest and the housing market on the UK economy....... The Chancellor has asked Professor David Miles to examine the UK market for longer-term fixed rate mortgages. This paper by Adrian
UNIVERSITY OF CALIFORNIA Economics 134 DEPARTMENT OF ECONOMICS Spring 2018 Professor David Romer LECTURE 9
UNIVERSITY OF CALIFORNIA Economics 134 DEPARTMENT OF ECONOMICS Spring 2018 Professor David Romer LECTURE 9 THE CONDUCT OF POSTWAR MONETARY POLICY FEBRUARY 14, 2018 I. OVERVIEW A. Where we have been B.
Do Wall Street Economists Believe in Okun s Law and the Taylor Rule?
Do Wall Street Economists Believe in Okun s Law and the Taylor Rule? Karlyn Mitchell Department of Business Management North Carolina State University Raleigh, NC 27695 Karlyn_Mitchell@ncsu.edu Douglas
Credit Channel of Monetary Policy between Australia and New. Zealand: an Empirical Note
Credit Channel of Monetary Policy between Australia and New Zealand: an Empirical Note Tomoya Suzuki Faculty of Economics Ryukoku University 67 Tsukamoto-cho Fukakusa Fushimi-ku Kyoto 612-8577 JAPAN E-mail:
Comment on: The zero-interest-rate bound and the role of the exchange rate for. monetary policy in Japan. Carl E. Walsh *
Journal of Monetary Economics Comment on: The zero-interest-rate bound and the role of the exchange rate for monetary policy in Japan Carl E. Walsh * Department of Economics, University of California,
(Re) Introducing Money into the New Keynesian Framework: Does It Matter?
(Re) Introducing Money into the New Keynesian Framework: Does It Matter? Alfred Guender University of Canterbury Nicholas Sander Reserve Bank of New Zealand June 2011 Abstract: Modern macroeconomic models
This is a repository copy of Asymmetries in Bank of England Monetary Policy.
This is a repository copy of Asymmetries in Bank of England Monetary Policy. White Rose Research Online URL for this paper: http://eprints.whiterose.ac.uk/9880/ Monograph: Gascoigne, J. and Turner, P.
THE POLICY RULE MIX: A MACROECONOMIC POLICY EVALUATION. John B. Taylor Stanford University
THE POLICY RULE MIX: A MACROECONOMIC POLICY EVALUATION by John B. Taylor Stanford University October 1997 This draft was prepared for the Robert A. Mundell Festschrift Conference, organized by Guillermo
MA Advanced Macroeconomics 3. Examples of VAR Studies
MA Advanced Macroeconomics 3. Examples of VAR Studies Karl Whelan School of Economics, UCD Spring 2016 Karl Whelan (UCD) VAR Studies Spring 2016 1 / 23 Examples of VAR Studies We will look at four different
EconomicLetter. Insights from the. Accounting For the Bond-Yield Conundrum
Vol., No. FEBRUARY 8 EconomicLetter Insights from the Accounting For the Bond-Yield Conundrum by Tao Wu Long-term interest rates tend to rise as monetary policymakers increase This conundrum has prompted
FRBSF Economic Letter
FRBSF Economic Letter 219-5 February 11, 219 Research from the Federal Reserve Bank of San Francisco Inflation: Stress-Testing the Phillips Curve Òscar Jordà, Chitra Marti, Fernanda Nechio, and Eric Tallman
Rethinking Stabilization Policy An Introduction to the Bank s 2002 Economic Symposium
Rethinking Stabilization Policy An Introduction to the Bank s 2002 Economic Symposium Gordon H. Sellon, Jr. After a period of prominence in the 1960s, the view that fiscal and monetary stabilization policies
The real risk free interest rate in thin debt markets
The real risk free interest rate in thin debt markets By Michael Lawriwsky 1 Abstract It is standard practice in economic regulation in Australia for prices and underlying asset values to be escalated
WHAT DO FINANCIAL MARKET DATA TELL US ABOUT MONETARY POLICY TRANSPARENCY?
WHAT DO FINANCIAL MARKET DATA TELL US ABOUT MONETARY POLICY TRANSPARENCY? Jonathan Coppel and Ellis Connolly Research Discussion Paper 2003-05 May 2003 Economic Group Reserve Bank of Australia We would
A New Characterization of the U.S. Macroeconomic and Monetary Policy Outlook 1
A New Characterization of the U.S. Macroeconomic and Monetary Policy Outlook 1 James Bullard President and CEO Federal Reserve Bank of St. Louis Society of Business Economists Annual Dinner June 30, 2016
ANNEX 3. The ins and outs of the Baltic unemployment rates
ANNEX 3. The ins and outs of the Baltic unemployment rates Introduction 3 The unemployment rate in the Baltic States is volatile. During the last recession the trough-to-peak increase in the unemployment
Estimated, Calibrated, and Optimal Interest Rate Rules
Estimated, Calibrated, and Optimal Interest Rate Rules Ray C. Fair May 2000 Abstract Estimated, calibrated, and optimal interest rate rules are examined for their ability to dampen economic fluctuations
Making Monetary Policy: Rules, Benchmarks, Guidelines, and Discretion
EMBARGOED UNTIL 8:35 AM U.S. Eastern Time on Friday, October 13, 2017 OR UPON DELIVERY Making Monetary Policy: Rules, Benchmarks, Guidelines, and Discretion Eric S. Rosengren President & Chief Executive
Is there a decoupling between soft and hard data? The relationship between GDP growth and the ESI
Fifth joint EU/OECD workshop on business and consumer surveys Brussels, 17 18 November 2011 Is there a decoupling between soft and hard data? The relationship between GDP growth and the ESI Olivier BIAU
F or U.S. monetary policy, 1994 was
Michael J. Dueker is a senior economist, Federal Reserve Bank of St. Louis, and Andreas M. Fischer is economic adviser, Swiss National Bank, Zürich, Switzerland. The authors are responsible for this article
Monetary Policymaking in Today s Environment: Finding Policy Space in a Low-Rate World
EMBARGOED UNTIL 8:00 P.M. Eastern Time on Monday, April, 15 2019 OR UPON DELIVERY Monetary Policymaking in Today s Environment: Finding Policy Space in a Low-Rate World Eric S. Rosengren President & Chief
The Federal Reserve s reaction function, which summarizes how the
A Forward-Looking Monetary Policy Reaction Function Yash P. Mehra The Federal Reserve s reaction function, which summarizes how the Federal Reserve (Fed) alters monetary policy in response to economic
EMPIRICAL ASSESSMENT OF THE PHILLIPS CURVE
EMPIRICAL ASSESSMENT OF THE PHILLIPS CURVE Emi Nakamura Jón Steinsson Columbia University January 2018 Nakamura-Steinsson (Columbia) Phillips Curve January 2018 1 / 55 BRIEF HISTORY OF THE PHILLIPS CURVE
Indicators of short-term movements in business investment
By Sebastian Barnes of the Bank s Structural Economic Analysis Division and Colin Ellis of the Bank s Inflation Report and Bulletin Division. Business surveys provide more timely news about investment
The Taylor Rule: A benchmark for monetary policy?
Page 1 of 9 «Previous Next» Ben S. Bernanke April 28, 2015 11:00am The Taylor Rule: A benchmark for monetary policy? Stanford economist John Taylor's many contributions to monetary economics include his
Simple monetary policy rules
By Alison Stuart of the Bank s Monetary Assessment and Strategy Division. This article describes two simple rules, the McCallum rule and the Taylor rule, that could in principle be used to guide monetary
Inflation targeting in an open economy: Strict or flexible inflation targeting?
G97/8 Inflation targeting in an open economy: Strict or flexible inflation targeting? Lars E O Svensson November 1997 JEL Classification: G97/8 2 Inflation targeting in an open economy: Strict or flexible
Part VII. How Successful Has Inflation Targeting Been?
Part VII. How Successful Has Inflation Targeting Been? An initial look suggests that inflation has been a success: inflation was within or below the target range for all countries, and noticeably below
Analysing the IS-MP-PC Model
University College Dublin, Advanced Macroeconomics Notes, 2015 (Karl Whelan) Page 1 Analysing the IS-MP-PC Model In the previous set of notes, we introduced the IS-MP-PC model. We will move on now to examining
Oil Shocks and the Zero Bound on Nominal Interest Rates
Oil Shocks and the Zero Bound on Nominal Interest Rates Martin Bodenstein, Luca Guerrieri, Christopher Gust Federal Reserve Board "Advances in International Macroeconomics - Lessons from the Crisis," Brussels,
The Effects of Dollarization on Macroeconomic Stability
The Effects of Dollarization on Macroeconomic Stability Christopher J. Erceg and Andrew T. Levin Division of International Finance Board of Governors of the Federal Reserve System Washington, DC 2551 USA
Effectiveness of macroprudential and capital flow measures in Asia and the Pacific 1
Effectiveness of macroprudential and capital flow measures in Asia and the Pacific 1 Valentina Bruno, Ilhyock Shim and Hyun Song Shin 2 Abstract We assess the effectiveness of macroprudential policies
Revisions to the national accounts: nominal, real and price effects 1
Revisions to the national accounts: nominal, real and price effects 1 Corné van Walbeek and Evelyne Nyokangi ABSTRACT Growth rates in the national accounts are published by the South African Reserve Bank
Advanced Topic 7: Exchange Rate Determination IV
Advanced Topic 7: Exchange Rate Determination IV John E. Floyd University of Toronto May 10, 2013 Our major task here is to look at the evidence regarding the effects of unanticipated money shocks on real
Some Considerations for U.S. Monetary Policy Normalization
Some Considerations for U.S. Monetary Policy Normalization James Bullard President and CEO, FRB-St. Louis 24 th Annual Hyman P. Minsky Conference on the State of the US and World Economies 15 April 2015
The Robustness and Efficiency of Monetary. Policy Rules as Guidelines for Interest Rate. Setting by the European Central Bank
The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank by John B. Taylor Conference on Monetary Policy Rules Stockholm 12 13 June 1998
Potential Output in Denmark
43 Potential Output in Denmark Asger Lau Andersen and Morten Hedegaard Rasmussen, Economics 1 INTRODUCTION AND SUMMARY The concepts of potential output and output gap are among the most widely used concepts
Article published in the Quarterly Review 2014:2, pp
Estimating the Cyclically Adjusted Budget Balance Article published in the Quarterly Review 2014:2, pp. 59-66 BOX 6: ESTIMATING THE CYCLICALLY ADJUSTED BUDGET BALANCE 1 In the wake of the financial crisis,
3. Measuring the Effect of Monetary Policy
3. Measuring the Effect of Monetary Policy Here we analyse the effect of monetary policy in Japan using the structural VARs estimated in Section 2. We take the block-recursive model with domestic WPI for
Monetary Policy Objectives During the Crisis: An Overview of Selected Southeast European Countries
Monetary Policy Objectives During the Crisis: An Overview of Selected Southeast European Countries 35 UDK: 338.23:336.74(4-12) DOI: 10.1515/jcbtp-2015-0003 Journal of Central Banking Theory and Practice,
Different Schools of Thought in Economics: A Brief Discussion
Different Schools of Thought in Economics: A Brief Discussion Topic 1 Based upon: Macroeconomics, 12 th edition by Roger A. Arnold and A cheat sheet for understanding the different schools of economics
Presented By: Ahmed Munawar. Written by: Fuhrer, Jeffrey C., Madigan, Brian
Presented By: Ahmed Munawar Written by: Fuhrer, Jeffrey C., Madigan, Brian OBJECTIVE To assess whether the zero lower bound on nominal interest rates could constraints the interest rate channel of monetary
Learning the Right Lessons from the Current Account Deficit and Dollar Appreciation
Learning the Right Lessons from the Current Account Deficit and Dollar Appreciation Alan C. Stockman Wilson Professor of Economics University of Rochester 716-275-7214 http://www.stockman.net alan@stockman.net
ECONOMIC FACTORS ASSOCIATED WITH DELINQUENCY RATES ON CONSUMER INSTALMENT DEBT A. Charlene Sullivan *
ECONOMIC FACTORS ASSOCIATED WITH DELINQUENCY RATES ON CONSUMER INSTALMENT DEBT A. Charlene Sullivan * Trends in loan delinquencies and losses over time and among credit types contain important information
Recaping the effects of both Fiscal policy and Monetary policy in the long run
Recaping the effects of both Fiscal policy and Monetary policy in the long run When the government ran a record surplus in 2000, many regarded it as a cause for celebration. Conversely, people usually
Nominal Income Targeting versus Inflation Targeting in Advanced and Emerging Economies
Nominal Income Targeting versus Inflation Targeting in Advanced and Emerging Economies Warwick J. McKibbin, AO Vice Chancellor s Chair in Public Policy Director, Centre for Applied Macroeconomic Analysis,
Transparency and the Response of Interest Rates to the Publication of Macroeconomic Data
Transparency and the Response of Interest Rates to the Publication of Macroeconomic Data Nicolas Parent, Financial Markets Department It is now widely recognized that greater transparency facilitates the
Irma Rosenberg: Riksbank to introduce own path for the repo rate
Irma Rosenberg: Riksbank to introduce own path for the repo rate Speech by Ms Irma Rosenberg, Deputy Governor of the Sveriges Riksbank, at Danske Bank, Stockholm, 17 January 2007. * * * Thank you for the
INFLATION TARGETING AND INDIA
INFLATION TARGETING AND INDIA CAN MONETARY POLICY IN INDIA FOLLOW INFLATION TARGETING AND ARE THE MONETARY POLICY REACTION FUNCTIONS ASYMMETRIC? Abstract Vineeth Mohandas Department of Economics, Pondicherry
The impact of news in the dollar/deutschmark. exchange rate: Evidence from the 1990 s
The impact of news in the dollar/deutschmark exchange rate: Evidence from the 1990 s Stefan Krause December 2004 Abstract In this paper I analyse three specificationsofspotexchangeratemodelsbyusingan alternative
Can global economic conditions explain low New Zealand inflation?
Can global economic conditions explain low New Zealand inflation? AN5/ Adam Richardson May 5 Reserve Bank of New Zealand Analytical Note series ISSN -555 Reserve Bank of New Zealand PO Box 98 Wellington
Liquidity Matters: Money Non-Redundancy in the Euro Area Business Cycle
Liquidity Matters: Money Non-Redundancy in the Euro Area Business Cycle Antonio Conti January 21, 2010 Abstract While New Keynesian models label money redundant in shaping business cycle, monetary aggregates
FRBSF Economic Letter
FRBSF Economic Letter 2017-17 June 19, 2017 Research from the Federal Reserve Bank of San Francisco New Evidence for a Lower New Normal in Interest Rates Jens H.E. Christensen and Glenn D. Rudebusch Interest
CONCLUSION AND RECOMMENDATIONS
CHAPTER 5 CONCLUSION AND RECOMMENDATIONS The final chapter presents the conclusion and summary of this research. Next, suggestions for further research are presented. Finally, the chapter ends with valuable
FRBSF ECONOMIC LETTER
FRBSF ECONOMIC LETTER 2013-38 December 23, 2013 Labor Markets in the Global Financial Crisis BY MARY C. DALY, JOHN FERNALD, ÒSCAR JORDÀ, AND FERNANDA NECHIO The impact of the global financial crisis on
Charles I Plosser: Strengthening our monetary policy framework through commitment, credibility, and communication
Charles I Plosser: Strengthening our monetary policy framework through commitment, credibility, and communication Speech by Mr Charles I Plosser, President and Chief Executive Officer of the Federal Reserve
1 8 S e p t e m b e r V o l u m e 8 3 1
FUNDS ON FRIDAY b y G l a c i e r R e s e a r c h 1 8 S e p t e m b e r 2 0 1 5 V o l u m e 8 3 1 We are very aware of the fact that stock market corrections are often triggered by news flow either positive
Trade Openness and Inflation Episodes in the OECD
CHRISTOPHER BOWDLER LUCA NUNZIATA Trade Openness and Inflation Episodes in the OECD Boschen and Weise (Journal of Money, Credit, and Banking, 2003) model the probability of a large upturn in inflation
FRBSF ECONOMIC LETTER
FRBSF ECONOMIC LETTER 1-1 April 1, 1 Interpreting Deviations from Okun s Law BY MARY C. DALY, JOHN FERNALD, ÒSCAR JORDÀ, AND FERNANDA NECHIO The traditional relationship between unemployment and output
Strengthening Our Monetary Policy Framework Through Commitment, Credibility, and Communication
Strengthening Our Monetary Policy Framework Through Commitment, Credibility, and Communication Global Interdependence Center's 2011 Global Citizen Award Luncheon November 8, 2011 Union League Club, Philadelphia,
Saving, wealth and consumption
By Melissa Davey of the Bank s Structural Economic Analysis Division. The UK household saving ratio has recently fallen to its lowest level since 19. A key influence has been the large increase in the
Monetary Policy, Financial Stability and Interest Rate Rules Giorgio Di Giorgio and Zeno Rotondi
Monetary Policy, Financial Stability and Interest Rate Rules Giorgio Di Giorgio and Zeno Rotondi Alessandra Vincenzi VR 097844 Marco Novello VR 362520 The paper is focus on This paper deals with the empirical
The Ever Elusive Estimation of R-Star
The Ever Elusive Estimation of R-Star Vanderbilt Avenue Asset Management Emad A. Zikry, Chief Executive Officer The natural real rate of interest is a concept that originated with Knut Wicksell, a prominent
Should the Monetary Policy Rule Be Different in a Financial Crisis? By Monika Piazzesi i
Should the Monetary Policy Rule Be Different in a Financial Crisis? By Monika Piazzesi i It s a pleasure to read and discuss this very nice and well-written paper by Nikolsko- Rzhevskyy, Papell and Prodan.
Market Bulletin. July 30, Preparing for Liftoff: The impact of rate hikes on stock returns
July 30, 2014 Preparing for Liftoff: The impact of rate hikes on stock returns James C. Liu, CFA Global Market Strategist J.P. Morgan Funds Anthony M. Wile Global Research Analyst J.P. Morgan Funds Tai
ECONOMIC COMMENTARY. An Unstable Okun s Law, Not the Best Rule of Thumb. Brent Meyer and Murat Tasci
ECONOMIC COMMENTARY Number 2012-08 June 7, 2012 An Unstable Okun s Law, Not the Best Rule of Thumb Brent Meyer and Murat Tasci Okun s law is a statistical relationship between unemployment and GDP that
The Exchange Rate and Canadian Inflation Targeting
The Exchange Rate and Canadian Inflation Targeting Christopher Ragan* An essential part of the Bank of Canada s inflation-control strategy is a flexible exchange rate that is free to adjust to various
Central Bank Balance Sheets: Misconceptions and Realities
EMBARGOED UNTIL 8:30 P.M. on Monday, March 25, 2019, U.S. Eastern Time, which is 8:30 A.M. on Tuesday, March 26, 2019 in Hong Kong, OR UPON DELIVERY Central Bank Balance Sheets: Misconceptions and Realities
Monetary Policy Report: Using Rules for Benchmarking
Monetary Policy Report: Using Rules for Benchmarking Michael Dotsey Executive Vice President and Director of Research Keith Sill Senior Vice President and Director, Real-Time Data Research Center Federal
Botswana s exchange rate policy
BIS Botswana s exchange rate policy Kealeboga Masalila and Oduetse Motshidisi 1. Introduction In the construction of a market-based development strategy, a key policy consideration is the selection of
Paper Published in the February 2005 Journal of Business & Economic Research Why the Quantity of Money Still Matters
Paper Published in the February 5 Journal of Business & Economic Research Why the Quantity of Money Still Matters Michael Cosgrove, College of Business, University of Dallas Daniel Marsh, College of Business,
Deepak Mohanty: Perspectives on inflation in India
Deepak Mohanty: Perspectives on inflation in India Speech by Mr Deepak Mohanty, Executive Director of the Reserve Bank of India, at the Bankers Club, Chennai, 28 September 2010. * * * The assistance provided
COMMENTS ON SESSION 1 AUTOMATIC STABILISERS AND DISCRETIONARY FISCAL POLICY. Adi Brender *
COMMENTS ON SESSION 1 AUTOMATIC STABILISERS AND DISCRETIONARY FISCAL POLICY Adi Brender * 1 Key analytical issues for policy choice and design A basic question facing policy makers at the outset of a crisis
What we know about monetary policy
Apostolis Philippopoulos What we know about monetary policy The government may have a potentially stabilizing policy instrument in its hands. But is it effective? In other words, is the relevant policy
Expectations and Anti-Deflation Credibility in a Liquidity Trap:
Expectations and Anti-Deflation Credibility in a Liquidity Trap: Contribution to a Panel Discussion Remarks at the Bank of Japan's 11 th research conference, Tokyo, July 2004 (Forthcoming, Monetary and
Revisionist History: How Data Revisions Distort Economic Policy Research
Federal Reserve Bank of Minneapolis Quarterly Review Vol., No., Fall 998, pp. 3 Revisionist History: How Data Revisions Distort Economic Policy Research David E. Runkle Research Officer Research Department
Regional convergence in Spain:
ECONOMIC BULLETIN 3/2017 ANALYTICAL ARTIES Regional convergence in Spain: 1980 2015 Sergio Puente 19 September 2017 This article aims to analyse the process of per capita income convergence between the
1 Volatility Definition and Estimation
1 Volatility Definition and Estimation 1.1 WHAT IS VOLATILITY? It is useful to start with an explanation of what volatility is, at least for the purpose of clarifying the scope of this book. Volatility