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Author: International Monetary Fund Publisher: International Monetary Fund ISBN: 1451956037 Category : Business & Economics Languages : en Pages : 32
Book Description
It is well known that in a small open economy where there is perfect substitutability between domestic and foreign assets and costless portfolio adjustment, the monetary authorities cannot control the money supply, but can influence the balance of payments through the use of domestic credit. It has been argued that domestic credit is therefore the relevant variable in output determination as well. However, this paper demonstrates, using a “new classical” structural model, that under the conditions that render the money supply uncontrollable, neither money nor domestic credit affects output. If either has a significant effect in empirical tests, it implies that the assumption of perfect capital mobility is not satisfied.
Author: International Monetary Fund Publisher: International Monetary Fund ISBN: 1451956037 Category : Business & Economics Languages : en Pages : 32
Book Description
It is well known that in a small open economy where there is perfect substitutability between domestic and foreign assets and costless portfolio adjustment, the monetary authorities cannot control the money supply, but can influence the balance of payments through the use of domestic credit. It has been argued that domestic credit is therefore the relevant variable in output determination as well. However, this paper demonstrates, using a “new classical” structural model, that under the conditions that render the money supply uncontrollable, neither money nor domestic credit affects output. If either has a significant effect in empirical tests, it implies that the assumption of perfect capital mobility is not satisfied.
Author: Peter J. Montiel Publisher: ISBN: Category : Languages : en Pages : 32
Book Description
It is well known that in a small open economy where there is perfect substitutability between domestic and foreign assets and costless portfolio adjustment, the monetary authorities cannot control the money supply, but can influence the balance of payments through the use of domestic credit. It has been argued that domestic credit is therefore the relevant variable in output determination as well. However, this paper demonstrates, using a quot;new classicalquot; structural model, that under the conditions that render the money supply uncontrollable, neither money nor domestic credit affects output. If either has a significant effect in empirical tests, it implies that the assumption of perfect capital mobility is not satisfied.
Author: Mr.Jaromir Benes Publisher: International Monetary Fund ISBN: 1475505523 Category : Business & Economics Languages : en Pages : 71
Book Description
At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.
Author: Camila Casas Publisher: International Monetary Fund ISBN: 1484330609 Category : Business & Economics Languages : en Pages : 62
Book Description
Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
Author: Keyra Primus Publisher: International Monetary Fund ISBN: 1475536879 Category : Business & Economics Languages : en Pages : 39
Book Description
This paper examines the relative effectiveness of the use of indirect and direct monetary policy instruments in Barbados, Jamaica and Trinidad and Tobago, by estimating a restricted Vector Autoregressive model with Exogenous Variables (VARX). The study assumes that the central bank conducts monetary policy using a Taylor-type rule and it evaluates the effects of a reserve requirement policy. The results show that although a positive shock to the policy interest rate has a direct effect on commercial banks' interest rates, there is a weak transmission to the real variables. Furthermore, an increase in the required reserve ratio is successful in reducing private sector credit and excess reserves, while at the same time alleviating pressures on the exchange rate. The findings therefore indicate that central banks in small open economies should consider using reserve requirements as a complement to interest rate policy, to achieve their macroeconomic objectives.
Author: Mr.Subramanian S. Sriram Publisher: International Monetary Fund ISBN: 1451848544 Category : Business & Economics Languages : en Pages : 78
Book Description
A stable money demand forms the cornerstone in formulating and conducting monetary policy. Consequently, numerous theoretical and empirical studies have been conducted in both industrial and developing countries to evaluate the determinants and the stability of the money demand function. This paper briefly reviews the theoretical work, tracing the contributions of several researchers beginning from the classical economists, and explains relevant empirical issues in modeling and estimating money demand functions. Notably, it summarizes the salient features of a number of recent studies that applied cointegration/error-correction models in the 1990s, and it features a bibliography to aid in research on demand for money.
Author: International Monetary Fund
Author: International Monetary Fund
Author: Peter J. Montiel
Author: Peter Montiel
Author: Peter Montiel
Author: Mr.Jaromir Benes
Author: Adam Smith
Author: Peter Montiel
Author: Camila Casas
Author: Keyra Primus
Author: Mr.Subramanian S. Sriram