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Author: Keyra Primus Publisher: International Monetary Fund ISBN: 1475537158 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: Keyra Primus Publisher: International Monetary Fund ISBN: 1475537158 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: Margaux MacDonald Publisher: International Monetary Fund ISBN: 1484330943 Category : Business & Economics Languages : en Pages : 70
Book Description
This paper investigates the effects of unconventional monetary policy in a small open economy. Using recently proposed shadow interest rates to capture unconventional monetary policy at the zero lower bound (ZLB) we estimate a Bayesian structural vector autoregressive model for Canada - a useful case where foreign shocks can be proxied by U.S. variables alone. We find that, during the ZLB period, Canadian unconventional monetary policy increased output (measured by industrial production) by 0.013 percent per month on average while US unconventional monetary policy raised Canadian output by 0.127 percent per month on average. Our results demonstrate the effectiveness of domestic unconventional monetary policy and the strong positive spillover effects that foreign unconventional monetary policies can have in a small open economy.
Author: Helmut Frisch Publisher: Springer ISBN: 1349128848 Category : Business & Economics Languages : en Pages : 437
Book Description
The integration of market economies is one of the most remarkable features of international economics, which has important implications for macroeconomic performance in open economies. Equally important is the declining relevance of the real versus the monetary theory dichotomy. These papers focus on those aspects of monetary policy which relate to credibility and non-neutrality; the domestic adjustment to foreign shocks; the interdependence of open economies and their strategic interactions. An important section is also devoted to the innovative modelling of exchange rate dynamics.
Author: Antonio Diez de los Rios Publisher: International Monetary Fund ISBN: 1484320735 Category : Business & Economics Languages : en Pages : 46
Book Description
We compare the effectiveness of Federal Reserve's asset purchase programs in lowering longterm yields with that of similar programs implemented by the Bank of England, the Swedish Riksbank, and the Swiss National Bank's reserve expansion program. We decompose government bond yields into (i) an expectations component, (ii) a global, and (iii) a country specific term premium to analyze two-day changes in 10-year yields around announcement dates. We find that, in contrast to the Federal Reserve's asset purchases, the programs implemented in these smaller economies have not been able to affect the global term premium and, furthermore, they have had limited, but significant, effect in lowering long-term yields.
Author: Ms.Sonali Jain-Chandra Publisher: International Monetary Fund ISBN: 1475579713 Category : Business & Economics Languages : en Pages : 19
Book Description
The effectiveness of the monetary policy transmission mechanism in open economies could be impaired if interest rates are driven primarily by global factors, especially during periods of large capital inflows. The main objective of this paper is to assess whether this is true for emerging Asia’s economies. Using a dynamic factor model and a structural vector auto-regression model, we show that long-term interest rates in Asia are indeed predominantly driven by global factors. However, monetary policy transmission mechanism remains effective in the region, as it operates predominantly through short-term interest rates. Nevertheless, the monetary transmission mechanism, though effective, is somewhat weaker in Asia during the periods of surges in capital inflows.
Author: Inhwan So Publisher: ISBN: Category : Banks and banking Languages : en Pages : 120
Book Description
This dissertation studies the effects of monetary policy in small open economies. In Chapter 1, I investigate how the openness of banking sector influences the transmission channels of home and international monetary policy shocks in small open economies. For the analysis, I construct a small open economy DSGE model enriched with a globalized banking sector. I consider two forms of bank globalization: international bank capital finance and foreign loan account import. By comparing the effect of each type of bank globalization on monetary policy transmission, the analysis delivers the following results. First, bank globalization leads to a significant attenuation of domestic monetary policy transmission. This is because, in response to home monetary shocks, banks' global activities allow them to maintain bank rates and demands on deposit to some extent compared to those in financial autarky. On the other hand, opening of the banking sector intensifies the impact of foreign interest rate shocks on the local bank activities. In addition to the conventional channel of international monetary transmission through interest-parity condition, global bank operation opens a new channel which makes bank rates more responsive to foreign monetary shock. Chapter 2 investigates the nature of monetary policy transmission in four small open economies - Australia, Canada, South Korea, and the U.K. - and the U.S. (the benchmark) by estimating structural vector autoregressive models using the external instrument identification method. Differing from related studies on U.S. monetary policy, which mostly employ high-frequency futures data on monetary policy operating instruments (federal fund futures rates) to identify monetary policy shocks, we propose and test alternative sets of external instruments for the four focal open economies that do not yet have well-established futures markets in monetary policy instruments. The empirical results obtained by applying this data-oriented method yield important messages from both the econometric and macroeconomic perspectives. First, U.S. monetary policy plays an important role in monetary transmission in SOEs, presumably hampering the effectiveness of domestic monetary policy. In particular, the effect of domestic monetary policy shocks on medium- and long-term interest rates is quite weak and short-lived, while U.S. monetary innovation significantly and persistently influences domestic financial variables. Second, the paper provides some evidence that foreign exchange rates in this process respond to monetary shocks as Dornbusch (1976)’s overshooting hypothesis. Chapter 3 studies the wedge between the interest rate implied by Euler equation and money market rate in five small open economies – Australia, Canada, Finland, Korea, and the U.K. Standard Euler equation predicts strongly positive relationship between the two interest rates. However, data shows significantly large wedge between them, which causes negative correlation. We explore the systemic link between the wedge and two possible influencing factors – monetary policy and net foreign asset position. The empirical results from our analysis deliver the important message that the wedge is closely related to net foreign asset position in open economies, while its relationship to the stance of monetary policy has mixed results.
Author: Mr.Guillermo Calvo Publisher: International Monetary Fund ISBN: 145192142X Category : Business & Economics Languages : en Pages : 32
Book Description
An important hurdle in analyzing interest rate targeting is that standard models usually lead to price level or inflation rate indeterminacy. This paper develops a simple framework in which such problems do not arise because the bonds whose interest rate is controlled provide liquidity services. This framework is used to examine interest rate targeting in a small open economy under predetermined exchange rates. A permanent increase in the interest rate has no real effects. In contrast, a temporary increase in the interest rate leads to higher consumption and to a current account deficit that worsens over time.
Author: Mr.Luis Brandao-Marques Publisher: International Monetary Fund ISBN: 1513529730 Category : Business & Economics Languages : en Pages : 54
Book Description
Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.
Author: Douglas Laxton Publisher: ISBN: Category : Country risk Languages : en Pages : 74
Book Description
This paper develops a variant of the IMF's Global Economic Model (GEM) suitable to analyze macroeconomic dynamics in open economies, and uses it to assess the effectiveness of Taylor rules and Inflation-Forecast-Based (IFB) rules in stabilizing variability in output and inflation. Our findings suggest that a simple IFB rule that does not rely upon any direct estimates of the equilibrium real interest rate and places a relatively high weight on the inflation forecast may perform better in small open economies than conventional Taylor rules.
Author: Keyra Primus
Author: Keyra Primus
Author: Margaux MacDonald
Author: Helmut Frisch
Author: Steven Pennings
Author: Antonio Diez de los Rios
Author: Ms.Sonali Jain-Chandra
Author: Inhwan So
Author: Mr.Guillermo Calvo
Author: Mr.Luis Brandao-Marques
Author: Douglas Laxton