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Author: Guido della Valle Publisher: International Monetary Fund ISBN: 1484345312 Category : Business & Economics Languages : en Pages : 28
Book Description
Based on the experience of the Bank of Albania, the paper proposes a framework to estimate the interest rate lower bound in small, open, and euroized economies. The paper introduces a stylized monitoring tool to assess the unintended consequences of low policy rates. The paper is the first attempt to estimate the impact of low interest rate on the public’s demand for banknote by denomination. A strong preference for banknotes leads economic agents to require a higher remuneration of banks’ deposits, lifting the lower bound above zero. Financial euroization also lifts the lower policy bound due to the higher propensity of substituting domestic with foreign currency–denominated assets as a function of the interest rate differential. Policies aiming at reducing financial euroization contribute to bring down the lower bound.
Author: Guido della Valle Publisher: International Monetary Fund ISBN: 148434782X Category : Business & Economics Languages : en Pages : 28
Book Description
Based on the experience of the Bank of Albania, the paper proposes a framework to estimate the interest rate lower bound in small, open, and euroized economies. The paper introduces a stylized monitoring tool to assess the unintended consequences of low policy rates. The paper is the first attempt to estimate the impact of low interest rate on the public’s demand for banknote by denomination. A strong preference for banknotes leads economic agents to require a higher remuneration of banks’ deposits, lifting the lower bound above zero. Financial euroization also lifts the lower policy bound due to the higher propensity of substituting domestic with foreign currency–denominated assets as a function of the interest rate differential. Policies aiming at reducing financial euroization contribute to bring down the lower bound.
Author: Publisher: ISBN: Category : Languages : en Pages : 28
Book Description
Based on the experience of the Bank of Albania, the paper proposes a framework to estimate the interest rate lower bound in small, open, and euroized economies. The paper introduces a stylized monitoring tool to assess the unintended consequences of low policy rates. The paper is the first attempt to estimate the impact of low interest rate on the public’s demand for banknote by denomination. A strong preference for banknotes leads economic agents to require a higher remuneration of banks’ deposits, lifting the lower bound above zero. Financial euroization also lifts the lower policy bound due to the higher propensity of substituting domestic with foreign currency–denominated assets as a function of the interest rate differential. Policies aiming at reducing financial euroization contribute to bring down the lower bound.
Author: Lars Protze Publisher: Diplomica Verlag ISBN: 3836664909 Category : Business & Economics Languages : en Pages : 185
Book Description
Central banks around the world try to influence economic activity by altering nominal interest rates which will have an effect on the real rate. However, this is only possible as long as interest rates are above zero. The case of Japan showed that monetary policy was helpless as nominal rates approached zero. This Book starts with an overview of monetary policy with the restriction that interest rates can not fall below zero. Then optimal monetary policy in a low inflation environment is treated. This is done by using a New Keynesian model with sticky prices. Therefore the model and the necessary optimality conditions will be derived (this will be done extensively in the appendix). After deriving the optimality conditions it will be shown how optimal monetary policy will be conducted. To evaluate the outcome of monetary policy a welfare function will be derived. It will be shown how the welfare function to evaluate the outcome of monetary policy is derived from the utility function of the household. As a result it will be shown that a price level target is welfare maximizing although most central banks nowadays use an inflation target instead. Reasons for an inflation target will be shown in the discussion of the model. The second part of the book describes the inflation dynamics in the euro area to see what monetary authority shall do to prevent the economy from falling into the vicious circle of deflation. Two wage contracting models that describe inflation dynamics in the euro area reasonably well will be explained, the Fuhrer-Moore und the Taylor contracting. After showing the optimal policy it will be discussed how severe the zero bound in the euro area is and what policy alternatives are left when monetary policy is restricted. Finally the results obtained will be discussed to see the pitfalls of price level targeting. The large appendix provides the complete derivation of the model and the optimality conditions.
Author: Christian Bittner Publisher: ISBN: Category : Bank loans Languages : en Pages : 0
Book Description
We study jointly expansionary rate-based monetary policy and quantitative easing, despite their concurrent implementation around the world, by exploiting the introduction of negative monetary-policy rates in a fragmented euro area, alongside cross-sectional heterogeneity in banks’ balance sheets. Banks more exposed to quantitative easing are less likely to increase credit supply when they incur higher funding costs due to a zero lower bound (ZLB) on deposit rates. Using administrative data from Germany, we also uncover that German banks rebalance their interbank lending from safe to risky countries, and that the ZLB on deposit rates compromised the effectiveness of quantitative easing.
Author: Günter Coenen Publisher: ISBN: 9789289939959 Category : Languages : en Pages :
Book Description
We study the incidence and severity of lower-bound episodes and the efficacy of three types of state-dependent policies - forward guidance about the future path of interest rates, large-scale asset purchases and spending-based fiscal stimulus - in ameliorating the adverse consequences stemming from the effective lower bound on nominal interest rates. In particular, we focus on the euro area economy and examine, using the ECB's New Area-Wide Model, the consequences of the lower bound both for the near-term economic outlook, characterised by persistently low nominal interest rates and inflation, and in a lasting low-real-interest-rate world. Our findings suggest that, if unaddressed, the lower bound can have very substantial costs in terms of worsened macroeconomic performance. Forward guidance, if fully credible, is most powerful and can largely undo the distortionary effects due to the lower bound. A combination of imperfectly credible forward guidance, asset purchases and fiscal stimulus is almost equally effective, in particular when asset purchases enhance the credibility of the forward guidance policy via a signalling effect.
Author: Ruchir Agarwal Publisher: International Monetary Fund ISBN: 1484398777 Category : Business & Economics Languages : en Pages : 89
Book Description
The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.
Author: Mr.Marco Airaudo Publisher: International Monetary Fund ISBN: 1475523165 Category : Business & Economics Languages : en Pages : 65
Book Description
We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.
Author: Jeffry A. Frieden Publisher: Princeton University Press ISBN: 1400865344 Category : Business & Economics Languages : en Pages : 318
Book Description
The politics surrounding exchange rate policies in the global economy The exchange rate is the most important price in any economy, since it affects all other prices. Exchange rates are set, either directly or indirectly, by government policy. Exchange rates are also central to the global economy, for they profoundly influence all international economic activity. Despite the critical role of exchange rate policy, there are few definitive explanations of why governments choose the currency policies they do. Filled with in-depth cases and examples, Currency Politics presents a comprehensive analysis of the politics surrounding exchange rates. Identifying the motivations for currency policy preferences on the part of industries seeking to influence politicians, Jeffry Frieden shows how each industry's characteristics—including its exposure to currency risk and the price effects of exchange rate movements—determine those preferences. Frieden evaluates the accuracy of his theoretical arguments in a variety of historical and geographical settings: he looks at the politics of the gold standard, particularly in the United States, and he examines the political economy of European monetary integration. He also analyzes the politics of Latin American currency policy over the past forty years, and focuses on the daunting currency crises that have frequently debilitated Latin American nations, including Mexico, Argentina, and Brazil. With an ambitious mix of narrative and statistical investigation, Currency Politics clarifies the political and economic determinants of exchange rate policies.
Author: M. Ayhan Kose Publisher: World Bank Publications ISBN: 1464815453 Category : Business & Economics Languages : en Pages : 403
Book Description
The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.
Author: Guido della Valle
Author: Guido della Valle
Author: 
Author: International Monetary Fund
Author: Lars Protze
Author: Christian Bittner
Author: Günter Coenen
Author: Ruchir Agarwal
Author: Mr.Marco Airaudo
Author: Jeffry A. Frieden
Author: M. Ayhan Kose