Download or read book Optimal Monetary Policy with the Cost Channel and Monopolistically Competitive Bank written by Salem M. Abo-Zaid and published by . This book was released on 2015 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the optimal nominal policy interest rate in a model with the cost channel and imperfect competition in the banking sector. Due to this market power, the interest rate on deposits is relatively low; in particular it is lower than the policy interest rate. This, in turn, leads to a suboptimal level of deposits and, as a result, to a low level of intermediation. Deviations from the Friedman Rule are optimal in this setup regardless of the assumption about price rigidity; since households can hold their assets in the form of cash or deposits, taxing money, which is an imperfect substitute for deposits, is optimal in order to increase the level of deposits and encourage intermediation. They main results of the paper are robust to the introduction of market power in the loan market as well as stickiness in both the deposit and the loan markets.
Download or read book Optimal Monetary Policy Under Uncertainty written by Richard T. Froyen and published by Edward Elgar Publishing. This book was released on 2008-01-01 with total page 341 pages. Available in PDF, EPUB and Kindle. Book excerpt: Froyen and Guender have provided a thorough and careful analysis of optimal monetary policy over most of the range of theoretical models that have been used in modern macroeconomics. By providing a comprehensive and clear comparative framework they will help the student of monetary policy understand why there have been conflicting views of what policy makers should do. Central Banking In Optimal Monetary Policy Under Uncertainty, academicians and economists Richard T. Froyen and Alfred V. Guender have collaborated on presenting an informed and informative survey of optimal monetary policy literature arising during the 1970s and 1980s as a ground work for understanding current market and other economic influences on such germane issues as discretion versus commitment, target versus instrument rules, and the delegation of policy making authority within the private and public sectors. With meticulous attention to scholarship and objectivity. . . Optimal Monetary Policy Under Uncertainty is a thoughtful and thought-provoking body of work that is very strongly recommended for professional, academic, corporate and governmental economic reference collections and supplemental reading lists. Midwest Book Review Recently there has been a resurgence of interest in the study of optimal monetary policy under uncertainty. This book provides a thorough survey of the literature that has resulted from this renewed interest. The authors ground recent contributions on the science of monetary policy in the literature of the 1970s, which viewed optimal monetary policy as primarily a question of the best use of information, and studies in the 1980s that gave primacy to time inconsistency problems. This broad focus leads to a better understanding of current issues such as discretion versus commitment, target versus instrument rules, and the merits of delegation of policy authority. Casting a wide net, the authors survey the recent literature on the New Keynesian approach to optimal monetary policy in the context of the earlier literature. They emphasize the relationship between policy decisions and the information set available to the policymaker, a central focus of the earlier literature, obscured in much recent work. Optimal policy questions are considered in open as well as closed economy models and the often confusing terminology in the literature is sorted and clarified. Questions are considered within easily analysed models and the authors clearly show why these models lead to different (or equivalent) policy conclusions. Recent policy issues such as desirability of inflation targeting and the relative merits of target versus instrument rules are covered in detail. Economists in academia and in policymaking organizations who want to learn about recent developments in the area of optimal monetary policy, as well as graduate and advanced undergraduate students in macroeconomic and monetary economics, will find this volume a clear and thorough examination of the topic.
Download or read book Beyond Divine Coincidence written by Palek, Jakob and published by kassel university press GmbH. This book was released on 2016-01-01 with total page 112 pages. Available in PDF, EPUB and Kindle. Book excerpt: During the so-called Great Moderation the variability of output, employment and inflation declined substantially in most of the major economies. Because of this positive co-movement the ultimate objective of monetary policy was clear. By stabilizing inflation output will also stay at its potential and the central bank does not face any trade-off between its targets – a situation known as the divine coincidence. With the onset of the financial crisis 2007 these relationships changed. This book contributes to the research on the optimal macroeconomic policy design in the presence of financial frictions. These are incorporated via the cost channel approach into a two-country currency union model. Ultimately, a supply-side effect arises which lowers the efficiency of monetary policy - divine coincidence is not possible any more. Three questions are in the focus of interest of this analysis: What is the optimal monetary policy in the presence of country-specific financial frictions? What role can fiscal policy play? Is macroprudential policy able to improve welfare if the central bank targets a financial stability measure?
Download or read book Optimal Monetary Policy in a Currency Area written by Pierpaolo Benigno and published by . This book was released on 2001 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Optimal Monetary Policy with Overlapping Generations of Policymakers written by Maral Shamloo and published by International Monetary Fund. This book was released on 2010-02-01 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper I study the effect of imperfect central bank commitment on inflationary outcomes. I present a model in which the monetary authority is a committee that consists of members who serve overlapping, finite terms. Older and younger generations of Monetary Policy Committee (MPC) members decide on policy by engaging in a bargaining process. I show that this setup gives rise to a continuous measure of the degree of monetary authority''s commitment. The model suggests that the lower the churning rate or the longer the tenure time, the closer social welfare will be to that under optimal commitment policy.
Download or read book Optimal Monetary Policy with Endogenous Entry and Product Variety written by Florin Ovidiu Bilbiie and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that deviations from long-run stability of product prices are optimal in the presence of endogenous producer entry and product variety in a sticky-price model with monopolistic competition in which price stability would be optimal in the absence of entry. Specifically, a long-run positive (negative) rate of inflation is optimal when the benefit of variety to consumers falls short of (exceeds) the market incentives for creating that variety under flexible prices, governed by the desired markup. Plausible preference specifications and parameter values justify a long-run inflation rate of two percent or higher. Price indexation implies even larger deviations from long-run price stability. However, price stability (around this non-zero trend) is close to optimal in the short run, even in the presence of time-varying flexible-price markups that distort the allocation of resources across time and states. The central bank uses its leverage over real activity in the long run, but not in the short run. Our results point to the need for continued empirical research on the determinants of markups and investigation of the benefit of product variety to consumers.
Download or read book Optimal Monetary Policy in an Optimizing Stochastic Dynamic Model with Sticky Prices written by Michael Gail and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recently macroeconomic researchers have begun studying models of optimal monetary policy within the Real Business Cycle (RBC) framework. A standard RBC model is augmented by New Keynesian elements like sticky prices and monopolistically competitive firms. The monetary authority acts as a social planner maximizing the utility of a representative agent while at the same time taking care of the optimal price setting behavior of the firms via an implementation constraint. King/Wolman (1999) analyze the outcome of such a model with respect to the appropriate monetary policy of the central bank. They conclude that the central bank achieves a complete stabilization of the price level. Inflation is not only constant at the steady state but also through time. It is shown that this very special result does not hold under alternative preference specifications that allow for a richer set of substitution effects between consumption and labor.
Download or read book Optimal Monetary Policy with State dependent Pricing written by Anton Nakov and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies optimal monetary policy from the timeless perspective in a general model of state-dependent pricing. Firms are modeled as monopolistic competitors subject to idiosyncratic menu cost shocks. We find that, under certain conditions, a policy of zero inflation is optimal both in the long run and in response to aggregate shocks. Key to this finding is an "envelope" property: at zero inflation, a marginal increase in the rate of inflation has no effect on firms' profits and hence on their probability of repricing. We offer an analytic solution that does not require local approximation or eØ ciency of the steady state. Under more general conditions, we show numerically that the optimal commitment policy remains very close to strict inflation targeting.
Download or read book Optimal Monetary Policy with the Risk taking Channel written by Angela Abbate and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical research suggests that lower interest rates induce banks to take higher risks. We assess analytically what this risk-taking channel implies for optimal monetary policy in a tractable New Keynesian model. We show that this channel creates a motive for the planner to stabilize the real rate. This objective conflicts with the standard inflation stabilization objective. Optimal policy thus tolerates more inflation volatility. An inertial Taylor-type reaction function becomes optimal. We then quantify the significance of the risk-taking channel for monetary policy in an estimated medium-scale extension of the model. Ignoring the channel when designing policy entails non-negligible welfare costs (0.7% lifetime consumption equivalent).
Download or read book Optimal monetary policy in a model of the credit channel written by Fiorella De Fiore and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Monetary Policy and Macroprudential Regulation with Financial Frictions written by Pierre-Richard Agenor and published by MIT Press. This book was released on 2020-11-10 with total page 601 pages. Available in PDF, EPUB and Kindle. Book excerpt: An integrated analysis of how financial frictions can be accounted for in macroeconomic models built to study monetary policy and macroprudential regulation. Since the global financial crisis, there has been a renewed effort to emphasize financial frictions in designing closed- and open-economy macroeconomic models for monetary and macroprudential policy analysis. Drawing on the extensive literature of the past decade as well as his own contributions, in this book Pierre-Richard Age&́nor provides a unified set of theoretical and quantitative macroeconomic models with financial frictions to explore issues that have emerged in the wake of the crisis. These include the need to understand better how the financial system amplifies and propagates shocks originating elsewhere in the economy; how it can itself be a source of aggregate fluctuations; the extent to which central banks should account for financial stability considerations in the conduct of monetary policy; whether national central banks and regulators should coordinate their policies to promote macroeconomic and financial stability; and how much countercyclical macroprudential policies should be coordinated at the international level to mitigate financial spillovers across countries.
Download or read book European Inflation Dynamics written by Jordi Galí and published by . This book was released on 2001 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide evidence on the fit of the New Phillips Curve (NPQ for the Euro area over the period 1970-1998, and use it as a tool to compare the characteristics of European inflation dynamics with those observed in the U.S. We also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs, as well as that of its two main components, namely, labor productivity and real wages. Some of the findings can be summarized as follows: (a) the NPC fits Euro area data very well, possibly better than U.S. data, (b) the degree of price stickiness implied by the estimates is substantial, but in line with survey evidence and U.S. estimates, (c) inflation dynamics in the Euro area appear to have a stronger forward- looking component (i.e., less inertia) than in the U.S., (d) labor market frictions, as manifested in the behavior of the wage markup, appear to have played a key role in shaping the behavior of marginal costs and, consequently, inflation in Europe.
Download or read book Handbook of Monetary Economics written by Benjamin M. Friedman and published by . This book was released on 1990 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Interest and Prices written by Michael Woodford and published by Princeton University Press. This book was released on 2011-12-12 with total page 805 pages. Available in PDF, EPUB and Kindle. Book excerpt: With the collapse of the Bretton Woods system, any pretense of a connection of the world's currencies to any real commodity has been abandoned. Yet since the 1980s, most central banks have abandoned money-growth targets as practical guidelines for monetary policy as well. How then can pure "fiat" currencies be managed so as to create confidence in the stability of national units of account? Interest and Prices seeks to provide theoretical foundations for a rule-based approach to monetary policy suitable for a world of instant communications and ever more efficient financial markets. In such a world, effective monetary policy requires that central banks construct a conscious and articulate account of what they are doing. Michael Woodford reexamines the foundations of monetary economics, and shows how interest-rate policy can be used to achieve an inflation target in the absence of either commodity backing or control of a monetary aggregate. The book further shows how the tools of modern macroeconomic theory can be used to design an optimal inflation-targeting regime--one that balances stabilization goals with the pursuit of price stability in a way that is grounded in an explicit welfare analysis, and that takes account of the "New Classical" critique of traditional policy evaluation exercises. It thus argues that rule-based policymaking need not mean adherence to a rigid framework unrelated to stabilization objectives for the sake of credibility, while at the same time showing the advantages of rule-based over purely discretionary policymaking.
Download or read book International Capital Flows written by Martin Feldstein and published by University of Chicago Press. This book was released on 2007-12-01 with total page 500 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent changes in technology, along with the opening up of many regions previously closed to investment, have led to explosive growth in the international movement of capital. Flows from foreign direct investment and debt and equity financing can bring countries substantial gains by augmenting local savings and by improving technology and incentives. Investing companies acquire market access, lower cost inputs, and opportunities for profitable introductions of production methods in the countries where they invest. But, as was underscored recently by the economic and financial crises in several Asian countries, capital flows can also bring risks. Although there is no simple explanation of the currency crisis in Asia, it is clear that fixed exchange rates and chronic deficits increased the likelihood of a breakdown. Similarly, during the 1970s, the United States and other industrial countries loaned OPEC surpluses to borrowers in Latin America. But when the U.S. Federal Reserve raised interest rates to control soaring inflation, the result was a widespread debt moratorium in Latin America as many countries throughout the region struggled to pay the high interest on their foreign loans. International Capital Flows contains recent work by eminent scholars and practitioners on the experience of capital flows to Latin America, Asia, and eastern Europe. These papers discuss the role of banks, equity markets, and foreign direct investment in international capital flows, and the risks that investors and others face with these transactions. By focusing on capital flows' productivity and determinants, and the policy issues they raise, this collection is a valuable resource for economists, policymakers, and financial market participants.
Download or read book The Chicago Plan Revisited written by Mr.Jaromir Benes and published by International Monetary Fund. This book was released on 2012-08-01 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Should Inequality Factor Into Central Banks Decisions written by Niels-Jakob Harbo Hansen and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
