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Author : Amartya Lahiri
Publisher :
ISBN 13 :
Total Pages : 230 pages
Book Rating : 4.:/5 (353 download)
Download or read book Essays on Dynamic Implications of Fiscal and Monetary Policies in Small Open Economies written by Amartya Lahiri and published by . This book was released on 1995 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Thitima Chucherd
Publisher :
ISBN 13 :
Total Pages : 474 pages
Book Rating : 4.:/5 (896 download)
Download or read book Essays on Monetary and Fiscal Policy Interactions in Small Open Economies written by Thitima Chucherd and published by . This book was released on 2013 with total page 474 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis addresses interactions between monetary and fiscal policies in a theoretical dynamic stochastic general equilibrium (DSGE) model of a small open economy and in an empirical model under a structural vector error correction model (SVECM). The thesis consists of three essays. The contribution is both theoretical and empirical that enables a better understanding of the complexity of interactions between monetary and fiscal policies in small open economies. The first essay examines the equilibrium determinacy under monetary and fiscal rules. The goal is to investigate how monetary and fiscal policy interactions ensure a unique and non-explosive (determinate) equilibrium for a small open economy. The study focuses when policy makers implement a set of policy mixes to address domestic output price inflation control for monetary policy, debt stabilization for fiscal policy, and joint output stabilization tasks. The result indicates that two policy schemes facilitate a determinate equilibrium. First, monetary policy actively controls inflation when fiscal policy sets a sufficient feedback on debt. Second, monetary policy becomes passive against inflation when fiscal policy is insolvent. Adding output stabilization to each rule simply causes variants of this fundamental. An interest rate rule with output stabilization can be more passive against inflation while providing a stronger response to the output gap. Fiscal policy is required to set higher feedback on debt along with its stronger counter-cyclical policy. The second essay links between the equilibrium determinacy and policy optimization. This essay provides insights into the design of policy mixes and compares determinacy outcomes between two theoretical models of a small open economy: with and without an explicit exchange rate role. This study shows that policy interactions in a small open economy with an endogenous exchange rate is quite sophisticated, especially when a monetary rule is added with an output stabilization task and/or targeted to Consumer Price Index (CPI) inflation. Additional concern for monetary policy in an open economy causes a partial offset to its reaction on domestic output price inflation that weakens its effect on the real debt burden. To minimize economic fluctuations, policy makers should mute the role of output stabilization for monetary policy, and set minimum feedback on debt that is compatible with the degree of counter-cyclical fiscal policy. Substantially active response to inflation is satisfactory for monetary policy with CPI inflation targeting. The third essay empirically presents monetary and fiscal policy interactions in Thailand's SVECM suggested by a theoretical DSGE model developed from the previous essays. This essay shows that the DSGE-SVECM model can be supported by Thai data. A shock to monetary policy is effective with a lag. Government spending policy is also effective with a lag and some crowding-out effects on output. An adverse shock in tax policy unexpectedly stimulates the economy, indicating room for enhancing economic growth by relaxing revenue constraint. Monetary policy is mainly implemented to correct a consequence of a fiscal shock on inflation (and also the domestic and foreign shocks), while fiscal policy appears to counter a consequence of the monetary policy shock on output.
Author : Ahiteme Nicodeme Houndonougbo
Publisher :
ISBN 13 :
Total Pages : 119 pages
Book Rating : 4.:/5 (115 download)
Download or read book Essays on Fiscal Policies in Open Economies written by Ahiteme Nicodeme Houndonougbo and published by . This book was released on 2014 with total page 119 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investigating various fiscal policy issues in the context of an open economy, this dissertation consists of three essays. The first essay addresses the question of the volatility of foreign aid and its impact on resource-constrained developing economies. A small open-economy business cycle model is developed that accounts for the effect of external shocks specific to developing economies. The model produces business cycle patterns consistent with the data and key stylized facts. The model is calibrated to reflect the structural empirical regularities of an aid-dependent developing country. The parameters of the exogenous stochastic shocks are estimated using Bayesian methods and 50 years of data for Cote d'Ivoire. The results suggest that foreign aid's unpredictability helps explain business cycles' volatility in developing countries. In the second essay, a dynamic stochastic general equilibrium model (DSGE) is used to analyze the effects of fiscal stimuli, such as investment tax credits (ITC) and wage subsidies, in a small open economy. Various cost-equivalent fiscal schemes are considered in response to an economic downturn. The baseline open-economy model's results are also contrasted with a closed economy case to highlight the role the current account plays during recession and recovery episodes. The results suggest that wage subsidies have faster but shorter effects on production and employment while ITCs have slower but longer lasting impacts. The persistence of fiscal shocks appears to play a significant role in the initial response of investment. The third essay provides empirical evidence to address a question heavily debated among lawmakers yet hardly ever investigated in the empirical literature: Does increasing taxes on the rich hurt or help employment growth? Proponents of tax hikes on the rich reject the idea that such taxes, which some refer to as "millionaire" taxes, have any negative impact on jobs. Critics, on the other hand, believe taxing the rich, whom they consider "job creators," hurts the economy by hampering job creation. Using newly constructed time series based on the IRS Statistics of Income, this study finds strong and statistically significant positive effects in the short run and some evidence of negative effects in the long run.
Author : Kihyun Park
Publisher :
ISBN 13 :
Total Pages : 147 pages
Book Rating : 4.:/5 (647 download)
Download or read book Essays in Open Economy Macroeconomics written by Kihyun Park and published by . This book was released on 2010 with total page 147 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the dynamic effects of various economic shocks in a two-sector small open economy. It is divided into three essays. Essays 1 and 2 have a theoretical focus; they involve the developing of intertemporal optimizing models of a small open economy. In these essays, we use the representative-agent framework to derive dynamic macroeconomic effects. Specifically, in the first essay we examine the effects of monetary policy targeted at an inflation rate in a small open economy. We adopt a two-sector dependent economy where money is introduced through various cash-in-advance (CIA) constraints. Results are very significant and sensitive to various CIA constraints as well as relative capital intensities. Higher inflation will generate more investment in the economy leading to a higher level of capital stock and a lower level of net foreign assets in the long-run when the nontraded sector is more capital intensive and households need cash for purchasing tradable goods. However, the long-run effects are completely opposite if households need real balances for purchasing nontradable goods instead. In the second essay we examine the effects and the associated dynamics of an increase in international oil prices and domestic inflation. We show that an increase in oil prices or higher domestic inflation lowers the level of investment, production, and consumption in the long-run. The economy experiences a current account surplus along with a fall in capital stock by holding more foreign traded bonds. Transitional dynamics significantly depend on sectoral capital intensity as well. In essay 3 we investigate the explanatory power of yield spread in predicting economic activities in developing economies. We employ both the Markov regime switching model (MS) and the probit model to estimate the probability of recessions during the Asian financial crisis. We find that three-regime MS model is better predictor of recessions than tworegime MS model. The MS results are also compared with that of the standard probit model for comparison. The MS model does not significantly improve the forecasting ability of the yield spread in forecasting business cycles.
Author : Muhammad Naveed Tahir
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (932 download)
Download or read book Essays on Inflation Dynamics and Monetary Policy in a Globalized World written by Muhammad Naveed Tahir and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The aim of this thesis is to analyze the impact of globalization on the dynamics of inflation and monetary policy in a globalized world. It consists of three essays.In the first essay we investigate the impact of financial globalization on the behaviour of inflation targeting emerging market economies with respect to exchange rate - Do central banks respond to exchange rate movements or not? We use quarterly data for six emerging market inflation targeting economies from the date of their inflation targeting adoption to 2009 Q4. The chapter uses small open economy new Keynesian model à la Gali and Monacelli (2005), and employs multi-equation GMM technique to investigate the relationship. We find that the response of central bank to the exchange rate in case of Brazil, Chile, Mexico and Thailand is statistically significant while insignificant for Korea and Czech Republic. Theoretically, it should not be so as even under flexible inflation targeting central bank responds to inflation deviation and output gap; we think that the peculiar characteristics of emerging markets, like fear of floating, weak financial system and low level of central bank credibility make exchange rate important for these economies. In the second essay we investigate empirically the relative importance of monetary transmission channels for Brazil, Chile and Korea. This chapter uses monthly data from the inception of inflation targeting regime to 2009 M12. We use a SVAR model incorporating the main monetary transmission channels combined together instead of individual channels in isolation. The empirical results indicate that the exchange rate channel and the share price channel have higher relative importance than the traditional interest rate and credit channel for industrial production. The results are not much different in case of inflation, except for Korea. The high ranking of exchange rate and share price channel is in line with the results by Gudmundsson (2007), which finds that exchange rate channel might have overburdened in the wake of financial globalization.In the third chapter we investigate empirically the role of openness - real and financial - on the inflation dynamics of Brazil, Chile and Korea. The chapter uses monthly data from the inception of inflation targeting regime to the end month of 2009. In this chapter we employ the Generalized Method of Moments (GMM) technique. We use imports to GDP ratio as an indicator for real openness whereas Chinn and Ito index (KAOPEN) and total assets plus total liabilities to GDP ratio form the data set of Lane and Milesi-Ferretti are two proxies for financial openness. The chapter concludes that there exists, generally, a positive relationship between real openness and inflation. However, in case of financial globalization the results are inconclusive as they are sensitive to measurement method of financial globalization.
Author : Ayse Zeyneti Kabukcuoglu
Publisher :
ISBN 13 :
Total Pages : 336 pages
Book Rating : 4.:/5 (919 download)
Download or read book Essays on Fiscal and Monetary Policy in Open Economies written by Ayse Zeyneti Kabukcuoglu and published by . This book was released on 2013 with total page 336 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter, I quantify the welfare effect of eliminating the U.S. capital income tax under international financial integration. I employ a two-country, heterogeneous-agent incomplete markets model calibrated to represent the U.S. and the rest of the world. Short-run and long-run factor price dynamics are key: after the tax reform, post-tax interest rate increases less under financial openness relative to autarky. Therefore the wealth-rich households gain less. Post-tax wages also fall less, so the wealth-poor are hurt less. Hence, the fraction in favor of the reform increases, although the majority still prefers the status quo. Aggregate welfare effect to the U.S. is a permanent 0.2 % consumption equivalent loss under financial openness which is 85.5 % smaller than the welfare loss under autarky. The second chapter aims to answer two questions: What helps forecast U.S. inflation? What causes the observed changes in the predictive ability of variables commonly used in forecasting US inflation? In macroeconomic analysis and inflation forecasting, the traditional Phillips curve has been widely used to exploit the empirical relationship between inflation and domestic economic activity. Atkeson and Ohanian (2001), among others, cast doubt on the performance of Phillips curve-based forecasts of U.S. inflation relative to naive forecasts. This indicates a difficulty for policy-making and private sectorâs long term nominal commitments which depend on inflation expectations. The literature suggests globalization may be one reason for this phenomenon. To test this, we evaluate the forecasting ability of global slack measures under an open economy Phillips curve. The results are very sensitive to measures of inflation, forecast horizons and estimation samples. We find however, terms of trade gap, measured as HP-filtered terms of trade, is a good and robust variable to forecast U.S. inflation. Moreover, our forecasts based on the simulated data from a workhorse new open economy macro (NOEM) model indicate that better monetary policy and good luck (i.e. a remarkably benign sample of economic shocks) can account for the empirical observations on forecasting accuracy, while globalization plays a secondary role.
Author : Richard Hemming
Publisher : International Monetary Fund
ISBN 13 :
Total Pages : 62 pages
Book Rating : 4.:/5 (318 download)
Download or read book The Effectiveness of Fiscal Policy in Stimulating Economic Activity written by Richard Hemming and published by International Monetary Fund. This book was released on 2002-12 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the theoretical and empirical literature on the effectiveness of fiscal policy. The focus is on the size of fiscal multipliers, and on the possibility that multipliers can turn negative (i.e., that fiscal contractions can be expansionary). The paper concludes that fiscal multipliers are overwhelmingly positive but small. However, there is some evidence of negative fiscal multipliers.
Author : Xuan Liu
Publisher :
ISBN 13 : 9781109937282
Total Pages : 174 pages
Book Rating : 4.9/5 (372 download)
Download or read book Essays in International Macroeconomics written by Xuan Liu and published by . This book was released on 2007 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays in international macroeconomics. The first essay shows that optimal fiscal and monetary policy is time consistent in a standard small open economy. Further, there exist many maturity structures of public debt capable of rendering the optimal policy time consistent. This result is in sharp contrast with that obtained in the context of closed-economy models. In the closed economy, the time consistency of optimal monetary and fiscal policy imposes severe restrictions on public debt in the form of a unique term structure of public debt that governments can leave to their successors at each point in time. The time consistent result is robust: optimal policy is time consistent when both real and nominal bonds have finite horizons. While in a closed economy, governments must have both nominal and real bonds, and have at least real bonds over an infinite horizon to render optimal policy time consistent.
Author : Jiansheng Zhong
Publisher :
ISBN 13 :
Total Pages : 90 pages
Book Rating : 4.:/5 (1 download)
Download or read book Essays on Small Open Economies written by Jiansheng Zhong and published by . This book was released on 2017 with total page 90 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation research puts a focus on small open economies, whose policies do not affect world prices and interest rates. In the first chapter, it is shown that recent Canadian data from 2001 to 2013 feature a notable procyclical trade balance, which contrasts with the countercyclical trade balance in 1981-2000. By using a dynamic small open economy model built based upon Mendoza's (1991) framework, driven by correlated domestic productivity shocks and world credit spread shocks, I can generate the observed trade balance pattern in the pre-2000 and post-2000 periods. In addition, my analysis shows that the world credit spread shocks explain a large portion of the considerable change in the cyclicality of trade balance, and that the low world real risk-free interest rate after 2000 partially accounts for the procyclical trade balance in the same time period. Applications of the model to other developed small open economies, such as Australia and New Zealand, yield similar results, suggesting that the world credit spread shocks have an impact on macroeconomic dynamics and help improve model performance. The second chapter concerns an innovative exchange rate policy implemented by the Reserve Bank of Australia (RBA). From 2013 to mid-2015, in order to achieve balanced economic growth, the RBA tried to bring down the Australian dollar by presenting public speeches and monetary policy statements that expressed a strong preference for a lower exchange rate, which is known as jawboning down the currency. To investigate the effectiveness of the central bank's jawboning strategy, I analyze the Australian economy with a structural vector autoregressive (SVAR) model, in which the Exchange Rate Stance Index (ERSI) is constructed to measure the magnitude of jawboning. The empirical results show that an unanticipated increase in the ERSI, which is equivalent to strengthened jawboning by the RBA, will lead to a significant and lasting fall in the real exchange rate. However, the ERSI shock fails to improve GDP over the medium term, suggesting that the jawboning strategy is not an effective exchange rate policy tool to boost GDP growth. The third chapter investigates how the global and local financial shocks would contribute to the large fluctuations of the unemployment rates in the emerging markets. We use a panel structural vector autoregressive (VAR) model to analyze monthly data from six emerging countries between 1999 and 2015. The results show that the local financial risk factors, including the country spread and the dividend yield, account for a larger portion of unemployment movements than the global financial risks, including the U.S. risk-free real interest rate and the global financial risk proxied by the U.S. Baa corporate spread.
Author : Gergő Motyovszki
Publisher :
ISBN 13 :
Total Pages : 156 pages
Book Rating : 4.:/5 (127 download)
Download or read book Essays on Macroeconomic Policies and Household Heterogeneity written by Gergő Motyovszki and published by . This book was released on 2021 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis is composed of three independent chapters, but all centered around the broader topic of how macroeconomic policies interact with various aspects of household heterogeneity. Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high and less-skilled workers. In particular, this effect is prominent in sectors intensive in less-skilled labor, that exhibit high degree of capital-skill complementarity (CSC) and are subject to matching inefficiencies. To rationalize these findings we build a New Keynesian DSGE model with asymmetric search and matching (SAM) frictions across the two types of workers and CSC in the production function. We show that CSC on its own introduces a dynamic demand amplification mechanism: the increase in high-skilled employment after a monetary expansion makes complementary capital more productive, encouraging a further rise in investment demand and creating a multiplier effect. SAM asymmetries magnify this channel. Monetary-Fiscal Interactions and Redistribution in Small Open Economies Ballooning public debts in the wake of the covid-19 pandemic can present monetary-fiscal policies with a dilemma if and when neutral real interest rates rise, which might arrive sooner in emerging markets: policymakers can stabilize debts either by relying on fiscal adjustments (AM-PF) or by tolerating higher inflation (PM-AF). The choice between these policy mixes affects the efficacy of the fiscal expansion already today and can interact with the distributive properties of the stimulus across heterogeneous households. To study this, I build a two agent New Keynesian (TANK) small open economy model with monetary-fiscal interactions. Targeting fiscal transfers more towards high-MPC agents increases the output multiplier of a fiscal stimulus, while raising the degree of deficitfinancing for these transfers also helps. However, precise targeting is much more important under the AM-PF regime than the question of financing, while the opposite is the case with a PM-AF policy mix: then deficit-spending is crucial for the size of the multiplier, and targeting matters less. Under the PM-AF regime fiscal stimulus entails a real exchange rate depreciation which might offset "import leakage" by stimulating net exports, if the share of hand-to-mouth households is low and trade is price elastic enough. Therefore, a PM-AF policy mix might break the Mundell-Fleming prediction that open economies have smaller fiscal multipliers relative to closed economies. Weak Wage Recovery and Precautionary Motives after a Credit Crunch During the economic recovery following the financial crisis many advanced economies saw subdued wage dynamics, in spite of falling unemployment and an increasingly tight labour market. We propose a mechanism which can account for this puzzle and work against usual aggregate demand channels. In a heterogeneous agent model with incomplete markets we endogenize uninsurable idiosyncratic risk through search-and-matching (SAM) frictions in the labour market. In this setting, apart from the usual precautionary saving behaviour, households can self-insure also by settling for lower wages in order to secure a job and thereby avoid becoming borrowing constrained. This channel is especially pronounced for asset-poor agents, already close to the constraint. We introduce a credit crunch into this framework modelled as a gradual tightening of the borrowing constraint (and utilizing a continuous time approach, known as HACT). The perfect foresight transition dynamics feature falling wages despite a tightening labour market and expanding employment. As households suddenly find themselves closer to the borrowing constraint, the increased precautionary motive drives them to accept lower wages in the bargaining process, while firms respond to this by posting more vacancies, leading to a tighter labour market and falling unemployment. If the household deleveraging pressure is persistent enough after the credit crunch, it can explain the weak wage recovery in spite of already stronger aggregate demand.
Author : Jiao Wang
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (144 download)
Download or read book Essays on Dynamic Macroeconomics and Monetary Policy written by Jiao Wang and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates monetary policy within the New Keynesian framework in dynamic macroeconomics. It includes three original research papers. The first paper examines the rules and transmission mechanisms of monetary policy in one of the fast growing economies in the 21st century, China, by extending a standard New Keynesian dynamic stochastic general equilibrium model with financial frictions and investment-specific shocks in order to capture some of the Chinese characteristics and applying a Bayesian estimation strategy to real-time data. It offers a new way of empirically examining the rule of China's monetary policy and indicates a structural break of the neutral technology development that may have caused the slowing down of GDP growth since 2010. The second paper revisits optimal monetary policy in open economies, in particular, focusing on the noncooperative policy game under local currency pricing in a theoretical two-country dynamic stochastic general equilibrium model. Quadratic loss functions of noncooperative policy makers and welfare gains from cooperation are obtained in the paper. The results show that noncooperative policy makers face extra trade-offs regarding stabilizing the real marginal costs induced by deviations from the law of one price under local currency pricing. As a result of the increased number of stabilizing objectives, welfare gains from cooperation emerge even when two countries face only technology shocks, which usually leads to equivalence between cooperation and noncooperation. Still, gains from cooperation are not large, implying that frictions other than nominal rigidities are necessary to strongly recommend cooperation as an important policy framework to increase global welfare. The third paper focuses on the noncooperative policy game specified by choice of policy instrument for implementing optimal monetary policy in a two-country open economy model similar to the one in the second paper. It examines four options of policy instruments including the producer price index inflation rate, the consumer price index inflation rate, the import price inflation rate and the nominal interest rate. It shows that choosing different policy instruments generally leads to different equilibria and, in particular, choosing the nominal interest rate results in equilibrium indeterminacy. In addition, the welfare ranking of these policy instruments depends on a country's degree of openness which is measured as the weight assigned to imported goods in the consumers' utility function. In less open countries, domestically produced goods carry a relatively higher weight in the consumers' utility function. For these less open countries, choosing the producer price index inflation rate induces a larger welfare cost from noncooperation than choosing the consumer price index inflation rate would. Choosing the consumer price index inflation rate in turn causes a larger welfare cost than choosing the import price inflation rate. Conversely, the reverse is true when countries are more open. This result sheds light on the important role that policy instrument choice plays in determining the equilibrium outcomes, to which policy makers should pay special attention when implementing optimal monetary policy under noncooperation.
Author :
Publisher :
ISBN 13 :
Total Pages : 102 pages
Book Rating : 4.:/5 (919 download)
Download or read book Three Essays in Macroeconomics of Fiscal and Monetary Policies written by and published by . This book was released on 2015 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Pedro Castro
Publisher :
ISBN 13 :
Total Pages : 158 pages
Book Rating : 4.:/5 (81 download)
Download or read book Essays in Open Economy Monetary Policy written by Pedro Castro and published by . This book was released on 2012 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt: International economic integration has risen during the last decades and the interdependence between each economy and the rest of the world has become central for policy decisions. My dissertation contributes to the debate about the conduct of monetary policy in a financially integrated world. In the first chapter of the dissertation I discuss the relationship between domestic policies and the currency denomination of foreign debt. Foreign debt is a double-edged sword. It allows countries to invest more than what would be possible given their own savings, thereby achieving preferable allocations that would not otherwise be feasible. However, it is the root of several crises. Foreign debt is especially hazardous when denominated in foreign currency; in such cases exchange rate depreciations increase the real value of the debt. An important question then is what determines the currency denomination of foreign debt. I use the adoption of Inflation Targeting (IT) in several economies during the last two decades to evaluate the importance of domestic policies in the determination of the currency denomination of debt. In order to control for possible endogeneity in IT adoption, I use matching and instrumental variables estimators; both generate similar estimates. The results show that monetary policy can have substantial effects on the amount of debt in foreign currency and that a more flexible exchange rate regime increases the use of domestic currency in foreign borrowing. In the second chapter of the dissertation I investigate the relationship between central banks balance sheets and monetary policy. Heavy foreign exchange intervention by central banks of emerging markets have led to sizeable expansions of their balance sheets in recent years - accumulating foreign assets and non-money domestic liabilities (the latter due to sterilization operations). With domestic liabilities being mostly of short-term maturity and denominated in local currency, movements in domestic monetary policy interest rates can have sizable effects on central bank's net worth. In this chapter I examine empirically whether balance sheets considerations influence the conduct of monetary policy. The methodology involves the estimation of interest rate rules for a sample of 41 countries and testing whether deviations from the rule can be explained by a measure of central bank financial strength. My findings, using linear and nonlinear techniques, suggest that central bank financial strength can be a statistically significant factor explaining large negative interest rate deviations from "optimal" levels. In the third chapter I investigate whether countries that adopted the IT framework for monetary policy have been constrained by exchange rate consideration when taking policy decisions. I present stylized facts which suggest that exchange rates have been allowed to float relatively free in IT countries. I employ Bayesian Analysis techniques to estimate a Dynamic Stochastic General Equilibrium (DSGE) structural model for twenty two IT economies and compute posterior odds tests to check whether the central banks systematically respond to exchange rate movements. The main result is that only five central banks directly respond to exchange rate movements; all the other IT central banks do not respond to the exchange rate. I also confirm that IT central banks have been conducting strictly inflationary policies, raising real interest rates in response to increases in inflation.
Author : Rahul Anand
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (654 download)
Download or read book Three Essays on Monetary Policy in Economies with Financial Frictions written by Rahul Anand and published by . This book was released on 2010 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this dissertation is to understand the role of financial frictions in the transmission of shocks and their effect on the monetary policy transmission mechanism. To accomplish the task, we develop Dynamic Stochastic General equilibrium models with financial frictions. In the first chapter, we develop a model to analytically determine the appropriate price index to target in the presence of financial frictions (where a fraction of households are constrained to consume their wage income each period). The analysis suggests that in the presence of financial frictions, a welfare-maximizing central bank should adopt flexible headline inflation targeting-i.e. a headline inflation target but with some weight on the output gap. These results are particularly relevant for emerging markets, where the share of food expenditures in total consumption expenditures is high and a large proportion of consumers are credit constrained. In the second chapter, we develop a small open economy model with macrofinancial linkages. The model includes a financial accelerator - entrepreneurs are assumed to partially finance investment using domestic and foreign currency debt - to assess the importance of financial frictions in the amplification and propagation of the effects of transitory shocks to productivity, interest rates and net worth of firms. We use Bayesian estimation techniques to estimate the model using India data. The model is used to assess the importance of the financial accelerator in India and to assess the optimality of the current monetary policy rule. In the third chapter, we develop a small open economy New Keynesian model with financial frictions and an active banking sector for India. We find that the presence of a monopolistic banking sector with sticky interest rate setting attenuates the shocks. However, if the interest rates are flexible it results in the amplification of shocks. We also find that an unexpected reduction in bank capital can have a substantial impact on the real economy and particularly on investment. Use of nonmonetary policy tools result in greater volatility as compared to when central banks use traditional monetary tightening.
Author : Mohamed Tahar Benkhodja
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (948 download)
Download or read book Essays on Monetary Policy in an Oil Exporting Economy written by Mohamed Tahar Benkhodja and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The aim of this thesis is to analyze the impact of external shocks on oil exporting economies and the role of monetary policy in this context. It consists of three essays. In the first essay, we build a Multi-sector Dynamic Stochastic General Equilibrium (DSGE) model to investigate the impact of both windfall (an increase in oil price) and boom (an increase in oil resource) on an oil exporting economy. Our model is built to see if the two oil shocks (windfall and boom) generate, in the same proportion, a Dutch Disease effect. Our main findings show that the Dutch disease effect under its two main mechanisms, namely spending effect and resource-movement effect, occurs only in the case of flexible wages and sticky prices, when exchange rate is fixed. We also compare the source of fluctuations that leads to a strong effect in term of de-industrialization. We conclude that the windfall leads to a stronger effect than a boom. Finally, the choice of flexible exchange rate regime helps to improve welfare.In the second essay, we estimate, by using the Bayesian approach, a DSGE model for Algerian economy investigating the dynamic effect of four external shocks (oil price, real exchange rate, international interest rate and foreign inflation), and examining the appropriate monetary policy rule. Our main findings show that, over the period 1990Q1-2010Q4, core inflation target is the best monetary rule to stabilize both output and inflation. In the third essay, we investigate the impact of the recent increase of oil price on a small open oil exporting economy. For this, we estimate a Dynamic, Stochastic, General equilibrium (DSGE) model for some oil producing countries using the Bayesian approach. We consider, in this essay, a sample of 16 oil exporting countries (Algeria, Argentina, Ecuador, Gabon, Indonesia, Kuwait, Libya, Malaysia, Mexico, Nigeria, Oman, Russia, Saudi Arabia, United Arab Emirates, and Venezuela) over the period from 1980 to 2010, except for Russia where our sample begins in 1992. In order to distinguish between high-dependent and low-dependent countries, we use two indicators : the ratio of fuel exports to total merchandise exports and the ratio of oil exports to GDP. We estimate the median for each ratio on our 16 studied countries. Countries above (below) the median are considered as high (low) oil dependent economies. We verify if the first group is more sensitive to the Dutch disease effect. We also assess the role of monetary policy. Our main findings show that in the first sample, namely high oil dependant economies, 6 countries are affected by the Dutch disease (decrease in the manufacturing production). Low oil dependant countries, are less affected by the fluctuation of oil price. Indeed, only one country has suffered a Dutch disease effect after the shock. Nevertheless, Regarding the appropriate monetary policy rule, we find that both inflation targeting and exchange rate rules may be effective to contain the size of the Dutch disease effect. Our results suggest that in Algeria and Saudi Arabia, inflation targeting offers better performances. We observe the opposite in Gabon, Kuwait, Oman, and Venezuela. Such results are consistent with economic theory. Indeed, we see that in more open economies and smaller countries (in terms of economic size), the exchange rate rule is preferable to inflation rule. Venezuela seems an exception. Such country does not fulfill the traditional criteria favoring the choice of the exchange rule. In fact, this exception is only apparent. First, if we consider the volatility, we see that Venezuela is among the most volatile economy. Second, Venezuela suffers from a fiscal dominance effect: both inflation rate and fiscal deficit are the highest relative to other studied countries.
Author : Qi Sun
Publisher :
ISBN 13 :
Total Pages : 426 pages
Book Rating : 4.:/5 (645 download)
Download or read book Four Essays in Dynamic Macroeconomics written by Qi Sun and published by . This book was released on 2010 with total page 426 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : International Monetary Fund
Publisher : International Monetary Fund
ISBN 13 : 1451844239
Total Pages : 33 pages
Book Rating : 4.4/5 (518 download)
Download or read book Coordination of Monetary and Fiscal Policies written by International Monetary Fund and published by International Monetary Fund. This book was released on 1998-03-01 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recently, monetary authorities have increasingly focused on implementing policies to ensure price stability and strengthen central bank independence. Simultaneously, in the fiscal area, market development has allowed public debt managers to focus more on cost minimization. This “divorce” of monetary and debt management functions in no way lessens the need for effective coordination of monetary and fiscal policy if overall economic performance is to be optimized and maintained in the long term. This paper analyzes these issues based on a review of the relevant literature and of country experiences from an institutional and operational perspective.
