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Financial Frictions And Monetary Policy Conduct
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Book Synopsis Monetary Policy and Macroprudential Regulation with Financial Frictions by : Pierre-Richard Agenor
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.
Book Synopsis Financial Frictions and Monetary Policy Conduct by : Matthieu Darracq Paries
Download or read book Financial Frictions and Monetary Policy Conduct written by Matthieu Darracq Paries and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Thesis aims at evaluating monetary policy in presence of financial frictions both from an empirical and structural perspective. Along those lines, multi-variate time-series framework as well as model with more explicit theoretical foundations will be deployed. The Thesis presents original contributions in various fields of monetary and financial macroeconomics.The main motivation for the applied research presented in this Thesis are twofold. It responded both to the need for deeper research on macro-financial linkages and to the growing interest of policy institutions for the model-based policy advise. First, the Great recession and in particular, the typology of crisis episodes in Europe over the last decade, unveiled new challenges for monetary policy conduct, notably related to the prevalence of financial factors in cyclical fluctuations, the design of non-standard measures and the interactions with financial service policies. The second motivation has to do with the growing role for structural models in the preparation of monetary policy within central banks. Over the last decades, academic research and central bank practices have mutually benefited from strong synergies, whereby quantitative methods and theoretical advances have had a lasting influence on main preparation avenues for monetary policy making.In Chapter 1, a set of empirical studies intend to demonstrate the prevalence of financial shocks underlying the euro area macroeconomic performance during the Great recession. In particular, BVAR models can identify credit supply shocks and quantify their contribution to the various recessionary episodes over the last decade.Thereafter, Chapter 2 explores more structurally the transmission mechanism of financial shocks together with their heterogeneity across the euro area through the lens of DSGE models featuring a relevant set of demand-side as well as supply-side credit frictions.Against this background, the Thesis examine more normative aspects of monetary policy conduct starting with derivation of optimal monetary policy in selected DSGE models, which is the focus of Chapter 3. The Ramsey approach to optimal monetary provides a clear benchmark for formulating normative prescriptions. We analyse the main properties of the Ramsey allocation within a set of quantitative DSGE models, thereby bring new insight on various closed economy and open economy policy challenges.At times of crisis, as financial-driven recessions bring the monetary policy interest rates to their effective lower bound, central bank deployed a set of non-standard measures in order to engineer the intended policy accommodation. Chapter 4 presents several studies which extend DSGE models to analyse the role of non-standard monetary policy measures like asset purchase programmes or long-term liquidity operations. The credit channel of those measures will be the focus of the analysis. From a more normative standpoint, the optimal central bank asset purchase strategy will be derived.Finally, in Chapter 5, the normative assessment of monetary policy conduct in presence of financial frictions calls for considering strategic interactions with other policies, and notably macroprudential policy. Such interactions are all the more relevant when analysed in a monetary union context through multi-country DSGE models.
Book Synopsis Financial Frictions and the Design of Optimal Monetary Policy by : Benjamin Schwanebeck
Download or read book Financial Frictions and the Design of Optimal Monetary Policy written by Benjamin Schwanebeck and published by kassel university press GmbH. This book was released on 2018-07-02 with total page 6 pages. Available in PDF, EPUB and Kindle. Book excerpt: The financial crisis proved strikingly that the structure of the financial system and financial frictions play a crucial role for the effectiveness of monetary policy but also for system risk. Policymakers have overlooked financial intermediation and financial stability. Shadow banks and especially in the euro area the interbank market play a crucial role in propagating financial turmoil. This dissertation addresses these circumstances and contributes to the research on the optimal design of macroeconomic policy with a particular focus on monetary unions with heterogeneous financial sectors. As the consequences for monetary policy are at the heart of this thesis, I use state-of-the-art dynamic stochastic general equilibrium models and implement financial intermediation and frictions to analyze the transmission channels and interactions of (optimal) fiscal, monetary, macroprudential as well as unconventional monetary policy.
Author :Econometric Society. World Congress Publisher :Cambridge University Press ISBN 13 :1107016045 Total Pages :511 pages Book Rating :4.1/5 (7 download)
Book Synopsis Advances in Economics and Econometrics by : Econometric Society. World Congress
Download or read book Advances in Economics and Econometrics written by Econometric Society. World Congress and published by Cambridge University Press. This book was released on 2013-05-27 with total page 511 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first volume of edited papers from the Tenth World Congress of the Econometric Society 2010.
Book Synopsis Financial Frictions in Data by : Marzie Taheri Sanjani
Download or read book Financial Frictions in Data written by Marzie Taheri Sanjani and published by International Monetary Fund. This book was released on 2014-12-24 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates financial frictions in US postwar data to understand the interaction between the real business cycle and the credit market. A Bayesian estimation technique is used to estimate a large Vector Autoregression and New Keynesian models demonstrating how financial shocks can have a large and sluggish impact on the economy. I identify the default risk and the maturity mismatch channels of monetary policy transmission; I further employ a generalized-IRF to establish countercyclicality of risk spreads; and I show that the maturity mismatch shocks produce a stronger impact than the default risk shocks.
Book Synopsis Monetary and Macroprudential Policies to Manage Capital Flows by : Juan Pablo Medina Guzman
Download or read book Monetary and Macroprudential Policies to Manage Capital Flows written by Juan Pablo Medina Guzman and published by International Monetary Fund. This book was released on 2014-02-12 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study interactions between monetary and macroprudential policies in a model with nominal and financial frictions. The latter derive from a financial sector that provides credit and liquidity services that lead to a financial accelerator-cum-fire-sales amplification mechanism. In response to fluctuations in world interest rates, inflation targeting dominates standard Taylor rules, but leads to increased volatility in credit and asset prices. The use of a countercyclical macroprudential instrument in addition to the policy rate improves welfare and has important implications for the conduct of monetary policy. “Leaning against the wind” or augmenting a standard Taylor rule with an argument on credit growth may not be an effective policy response.
Book Synopsis Optimal Monetary Policy under Uncertainty, Second Edition by : Richard T. Froyen
Download or read book Optimal Monetary Policy under Uncertainty, Second Edition written by Richard T. Froyen and published by Edward Elgar Publishing. This book was released on 2019 with total page 466 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a thorough survey of the model-based literature on optimal monetary in a stochastic setting. The survey begins with the literature of the 1970s which focused on the information problem in policy design and extends to the New Keynesian approach of the 1990s which centered on evaluating alternative targeting strategies. New to the second edition is consideration of research since the world financial crisis on the role of financial markets and institutions in the conduct of monetary policy.
Book Synopsis Money: Theory and Practice by : Jin Cao
Download or read book Money: Theory and Practice written by Jin Cao and published by Springer Nature. This book was released on 2019-12-07 with total page 412 pages. Available in PDF, EPUB and Kindle. Book excerpt: This textbook provides an introduction to modern monetary economics for advanced undergraduates, highlighting the lessons learned from the recent financial crisis. The book presents both the core New Keynesian model and recent advances, taking into account financial frictions, and discusses recent research on an intuitive level based on simple static and two-period models, but also prepares readers for an extension to a truly dynamic analysis. Further, it offers a systematic perspective on monetary policy, covering a wide range of models to help readers gain a better understanding of controversial issues. Part I examines the long-run perspective, addressing classical monetary policy issues such as determination of the price level and interaction between monetary and fiscal policy. Part II introduces the core New Keynesian model, characterizing optimal monetary policy to stabilize short-term shocks. It discusses rules vs. discretion and the challenges arising from control errors, imperfect information and robustness issues. It also analyzes optimal control in the presence of an effective lower bound. Part III focuses on modelling financial frictions. It identifies the transmission mechanisms of monetary policy via banking and introduces models with incomplete markets, principal-agent problems, maturity mismatch and leverage cycles, to show why investors’ and intermediaries’ own stakes play a key role in lending with pro-cyclical features. In addition, it presents a tractable model for handling liquidity management and demonstrates that the need to sell assets in crisis amplifies the volatility of the real economy. Lastly, the book discusses the relation between monetary policy and financial stability, addressing systemic risk and the role of macro-prudential regulation.
Book Synopsis Issues in Monetary Policy by : Kent Matthews
Download or read book Issues in Monetary Policy written by Kent Matthews and published by John Wiley & Sons. This book was released on 2006-02-22 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the Bank of England was made independent in 1997, the conduct of monetary policy has been relatively uncontroversial. The debates between Keyneisans, monetarists and supporters of fixed exchange rate mechanisms now appear very distant. Despite the apparent consensus there are many issues related to the conduct of monetary policy that are not yet settled and which will soon come to the fore. Is the current form of independence for the Bank of England appropriate? Should a central bank target inflation or the prices level? How does a central bank deal with asset price deflation? Should more account be taken of monetary aggregates? Should central banks target asset prices? What is the relationship between the money supply and asset price inflation? How should central banks ensure financial stability? The IEA was at the forefront of changing the parameters of the debate surrounding monetary policy in the 1970s and 1980s. This text, brings together some of the leading authors in the field, including the current Governor of the Bank of England, to discuss current issues in monetary policy and the relationship between monetary policy and financial markets. It is appropriate for undergraduates and postgraduates in economics and finance as well as for practitioners in financial markets.
Book Synopsis Monetary Policy Over Fifty Years by : Heinz Herrmann
Download or read book Monetary Policy Over Fifty Years written by Heinz Herrmann and published by Routledge. This book was released on 2009-06-02 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt: The contributions to this prestigious volume describe important developments in monetary economics and monetary policy during the past half century and to draw lessons from this for the future with chapters from Charles Goodhart and Olivier Blanchard.
Book Synopsis Monetary Policy, Financial Conditions, and Financial Stability by : Tobias Adrian
Download or read book Monetary Policy, Financial Conditions, and Financial Stability written by Tobias Adrian and published by . This book was released on 2014 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Financial Frictions, Investment, and Institutions by : Mr.Stijn Claessens
Download or read book Financial Frictions, Investment, and Institutions written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2010-10-01 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial frictions have been identified as key factors affecting economic fluctuations and growth. But, can institutional reforms reduce financial frictions? Based on a canonical investment model, we consider two potential channels: (i) financial transaction costs at the firm level; and (ii) required return at the country level. We empirically investigate the effects of institutions on these financial frictions using a panel of 75,000 firm-years across 48 countries for the period 1990 - 2007. We find that improved corporate governance (e.g., less informational problems) and enhanced contractual enforcement reduce financial frictions, while stronger creditor rights (e.g., lower collateral constraints) are less important.
Book Synopsis The Oxford Handbook of the Economics of Central Banking by : David G. Mayes
Download or read book The Oxford Handbook of the Economics of Central Banking written by David G. Mayes and published by Oxford University Press. This book was released on 2019-02-15 with total page 656 pages. Available in PDF, EPUB and Kindle. Book excerpt: The economic influence of central banks has received ever more attention given their centrality during the financial crises that led to the Great Recession, strains in the European Union, and the challenges to the Euro. The Oxford Handbook of the Economics of Central Banking reflects the state of the art in the theory and practice and covers a wide range of topics that will provide insight to students, scholars, and practitioners. As an up to date reference of the current and potential challenges faced by central banks in the conduct of monetary policy and in the search for the maintenance of financial system stability, this Oxford Handbook covers a wide range of essential issues. The first section provides insights into central bank governance, the differing degrees of central bank independence, and the internal dynamics of their decision making. The next section focuses on questions of whether central banks can ameliorate fiscal burdens, various strategies to affect monetary policy, and how the global financial crisis affected the relationship between the traditional focus on inflation targeting and unconventional policy instruments such as quantitative easing (QE), foreign exchange market interventions, negative interest rates, and forward guidance. The next two sections turn to central bank communications and management of expectations and then mechanisms of policy transmission. The fifth part explores the challenges of recent developments in the economy and debates about the roles central banks should play, focusing on micro- and macro-prudential arguments. The implications of recent developments for policy modeling are covered in the last section. The breadth and depth enhances understanding of the challenges and opportunities facing central banks.
Book Synopsis International Dimensions of Monetary Policy by : Jordi Galí
Download or read book International Dimensions of Monetary Policy written by Jordi Galí and published by University of Chicago Press. This book was released on 2010-03-15 with total page 663 pages. Available in PDF, EPUB and Kindle. Book excerpt: United States monetary policy has traditionally been modeled under the assumption that the domestic economy is immune to international factors and exogenous shocks. Such an assumption is increasingly unrealistic in the age of integrated capital markets, tightened links between national economies, and reduced trading costs. International Dimensions of Monetary Policy brings together fresh research to address the repercussions of the continuing evolution toward globalization for the conduct of monetary policy. In this comprehensive book, the authors examine the real and potential effects of increased openness and exposure to international economic dynamics from a variety of perspectives. Their findings reveal that central banks continue to influence decisively domestic economic outcomes—even inflation—suggesting that international factors may have a limited role in national performance. International Dimensions of Monetary Policy will lead the way in analyzing monetary policy measures in complex economies.
Book Synopsis Interbank Frictions, Business Cycle Fluctuations and Monetary Policy Trade-offs by : Yujung Suh
Download or read book Interbank Frictions, Business Cycle Fluctuations and Monetary Policy Trade-offs written by Yujung Suh and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The Great Recession and consequent slow overall economic recovery have reignited research interests in financial factors in business cycle fluctuations and monetary policy rules. In the recent financial crisis, highly interconnected and leveraged financial institutions through wholesale financial markets have been blamed as the main culprit in exacerbating the initial shock in the financial market. The role of market-based financial institutions in the supply of credit has been expanded in the United States especially before the Great Recession. The market-based institutions have used securitization as one of their important tools to raise funds. Market-based lending and the related securitization process are a part of the shadow banking system, which is broadly defined as ''credit intermediation involving entities and activities (fully or partially) outside the regular banking system'' by the Financial Stability Board. My dissertation investigates the importance of financial factors in the business cycle fluctuations and monetary policy rules. The first chapter explores the role of interbank friction shocks in accounting for the business cycle fluctuations. I augment financial intermediation of Gertler and Kiyotaki (2011) with an otherwise standard New Keynesian DSGE model with nominal rigidities in wages and prices. I then fit the model to US data, using two new financial variables (interbank loans and the net worth of banks) in the literature and allowing the interbank frictions to vary over time following exogenous shocks to these frictions. According to the Bayesian estimation of the model, shocks to interbank frictions are important factors in explaining the fluctuations of the economy, accounting for 7% of the output fluctuations, 11% of the investment fluctuations, 53% of the fluctuations in the premium and 8% of the fluctuations in interbank loans. Analyses of historical decompositions show that interbank frictions shock plays an important role in the movement of key macro variables early in the downturn of the recent financial crisis. In the second chapter, I evaluate the effect of financial frictions and shocks on monetary policy. The identification method of Justiniano, Primiceri and Tambalotti (2011) is adopted to tackle the criticism on the identification between labor supply shocks and wage markup shocks by Chari, Kehoe and McGrattan (2009). The model is re-estimated with more data series on nominal wage inflation and the output gap, defined as the difference between the actual output and potential out, is derived. The output gap is estimated to be large and displays low-frequency movements under Taylor-rule type monetary policy. Estimated shocks including interbank friction shocks then are fed into the model under Ramsey optimal monetary policy to evaluate the impact of financial shocks on the evolution of the economy and the counterfactual simulation on the evolution of the economy is conducted. The counterfactuals show that, unlike the volatile movements of output gap under Taylor-rule type monetary policy, the output gap is more stabilized and the trade-offs between conflicting policy objectives are moderate if monetary policy is conducted optimally. The last chapter explores the possibility of regime shifts in the financial frictions and the volatility of shocks to financial frictions. The preliminary estimation results on the regime-switching DSGE model show that the regime has switched between low friction and high friction regimes. At this sage, the results are mostly preliminary since the numerical optimization may stop at a local but not global maximum of the posterior distribution due to the possibility that the objective function is flat or multimodal with shifts in regimes. More through results will be obtained by gradient-free global optimization methods. The artificial bee colony (ABC) algorithm and the differential evolution algorithm are now employed to estimate the regime-switching DSGE model in the last chapter.
Book Synopsis Three Essays on Monetary Policy in Economies with Financial Frictions by : Rahul Anand
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.
Book Synopsis Shadow Banking and the Conduct of Monetary and Macroprudential Policy by : Philipp Kirchner
Download or read book Shadow Banking and the Conduct of Monetary and Macroprudential Policy written by Philipp Kirchner and published by BoD – Books on Demand. This book was released on 2020-01-01 with total page 142 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the occurrence of the Great Financial Crisis (GFC) in 2007/2008, our understanding of (macro) economics changed fundamentally. The evolution of the GFC revealed fundamental changes in the structural composition of financial systems in that traditional retail banking services, especially in the U.S., shifted progressively into a market-based banking system called the shadow banking system. Consequently, policy makers were forced to adapt the existing toolkit in two ways: implementing unconventional monetary measures to stimulate markets and introducing macroprudential measures as laid down in the BASEL III-framework geared towards the resilience and stability of the financial sector. This thesis addresses these aspects by using state-of-the-art closed- and open-economy dynamic stochastic general equilibrium models to analyze the impact of shadow banking on the business cycle and on the interaction with monetary and macroprudential policy measures.
