Alternative Monetary Research Articles

Monetary Policy and Income Distribution: The Post-Keynesian and Sraffian Perspectives

ABSTRACT This paper examines the post-Keynesian and Sraffian perspectives on the relationship between monetary policy and income distribution, highlighting their endogenous demand-led money approach and rejection of the neutrality of interest rates, and monetary policy as tool of redistribution among social classes. Both approaches acknowledge that the central bank can influence interest rates and hence, the functional distribution of income. These shared ideas recognize the political nature of interest rates and the distributive impacts of monetary policy. Although all are crucial common points, some differences persist; PK theory often emphasizes the impact of monetary policy on rentiers vs. non-rentier classes, while Sraffians focus more on wage earners vs. non-wage earners. Further, while PK theorists advocate for alternative monetary policy rules, Sraffians favor discretionary policy tailored to each economy's unique institutional framework. The paper concludes by suggesting that these shared critical conceptions, despite minor differences, should stimulate collaborative efforts to further develop heterodox theories of monetary policy and income distribution.

Alternative monetary policies and renewable energy stock returns

The aim of this study is to determine how monetary policy interacts with the financial sector specialising in renewable energy, especially since the implementation of Quantitative Easing (QE). Using EU data and the VAR approach incorporating the interest rate, representing monetary policy, an index of renewable energy stock prices, oil prices, technology and the VIX, this paper applies Granger causality, generalised impulse response functions and historical variance decompositions to explain this interaction. To account for the changes in monetary policy such as QE, structural break tests have been used to determine their effects on the variables, as the breaks correspond to the main QE events, the data has been divided into subsamples to reflect the possible differing effects of QE. The results suggest that monetary policy has only a limited effect overall on renewable energy stocks, as the long recent period of alternative monetary policies has been found not to influence renewable energy stock prices. More time-disaggregated analysis undertaken by incorporating structural breaks identifies a significant influence during some time periods depending on the type of monetary policy being conducted.

THE IMPACT OF ALTERNATIVE MONETARY POLICY INSTRUMENTS ON ELECTRONIC PAYMENT CARDS (2017-2023)

The current study aimed to show the extent of the impact of independent variables on alternative monetary policy tools in electronic payment cards, as the problem of the study was whether the alternative monetary policy tools of the Central Bank of Iraq contribute to enhancing dealing with electronic payment cards, as the variables were analyzed financially for the period (2017-2023 )annually and then using the statistical program SPSS V 26 to test hypotheses according to the standard multiple linear regression model that was suitable for this study. The study showed a set of conclusions, including a statistically significant impact relationship of alternative monetary policy instruments in electronic payment cards. The study recommended promoting alternative monetary policy tools to achieve significant economic benefits by investing in infrastructure, enhancing awareness, and improving regulatory frameworks.

Toward green central banking: Proposing an augmented Taylor rule

This study explores the greening of the Federal Reserve monetary policy from January 2000 to August 2023. We discuss the challenges inherent in the US central bank's pursuit of an alternative monetary policy to deal with its main mission of price stability while also taking climate change into account, and propose an augmented green Taylor rule. In particular, we reconsider the Taylor rule model while allowing the Fed to conduct its monetary policy, taking both physical and transition risks into account. To our knowledge, this is the first study on the sensitivity of monetary instruments and monetary policy with respect to physical and transition risks. Our analysis yields two interesting findings. First, Fed's greening of US monetary policy appears feasible, as taking the climate risk factors into account in formulating the policy is not out of step with the main price stability mandate and could yield a climate risk premium. Accordingly, the climate risk measure related to transition and physical risk drives the federal funds rate, and an augmented green Taylor rule would fit the data better than the basic Taylor rule. Second, we find that the Fed's reaction to news related to transition and physical risks in particular and climate risk in general has been more pronounced since the post COVID-19 subperiod than over the period as a whole.

Macroeconomic impacts of monetary and fiscal policy in the euro area in times of shifting policies: A SVAR approach

This paper analyses the impacts of monetary and fiscal policy of the euro area on output and inflation between 2005 and 2022 using a structural vector autoregressive (SVAR) approach. We employ three alternative indicators of monetary policy, alongside government spending and revenue as fiscal variables to estimate the effects across different subperiods. The findings reveal that monetary policy tightening produces a negative and delayed effect on both output and inflation, with the effects differing across alternative monetary policy indicators in terms of duration and magnitude. A fiscal revenue shock is found to be inflationary, whereas a fiscal spending shock initially has a negative effect on growth that later turns positive, but is short-lived. The effects of fiscal policy shocks are more substantial than the effects of monetary policy shocks. The results also suggest that the effects may differ across subperiods, depending on the nature and intensity of the policy shifts.

TEMPORARY DISEQUILIBRIUM OF A PURE CASH ECONOMY

A Classical theoretical model of temporary disequilibrium in a pure cash monetary system is formulated, in which each capitalist aims to maximize accumulation in her/his own sector, and prices and allocations are determined by the Cantillon rule. The dynamics generated by this economy are those of a sequence of temporary disequilibria, which are shown to be locally and globally unstable. Thus, government intervention is justified to avoid an economic crisis. The paper concludes by recommending an extension of the model considering alternative monetary systems.

Alternative Monetary Policy Commitments and the Yield Curve*

We present a simple model to characterise central bank forward guidance, large‐scale asset purchases and yield curve control. Endogenous yield curve reactions to policy shocks are a key determinant of monetary conditions and can support or offset policy intentions. Alternative monetary policy tools allow the central bank to signal central bank private information to investors when the policy rate is at the effective lower bound, shaping yield curve reactions. Commitments to these tools offer policy certainty but can become time‐inconsistent if the economy recovers sooner than expected. If commitments become time‐inconsistent, endogenous yield curve tightening can offset excess stimulus. The strength of this offset, and the optimality of monetary conditions, improves with the precision of investor inferences of central bank private information.

Time-varying parameters in monetary policy rules: a GMM approach

PurposeThe article aims to establish whether the degree of aversion to inflation and the responsiveness to deviations from potential output have changed over time.Design/methodology/approachThis paper assesses time variation in monetary policy rules by applying a time-varying parameter generalised methods of moments (TVP-GMM) framework.FindingsUsing monthly data until December 2022 for five inflation targeting countries (the UK, Canada, Australia, New Zealand, Sweden) and five countries with alternative monetary regimes (the US, Japan, Denmark, the Euro Area, Switzerland), we find that monetary policy has become more averse to inflation and more responsive to the output gap in both sets of countries over time. In particular, there has been a clear shift in inflation targeting countries towards a more hawkish stance on inflation since the adoption of this regime and a greater response to both inflation and the output gap in most countries after the global financial crisis, which indicates a stronger reliance on monetary rules to stabilise the economy in recent years. It also appears that inflation targeting countries pay greater attention to the exchange rate pass-through channel when setting interest rates. Finally, monetary surprises do not seem to be an important determinant of the evolution over time of the Taylor rule parameters, which suggests a high degree of monetary policy transparency in the countries under examination.Originality/valueIt provides new evidence on changes over time in monetary policy rules.

Commodity price shocks and monetary policies in commodity exporting African countries - A DSGE analysis

The study investigates alternative monetary policy rules in commodity-exporting African countries, by formulating, estimating and simulating a DSGE model for 5 African countries. We apply the Bayesian technique for our estimation and utilize impulse response functions to evaluate alternative monetary policy rules to commodity price shocks. Our results show that commodity price shocks influence business cycle fluctuations in African countries, whereas the results from alternative monetary policy rules are mixed. The findings show that nominal GDP targeting (NGDPT) is the best policy rule to minimize output volatility and price variations against positive commodity price shocks. However, if the objective is to minimize the effects of positive commodity price shocks on the exchange rate, the inflation targeting (IT) is the best policy rule. Further, the findings shows that IT and NGDPT are the best policy rules to stabilize output and prices against negative commodity price shocks while exchange rate targeting (ERT) is the best policy rule to stabilize exchange rate against negative commodity price shocks.

Monetary Policy in an Oil-Exporting Emerging Economy with Fuel Subsidies

This paper develops a DSGE model for an emerging oil-exporting economy with a fuel subsidy regime to analyse the stabilising role of alternative monetary policy rules under different subsidy arrangements. The model is estimated via Bayesian methods using data for Nigeria from 2000Q2 to 2019Q4. This paper (i) estimates a domestic fuel pricing rule for an oil-exporting emerging economy of Nigeria with fuel subsidies, (ii) characterizes monetary policy behaviour under such an estimated fuel pricing rule, and (iii) evaluates the appropriateness of alternative monetary policy rules under different assumptions regarding the fuel subsidy regime. The results show that approximately 45 per cent of changes to the global oil price are transmitted to the retail price of fuel. Also, it was found that the behaviour of monetary policy in Nigeria has been characterised by the headline inflation monetary rule. However, the monetary authority is able to reduce policy loss by approximately 11 per cent if it targets core inflation rather than a measure of inflation that includes energy prices. Under a zero-subsidy regime, the core inflation monetary rule outperforms its competitors in achieving overall macroeconomic stability, provided the share of oil in total consumption is relatively low.

The monetary policy pass-through mechanism: Is the search-for-yield incentive at work?

The paper investigates the possible mechanism behind the link between monetary policy and bank lending/risk-taking behaviors. Using a sample of Vietnamese commercial banks during 2007–2019, we find that the impact on bank output associated with monetary policy shocks is attributable to banks’ incentives to search for yield. Concretely, if interest rates remain lower amid monetary expansions, banks are likely to expand their lending activities more aggressively and take more risks to offset their reduced revenues. Moreover, this crucial supply-side effect is also at work for the bank liquidity creation channel of monetary policy transmission. Accordingly, we document that demotivated banks appear to undermine the impact of monetary policy on the core function of banks in creating liquidity to the real economy. Our finding is robust against a series of alternative monetary policy indicators, different bank output measures, multiple search-for-yield proxies, and substitute econometric methodologies. In sum, as the monetary policy pass-through transmission through the key banking channels is found due to banks’ own decisions, monetary authorities need to take this underlying mechanism into account when setting their monetary policy.

Monetary policy and financial stability

The 2008 Global Financial Crisis called into question the narrow focus on price stability of inflation targeting regimes. This paper studies the relationship between price stability and financial stability by analyzing alternative monetary policy strategies for an economy that experiences endogenous financial crises due to excessive household sector leverage. We reach three conclusions. First, a central bank can improve both price stability and financial stability by adopting an aggressive inflation targeting regime, in the absence of the zero lower bound (ZLB) constraint on nominal interest rates. Second, in the presence of the ZLB constraint, an aggressive inflation targeting regime may undermine both price stability and financial stability. Third, a leaning against the wind policy can be detrimental to both price stability and financial stability when the credit cycle is driven by countercyclical household sector leverage. In this environment, leaning with credit spreads can be more effective.

Alternative monetary policies and wealth and income inequality: the monetary instrument problem revisited

AbstractThis paper compares the impact of setting the money growth rate versus pegging the interest rate on aggregate real variables and their distributions. In either case, the monetary policy, in isolation, requires the price level to jump to ensure intertemporal solvency but has no real dynamic effects. The choice of monetary instrument has consequences for wealth and income inequality, doing so in potentially conflicting ways. Following real shocks, the accompanying monetary policy will influence the ensuing transition. For real variables, this operates entirely through its impact on the speed of convergence and is negligible. For financial variables, the impact also depends upon the initial jump in the price level. These effects vary more substantially between policies and have more significant distributional consequences. Overall, the impact on inequality is dominated by the real shocks themselves, rather than the accompanying monetary policy. Finally, we compare these two policies to inflation targeting, which is shown to be the least favorable for reducing wealth inequality, but the most favorable for reducing income inequality.

Adopsi Nilai-Nilai Islam pada Instrumen Kebijakan Moneter dalam Mengontrol Peredaran Uang

This study identifies monetary policy instruments that can be adopted or adapted to Islamic values to achieve the goal of controlling the circulation of money. Monetary policy has a central role in managing a country's economy, and the adoption of Islamic values in monetary policy instruments is increasingly gaining attention in the context of Islamic economics. This research uses a library approach by analyzing information sourced from articles, books, journals and various other documentation. The findings of this study explain that the adoption of Islamic values in monetary policy instruments can provide significant benefits in achieving sustainable economic goals and in accordance with Sharia principles. However, implementation challenges are also a concern, including technical aspects and a deep understanding of the principles of Islamic economics. Therefore, we propose practical guidance for monetary authorities in implementing monetary policy instruments inspired by Islamic values. Thus, contribution in formulating alternative monetary policies that integrate Islamic values with modern practices, as well as encourage the development of a more inclusive and sustainable economic system.

A horse race of alternative monetary policy regimes under bounded rationality

We introduce bounded rationality, along the lines of Gabaix (2020), in a canonical New Keynesian model calibrated to match Canadian macroeconomic data. We use the model to provide a quantitative assessment of the macroeconomic impacts of alternative monetary policy regimes—flexible inflation targeting (FIT), average-inflation targeting (AIT) and price-level targeting (PLT)—with an effective lower bound (ELB) constraint. First, our results suggest that the benefits of adopting history-dependent monetary policy regimes rely on two important assumptions: rational expectations and the central bank’s emphasis in stabilizing real variables such as the output gap. The macro-stabilization advantage of PLT disappears even for small deviations from rational expectations, and it is especially undermined when the central bank assigns a high weight on output volatility. Second, the presence of cost-push shocks, such as the ones global economies have experienced since the recovery from the pandemic, introduces important policy trade-offs that poses practical challenges which are best tackled using an AIT regime. Third, in choosing the optimal window width under the AIT regime, a central bank that assigns some emphasis on real sector stability needs to be mindful of expectation formation. If economic agents are sufficiently far from being rational, our simulations indicate that the optimal window is between 1 and 2.5 years.

What to target? Insights from a lab experiment

This paper compares alternative monetary policy regimes within a controlled lab environment, where groups of participants are tasked with repeatedly forecasting inflation in a simple macroeconomic model featuring only the dynamics of interest rates, inflation and inflation expectations. Average-inflation targeting can replicate the price path observed under price-level targeting in the presence of disinflationary shocks and enable subjects to coordinate on simple heuristics that reflect the concern of the central bank for past inflation gaps. However, this depends on the exact specification of the policy rule. In particular, if the central bank considers more than two lags, subjects fail to form expectations that are consistent with the monetary policy rule, which results in greater inflation volatility. Reinforcing communication around the target helps somewhat anchor long-run inflation expectations.

Monetary Policy and Net Exports Externalities in the Small Open Economy

AbstractWe extend a New Keynesian small open economy dynamic stochastic general equilibrium (DSGE) model with nontradable goods and intermediate inputs. We show that the optimal monetary policy in the small open economy is not necessarily isomorphic to the closed economy due to net exports externalities. The optimal policymaker is willing to take advantage of the externalities and to raise the real value of home production, along with stabilizing composite domestic inflation. Also, we rank alternative monetary policy rules, estimate the optimal monetary policy rule associated with welfare, and show that setting interest rates toward their target levels of composite domestic inflation and net exports is desirable.

The impact of the compulsory cash reserve on generating money in Jordanian conventional and Islamic banks on the money supply, an analytical study from the period (2011-2020)

The study objectives are to know the concept of the compulsory cash reserve and the money supply, and to clarify the concept of conventional and Islamic banks and their reality in Jordan and the extent of their ability to generate money, and to show the impact of the compulsory cash reserve in generating money and money supply, this is through a presentation of the statistical analysis models for the independent study variables represented in the cash reserve and the factors affecting it, and the extent of its impact on the dependent variable represented in the money supply.
 The study included three sections, the first section dealt with the cash reserve and the money supply and the relationship between them, the second topic dealt with the role of the cash reserve in generating money in Islamic and conventional banks, and the third topic: the study methodology and statistical analysis.
 The study concluded that the compulsory cash reserve policy works to limit the ability of Islamic banks to generate money compared to usurious banks, and this is due to the commodity nature of the financing formulas practiced by Islamic banks, which makes the amount of money creation and credit expansion linked to production, which helps them to achieve The balance between the commodity current and the monetary current. While the study concluded that the policy of the compulsory reserve works to reduce the money supply in the event of an increase in the percentage of the compulsory reserve and to increase the money supply in the event of a decrease in the percentage of the compulsory reserve.
 The study recommended a set of recommendations, the most important of which is that an alternative monetary policy must be found to the monetary reserve policy, especially in Islamic banks, because it is completely different for commercial banks.

International clearing system as alternative monetary order

The purpose of this paper is to reconstruct the debate on the international clearing mechanism from the pioneering proposals of the nineteenth century to the years of high theory, at the beginning of the 1940s, when several plans were defined to establish international clearing mechanisms, and the well-known John Maynard Keynes’s International Clearing Union Plan was joined by other projects proposed by Paul Einzig and two German-born economists, Ernst Friedrich Schumacher and Hubert Ladenburg. As is well known, the Keynes plan was conceived as a response to the Nazi plan to establish a multilateral clearing system for regulating trade relations in the economic space of the countries occupied by the Third Reich. However, Keynes did not elaborate a plan radically opposed to the Nazi proposal, but shared its essential core. While being opposite sides of the conflict, both Nazi Germany and the British government proposed the same monetary order, based on multilateral clearing system, for the post-war world. The project of a new international monetary order based on the multilateral clearing system was not unanimously shared among the Allies: the United States moved on different lines confirming the centrality of gold in the post-war world order. Economic interests imposed the restoration of gold-exchange standard, based on the dollar supremacy and the Bretton Woods agreement, confirming the political success of Harry Dexter White’s proposal, was a turning point in a spontaneous path towards a new international order based on clearing agreements. Keynes proposed an economically realistic solution, based on the experience of clearing agreements resulting from the collapse of the gold exchange standard, but his plan was politically unrealistic in the face of the interests of the United States superpower. Keynes did not accept a compromise, but was simply defeated.

Forecasting the exchange rate with the Taylor rule model during times of alternative monetary policies

AbstractThis study aims to incorporate the effects of recently used alternative monetary policies, such as quantitative easing into standard Taylor rule exchange rate models. Using out‐of‐sample forecasting, we determine whether including long‐term government bond yields and shadow interest rates improves on these model's performance. Using data from the Eurozone, Japan, United Kingdom, and United States, we perform out‐of‐sample forecasts using a rolling window; the results suggest that the model with government bond returns performs best against the random walk, although the results vary across countries, particularly when we compare the forecasts with those produced by a version of uncovered interest parity (UIP).