Aspects Of Monetary Policy Research Articles

Monetary Policy and Bank Risk-taking

As the process of global financial integration deepens, the relationship between bank risk-taking and monetary policy has become increasingly close. In recent years, financial markets have been highly volatile and banking risks have become increasingly prominent. Against this background, the relationship between monetary policy and bank risk-taking in China is studied through both theoretical and empirical evidence, and corresponding policy recommendations are put forward. In addition, the role mechanism of monetary policy affecting bank risk is deeply explored through the theoretical aspect of monetary policy and bank risk capacity bearing, and the theoretical basis for the formulation of related policies is provided. Therefore, it explores the impact of bank risk on the transmission mechanism of monetary policy from the theory, and further improves the theory of monetary policy transmission to enhance the effectiveness and stability of monetary policy. The article analyzes and discusses the impact of monetary policy on bank risk-taking capacity, to provide a reference for the development of the financial industry.

Reflections on Aspects of Macroeconomic Policies in the Spirit of Geoff Harcourt

ABSTRACT This article opens with some remarks on Geoff Harcourt’s thoughts on macroeconomic policies (broadly conceived). This is followed by comments on some recent developments within the scope of fiscal policy. The article moves on to aspects of monetary policy and central banks, with particular reference to the ‘independence’ of central banks and inflation targeting. There are then relatively brief discussions on three policy areas on which policies pursued by the central banks have some, albeit often limited, impacts, namely, financial stability, inequality, and climate change and environmental damage. The article considers alternative approaches to controlling inflation in view of the failures of the inflation targeting regime (and Geoff’s interest in incomes policy).

Modern money theory on fiscal and monetary policies: empirics, theory, and praxis

Drumetz/Pfister (2021) make several claims about the inadequacy and fallacy of modern money theory (MMT) and conclude that MMT is nothing more than a political manifesto; there is no theoretical and empirical foundation beneath it. The present paper addresses this last point by focusing on the fiscal and monetary policy aspects of their criticisms. Contrary to what they claim, MMT is backed by a large body of empirical evidence, a rich institutional analysis, and a well-developed theoretical framework (including mathematical models). MMT provides a detailed analysis of the coordination between the fiscal and monetary branches of government, emphasizes that fiscal deficits are a stylized fact, and uses theoretical tools grounded in institutional realities to explain this stylized fact.

The Operational Aspects of Monetary Policy in Controlling the Demand and Supply of Money

Purpose: The primary aim of this research is to examine how monetary policy operationally manages the demand and supply of money within Bangladesh’s economy. Methodology: This analysis is based on structured interviews conducted with 207 respondents from Bangladesh Bank and 19 listed private conventional commercial banks. The data were interpreted using percentages, descriptive statistics, and varimax rotated factor analysis. Findings: Based on adjusted mean scores, the research identified and ranked 14 factors influencing Bangladesh's control of money supply and demand. The most impactful tools identified were interest rate-related instruments, reserve instruments, open market operations, and credit control tools, as determined by varimax rotated factor analysis. The rankings accurately represent the current state of the money market in Bangladesh. Practical Implications: The study fills a gap in the literature and tests existing theories on monetary policy in Bangladesh. The findings are valuable for regulators, commercial banks, academics, and policymakers, providing insights that could enhance the effectiveness and goal orientation of central bank policies. Research Limitations: The small sample size of 207 respondents limits the study's scope. Additionally, restricted access to previous studies and data limitations posed challenges. The research focused solely on Bangladesh Bank and listed private commercial banks, excluding non-bank financial institutions (NBFIs) and the capital market.

Sectoral Effects of Monetary Policy: Evidence from Pakistan

Does monetary policy have economically significant effects on the real output? Historically, economists have tended to hold markedly different views with regard to this question. In recent times, however, there seems to be increasing consensus among monetary economists and policy-makers that monetary policy does have real effects, at least in the short run.1 Consequently, focus of monetary policy analysis has recently shifted from the big question of whether money matters, to emphasising other aspects of monetary policy and its relations to real economic activity. One aspect that has received considerable attention of late is the sectoral or regional effects of monetary policy shocks. Recent studies on the subject make it quite clear that different sectors or regions of the economy respond differently to monetary shocks. This observation has profound implications for the macroeconomic management as the central bank will have to weigh the varying consequences of its actions on different sectors or regions of the economy. For instance, the tightening of monetary policy might be considered mild from the aggregate perspective, yet it can be viewed as excessive for certain sectors. If this is true then monetary policy should have strong distributional effects within the economy. Accordingly, information on which sectors react first and are more adversely affected by monetary tightening provides valuable information to monetary authorities in designing appropriate monetary policies. Additionally, the results can contribute to our understanding of the underlying nature of transmission mechanism. And for that reason, many economists have called for a disaggregated analysis of monetary transmission mechanism [e.g., Domac (1999), Dedola and Lippi (2005), Ganley and Salmon (1997), Carlino and DeFina (1998)].

The accountability gap: Deliberation on monetary policy in Britain and America during the financial crisis

We employ multiple methods to gauge empirically the quality of the deliberative process whereby central bankers are held to account for their policy decisions. We use quantitative text analysis on the monetary policy legislative oversight hearing transcripts in the UK and US during the financial crisis. We find that the UK performs significantly better than the US in holding the central bank head to account on monetary policy, namely by engaging in a reciprocal dialogue between the legislative committee and the central banker. We then manually code selected exchanges from these transcripts, according to four criteria of deliberation: partisanship, accountability, narrative and response quality. We find that British MPs invoke almost no partisan rhetoric and target their questions more to relevant aspects of monetary policy; by comparison, their American counterparts seek to appeal more to their constituents and tend to veer away from discussing the details of monetary policy.

Monetary policy surprises and interest rates under China's evolving monetary policy framework

China's monetary policy framework has evolved considerably in the past two decades, increasingly moving from using quantity-based instruments and targets to using price-based instruments and targets. This paper assesses the effectiveness of monetary policy in China by examining the influence of monetary policy on market interest rates using an event-study approach. We find that the effectiveness of price-based instruments in impacting market interest rates increases over time, and that price-based instruments are as effective as quantity instruments during the period since the completion of interest rates liberalization. Furthermore, central bank communications, an increasingly important aspect of monetary policy, affect medium- and long-term market interest rates. Our findings are robust to the use of an alternative measure of monetary policy surprise and an alternative estimation method.

What Affects Income in Sub-Saharan Africa?

This paper closely examines how selected macroeconomic variables affect income in Sub-Saharan Africa (SSA). The study employs a more recent dataset and uses fixed and random effects models to characterise the nature and direction of impact evidenced from the data. The analysis further incorporates a monetary policy element by introducing money market interest rate and examining its effects. In general, the paper reveals that income in SSA is significantly affected by trade. Additionally, money market interest rate is found to have no major impact on income as may be perceived, suggesting that this aspect of monetary policy has not played a major role in affecting income levels in SSA. The findings of this study can serve as a guide for policy makers within the region when considering policy actions in relation to income.

WAYS TO IMPROVE THEORETICAL AND PRACTICAL FEATURES OF MONETARY POLICY

This article analyzes the theoretical and practical aspects of monetary policy in various countries around the world and identifies their specific features.

Dynamic Rational Inattention and the Phillips Curve

We develop a fast, tractable, and robust method for solving the transition path of dynamic rational inattention problems in linear-quadratic-Gaussian settings. As an application of our general framework, we develop an attention-driven theory of dynamic pricing in which the Phillips curve slope is endogenous to systematic aspects of monetary policy. In our model, when the monetary authority is more committed to stabilizing nominal variables, rationally inattentive firms pay less attention to changes in their input costs, which leads to a flatter Phillips curve and more anchored inflation expectations. This effect, however, is not symmetric. A more dovish monetary policy flattens the Phillips curve in the short-run but generates a steeper Phillips curve in the long-run. In a calibrated version of our general equilibrium model, we find that our mechanism quantifies a 75% decline in the slope of the Phillips curve in the post-Volcker period, relative to the period before it.

Twenty Years of Unconventional Monetary Policies

The Bank of Japan has used unconventional monetary policies to fight deflation and stabilize the financial system since the late 1990s. While the Bank of Japan’s reflation efforts have evolved over time, inflation and inflation expectations have remained stubbornly low. This paper examines the evolution of monetary policy in Japan over the past twenty years, in order to draw relevant lessons and propose ways to strengthen the Bank of Japan’s policy framework. In doing so the analysis focuses on three aspects of monetary policy: objectives and goals; policy strategies; and the communication framework. Moreover, the paper discusses coordination between monetary, fiscal, and financial policies, and how the corresponding institutional design could be strengthened.

Monetary policy and macroeconomic stability revisited

A large literature has established the view that the Fed's change from a passive to an active policy response to inflation led to U.S. macroeconomic stability after the Great Inflation of the 1970s. We revisit this view by estimating a generalized New Keynesian model using a full-information Bayesian method that allows for indeterminacy of equilibrium and adopts a sequential Monte Carlo algorithm. The estimated model empirically outperforms canonical New Keynesian models that confirm the literature's view. It also points to substantial uncertainty about whether the policy response to inflation was active or passive during the Great Inflation. More importantly, a more active policy response to inflation alone does not suffice for explaining the U.S. macroeconomic stability, unless it is accompanied by a change in either trend inflation or policy responses to the output gap and output growth. This extends the literature by emphasizing the importance of the changes in other aspects of monetary policy in addition to its response to inflation.

Twenty Years of Unconventional Monetary Policies: Lessons and Way Forward for the Bank of Japan

The Bank of Japan has used unconventional monetary policies to fight deflation and stabilize the financial system since the late 1990s. While the Bank of Japan's reflation efforts have evolved over time, inflation and inflation expectations have remained stubbornly low. This paper examines the evolution of monetary policy in Japan over the past twenty years, in order to draw relevant lessons and propose ways to strengthen the Bank of Japan's policy framework. In doing so the analysis focuses on three aspects of monetary policy: objectives and goals; policy strategies; and the communication framework. Moreover, the paper discusses coordination between monetary, fiscal, and financial policies, and how the corresponding institutional design could be strengthened.

Reallocation Effects of Monetary Policy

Responding to the increased attention on the distributional aspects of monetary policy, we investigate the reallocation among heterogeneous firms triggered by nominal growth. Japanese firm-level data show that large firms invest more in R&D and grow faster than small firms under higher inflation. We then construct a model that introduces nominal rigidity into R&D-driven endogenous growth with heterogeneous firms. The model shows that high nominal growth leads to an increase in the market share of innovative firms because menu-cost burdens are relatively heavier for less innovative firms. This reallocation effect yields a positive effect of monetary expansion on both real growth and welfare. The optimal nominal growth can be strictly positive even under nominal rigidity. Moreover, the presence of menu costs can improve welfare.

A Positive Theory of Monetary Policy in a Natural Rate Model

A Positive Theory of Monetary Policy in a Natural Rate Model

Aspects of monetary policy in the EEU countries: An analysis of the prerequisites for harmonization

Aspects of monetary policy in the EEU countries: An analysis of the prerequisites for harmonization

Priorities of improvement of monetary policy are in the system ofstrengthening of financial safety of Ukraine

The article of research is totality of organizationally-economic relations thatarise up in the process of forming and improvement of monetary policy in thesystem of strengthening of financial safety of Ukraine.The aim of the articleconsists in the analysis of basic problems, contradictions that arise up in the processof realization of complex of events in relation to determination of priority directionsof forming and improvement of monetary policy in the system of strengthening offinancial safety of Ukraine. Research methodology consists in the use of totalityof methods : dialectical, analytical, comparative. The indicated methodologicalapproach allowed to analyse теоретико-методологеские and practical aspects ofmonetary policy, that is represented in works of home and foreign scientists andto define their connection and influence on the system of financial safety ofUkraine.Research methodology consists in the use of totality of methods : dialectical,analytical, comparative. The indicated methodological approach allowed to analyseтеоретико-методологеские and practical aspects of monetary policy, that isrepresented in works of home and foreign scientists and to define their connectionand influence on the system of financial safety of Ukraine.The scientific noveltyof the got results consists in complex illumination of the generalized going neardetermination of priorities of improvement of monetary policy in the system ofstrengthening of financial safety of Ukraine. Scientific conclusions are done inrelation to character, features of the state of realization of monetary policy anda necessity and expediency of further study of her influence are reasonable onstrengthening of financial safety of Ukraine.Conclusions. In the article the lightedup questions of necessity of scientific comprehension and practical decision ofproblems related to the improvement of monetary policy, determinations of theirpriorities in the system of strengthening of financial safety of Ukraine. Takinginto account that an important scientific and practical task is now remained bydetermination of list of national economic interests, providing of realization ofthat straight depends on the state of safety of different constituents of the financialsystem of Ukraine, the improvement of monetary policy is necessary to spare thespecial attention.

Теоретические аспекты денежно-кредитной политики государства

Теоретические аспекты денежно-кредитной политики государства

The Evolution of Inflation Targeting in Australia

When inflation targeting commenced in Australia is disputed. Some believe it began in March 1993 when the Governor of the Reserve Bank (Bernie Fraser) referred in a speech to the desirability of maintaining inflation between 2 and 3 per cent a year. However, a similar reference to inflation targeting appears in a speech he made in August 1992. Some overseas authorities argue that it commenced in 1994, highlighting a speech Fraser made in September of that year. The year 1994 is significant also because the Treasurer (Ralph Willis) stated in parliament that the government and the Bank had an inflation target of 2–3 per cent. Paul Keating prefers 1995, while another possible starting date is August 1996 when the first Statement on the Conduct of Monetary Policy was signed by the Treasurer (Peter Costello) and the incoming Governor of the Reserve Bank (Ian Macfarlane). In all probability, there is no definitive starting date. Rather, the adoption of inflation targeting in Australia was the result of an evolutionary process, as with many other developments in the history of central banking.‘… there is no reason why the current underlying inflation rate of 2 to 3 per cent cannot be sustained’ (Bernie Fraser, ‘Two Perspectives on Monetary Policy’, Address to a conference in honour of Don Sanders, Sydney, 17 August 1992)‘My own view is that if the rate of inflation in underlying terms could be held to an average of 2 to 3 per cent over a period of years that would be a good outcome.’ (Bernie Fraser, ‘Some Aspects of Monetary Policy’, Address to Australian Business Economists, Sydney, 31 March 1993).

Shocking Aspects of Monetary Policy on Income Inequality in the Euro Area

This paper examines the distributional effects of monetary policy, either standard, nonstandard or both, on income inequality in 10 EA countries over the period 2000-2015. We use three different indicators of income inequality in a Panel VAR setting in order to estimate IRFs of inequality to a monetary policy shock. Results suggest that: (i) the distributional effects of ECB’s monetary policy have been modest and (ii) mainly driven in times of conventional monetary policy measures, especially in peripheral countries, while, overall, (iii) standard and non-standard monetary policies do not significantly differ in terms of impact on income inequality.terms of impact on income inequality.