Changes In Monetary Regimes Research Articles

Persistence of Stock Return Volatility in Canada

AbstractIn this article, a generalized autoregressive conditional heteroscedastic (GARCH) model is applied to Canadian data covering the period 1976‐1991. The time period is chosen to correspond to distinct monetary regimes, and to the more recent period surrounding the October 1987 crash. The excess price volatility observed over the entire period is reduced by appropriately taking into account three conditional mean and variance shifts corresponding to three distinct monetary regimes and interest rate processes. In spite of the above correction, the hypothesis of a unit root in the variance cannot be rejected for one sub‐period.Subsequently, a substantial reduction in the degree of persistence in volatility is achieved by introducing a dummy variable in the GARCH model to account for extraordinary price movements or “outliers”. The outliers were investigated and found to correspond to the release of business and economic news, in most cases of U.S. origin. Conversely, no reduction in conditional variance is obtained when allowing for seasonal effects, such as the Monday and January effects, in the GARCH equation.The results suggest that, when modelling the conditional variance equation, it is important to account for structural changes in the economic environment and to include in the analysis other sources of non‐stationarity. In doing so, the degree of persistence in market volatility is vastly reduced. The conclusion calls upon further study of the impact of extraordinary price movements and their link to economic information, as well as of other factors likely to affect volatility persistence, such as trading behaviour, in the search to unravel the dynamic behaviour of conditional variances.RésuméUn modèle gééralisé de variance conditionnelle autorégressive (GARCH) est appliqué, dans cet article, à des données canadiennes couvrant la période 1976‐1991. Les années choisies correspondent à trois régimes monétaires distincts et à la période plus récente couvrant la crise boursière d'octobre 1987. L'excès de volatilité de prix constatée durant la période entière est réduit alors qu'on tient compte de trois changements structurels dans les moyennes et les variances correspondant aux trois régimes monétaires et processus de taux d'intérět distincts. En dépit de cela, l'hypothèse de non‐stationnarité dans la variance ne peut pas ětre rejetée pour une souspériode.Par la suite, une réduction substantielle du degré de persistance dans la volatilité est obtenue en introduisant une variable artificielle dans le modèle GARCH pour tenir compte des mouvements de prix extraordinaires. Ces mouvements de prix peu communs ont été étudiés et apparaissent générés par l'arrivée de nouvelles économiques, dans la plupart du temps d'origine américaine. Par contre, aucune réduction dans la variance conditionnelle n'est obtenue quand on introduit les effets sai‐sonniers, tels l'effet “lundi” ou leffet “janvier”, dans l'équation GARCH.Les résultats laissent à penser qu'il est important de prendre en considération lors de la modélisation de l'équation de la variance les changements structurels de l'énvironnement économique et d'inclure dans l'analyse toute autre source de non stationnarité. En faisant cela, le degré de persistance dans la volatilité du marché est fortement réduit. La conclusion recommande l'étude plus approfondie de l'impact des mouvements extraordinaires de prix et de leur relation avec l'arrivée d'information économique, aussi bien que l'étude d'autres facteurs susceptibles d'influencer la persistance en volatilité tel que le comportement des agents sur le marché, dans le but d'approfondir notre connaissance sur le comportement dynamique des variances conditionnelles.

Monetary regimes in transition

List of figures List of tables List of contributors 1. Introduction Michael D. Bordo and Forrest Capie Part I. Commodity Money Standards in Transition: 2. The scramble for gold: monetary regime transformation in the 1870s Giulio M. Gallarotti 3. The Latin Monetary Union and the emergence of the international gold standard Angela Redish 4. Greenback resumption and silver risk: the economics and politics of monetary regime change in the United States, 1862-1900 Charles W. Calomiris Part II. Successful and Unsuccessful Adherence to the Gold Standard: 5. Spain during the classical gold standard years, 1880-1914 Pablo Martin-Acena 6. Canada and the gold standard, 1871-1914: a durable monetary regime Trevor J. O. Dick and John E. Floyd 7. Australia's payments adjustment and capital flows under the international gold standard, 1870-1913 David Pope Part III. Wartime Upheaval and Postwar Stabilization: 8. British and French finance during the Napoleonic Wars Michael D. Bordo and Eugene N. White 9. Interpreting a change in monetary policy regimes: a reappraisal of the first Hungarian hyperinflation and stabilization, 1921-1928 Pierre L. Siklos 10. Halting inflation in Italy and France after the Second World War Alessandra Casella and Barry Eichengreen 11. The rise and fall of credit controls: the case of Sweden, 1939-1989 Lars Jonung Part IV. Perspectives on Monetary Regimes: 12. An assessment of monetary regimes Anna J. Schwartz Index.

Credibility crises: the dollar in the early 1980s

From October 1979 to February 1985, forward rates systematically underpredicted the strength of the US dollar. In this paper we argue that the explanation of this phenomenon is the existence of a peso problem. We identify two peso problem periods. The first one is related to the change in monetary regime in October 1979 and to the private sector doubts about the Federal Reserve commitment to lower money growth and inflation. The second peso problem period is related to the private sector anticipation of the dollar's depriciation beginning in March 1985.

Monetary regime changes and the behavior of ex ante real interest rates: a multi-country study: A multi-country study

Previous research has found that U.S. monetary regime changes are related to changes in the behavior of ex ante real interest rates. This paper examines monetary regime changes in other countries to test whether changes in expected real interest rates are related to monetary regime changes in a systematic manner. The results show that while real rates have not been constant across monetary regimes, the characteristics of the real rate process shifts differ across countries. This evidence is consistent with theories that predict the neutrality of monetary regime changes with respect to real variables.

Price Inertia and Policy Ineffectiveness in the United States, 1890-1980

This paper introduces a new approach to the empirical testing of the Lucas- Sargent-Wallace (LSW) ineffectiveness proposition. Instead of testing that hypothesis in isolation from any plausible alternative, the paper develops a single empirical equation explaining price change that includes as special cases both the LSW proposition and an alternative hypothesis. The alternative, dubbed NRH-GAP, states that prices respond fully in the long run, but only gradually in the short run, to nominal aggregate demand disturbances. A second innovation is the development of a quarterly data file for the period 1890-1980, thus opening up more than 200 new quarterly observations for analysis. A third innovation is the testing of three different methods of introducing persistence effects into the LSW analytical framework. In conflict with the predictions of the LSW approach, the results here exhibit uniformly high coefficients of real output and low coefficients of price changes in response to anticipated nominal GNP changes. Further, price changes respond positively and output responds negatively to lagged changes in prices, reflecting the short-run inertia in price-setting that forms the basis for the alter- native NRH-GAP approach. Evidence is also provided that velocity tends to respond negatively to anticipated changes in money, in contrast to the usual assumption in this literature of random serially independent velocity changes. Two shifts in the structure of the price-setting process are noted--a much higher degree of price responsiveness during World War I and its aftermath, and a longer mean lag in the influence of past price changes after 1953. Of independent interest, beyond its treatment of the policy ineffectiveness debate, is the treatment in the paper of changes in monetary regimes, and of the impact of programs of government intervention. The money creation process exhibits a highly significant change in structure before and after World War I, and a marginally significant change in 1967. The results identify five episodes of government intervention that significantly displaced the time path of prices -- the National Recovery Act of 1933-35, and price controls during the two world wars, Korea, and the Nixon era.