Monetary Coordination Research Articles

The Coordination of Monetary and Fiscal Policy Interactions and Its Impact on the Performance of the Nigerian Economy

Fiscal and monetary policies have been adjudged by scholars to have strong implications for economic performance of countries across the globe. This paper assesses the impact of the interaction of monetary and fiscal policy coordination on the economic performance of Nigeria. The study adopted an econometric method in analyzing data which were obtained mainly from secondary sources, especially the CBN statistical bulletins. The estimation techniques used in the study are the Auto-Regressive Distributed Lag (ARDL) model, the Granger Causality and Vector Auto-regression. The data were tested for stationarity using ADF (1979) methods. The results obtained shows that all monetary variables react strongly to changes in fiscal variables except interest rate. Inflation and external debt are negatively signed in both long run and short run, implying that an increase in both variables will have a negative effect on economic performance. Also, the coefficient of INTR and FGRRg has positive impact in the long run, meaning that an increase in both will have a positive impact on economic performance. Also, the elasticity status of our model shows that while INTR, RGDPg and INF rate and their lags had coefficient of elasticity less than one, EXDBT and FGRRg and their lags had coefficients greater than one. Thus, it could be concluded from the findings that fiscal policy measures exert greater impact on the level of economic performance in Nigeria, than monetary policy. The study made some policy recommendations, which if implemented, could increase the level of interaction between fiscal and monetary policies and enhance their coordination for improved economic performance in the country.

Монетарне регулювання та його роль у економічному зростанні держави

The article provides a comparative analysis of monetary regulation models and explores their impact on economic growth. The aim of the paper is to study models of monetary regulation and their impact on economic growth. The authors claim that monetary regulation of any country in the world should be aimed at ensuring economic growth. The study shows that the rapid development of monetary policy and economic growth theories is marked by certain contradictions, uncertainty and cross flows. Based on the analysis of the views of researchers on the impact of monetary regulation on economic growth, the authors conclude that concepts are divided according to those that characterize weak relations between these phenomena, and those that prove close correlation. The authors state that in Ukraine, in conditions of using a monetary design based on the inflation targeting regime and taking into account the importance of increasing the efficiency of using main instruments of monetary regulation, it is necessary, first of all, to ensure the consistency of monetary and fiscal policies. The coordination of monetary and fiscal policies should consist of developing and implementing them in such a way that they do not contradict each other and together contribute to the achievement of the common goals of economic policy, such as sustainable economic growth and low unemployment in terms of long-term price and external stabilities. That is, the main problem of the significant influence of monetary regulation on economic growth in the country lies in restoring the effectiveness of the channels of the transmission mechanism of monetary policy, which depends on the choice of monetary design.

MONETARY REGULATION IN THE ECONOMIC GROWTH OF A STATE

Abstract. In the article it is provided a comparative analysis of monetary regulation models and explores their impact on economic growth. The aim of the paper is to study models of monetary regulation and their impact on economic growth. It has been established that monetary regulation of any country in the world should be aimed at ensuring economic growth. The authors of the article proved that monetary regulation should be considered as a source of economic shifts, an increase in real wages and living standards accordingly; it acts as a measure of inflationary processes’ containment, which, in turn, meets strategic objectives of monetary policy. The study showed that the rapid development of monetary policy and economic growth theories is marked by certain contradictions, uncertainty and cross flows. The evolution of theories is represented by the Keynesian Liquidity Preference Theory, Monetarism, Neoclassical Real business-cycle theory, the Neo-Keynesian model, and the New Consensus Model. Each of the models has its own characteristics, based on the objects of monetary regulation (money supply, inflation, interest rates, exchange rate). Based on the analysis of the views of researchers on the impact of monetary regulation on economic growth, the authors concluded that concepts are divided according to those that characterize weak relations between these phenomena, and those that prove close correlation. It is concluded that the influence of monetary regulation on economic growth takes place when choosing the regulatory model itself and instruments for its implementation. It is proved that the model of monetary regulation should be based on developed monetary rules. The authors of the article proved that in Ukraine, in conditions of using a monetary design based on the inflation targeting regime and taking into account the importance of increasing the efficiency of using main instruments of monetary regulation, it is necessary, first of all, to ensure the consistency of monetary and fiscal policies. The coordination of monetary and fiscal policies should consist in developing and implementing them in such a way that they do not contradict each other and together contribute to the achievement of the common goals of economic policy, such as sustainable economic growth and low unemployment in terms of long-term price and external stabilities. It is concluded that the insufficient efficiency of the monetary transmission mechanism is reflected in the imbalance of money and foreign exchange markets, the deformation of the credit market and the credit climate degradation, and the decrease in the influence of monetary impulses of the central bank on both the financial system and the real sector of the economy. That is, the main problem of the significant influence of monetary regulation on economic growth in the country lies in restoring the effectiveness of the channels of the transmission mechanism of monetary policy, which depends on the choice of monetary design. Keywords: monetary design, economic growth, monetary instruments, monetary regulation, monetary rules. JEL Classification E50, 58; O49 Formulas: 0; fig.: 7; tabl.: 0; bibl.: 23.

COVID-19 lockdown and penalty of joblessness on income and remittances: A study of inter-state migrant labourers from Assam, India.

Present study made an attempt to examine the penalty of joblessness following coronavirus induced lockdown on income and remittances of inter‐state migrant labourers from Assam. The primary data for the study were collected through telephonic‐based survey of 451 labourers during May–June 2020. The results of this study showed that, on an average, labourers in the study area remained jobless for nearly 2 months and incurred income loss of INR 28,955 thereby failed to send remittances towards their families by an amount of INR 12,215 during the reference period. As per the analysis of covariance the income loss and remittances unsent amount was higher amongst the elderly labourers engaged in professions which remained non‐operational during lockdown period. Further, the additional days of joblessness increased their hardship in terms of income and remittances. With coronavirus being more than a health crisis, in short term it is necessary to minimise the loss of life, forwarding social and financial security for the families of migrant labourers and vulnerable sections for extended period of crisis, strategies for supporting agriculture and allied activities, promotion of small and medium‐size enterprises, imparting skill training for the unemployed and reverse migrant labourers, financial assistance for self‐employment may be helpful. Suitable coordination of monetary and fiscal policy would be helpful for reducing the unemployment heading from the recessionary trend of the economy in the long run.

The Safety Trap: Coordination of Monetary and Fiscal Policies

Is expanding balance sheets in the normal a correct approach? Do balance sheet policies provide a much needed new instrument for central banks? In this paper I argue that not necessarily. I show that assuming that the safety trap is a primary reason for low interest rates, some balance sheet policies do not address the problem. The potential approach of a coordinated response of fiscal and monetary policies can address the issue. Applying a game-theoretic approach, I show that the equilibrium achieved by monetary and fiscal authorities acting independently indeed implies undersupply of safe assets leaving output below its potential level. This brings a new perspective on the coordination of monetary and fiscal policies.

Climate change awareness: Empirical evidence for the European Union

In this paper we assess public attitudes on climate change in Europe over the last decade. Using aggregate figures from the Special Eurobarometer surveys on Climate Change, we find that climate change attitudes have evolved according to the “S-shaped” information dissemination model, conditional to various socioeconomic and climatological factors. In particular, we find that environmental awareness is directly related to per capita income, social trust, secondary education, the physical distress associated with hot weather and loss caused by extreme weather episodes. It is also inversely related to greenhouse gas emissions and tertiary education. Moreover, consistent with our epidemics-like narrative, we find a negative impact for Donald Trump’s denial campaigns and a larger positive effect for Greta Thunberg’s environmental activism. In terms of policy implications, this paper calls on the EU to take up leadership in the fight against climate change and declare a climate emergency. It also calls on teachers to introduce their students to climate change, science journals to allow wide access to any climate change article they publish and public institutions to protect climate change evidence from politicization. This paper finally calls for the close coordination of monetary and fiscal policies, to allow the green bonds market to reach rapidly the size required for the implementation of effective climate change mitigation policies.

Koordynacja polityki fiskalnej i monetarnej w strefie euro przed kryzysem i po kryzysie

Znaczenie koordynacji polityki fiskalnej i monetarnej istotnie wzrosło po kryzysie z końca pierwszej dekady XXI w. Osiągnięcie skoordynowanych działań, zarówno w aspekcie koordynacji narodowych polityk fiskalnych, jak i w zakresie fiskalno-monetarnym, miał wspomóc szereg wprowadzonych reform od 2011 r. Celem niniejszego artykułu jest analiza koordynacji polityk fiskalnych państw członkowskich strefy euro oraz ich zagregowanego nastawienia z polityką pieniężną Europejskiego Banku Centralnego w dwóch okresach badawczych rozdzielonych najważniejszymi reformami. Analiza obejmuje lata 1999–2018. Ten przedział czasowy został podzielony na dwa podokresy: 1999–2010 i 2011–2018. Do analizy koordynacji nastawienia fiskalnego krajów strefy euro posłużono się indeksem restrykcyjności fiskalnej (FCI) i współczynnikiem korelacji. Zagregowane nastawienie polityk fiskalnych oraz polityki monetarnej, oszacowane za pomocą indeksu warunków pieniężnych (MCI), przedstawiono na mapie restrykcyjności (policy mix). Ponadto oszacowano związek indeksu policy mix (PMI) z luką produktową. Koordynacja narodowych polityk fiskalnych okazała się silniejsza w drugim analizowanym okresie. Niemniej jednak analiza koordynacji fiskalno-monetarnej nie pozwala na wyciągnięcie jednoznacznych wniosków. Policy mix w pierwszym analizowanym okresie miała charakter antycykliczny, natomiast w drugim – procykliczny. Wciąż istnieje pilna potrzeba dalszej poprawy zarządzania gospodarczego w strefie euro.

ANALYSIS OF THE RELATIVE IMPACT OF MONETARY AND FISCAL POLICIES ON ECONOMIC GROWTH IN ETHIOPIA, USING ARDL APPROACH TO CO-INTEGRATION: WHICH POLICY IS MORE POTENT?

Empirical investigation on the comparative potency of monetary and fiscal policies is still dubious among two major schools of thought in economics so called classical and Keynesian. Hence, this paper investigates the relative effectiveness of monetary and fiscal policies in affecting economic growth by employing Auto-Regressive Distributive Lag Model (ARDL) for the time spanning from 1975 to 2017. The proxies used in this study for monetary and fiscal policy were Broad money supply (M2) and government consumption expenditure respectively while real GDP at constant prices in 2010 is used as proxy for economic growth in Ethiopia. Anderson and Jordan (1968) “St. Louis equation’’ has been used to estimate the comparative potency of monetary and fiscal policies. The empirical results indicate that both the monetary and fiscal policies have equal statistically significant and positive impact on economic growth in Ethiopia with different significance level and magnitude. Besides of equal effectiveness, the elasticity of real output with respect to fiscal policy variable is greater than the elasticity with respect to money supply which show fiscal policy is more effective than monetary policy in influencing Real GDP in the long-run. However, in the short run, the fiscal policy is effective while that of the monetary policy proxy by money supply is ineffective in affecting output growth in Ethiopia. Therefore, to have continuous and sustainable economic growth, the coordination of monetary and fiscal policies are vital and the lack of this coordination leads to a sharp downturn of overall economic performance, even can hurt the economy.

Režim deviznog kursa u službi privrednog razvoja - primer Srbije, Crne Gore i Bosne i Hercegovine

The main objective of the economic policy of all countries is to simultaneously achieve internal and external balance, while giving priority to one of the objectives, depending on the current circumstances of economic development. High inflation rates in most developing countries have resulted in the establishment of price stability as the primary long-term goal of monetary policy. Although coordination of monetary and fiscal policy is necessary in order to achieve the goals of economic policy, the consensus between economists and politicians about the significant role of monetary policy in achieving goals has been reached. The aim of this paper is a comparative analysis of the efficiency of various exchange rate regimes in the countries of former Yugoslavia - Serbia, Montenegro and Bosnia and Herzegovina through the integration of monetary and real macroeconomic indicators. After presenting the theoretical foundations of the exchange rate regime applied in these countries, statistical analysis of selected macroeconomic indicators will lead to a comparative analysis of their efficiency.

Основные приоритеты национальной экономики Азербайджанской Республики в условиях рыночной экономики

The article notes that in achieving socio-economic goals they were guided by the principles of effective government regulation, which ensured perfect competition in a market economy, transforming into an export-oriented economy, which will allow rational use of energy, which creates high added value. Thus, improving the competitiveness of the national economy, based on certain areas, allows you to achieve protection of macroeconomic stability, which will strengthen the coordination of monetary and fiscal policy. At the same time, the improvement of the business environment and the support of private initiative, the development of the financial services market, make it possible to improve foreign trade and investment policies.

Влияние валютной политики на портфельные инвестиции в странах Восточной Азии

Currency and stock markets of East Asia significantly differ from one another in levels of development and regulation. The markets of Japan, Singapore and Hong Kong (the most developed and ‘volumetric’) are defined by the least number of restrictions applies (2–4 out of 13 defined by the IMF). At the same time, 8 countries of East Asia (China, Malaysia, Myanmar, Vietnam, the Philippines, Indonesia, Laos and Thailand) control almost all capital-moving operations (11–12 restrictions). Despite many offers of monetary cooperation and coordination of currency policy, countries of East Asia do not have a solidarity in choosing the regime of exchange rate. According to the IMF, 9 countries out of 14 use fixed exchange rates. The East Asia countries are also characterized by frequent shifts in exchange-rate regimes: in 2000–2016 only Brunei, Japan and the Republic of Korea did not change a regime. The results of regression analysis of panel data show that, despite the lack of institutional framework of coordinated monetary policy in the region, there is an actual binding of nominal rates of East Asian currencies to US dollar. There is a strong relation between such monetary policy in the region as a whole, and not every country separately, and net export of portfolio investments out of East Asia countries.

The co-movement of monetary policy and its time-varying nature: A DCCA approach

Employing a novel methodology of DCCA cross-correlation coefficient (ρDCCA), this study attempts to provide fresh evidences for the co-movement of monetary policies of the advanced (AEs) as well as the emerging economies (EMEs) vis-à-vis the United States. A higher degree of monetary co-movement as measured by ρDCCA values, is identified for the AEs as compared to the EMEs. Lower co-movement of monetary policy is especially noticeable in the short run for EMEs. We further investigate the time-varying nature of such co-movements for the AEs by splitting the period (1980–2014) into four sub periods and also by performing a rolling window estimation for the entire period to reveal smoother dynamics. Significant evidence of higher monetary coordination is revealed for sub-periods with stronger trade and financial linkages.

Inflation targeting and exchange rate management in less developed countries

We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that tight management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank fixes the path of the nominal exchange rate or leans heavily against the wind in a managed float.

International Monetary Coordination and the Financial Crisis: A Network Analysis

We empirically examine international monetary coordination by identifying the network structure of four major central banks: The Bank of England, Bank of Japan, European Central Bank and Federal Reserve Bank. We calculate the time-varying connectedness measure developed by Diebold and Yilmaz (2005). Specifically, we investigate the interdependence of monetary policy actions and how the interaction between these central banks change over time. The construction of the network structure for different time periods allows to study the effect of the 2008 financial crisis. We investigate the structural break dates for the network structure to determine the exact dates of convergence and decoupling of monetary policy. The empirical analysis shows that monetary policy interdependence is higher for the October 2008-July 2013 period.

Changes and Responses in the International Monetary System

The international monetary system has not been successful in contributing to stable and high global growth while maintaining price and financial stability. Interconnection of financial markets, free cross-border financial transactions and interdependence of economies have expanded the effects of financial crises, resulting in global financial instability. Considering the difficulty of handling cross-border capital flows at the individual country level, international monetary coordination seems to be needed. For developing countries, cautious approach to capital account liberalization and active capital account management is required to maintain macroeconomic and financial stability. Central banks ought to move from narrow inflation targeting framework to multiple responsibilities framework and be involved with financial regulation and supervision in order to ensure price and financial responsibility with economic growth.

An Examination of Foreign Exchange Reserve and Inflation Relationship of Four West African Countries: Evidence from ADRL Model

The objective is to provide the empirical evidence regarding the relationships between foreign exchange reserves and inflation for four West African countries namely Cote d’Ivoire, Senegal, Ghana and Nigeria. A comparison of empirical evidence is obtained from the Autoregressive distributive lag model (ARDL) proposed by Pesaran, Shin and Smith (2001) using annual data running the period of 1972 to 2014. The empirical result shows that the relationship between the change in foreign exchange reserves and inflation rate is positive for the countries cited above in long run but the overall short run estimation of our model is insignificant at the conventional level. This means that rise in foreign exchange reserves leads to increase the rate of inflation. Regarding our investigation results, the study suggests that governments of these countries cited above should pay more attention to foreign exchange system management by enlarging open market operations. Moreover, they can use sterilization or other policy instruments to reduce foreign exchange reserves to stabilize domestic economy. According our overall empirical results, we propose the following suggestions. First, the central bank expands the base money supply channels and offers a variety of sterilization methods. Second, reinforce coordination of monetary and fiscal policy, and adopt comprehensive measures to promote the international payments balance. As West African countries’ economy is growing rapidly, exchange reserves will still growth and the inflation is an urgent issue too. Therefore, it’s still very important for these countries to reduce the negative effect of the excessive foreign exchange reserves.

Decyzje władz gospodarczych (policy mix) a stabilność systemu finansowego w Polsce

Brak stabilności finansowej to czynnik sprzyjający kryzysom finansowym rozumianym jako zaburzenia w funkcjonowaniu rynków finansowych. Ponadto sam kryzys finansowy może również przyczynić się do niestabilności finansowej. Kryzysy finansowe uwidaczniają istotność stabilności finansowej w gospodarce. W tym kontekście koordynacja polityki pieniężnej i fiskalnej staje się niezwykle ważna w okresach stabilności na rynkach finansowych, jednak w warunkach nadzwyczajnych, np. kryzysowych nabiera szczególnego znaczenia. Celem artykułu jest analiza decyzji podejmowanych przez władze gospodarcze w Polsce i ich konsekwencji dla stabilności systemu finansowego, szczególnie w wyjątkowych warunkach kryzysu finansowego. W opracowaniu wykorzystano następujące metody badawcze: przegląd literatury, statystyczne metody badawcze oraz metody graficznej prezentacji zjawisk. Z pewnością polityka pieniężna i fiskalna wspólnie oddziałują na kształtowanie się równowagi w gospodarce danego państwa. Stąd temat ten jest istotny chociażby ze względu na to, że wybór optymalnej kombinacji polityki pieniężnej i fiskalnej jest utrudniony z uwagi na odmienność celów i preferencji władz gospodarczych. Wydaje się, że kryzys finansowy i jego następstwa mogły przyczynić się do współpracy banku centralnego i rządu, co w rezultacie mogło korzystnie wpłynąć na poziom stabilności finansowej w Polsce.

Global liquidity and strategies of exit from unconventional monetary policies

We develop some main characteristics of a roadmap of how the European Central Bank (ECB) should further reduce the volume of its balance sheets and roll back credit easing in order to prevent inflation. The exit should be step-by-step rather than a one-off. Communicating about the exit strategy must be an integral part of the strategy. Price stability should take precedence in all decisions. Due to vagabonding global liquidity, there is a strong case for globally coordinating monetary exit strategies. Given non-surmountable practical problems of coordinating exit with asymmetric country interests, however, the ECB should go ahead – perhaps jointly with some Far Eastern economies. Coordination of monetary and fiscal exit would potentially undermine ECB independence and is also technically out of reach within the euro area.

Inflation Targeting and Exchange Rate Management In Less Developed Countries

We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.

Inflation Targeting and Exchange Rate Management in Less Developed Countries

We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.