Formulation Of Monetary Policy Research Articles

The Nature, Function, and Independence of the National Bank of Ethiopia: A Comparative Analysis in Light of International Practices

A central bank is an autonomous institution that is mainly bestowed with the mandate to ensure the maintenance of price stability by formulating and implementing monetary policy. To fulfill its purposes, the law should make sure that the CB is independent of external influence. Accordingly, the NBE is established to act as the central bank of Ethiopia, empowered to deliver on multiple objectives, including price and exchange stability. Nonetheless, it is evident under its legal framework that the requirements for institutional, functional, and personal independence of the NBE are disregarded. Hence, having this problem in mind and considering the research gap in the particular area, the study attempted to review relevant legal instruments of the NBE, assessing them against parameters of institutional, functional, and personal independence; selected countries’ laws, and the expert opinions of NBE officials and IMF expert to make the required analysis about the nature, functions, and independence of the NBE. Consequently, the study revealed impediments related to the institutional, functional, and personal autonomy of the bank. Thus, concerning institutional independence, there is a lack of clear provisions protecting the bank from government and other entities' influence. The absence of hierarchy between its objectives, the dominance of government representatives in the BoD, the absence of legal limitations on the advances to be provided to the government, and ambiguity as to the role of monetary policy formulation and oversight roles of the BoD are the manifestations of the absence of functional independence. Whereas, in terms of personal autonomy lack of provisions stipulating the security of tenure, qualification criteria, and procedure for the appointment and dismissal of the BoD members, Governor, and Deputies are evident. Having identified these concerns under the current laws, the researcher recommends the relevant revisions of the laws to address the enumerated impediments in line with the best practices of central banks.

Analysis of the Causal Relationship between Money Supply, Foreign Reserves and Bank Credit in Oil Countries: Evidence from Iraq

This study investigates the causal relationships among money supply, foreign reserves, and bank credit in Iraq, a major oil-producing economy. Understanding these interconnected variables is crucial for effective monetary policy formulation and macroeconomic stability. this study employs the Toda-Yamamoto approach to Granger causality testing and quarterly data spanning from 2004 to 2022 to capture the dynamics following the Iraq War and explore the post-conflict economic landscape. Granger causality tests are conducted to determine the direction of causality among the variables. Impulse response functions and variance decompositions provide insights into the magnitude and persistence of shocks, shedding light on the relative importance of each variable in influencing the others. The empirical findings reveal a bidirectional causal relationship between money supply and foreign reserves, indicating that changes in one variable significantly influence the other. Additionally, a unidirectional causality is observed, running from foreign reserves to bank credit, highlighting the significance of foreign exchange reserves in facilitating bank lending. However, no causal link is detected between money supply and bank credit, suggesting that monetary policy may have limited direct impact on credit expansion in Iraq’s banking sector. These results have important policy implications for the Central Bank of Iraq in managing monetary policy tools and navigating the challenges of an oil-dependent economy. The study contributes to the literature on monetary economics in resource-rich countries and provides valuable insights for policymakers and researchers alike.

The Demand for Real Money Balances in Zimbabwe: An Error Correction Estimation

Purpose: The purpose of the study is to examine the stability of the money demand function in Zimbabwe. Understanding, the money demand function is a prerequisite for effective monetary policy formulation and understanding the monetary transmission process and shocks propagation in the economy. Materials and Methods: The study employs the error correction modeling methodology to investigate the money demand function for Zimbabwe using quarterly data from 2017q2 – 2023q2. The analysis is expanded to characterize the monetary transmission mechanism following a shock to the price level and how the demand for real money balances responds to both single period and multiple shocks. Findings: The findings confirm a stable long run money demand function that is subject to short run dynamics. In addition, real money demand responds positively to real GDP (Scale factor) and inversely related to the price level (inflation). Short term dynamics (particularly inflation expectations) compound real money demand collapse in response to rising inflation. Implications to Theory, Practice and Policy: Monetary Policy must aim to collapse inflation expectations through a tight monetary control program and a functioning interbank market for foreign exchange to avoid surging parallel market activity.

A study of the dynamic relationship between the RMB exchange rate, foreign exchange reserves and monetary policy

In today's globalized economic environment, the relationship between China's RMB exchange rate, foreign exchange reserves and monetary policy has become more and more complex, and is crucial to the stability and sustainable development of the economy. The interactions among these three have a direct impact on China's macroeconomic situation, so it has become a very urgent task to study this relationship in depth. This study combines theoretical and empirical research to deeply analyze the dynamic relationship among these three, aiming to provide practical guidance for the formulation of China's monetary policy.This paper selects the time series data of RMB exchange rate, foreign exchange reserves and money supply from 2003 to 2023 to study the relationship between RMB exchange rate, foreign exchange reserves and monetary policy. This paper will deeply explore the impact of the government's market intervention on the RMB exchange rate under different exchange rate regimes, especially under the fixed exchange rate regime and the floating exchange rate regime. This paper will delve into the transmission mechanism of monetary policy, especially the flexibility and adaptability of monetary policy under the volatility of global financial markets and changes in economic cycles. In terms of empirical research, this paper will use the VAR model and the GARCH model for time series analysis to verify the applicability of the theoretical mechanism in practical situations and provide lessons for the formulation of future monetary policy.

A new perspective on the asymmetric Phillips curve: Fresh evidence from ECOWAS member countries

Abstract A growing body of scholarly research has explored the non-linearity of the Phillips curve, but empirical evidence from an African perspective, particularly within the ECOWAS sub-regional context, remains underexplored. This study aims to address this gap by offering a fresh perspective on the asymmetric Phillips curve for West African countries through a comparative country-specific analysis and a panel framework utilizing the nonlinear autoregressive distributed lag (NARDL) model for the period 1986–2020. The empirical outcomes demonstrate that the asymmetric response of inflation to both positive and negative unemployment differs across the countries of Benin, Burkina Faso, Ghana, Guinea, Cote d’Ivoire, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. Specifically, the study finds that inflation declines when unemployment rises and surges when unemployment declines in both short- and long-term dynamics. These findings highlight that low unemployment during economic expansion leads to wage-price spirals, while high unemployment results in low inflationary pressure during economic downturns in the analyzed countries. The empirical outcomes are robust and consistent for both country-specific and panel analyses, but the extent of the inflation response to unemployment is more pronounced in the WAMZ subregion. This study provides valuable insights for policymakers regarding the formulation of sound regional monetary policy.

Algorithms and Big Data: Reshaping Global Trade and Diplomacy

This paper explores the profound impact of algorithms and big data on the modern global landscape, focusing on their roles in digitalizing trade, driving economic policies, and reshaping diplomatic relations. Through a detailed quantitative analysis, we demonstrate how these technological tools have revolutionized e-commerce, optimized supply chain management, influenced the formulation of trade policies, and redefined monetary and fiscal policy formulation. Additionally, we delve into the pivotal role of algorithms in enhancing diplomatic communication, predicting conflicts, and fostering international cooperation. Our findings reveal that the strategic application of algorithms not only offers significant efficiency gains and cost reductions but also facilitates more informed decision-making processes, contributing to more stable, efficient, and inclusive economic systems and international relations.

International Linkages of Inflation‐Output Dynamics: Fresh GVAR Evidence from Pakistan and Its Trading Partners

The key purpose of this study is to explore the relationship between inflation and output dynamics in a global macroeconomic framework by utilising time‐series data from Pakistan and thirty‐two trading partners which account for around 95 per cent of foreign trade of Pakistan, over the period 1979Q2–2016Q4. By featuring the GVAR approach, this paper empirically examined the international linkages to account for cross‐country inflationary spillovers. The findings show that both foreign and global variables jointly and significantly matter for the inflation‐output relationship in developing economies, in general and, in particular, in the economy of Pakistan. The findings from general impulse response functions (GIRF) reveal that shocks to the US real output, oil prices and food prices are transmitted and settled quickly, and put forward a significant impact on real GDP and inflation in Pakistan and its trading partner economies. Inflation in Pakistan is driven more strongly by the global changes in oil and food prices than GDP. For monetary policy formulation, the central bank should take into account developments in inflation‐output dynamics of Pakistan's major trading partners.

Monetary Policy Dynamics and the Nigeria’s Global Competitiveness: The Missing Link

Despite the series of monetary policies adopted by the Nigerian government over time, the (Nigerian) economy in comparison to other countries in the world like South Africa, the USA, Ghana, and the like is still improvised. Still, inconsistency between monetary policy formulation and implementation remains another major issues yet unattended to. It is in this regards that, the current study is dedicated towards examining the effect of monetary policy dynamics and the Nigeria’s global competitiveness from 1992 to 2021 (i.e., 30 years) using Autoregressive Distributed Lag (ARDL) model. The study disclosed that, the variables are integrated at level and first difference while the ARDL Bound test evidenced that, the series cointegrates. Specifically, monetary policy rate has a positive minimal effect on Nigeria’s global competitiveness, while the CRR improved Nigeria’s global competitiveness significantly. However, both lending rates and exchange rates have a significant negative effect on economic competitiveness. Consequently, the paper concludes that both the cash reserve ratio and the Nigeria’s demeaning state are attributed to the high exchange rate (EXR) and high lending rates. Thus, the paper submits that the current monetary policy rates are sustained and that all DMBS should adhere to the stipulated Cash Reserve Ratio (CRR) since it has improved the Nigeria’s global competitiveness significantly. Lastly, the study confirmed that, the missing link is the policy surmount on the part of the Nigerian government.

The relationship between money supply and inflation: analysis with PANELVAR approach

The relationship between money supply and inflation: analysis with PANELVAR approach

Revisiting the effect of financial crisis and banking reforms on the effectiveness of monetary policy transmission mechanism in Nigeria

Understanding the effect of the extent of financial intermediation on the performance of monetary policy transmission channels is crucial to the formulation of monetary policy. To this end, the paper tested the validity of the above statement in the Nigerian context using quarterly data between 2005Q1 and 2019Q4. The data was analysed using a dynamic stochastic general equilibrium approach. Results of the estimation showed that the financial crisis experienced in the country led to the depression of the Nigerian capital market and a decrease in the amount of credit provided by banks for trading in the capital market, exchange rate risk tightening of liquidity, and greater loan-loss provisioning. It was revealed that recent changes and reforms in the industry have positive impacts on all the monetary policy transmission channels (exchange rate, interest rate, expectation, and credit) considered in the study. However, the credit channel appeared to be the most active as it transmits the largest impact of shocks to the financial sector (88.06 per cent on average) to the real economy. This demonstrates that the private sector depended on the financial sector for ?nancing their expenditures, which later induced an increase in the level of investment and increased output.

Heterogeneous Impact of Monetary Policy on China's Real Estate Market

This paper examines whether the broad money supply (M2) and the interest rate as two monetary policy tools will have different effects on housing prices. A sample of 10 listed real estate companies was analysed using panel vector autoregression (PVAR) models, using data from 2007 to 2020. The empirical results show that there is a correlation between housing prices and M2 in the short term, which is even more obvious in the medium term. Overall, M2 has a positive impact on house prices. On the other hand, the three-year loan rate has no significant impact on housing prices in the short term, but has a negative impact on housing prices in the long term. After the pulse response analysis, the money supply has a more significant impact than the interest rate on the real estate price, and has a better effect in controlling the housing price. The research results contribute to the scientific formulation of monetary policy and the reasonable control of the market.

Nexus between inflation and inflation expectations at the zero lower bound: A tiger by the tail

Ultra-low policy rates and zero lower bounds (ZLB) have been major issues for monetary policy formulation. In this context, we investigate the nexus between inflation and inflation expectations. Employing a non-linear ADRL framework on UK and Canadian datasets, we find significant asymmetries in the nexus among inflation and inflation expectations and their determinants, including labour market slack, output gap, oil shocks, fiscal deficit and exchange rates. Heterogeneities are explicit in the short and long-term as well as in the pre-and post-ZLB regimes. Inflation and inflation expectations become more responsive to their determinants as key policy rates approach the ZLB. There is strong evidence of persistence in inflation and inflation expectations in both regimes manifesting the importance of keeping expectations well anchored. Robustness testing with Time-Varying Parameter Vector Auto-Regression and Network Analysis confirms our findings. To mitigate the persistence of a high inflation regime, it would be vital to keep the inflation expectations well anchored.

Transmission Mechanism of U.S. Monetary Policy to Economies

Due to the special status of the United States and the U.S. dollar in the world economy, the U.S. monetary policy has a significant spillover effect on the world. Especially since the subprime mortgage crisis in 2007, the U.S. monetary policy has attracted more attention from the world. Combined with the previous literature, this paper finds that the transmission channels of the US monetary policy uncertainty spillover effect include exchange rate expectation channel, financial asset allocation channel, contagion of monetary policy uncertainty, and real option effect. Among them, the channel of exchange rate expectations, the channel of financial asset allocation and the channel of contagion of monetary policy uncertainty are responsive and rapid, while the real option effect has a slow and long-term impact on the real economy. At the same time, there are differences in the spillover effects of U.S. monetary policy uncertainty on different countries. The results of this study have certain guiding significance for monetary policy formulation in other countries, such as strengthening the supervision of cross-border bonds and cross-border investment. Especially under the impact of the new crown pneumonia epidemic, major developed economies have implemented a new round of quantitative easing monetary policies, and policymakers in emerging economies need to pay great attention to this.

통화정책과 금융여건을 고려한 한국의 잠재GDP 추정

The policies of central banks, financial conditions, and economic fluctuations are not entirely independent; nevertheless, the conventional method for estimating potential GDP has the convenience of considering supply or real factors independently, potentially leading to biases in estimating the GDP gap that represents economic fluctuations. In this paper, we estimate potential GDP using a multivariate filtering approach that incorporates monetary policy and financial conditions during the period from 1996 to 2011. According to the estimation results, the level of potential GDP during the years 2003 to 2005 experienced a significant decline, and the GDP gap was observed to have a positive value. Despite this, expansionary economic policies were predominantly implemented during that time, which can be attributed to the limitations of the conventional method for estimating potential GDP. The findings of this study hold implications for future monetary policy formulation.

Democratic facades, authoritarian penchants: post-communist monetary restructuring in the Baltic states

ABSTRACT This paper argues that the paths taken by Estonia and Latvia in their departure from the rouble zone are illustrative of authoritarian neoliberal governance. By challenging the widely assumed simultaneity of ‘democratic’ and ‘market’ revolutions, it critiques institutionalist literature on Baltic exchange-rate regimes and sheds light on the various methods employed to curtail democratic political discourse and participation. The paper delves into the origins of the Baltic neoliberal historical blocs and identifies the social forces that influenced the development of monetary reform initiatives. It then explores the construction of exchange-rate systems through the lens of power struggles within the state bureaucracy, as well as the restructuring of state apparatuses to limit public oversight of monetary policy formulation and implementation. Finally, the paper demonstrates how Baltic currency boards effectively facilitated the establishment of externally-oriented capital accumulation regimes.

Monetary Policy and Financial Stability: Lessons from the Global Financial Crisis

The Global Financial Crisis (GFC) of 2007-2008 was a watershed moment that reshaped the landscape of monetary policy and financial regulation worldwide. This research paper delves into the pivotal role of monetary policy in fostering financial stability, drawing lessons from the tumultuous events of the GFC. Through an extensive review of literature and empirical analysis, this paper examines the various monetary policy tools employed by central banks to mitigate systemic risks and promote stability in the aftermath of the crisis. The paper begins by elucidating the complex interplay between monetary policy, financial markets, and systemic risk, emphasizing the importance of maintaining a delicate balance between price stability and financial stability. It explores the conventional and unconventional measures adopted by central banks during the crisis, including interest rate adjustments, liquidity provision, and asset purchase programs, and assesses their effectiveness in stabilizing financial markets and averting systemic collapse. Furthermore, the paper evaluates the evolution of monetary policy frameworks in response to the lessons learned from the GFC, such as the adoption of macroprudential tools and the reassessment of inflation targeting regimes. It analyzes the challenges and trade-offs faced by policymakers in pursuing dual objectives of price and financial stability, highlighting the need for a holistic approach to monetary policy formulation. Moreover, this paper examines the implications of post-crisis monetary policy measures on financial markets, asset prices, and economic activity, addressing concerns regarding moral hazard, excessive risk-taking, and asset price bubbles. It also discusses the role of regulatory reforms in strengthening the resilience of the financial system and enhancing the effectiveness of monetary policy transmission mechanisms.

Macroprudential Inclusive Policy: Strategies for Banking Sustainability in Indonesia During the Covid-19

The main challenge that remains in the process of economic recovery and financial system stability in Indonesia is restoring the banking intermediation function. The purpose of this research is to explain the macroprudential policy as one of the central bank policies in maintaining banking sustainability in Indonesia. This research was conducted using a descriptive qualitative method based on the philosophy of post-positivism. The data collection technique was carried out by interview, so that the final result gave rise to a statement or a thesis. The informants in this study are economic practitioners who are observers of banking monetary policy in Indonesia and senior managers of government bank areas who are experts in the formulation of bank monetary policy. Informants were selected using the snowball sampling technique. The results of this study conclude that macroprudential policies have an impact on the sustainability of banking in Indonesia during the Covid-19 pandemic. In general, macroprudential policies maintain the stability of the Indonesian financial system from two dimensions (cross-section and time series). This macroprudential policy is not a popular policy, but it is very important in order to prevent banking systemic risk in Indonesia.

Post-Pandemic Greenness? How Central Banks Use Narratives to Become Green

Suggested only a few years ago, green central banking has received a new impetus with the central bank interventions implemented in the wake of the COVID-19 pandemic. Several central banks, with the European Central Bank (ECB) and the Bank of England (BoE) being prominent examples, have stepped up their public communication on this issue in an effort to explain and justify their planned or ongoing policy actions. Carefully recorded and easy to find, these public communication messages are a rich source of insight into the process of monetary policy formation. In this article, we analyze the messages from two central banks, with the primary objective of identifying the narratives they use (if any) and describing the key features of these narratives, thus shedding new light on an ongoing process of policy change. A secondary objective of the article is to contribute to the growing literature related to the use of narratives in public policy by studying narratives in monetary policy through qualitative means, an approach that, to date, has received relatively little attention from scholars. To this end, we discuss two expectations related to the use of policy narratives derived from the literature. Thus, we hope to show how the two central banks devise and deploy narratives to help implement an unprecedented turnaround in monetary policy.

Forecast of stock quotations of Sberbank PJSC using correlation and regression analysis

The scientific research, which consists in making a forecast regarding the stock quotes of Sberbank PJSC, is relevant because it reveals the prospects of the Russian financial sector. It allows investors to form a trading strategy for buying ordinary shares of Sberbank PJSC to generate income in the future. The purpose of the scientific article is to build an economic and mathematical model for forecasting quotations of ordinary shares of Sberbank PJSC. To achieve this goal, the theoretical foundations of the formation of monetary policy in Russia, the exchange rate of the Russian ruble, oil prices on the world market have been studied. The degree of influence of the above factors on the quotations of ordinary shares of Sberbank PJSC has been established. In the process of work, general and special scientific methods are involved: analysis, synthesis, monographic, statistical. The scientific novelty of the study consists in the construction of multiple and paired linear regression equations reflecting the dependence of quotations of ordinary shares of Sberbank PJSC on the M2 monetary aggregate in Russia, the key rate of the Central Bank of the Russian Federation, the USD/RUB currency pair, and Brent crude oil prices. Based on the equation of paired linear regression containing data on the M2 monetary aggregate in Russia, a forecast was made for the value of ordinary shares of Sberbank PJSC. In comparison with the trend of increasing money supply in Russia, ordinary shares of Sberbank PJSC look undervalued and attractive for investment.

CURRENCY SECURITY FOR SMALL ENTERPRISES IN UKRAINE

The work is devoted to the analysis of threats to the currency security of small businesses in Ukraine, which is a component of the financial security of Ukraine. A full-scale war in Ukraine requires a review of approaches to the formation of monetary policy in the sphere of state regulation of the financial system and the search for new effective methods of state management. The main challenges for the current financial system of Ukraine are a decline in production, an increase in the number of unemployed, a weakening of the stability of state finances, and threats to the stability of the currency. It has been proved that today the currency security of Ukraine is under the influence of a large number of internal and external threats, including the growth of the foreign debt, the outflow of funds abroad, the high degree of dollarisation of the economy, the inefficient structure of gold and foreign currency reserves, the imperfection of the currency and exchange rate policy, the presence of currency risks, the conduct of illegal currency transactions, the intervention of international financial organisations, foreign advisers and consultants in the currency policy of Ukraine. The conducted monitoring of the financial activity of a small enterprise is aimed at making certain effective management decisions providing the enterprise with currency and financial security in the modern conditions of the financial system of Ukraine as a whole. The current state of currency security of small businesses of Ukraine is analysed in terms of the need for a deeper study of it in order to solve existing problems related to its provision. As a result of the study of this problem, it is proposed to take measures to ensure the currency security of the country's small businesses and to support the long-term stability of the national monetary unit. The role of state banks in the implementation of state programmes for the support of small business should be strengthened, and for the safety of their activities a comprehensive system of state banks should be created, including highly specialised state commercial banks, state banks of a broad profile, state development banks, partner financial institutions, regional funds, insurance organisations.