Global Monetary Policy Research Articles

Global monetary policy under a dollar standard

This paper derives an optimal monetary policy in a world with a dollar standard, defined as an environment in which all traded goods prices are set in US dollars, so that exchange rate pass-through into the US price level is zero. We show that the US is essentially indifferent to exchange rate volatility, while the rest of the world places a high weight on exchange rate volatility. In a Nash equilibrium of the monetary policy game, US preferences dominate; the equilibrium is identical to one where the US alone chooses world monetary policy. Despite this, we find surprisingly that the US loses from the dollar's role as an international currency, since the absence of exchange rate pass-through leads to inefficient expenditure allocations within the US. Finally, we derive the conditions for a dollar standard to exist.

Global monetary policy shocks in the G5: A SVAR approach

The paper constructs a global monetary aggregate, namely the sum of the key monetary aggregates of the G5 economies (US, Euro area, Japan, UK, and Canada), and analyses its indicator properties for global output and inflation. Using a structural VAR approach we find that after a monetary policy shock output declines temporarily, with the downward effect reaching a peak within the second year, and the global monetary aggregate drops significantly. In addition, the price level rises permanently in response to a positive shock to the global liquidity aggregate. The similarity of our results with those found in country studies might support the use of a global monetary aggregate as a summary measure of worldwide monetary trends.

International Monetary Policy: A Global Taylor Rule

John Taylor’s rule for setting interest rates provides a framework for studying the global monetary policy generated by individual countries pursing their own policy goals. The study reflects the global nature of monetary policy by modeling an aggregate short-term interest rate as a function of measures of worldwide inflation and the GDP gap. Multiple specifications are estimated to correspond to past studies of the U.S. relationships between these variables. The authors find that Taylor rule is a useful tool for characterizing the global monetary environment as his equation provides a good fit to the data in every specification explored by the authors. However, the international response to inflation is slightly less robust despite claims of inflation targeting by the bulk of the larger economies in the sample.

Monetary policy implications of comovements among long-term interest rates

This paper examines the monetary policy implications from the greater integration of major capital markets using long-term interest rates. Proof that globalization has affected the behavior of interest rates and made them more synchronized across countries is provided from the way disturbances in a market transmit to other markets thereby affecting the conduct of monetary policy in all involved parties. The results also confirm greater convergence among countries in the European Union (EU) as Germany still retains its hegemonic status. The implications for monetary policy are that countries now will have to deal with more outside shocks and these shocks will be more diverse, intense and persistent. Thus, global monetary policy, at least among the major capital markets, henceforth will have to be played interactively, which may necessitate a greater financial supervision in order to ensure continued world stability and prosperity.

Monetary Policy Implications of Comovements Among Long-Term Interest Rates

This paper examines the monetary policy implications from the greater integration of major capital markets using long-term interest rates. Proof that globalization has affected the behavior of interest rates and made them more synchronized across countries is provided from the way disturbances in a market transmit to other markets thereby affecting the conduct of monetary policy in all involved parties. The results also confirm greater convergence among countries in the European Union as Germany still retains its hegemonic status. The implications for monetary policy are that countries now will have to deal with more outside shocks and these shocks will be more diverse, intense and persistent. Thus, global monetary policy, at least among the major capital markets, henceforth will have to be played interactively, which may necessitate a greater financial supervision in order to ensure continued world stability and prosperity.

Volatility linkages among interest rates: implications for global monetary policy

AbstractThis paper explores the effects of a greater integration among major capital markets from 1984 to 2001 on the conduct of global monetary policy. The methodological design is a multivariate vector moving average GARCH model which is suitable for examining the nature of the volatility spillover mechanism of long‐term interest rates across markets. The empirical findings indicate that there have been stronger linkages among major bond markets since 1990 at the volatility level. The more synchronized behaviour of long‐term interest rates across countries is evidenced by the speed and persistence with which disturbances in a particular market transmit to other markets. Such volatile behaviour affects the conduct of global monetary policy which now has to be done interactively among the world's major players. Copyright © 2002 John Wiley & Sons, Ltd.

Local responses to a global monetary policy

This paper contrasts the different regional effects of an homogeneous monetary policy, and studies the local characteristics that underlie these differential responses. To this purpose, we use Spanish regional data and estimate a vector autoregression (VAR) model using seemingly unrelated regression (SUR) techniques to characterise regional responses. Results provide evidence of statistically different regional responses of real variables to monetary policy shocks. We use these estimated responses to analyse if they depend on regional characteristics. Results show that manufacturing sectors, a negative financial position, as well as the degree of nominal wage indexation, enhance the effect of monetary policy.

Dynamic Linkages Among Long-Term Interest Rates: Implications for Global Monetary Policy

This paper examines the implications from the greater integration of major capital markets using long-term interest rates. The empirical approach is a Vector Autoregression which examines the nature of the monetary spillover mechanism across eight markets namely, Canada, France, Germany, Japan, the Netherlands, Switzerland, the U.K. and the U.S. Proof that globalization has seriously affected the behavior of interest rates and made them more synchronized across countries is provided from the way disturbances in a market transmit to other markets. These are usually fast and persistent and affect the conduct of monetary policy in all involved parties. Further, the empirical results confirm greater convergence among countries in the European Union as Germany still retains its hegemonic status. The implications for monetary policy are that countries may now have to deal with more shocks coming from abroad and these shocks will be diverse, intense and persistent. Thus, global monetary policy, at least among the major capital markets, will have to be played interactively from now on which may suggest that greater financial supervision and regulation might be needed in order to ensure continued world stability and prosperity.

Tourism, Globalization, and a Multi-sited Approach to Fieldwork in Nepal

Social researchers must recognize that their field sites are not isolated entities that can be understood by way of an in-depth, single-site approach, but rather that field sites are nodes in a continuum of social, economic, and environmental relationships that are interdependent. An example of multi-sited research is provided using the river tourism industry in the Himalayan region of Nepal. The multi-sited approach enabled a more thorough analysis of this global industry, including an understanding of how rafting companies ran their operations and the ability to situate environmental and social impacts within issues that occur at multiple levels of analysis, such as global monetary policy, national energy development and tourism de-centralization, and the political economics of local communities.

Credibility of the Interwar Gold Standard, Uncertainty, and the Great Depression

While the causes of the collapse of cooperation in maintaining the international gold standard are subject to debate (the lack of a dominant central bank to coordinate global monetary policy versus the nonreflection of disparate inflation rates in exchange rate parities, for example), there is general agreement over the transmission method that lead to the breakdown, namely, that contractionary monetary policies were enacted in order to maintain the standard, and that these policies were exported to other countries. This breakdown in cooperation resulted in the standard's loss of credibility, causing monetary authorities to shift policy priorities toward defending exchange rate parities, and thus injected massive interest rate uncertainty into the economy, which in turn, lead to a large reduction in aggregate spending. Ferderer proposes that interest rate uncertainty was an additional transmission mechanism leading to the collapse of the interwar gold standard. He supports this thesis first through the construction of a theoretical model and then with an empirical analysis.