Monetary Mix Research Articles

Coordination and non-coordination risks of monetary and macroprudential authorities: A robust welfare analysis

This study compares a central bank’s leaning against the wind approach with a mix of monetary and macroprudential policies under parameter uncertainty in an estimated DSGE model with two financial frictions. We show that uncertainty of the economic environment is an essential constituent in properly designing macroprudential policy. Although coordination between monetary and macroprudential policies minimizes the policymakers’ Bayesian risk, coordination and non-coordination risks threaten the goals of both authorities. The former describes the situation where the authorities partly resign from implementing the monetary policy objectives to stabilize macroprudential risk. The latter is when conducting a non-coordinated macroprudential policy induces higher total Bayesian risk than when only the central bank minimizes the expected total welfare loss. The robust Bayesian macroeconomic rules show that when financial shocks shrink the banks’ or entrepreneurial net worth, a contractionary macroprudential policy should be combined with an expansionary monetary policy. However, if capital adequacy ratio or risk shocks strike the economy, such a conflict in macroeconomics policy instruments disappears, thus synchronizing both policies.

How liquidity is driving inflation and asset prices

▪ Over the last two decades China's role as the lead provider of global liquidity has diminished, while the US has stepped up to fill most of the gap. This will matter when quantitative tightening begins in earnest – advanced economies' monetary retrenchment will have more significance for global financial markets. ▪ But we think changes in the effectiveness of monetary policy, plus the mix of monetary and fiscal policy, should dampen some of the shock. ▪ On one side, the money multiplier (a ratio of broader money to the monetary base) has fallen in the US and eurozone since 2020, when the monetary expansion started, as banks have parked money in excess reserves. So the effects of quantitative tightening will likely be proportionately milder than those seen in 2018. ▪ On the other side, fiscal policy has changed substantially during the pandemic crisis – a decided turn towards fiscal exuberance, coupled with a different structure to budget spending. Whereas post‐GFC discretionary fiscal spending was largely aimed at support for the ailing financial sector, post‐pandemic spending has been directed towards social transfers and discretionary spending aimed at supporting household budgets. We've found a noticeable correlation between budget transfers and inflation in the post‐pandemic period. ▪ A combination of higher liquidity with a lower money multiplier should then mean the costs of quantitative tightening are relatively lower in terms of real activity and financial market performance. As for inflation, it's more likely to be restrained by the retrenchment from the fiscal expansion that played a (possibly decisive) role in unleashing it in the first place.

Nudging for the increased adoption of solar energy? Evidence from a survey in Italy

The sun is a shining star in the emerging low-carbon society, providing bright solutions to mitigate climate change. This perspective article presents the results of an online survey that investigated peoples’ willingness to reshape their intraday energy use to both reduce energy consumption (especially from fossil fuel sources) and maximize green energy self-consumption. Respondents identified self-consumption as a key factor in reducing their energy bill. More generally, respondents’ consumption choices appeared largely driven by economic incentives. Hence, the introduction of a bonus for self-consumed energy may enhance the development of photovoltaic systems. From the results a bonus of 4 cent€/kWh and a green premium of 10 cent€/kWh come out. These findings could assist policy makers in forging policy actions based on a mix of monetary and non-monetary incentives to support the development of decentralized energy systems.

An assessment of European integration for the EU-15 (1971-2015)

A long-term assessment of the EU integration process is attempted for the1971-2015 period, by comparing per capita Gross Domestic Product (in constant Purchasing Power Parities) and its change, for EU-15 and non-EU states that are members of the Organisation for Economic Co-operation and Development. A growing divergence is found between Greece but also Portugal and the EU southern periphery on the one hand, and Luxembourg, Ireland and Scandinavian states on the other that have benefi ted from EU integration, especially after the Eurozone was formed. Those EU-15 members that have joined the Eurozone have not benefi ted as much as non-members. It is suggested that two types of states can be trapped by the integration process: The relative or absolute losers of the currency zone, like Greece and states like the UK that have benefi ted less from integration, while choosing to remain at an earlier integration stage. Given the mix of monetary and fi scal policies pursued, resolving the former problem will require setting-up a common production union to advance competitiveness and co-operation, while solution to the latter should avoid the risk of disintegration and of the permanent loss of EU membership.

Heterogeneous expectations, forecasting behaviour and policy experiments in a hybrid Agent-based Stock-flow-consistent model

This paper presents a hybrid agent-based stock-flow-consistent model featuring heterogeneous banks, purposely built to examine the effects of variations in banks’ expectations formation and forecasting behaviour and to conduct policy experiments with a focus on monetary and prudential policy. The model is initialised to a deterministic stationary state and a subset of its free parameters are calibrated empirically in order to reproduce characteristics of UK macro-time-series data. Experiments carried out on the baseline focus on the expectations formation and forecasting behaviour of banks through allowing banks to switch between forecasting strategies and having them engage in least-squares learning. Overall, simple heuristics are remarkably robust in the model. In the baseline, which represents a relatively stable environment, the use of arguably more sophisticated expectations formation mechanisms makes little difference to simulation results. In a modified version of the baseline representing a less stable environment alternative heuristics may in fact be destabilising. To conclude the paper, a range of policy experiments is conducted, showing that an appropriate mix of monetary and prudential policy can considerably attenuate the macroeconomic volatility produced by the model.

Fiscality, Economic Growth and the Level of Unemployment in Poland in the Context of the Fiscal‑Monetary Game

The central bank and the government are pursuing different goals so finding the best mix of monetary and fiscal policies is not easy. At the same time, the decisions the two authorities make during the fiscal‑monetary game exert a strong influence on economic variables. This article focuses on the level of revenues and expenditures of the public finance sector, economic growth and the unemployment rate in Poland in the years 2000–2016. Its aim is to present the level of fiscality and the rates of economic growth and unemployment in the context of monetary and fiscal decisions made by the economic authorities. To this end, the following research methods are employed: statistical analysis methods and graphical presentations of economic developments. As found, in the years 2000–2016 in Poland the general government deficit and the rate of GDP growth influenced the unemployment rate that in turn determined the expenditures of the public finance sector. This research is original in that the changes in fiscality, the rate of unemployment and the dynamics of GDP are studied with respect to interactions between the monetary and fiscal authorities, including factors influencing their decisions, particularly those arising from the last financial crisis.

Monetary Policy and Prudential Regulation in a Hybrid AB-SFC Model with Heterogeneous Expectations

This paper explores the joint effects of prudential regulation and monetary policy in a hybrid agent-based-stock-flow-consistent model featuring an agent-based banking sector. The model is calibrated to a deterministic steady state and a subset of its free parameters are subsequently estimated empirically, producing a baseline simulation exhibiting persistent macroeconomic fluctuations. Experiments carried out on this baseline focus in particular on the expectations formation and forecasting mechanisms used by banks in their decision-making. The result is that simple heuristics are remarkably robust in the present model in that most alternative specifications produce little discernible difference in simulation outcomes. Subsequently a range of policy experiments are conducted, showing that a mix of monetary, prudential and fiscal policy is necessary to attenuate the macroeconomic volatility produced by the model.

Keeping up the morale of the foot soldiers of Indian public health: an appraisal of the economic aspects of ASHAs in Uttarakhand, India

Background: Accredited social health activist (ASHA) is a voluntary community health worker and an important human resource for public health system of India. Their motivation to become a community health worker and continued efforts is a mix of monetary and non-monetary factors. Their motivation to work comes partly from desire to work for the community and prestige, but is furthered by the monetary compensation. Objectives: To study the economic status of ASHAs in Uttarakhand, and their contribution to household income and the role the monetary incentives play in their work . Methods: This cross sectional study was conducted in Haridwar and Dehradun districts of Uttarakhand. Eighty one ASHAs were interviewed using pre-piloted semi-structured questionnaire. Their economic status was assessed using Modified BG Prasad Classification. Results: Majority of the ASHAs belonged to class 4 according to modified B G Prasad Classification. Mean monthly earning as ASHA was 1335 rupees (SD: 748) and the mean contribution to the total household income was 28%. Financial incentive was an important motivating factor with associated concerns about delay in payments. About 75% felt that the amount was inadequate considering the time and effort involved . Conclusions: There is need to review the financial and non-financial incentives with due consideration to inflation and consumer price index.

Commitment contracts and team incentives: a randomized controlled trial for smoking cessation in Thailand.

Treatment for tobacco dependence is not available in many low-resource settings, especially in developing countries. To test the impact of a novel mix of monetary and social incentives on smoking abstinence in rural communities of Thailand. An RCT of commitment contracts and team incentives for rural smokers to quit smoking. Smokers were not blinded to treatment status, although the assessor of the biochemical urine test was. All adult smokers living in the study area were eligible to participate; 215 adult smokers from 42 villages in Nakhon Nayok province, Thailand, participated. Fourteen smokers who lacked teammates were dropped. A total of 201 smokers were assigned to a two-person team, and then randomly assigned by team (in a 2:1 ratio) with computer-generated random numbers to receive smoking-cessation counseling (control group) or counseling plus offer of a commitment contract, team incentives, and text message reminders for smoking cessation at 3 months (intervention group). The primary outcome was biochemically verified 7-day abstinence at 6 months, assessed on an intention-to-treat basis. Secondary outcomes include study participation, biochemically verified abstinence at 3 months, self-reported abstinence at 14 months, and the incremental cost per quitter of the intervention, nicotine gum, and varenicline in Thailand. Data were collected in 2010-2011 and analyzed in 2012. The trial enrolled 215 (10.5%) of 2055 smokers. The abstinence rate was 46.2% (61/132) in the intervention group and 14.5% (10/69) in the control group (adjusted OR 7.5 [3.0-18.6]) at 3 months; 44.3% (58/131) and 18.8% (13/69) at the primary end point of 6 months (adjusted OR 4.2 [1.8-9.7]); and 42.0% (55/131) and 24.6% (17/69) at 14 months (adjusted OR 2.2 [1.0-4.8]). The purchasing power parity-adjusted incremental cost per quitter from the intervention is $281 (95% CI=$187, $562), less than for nicotine gum ($1780, 95% CI=$1414, $2401) or varenicline ($2073, 95% CI=$1357, $4388) in Thailand. The intervention enhanced abstinence by 91%-136% at 6 months, relative to the control group, although self-reports at 14 months suggest tapering of the treatment effect. The intervention may offer a viable, cost-effective alternative to current smoking-cessation approaches in low-resource settings. This study is registered at ClinicalTrials.gov NCT01311115.

QUARTERLY ANALYSIS: The Progress of Monetary, Banking and Payment System Quarter III - 2011

The Board of Governor Meeting of Bank Indonesia on October 11, 2011 decided to lower the BI rate by 25 bps to the level of 6.5%. Bank Indonesia will also maintain the stabilization of Rupiah particularly from the impact of global financial market shock. The decision is in line with the inflation expectation of below 5% on current and next year. Furthermore, these policies are meant to anticipate and to mitigate the negative impact of the global economic and financial slowdown on Indonesian economy. Looking ahead, the Board of Governor will continue to evaluate the global economic and financial performance and use the interest rate as well as the mix of monetary and the other micro prudential policies to mitigate the possible slowing down of Indonesian economic performance, especially on achieving the inflation target of 5% + 1% in 2011 and 4.5% + 1% in 2012.

Social Security Bonds and the Concept of Reciprocal Responsibility

AbstractThe current debate and parallel monologues about Social Security suffer from a failure to distinguish between money and bonds. Consequently, it is impossible to discuss intelligently the solvency or affordability of the Social Security system. In this article, we present a new graph that clarifies this crucial distinction. Bonds are evidence of loans to be repaid on a schedule. These loans can be strictly monetary, as in the private sector, or a mix of monetary and moral, as in the intergenerational reciprocity of obligations. To treat public sector bonds as strictly monetary is economic error as fundamental as denying the existence of public goods.

Exchange Rate Unification, the Equilibrium Real Exchange Rate, and Choice of Exchange Rate Regime: The Case of the Islamic Republic of Iran

This paper reviews recent developments in the exchange system in the Islamic Republic of Iran and in the real effective exchange rate (REER). It also considers the determinants of the REER in connection with the choice of exchange regime after unification. The study illustrates how economic policy variables and exogenous shocks affect the real exchange rate primarily through the fiscal balance, and consequently, the savings-investment gap. It further illustrates that the appropriate level of REER and its medium-term path depend upon the mix of monetary, fiscal, and structural policies that underpin the evolution of inflation, balance of payments, and productivity growth.

Exchange Rate Unification, the Equilibrium Real Exchange Rate, and Choice of Exchange Rate Regime: The Case of the Islamic Republic of Iran

This paper reviews recent developments in the exchange system in the Islamic Republic of Iran and in the real effective exchange rate (REER). It also considers the determinants of the REER in connection with the choice of exchange regime after unification. The study illustrates how economic policy variables and exogenous shocks affect the real exchange rate primarily through the fiscal balance, and consequently, the savings-investment gap. It further illustrates that the appropriate level of REER and its medium-term path depend upon the mix of monetary, fiscal, and structural policies that underpin the evolution of inflation, balance of payments, and productivity growth.

The persistence of moderate inflation in the czech republic and the czk crisis of may 1997

The paper deals with the exchange rate policy being implemented in combination with the mix of monetary and fiscal measures prior to the speculative attack on the CZK in 1997. The fixed nominal exchange rate may have been retained for too long and the monetary and fiscal policies were inappropriate. It explains the relation between Czech inflation, exchange rate and macroeconomic policies until the crisis of May 1997. <P>While the Czech Republic weathered its currency crisis much better than did most other emerging economies, with the worst damage being a USD 2 billion loss of foreign reserves, the crisis failed to resolve all of the fundamental problems. It gives also some explanations for the persistence of inflation at a level around 10 % until mid-1998.

The Optimal Level and Disposition of Saving and the Mix of Monetary and Fiscal Policy in Intermediate Macroeconomics

The optimal level of saving and its optimal disposition between investment in the domestic capital stock and the accumulation of overseas assets should be an important topic in intermediate macroeconomics courses. This article shows how the analysis of this topic can be presented to students.

The Optimal Level and Disposition of Saving and the Mix of Monetary and Fiscal Policy in Intermediate Macroeconomics

The Optimal Level and Disposition of Saving and the Mix of Monetary and Fiscal Policy in Intermediate Macroeconomics

Psychosocial, environmental, and economic factors relevant to farm tourism supply

Abstract Motivations for the supply of farm tourism have previously been researched as just one component of broader farm tourism studies examining the nature and behaviour of rural tourists and the impact of tourism on farmers and farm operations. A new arena for empirical research lies in farmers' perceptions of the psychosocial, economic, and environmental costs and benefits of farm tourism, and relationships between these perceptions and levels of interest in tourism supply. The dual social and economic benefits of tourism for farmers have led to the notion of hosts and guests engaging in what has been termed a unique “psycho-economic transaction” (Stringer, 1981) where a mix of monetary and nonmonetary motivators are embraced. Farmers already engaged in tourism generally recognise that such transactions create both positive and negative outcomes for their family lifestyle, farm production, farm environment, and economic state. However, much less is known about the perceptions of farmers not involved ...

The Mix of Monetary and Fiscal Policies: Conventional Wisdom Vs. Empirical Reality

This article examines four dependent variables that seem relevant in any discussion of policy mix—nominal interest rates, real interest rates, the rate of output growth, and the investment ratio. 

A Case for Managed Exchange Rates*

The incorporation of adaptive expectations by Dornbusch in a Mundell‐Fleming model modifies significantly the traditional results of policy effectiveness in a small, open economy. While monetary policy is still able to influence aggregate demand when flexible exchange rates prevail, the effects of this policy on other important variables in the economy during the adjustment process to a new equilibrium may be considered sufficiently ‘disruptive’ so that the authorities will be hesitant to use their only fully‐effective policy instrument for income‐stabilization purposes. However, by adding a target level for the exchange rate to their list of goal variables and by using an appropriate mix of monetary and fiscal policies, it appears to be possible for the government to avoid these disruptive side effects.

Monetary and Fiscal Policy for an Economy with Fixed Exchange Rates

The exchange rate can be a powerful instrument for control over the balance of payments. Variations in the rate of exchange generally alter the relationship between prices of home-produced goods and commodities produced abroad and thus directly affect the major elements in the current account. A commitment to fixed exchange rates therefore involves the sacrifice of a major policy instrument and raises the question of how to reconcile domestic goals, such as achieving full employment or stimulating economic growth, with the preservation of equilibrium in the balance of payments. In a classical world in which prices and wages are flexible in both directions other routes are available for altering the relationship between domestic and foreign costs and thus for maintaining payments equilibrium. It is in a world of rigid prices that the policy problems posed for an economy tied to a fixed rate of exchange become most acute, and it is a simple model of such a world that I wish to analyze in this paper. A rich literature in recent years has suggested that both internal balance (full employment) and external balance may be achieved by an appropriate mix of monetary and fiscal policy.1 By pointing out that balance-ofpayments equilibrium can be reached by changes in the capital account as well as (or instead of) the current account, this literature has suggested that an expansion of employment that upsets the balance of trade can be countered by a contractionary monetary policy that raises interest rates and attracts capital flows. However, when complications have been introduced