Monetary Channels Research Articles

Monetary channels of social inclusion: a case study of basic income and the Caixa Econômica Federal in Brazil

This article reports evidence of new monetary channels for social inclusion involving basic income policies and the Caixa Econômica Federal, a Brazilian government savings bank. Since the Plano Real (Brazilian currency) and the liberalization of banking in the 1990s, the realization of competitive advantages by the Caixa as social policy agent and the importance of citizenship cards differ from existing theories of bank change, financial inclusion and monetary policy. Multi-method research reveals the importance of 1) political theories of basic income, 2) conceptions of citizenship and social justice, and 3) a back to the future modernization of government banking. This provides alternatives to contemporary market-based banking theory, neo-liberal policies, private and non-governmental microfinance strategies, and theories in political economy about fiscal constraints to social policies. New monetary channels of change also suggest that zero sum theories about politics, monetary authority and social inclusion are amiss.

Empirical Analysis of Balance of Payment Adjustment Mechanisms: Monetary Channel in Nigeria, 1970– 2010

This study attempt is toward understanding the application of monetary approach as adjustment mechanism to correct balance of payments dis-equilibrium. It examined the review of empirical studies of the theory in Nigeria, explained the observed behavior of Nigeria’s balance of payments. It also aimed at the verification or refutation of monetary theory in Nigeria’s balance of payments adjustment mechanisms, given that any theory irrespective of its elegance in clarification or its sound logical reliability cannot be established and generally accepted without some empirical testing. The study was piloted via linear regression analysis using data from 1970 to 2010. The estimated result shows a positive relationship between the dependent variable (Balance of Payments) and the Independent variables (Domestic Credit, Exchange Rate andBalance of Trade)while (Inflation Rate and Gross Domestic product) are otherwise. It concludes that though not entirely, monetary measures constitute immensely to the position of BOP, cause disturbances and also serve as adjustment mechanism to bring BOP to equilibrium depending on it application and policy mix by monetary authority. However, it recommends that the government through Central Bank of Nigeria (CBN) should apply expenditure reducing monetary policies through money supply and domestic credit to promote favourable BOT which invariably stabilizes BOP. DOI: 10.5901/mjss.2014.v5n14p67

The Application of Time-Delay-DependentH∞Control in the Transmission Effect of Monetary Policy on Real Estate Market

This paper uses a time-delay-dependentH∞control model to analyze the transmission effect of monetary policy on the real estate market. We establish a theoretical framework between monetary policy and real estate market based on the three channels, that is, interest rate channel, monetary supply channel, and credit channel. Then we construct a basic model usingH∞control method. By analyzing the effect of the time-delay characteristics of monetary policy on the real estate market, we introduce time variables and propose a time-delay-dependentH∞control model. We test the robustness of the model using the Chinese data of the monetary policy and the real estate market and prove that this model can be well employed in the reality.

PERSPECTIVES OF THE EURO AREA SOVEREIGN DEBT CRISIS FOR THE BRAZILIAN ECONOMY

The objective of this article is to show the perspectives of the euro area sovereign debt crisis for the Brazilian economy. The euro area sovereign debt crisis, beginning in 2010, could be seen as fallout of the global financial crisis of 2008/09. The ways to the crisis for Portugal, Ireland, Italy, Greece and Spain were different: Credit booms and housing bubbles, banking crises, unsustainable public indebting. The impacts on Brazil were felt in 2011 and 2012 with the Brazilian economy almost stagnating. The article evaluates the impacts of the global financial crisis 2008/09 on the Brazilian economy through real and monetary channels, as well as through the contagion of expectations, to find similarities with the present crisis. The main influence was the fall of Brazilian exportations and the credit crunch following the failure of Lehman Brothers in September 2008. The article supposes that the impacts of the euro area crisis shall be less problematic than that of the global financial crisis of 2008/09, because exportations are geographically more diversified and a credit crunch could be confronted by the BNDES and the public banks in Brazil. But the main argument is that the stability of Brazilian institutions, the geographical diversification of exportations and the increasing demand for commodities by the emerging markets in Asia will soften the impacts of the present crisis for Brazil, supposing that contagion of the sovereign debt crisis in the euro area will not expressively hit the more important economic powers in Europe and the world. The causes of the stagnating Brazilian economy in 2012 probably are not only the problems in the euro area.

Short-Term Credit: A Monetary Channel Linking Finance to Growth

This paper develops a mechanism that links the combined monetary and financial role of intermediaries to the division of labor and endogenous growth. The model builds on an augmented Ramsey Cass Koopmans (RCK) model of optimal growth. First, by relaxing the assumption that each agent buys and sells at the same time an endogenous cash-in-advance constraint is created. The cash constraint is not binding for agents who borrow from intermediaries at the start of a period and repay the debt at the end of the period. Thus intermediated short-term credit is a solution to the monetary friction. Second to address the division of labor the symmetric n-good n-type structure of Kiyotaki and Wright’s search model of money is nested into each period of the model. Because each type of agent is more productive when his production is specialized, relaxing the cash constraint leads to a division of labor. Finally the exogenous growth of the RCK model is reinterpreted as endogenous growth due to a process of learning-by-doing. We find that financial intermediaries by relaxing the cash constraint promote the division of labor which generates a process of endogenous growth.

English

Twenty years have passed since the breakdown of the Soviet Union, and it is time to draw a concluding line for monetary policy efficiency in the Commonwealth of Independent States (CIS). We propose a comprehensive treatment of the subject for nine members of the CIS for the period of 2000-2009. Four transmission channels are investigated: interest rate channel, exchange rate channel, bank lending channel, and monetary channel. First, we design a Vector Auto Regression framework for each CIS member-state and investigate the short-run dynamics of the impact of each of the four transmission channels on domestic output and inflation. Second, we construct Auto Regressive Distributed Lag Models (ARDL) in order to study the country-wise efficiency of transmission channels in the long run. Finally, we employ a panel data fixed effects method to show how the CIS behaves as a region. Our short-run individual country analysis yields highly heterogeneous results. In the long run, however, it’s apparent that broad monetary base (M2) is the most influential determinant of aggregate output. Inflation is affected the most by the refinancing rate and the flow of remittances. For both output and inflation, exchange rate plays a role of a supporting channel.

Can External Shocks Explain theAsian Side of Global Imbalances? Lessons from a StructuralVARModel with Block Exogeneity

AbstractDuring the 2000s, we observed the accumulation of global imbalances resulting primarily from massive current account imbalances in theUSAand in Asia. This paper studies the impact of external shocks on EastAsian countries in order to determine if these can account for theAsian side of global imbalances. To this end, we estimate a structural vector autoregression (VAR) model with block exogeneity using Bayesian inference. The three external shocks are an oil shock, aUSmonetary shock and aUSfinancial shock. Our main findings are as follows: (i) external shocks account for the current account surplus inKorea,Malaysia, thePhilippines,Singapore, andThailand and, to a lesser extent, inJapan andIndonesia; (ii) the oil shock and theUSmonetary shock seem to have influenced current account balances through real and monetary channels, and theUSfinancial shock through the financial channel.

Channels of Monetary Transmission in the CIS

Twenty years have passed since the breakdown of the Soviet Union, and it is time to draw a concluding line for monetary policy efficiency in the Commonwealth of Independent States (CIS). We propose a comprehensive treatment of the subject for nine members of the CIS for the period of 2000-2009. Four transmission channels are investigated: interest rate channel, exchange rate channel, bank lending channel, and monetary channel. First, we design a VAR framework for each CIS member-state and investigate the short-run dynamics of the impact of each of the four transmission channels on domestic output and inflation. Second, we construct Auto Regressive Distributed Lag Models (ARDL) in order to study the country-wise efficiency of transmission channels in the long run. Finally, we employ a panel data fixed effects method to show how the CIS behaves as a region. Our short-run individual country analysis yields highly heterogeneous results. In the long run, however, it’s apparent that broad monetary base (M2) is the most influential determinant of aggregate output. Inflation is affected the most by the refinancing rate and the flow of remittances. For both output and inflation, exchange rate plays a role of a supporting channel.

Granger causality and innovation accounting analysis of the monetary transmission mechanism in Croatia

This article explores the pass-through of different monetary policy channels to inflation in Croatia between January 1998 and December 2009. Using a four-step procedure: unit root test, co-integration test, Granger causality and innovation accounting techniques, we find that (i) interest rates, credits and the nominal exchange rate do not Granger-cause inflation individually; however, they do with nominal M1 money supply jointly at lag two; (ii) the nominal effective exchange rate is the most important pass-through to inflation statistically, accounting for approximately 11% of forecast error variance after four years; (iii) credits and nominal M1 have very small portions in explaining variations in the total variance of inflation; and (iv) the nominal interest rate is the weakest but statistically significant channel to inflation in the long run. These results are discussed within the Croatian monetary framework and future developments of monetary channels in Central and Eastern European countries.

Impact of Macroeconomic Surprises on Carry Trade Activity

Can official news and policy announcements affect foreign exchange speculation? This paper investigates the impact of macroeconomic surprises on risk perceptions of carry traders and the size of their overall positions. Unlike much of the previous literature, we are able to identify a significant impact of macroeconomic surprises on foreign exchange volatility of JPY/USD even at low (daily) frequency. We use information gleaned from risk reversal contracts (tails of the implied returns distribution) during the period when concerns about sharp yen appreciation were particularly high, hence more likely to show up in the price of risk. We also consider a broader set of U.S. and Japanese news than previous work, focusing on the announcements with particularly large surprise components to them. Overall, we find that macroeconomic news is an important determinant of risk reversals during periods of heavy carry trade volume, particularly when the cost of hedging against large yen appreciation is increasing. The results are more supportive of the trade-balance flow channel over portfolio-balance or monetary channel of exchange rate determination during the sample period. Specifically, Japan (U.S.) macro news that worsen (improve) the trade balance generally are associated with less perceived risk of sharp yen appreciation, as reflected in the value of risk reversals. Moreover, there is a close link between risk reversals and non-commercial futures positions. We calculate a substantial effect of macroeconomic news on carry trade activity, with risk reversals (the cost of hedging) as the transmission mechanism.

Oil prices and competitiveness: time series evidence from six oil‐producing countries

PurposeThe purpose of this paper is to study the potential loss of competitiveness due to higher oil prices through the monetary channel in a group of six oil producing countries.Design/methodology/approachA dynamic time series methodology, Dynamic Simultaneous Equations, is applied to Vector Autoregressive Moving Average model with exogenous variables.FindingsMixed evidence was found of loss of competitiveness due to high oil prices in the sample.Practical implicationsFindings are useful both for academic researchers in international finance or development economics. Policy makers will find the results useful for implementing stabilization or neutralization policies.Originality/valueThe empirical work extends earlier research in several directions including extension to six oil‐producing countries, use of data over the flexible exchange rate period, and a more suitable technique, which estimates the model in a dynamic setting.

Devaluations, Output and the Balance Sheet Effect: A Structural Econometric Analysis

This paper estimates a new open economy macroeconomic model for South Korea to determine the output effect of currency devaluations. Three transmission mechanisms are considered: the expenditure-switching, the balance sheet, and a monetary channel associated to a nominal exchange rate target. Devaluations are defined as an increase in this target. This allows to isolate the effects of an explicit exogenous devaluationary policy shock. Ceteris paribus, a devaluation is found to be expansionary. Output contractions in South Korea should then be associated with a different shock such as an adverse shock on the international interest rate or on export demand.

An Empirical Investigation of Budget and Trade Deficits: The Case of Nigeria

This paper uses cointegration and vector error-correction techniques, Granger-causality tests and, generalized impulse response analysis to examine the "twin deficits" phenomenon in Nigeria - a small open but oil dependent economy in Africa. We find evidence of positive relationship between trade and budget deficits in both the short- and long-run. This finding supports the conventional Keynesian twin deficits proposition and refutes the Ricardian Equivalence Hypothesis. Contrary to the conventional proposition that budget deficits cause trade deficits, our results indicate unidirectional causality from trade deficits to budget deficits for Nigeria. An implicit policy implication of our findings is that attempts to reduce budget deficits in Nigeria must begin with reductions in trade deficits which could be achieved through indirect monetary channels.

The Mechanics of Devaluations and the Output Response in a DSGE Model: How Relevant is the Balance Sheet Effect?

The relative importance of different mechanisms through which devaluations affect output are analyzed using a dynamic stochastic general equilibrium model for a small open economy with imperfect competition and nominal rigidities. Devaluations are defined as an increase in the central bank's nominal exchange rate target, which induces a decrease in the nominal interest rate. Three main mechanisms through which devaluations affect output are considered: The traditional expansionary expenditure-switching effect, the balance sheet effect which allows the possibility of contractionary effects when firms' debt are dollar-denominated, and a monetary channel associated with an interest rule that targets the nominal exchange rate. The model is calibrated and simulated under alternative scenarios of exchange rate regimes and shocks. Devaluations are found to be expansionary despite the contractionary balance sheet effect. In response to adverse external shocks the economy's output response improves with a devaluation the less flexible the exchange rate regime is.

An Econometric Look at Inefficiency Among U.S. States, 1977-1986

U.S. states during the 1977-1986 business cycle are found to have small but significant technical inefficiency in the private sector. Inefficiency is influenced by several factors, including prior economic performance, location, Hicks labor augmenting technical progress in the manufacturing sector in an earlier 1970s period, college graduation, and income inequality. The existence of a monetary channel, urban agglomeration, and a high school diploma “sheepskin” effect for improved technical efficiency are rejected. Results from earlier studies using noneconometric methods to measure technical efficiency are independently confirmed, indicating that interstate technical inefficiency exists and can be measured using both parametric and nonparametric methods, but may overestimate how different states are from each other.

Exchange controls and interest rate determination with traded and non-traded assets: the Irish–United Kingdom experience

This paper is an empirical study of the effectiveness of exchange controls in recent Irish experience vis-à-vis the United Kingdom. Specifically, we examine the effects of domestic money market conditions on an array of Irish interest rates following the imposition of the controls, and the relative importance of covered British interest rates during the process of financial disintegration induced by these controls. Using time-varying parameter estimation, we find that the Central Bank gained only partial and temporary control over interest rates through domestic monetary channels. For most assets and liabilities, interest parity conditions were restored within six months after a policy change.

Velocity and Bank Portfolio Composition

Studies of the income velocity of money have often stressed the positive relationship between velocity and interest rates' and the impact of the behavior of non-bank financial institutions on velocity.2 Certain other authors have suggested that shifts in bank portfolio composition can have a destabilizing effect since these shifts can mobilize idle balances and change income velocity.3 The objective of this paper is to test empirically the hypothesis that bank portfolio composition has an impact on velocity. There are theoretical structures to support either the contention that velocity is affected by bank portfolio composition or the argument that velocity is independent of bank portfolios. The author has shown elsewhere,4 that the conceptual importance or unimportance of portfolio composition for policy lies in the theoretical monetary channel one views as the correct representation of the real world. In particular, the view, set forth by Friedman and other members of the Chicago school, argues that bank portfolio composition is irrelevant for policy while certain segments of the credit view

Monetary Channels and the Relative Importance of Money Supply and Bank Portfolios

The Journal of FinanceVolume 24, Issue 1 p. 81-87 Article MONETARY CHANNELS AND THE RELATIVE IMPORTANCE OF MONEY SUPPLY AND BANK PORTFOLIOS William L. Silber, William L. SilberThe author is Assistant Professor of Economics, Graduate School of Business, New York University. He wishes to thank Ernest Bloch, Phillip Cagan, Lawrence S. Ritter, C. Rangarajan, K. W. Sametz, the managing editor, and the referee for their comments. None of the above, however, are responsible for the views presented here.Search for more papers by this author William L. Silber, William L. SilberThe author is Assistant Professor of Economics, Graduate School of Business, New York University. He wishes to thank Ernest Bloch, Phillip Cagan, Lawrence S. Ritter, C. Rangarajan, K. W. Sametz, the managing editor, and the referee for their comments. None of the above, however, are responsible for the views presented here.Search for more papers by this author First published: March 1969 https://doi.org/10.1111/j.1540-6261.1969.tb00344.xCitations: 2 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Citing Literature Volume24, Issue1March 1969Pages 81-87 RelatedInformation

MONETARY CHANNELS AND THE RELATIVE IMPORTANCE OF MONEY SUPPLY AND BANK PORTFOLIOS

The Journal of FinanceVolume 24, Issue 1 p. 81-87 Article MONETARY CHANNELS AND THE RELATIVE IMPORTANCE OF MONEY SUPPLY AND BANK PORTFOLIOS William L. Silber, William L. SilberThe author is Assistant Professor of Economics, Graduate School of Business, New York University. He wishes to thank Ernest Bloch, Phillip Cagan, Lawrence S. Ritter, C. Rangarajan, K. W. Sametz, the managing editor, and the referee for their comments. None of the above, however, are responsible for the views presented here.Search for more papers by this author William L. Silber, William L. SilberThe author is Assistant Professor of Economics, Graduate School of Business, New York University. He wishes to thank Ernest Bloch, Phillip Cagan, Lawrence S. Ritter, C. Rangarajan, K. W. Sametz, the managing editor, and the referee for their comments. None of the above, however, are responsible for the views presented here.Search for more papers by this author First published: March 1969 https://doi.org/10.1111/j.1540-6261.1969.tb00344.xCitations: 2 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Citing Literature Volume24, Issue1March 1969Pages 81-87 RelatedInformation