Monetary Mechanism Research Articles

The Monetary Mechanism of Stateless Somalia

A peculiar monetary institution emerged during the period of interregnum in Somalia from January 1991 to August 2012. Without a functioning government to restrict the supply of notes in circulation, Somalis found it profitable to contract with foreign printers and import forgeries. The exchange value of the largest denomination Somali shillings note fell from US $0.30 in 1991 to US $0.03 in 2008. However, the purchasing power eventually stabilized at the cost of producing additional notes.

Systemisch verdunkelter Sinn: Beobachtungsschwierigkeiten einer Zentralbank am Finanzmarkt

Systematically blinding risks: Problems in market observation Abstract: As an institution that is bound by the instructions of the e uropean Central bank, the deutsche bundesbank performs the monetary politics in germany. The emphasis on preservation of price stability as primary goal of its policy often obscures how precarious are the means for the fulfillment of its tasks. The article firstly lays out the vicariousness of a strategy called "monetary mechanism of transmission", and secondly shows how difficult it was for the Deutsche Bundes - bank to detect the approaching world financial crisis in August 2007. The main reasons for this were the systematically blinded risks of "Asset backed Commercial Papers" whose failure are not observable from the point of view of a central bank.

International Trade And Income Formation: A Developing Countrys Perspective

Using OLS technique, this paper estimates the role of the international sector of developing economies on the monetary mechanism and economic growth. Results obtained show that significant variation in money stock is explained by changes in exports, capital inflow, and the balance of payments. However volatility in these variables, due to the narrow range of exports and international capital market conditions for such economies, present real limits to growth, and cautions against indiscriminate use of bank credit creation.

Did the Soviet Command Economy Command Money? A Quantitative Analysis

Motivated by recent studies reviewing Soviet money and enlarging the availability of monetary data, this study empirically investigates the Soviet monetary management mechanism: the division of cash and non-cash, and the income and outlay balance. An analysis of correlation between cash and non-cash shows that the division was largely effective, while a calculation of unexpected cash issues indicates that the income and outlay balance was useless. The results suggest that the Soviet monetary management did not work as intended because wages and output were not equilibrated from the beginning, and information and operational instruments to correct monetary imbalances did not exist.

Problems in the creation of an optimal currency zone in the Commonwealth of Independent States

The paper evaluates the features of the Commonwealth of Independent States as a regional economic union of states on the territory of the former Soviet Union. It examines the most noticeable conceptual approaches to the definition of strategy, the directions of CIS development, and the monetary and credit mechanisms of interactions among member states, as well as the feasibility of CIS transformation into an efficient economic union of states.

Macroeconomic factors and yield curve for the emerging Indian economy

This article investigates the dynamic linkages between the estimated parameters of a zero coupon yield curve and macroeconomic variables like inflation, gross domestic product growth in the presence of a monetary policy indicator in India for the period July 1997 to February 2004. The study finds that there exists strong causality from financial factors, defined by three parameters of the yield curves (‘Level’, ‘Slope’, ‘Curvature’) to macroeconomic factors; growth, inflation and monetary policy indicators (changes in the call money rate). However, the causality in the opposite direction is found to be weaker. It is found that theyield and macro factors do not cause each other before the launch of a liquidity adjustment facility, so the evidence of causality from financial to macroeconomic factors can be attributed to the introduction of a liquidity adjustment facility in June 2000. The causality from yield factors to macro factors is primarily driven by the fact that the ‘changes in level’ of yield curve brings an impact on inflation through the changes in monetary policy. This finding suggests that monetary policy plays a key role in driving the causality. This also implies that the indirect instrument of monetary policy mechanism is becoming increasingly important to influence the aggregate demand in the economy.

Conflicts and coordination between the right to issue US dollars as international currency and the protection of international human rights

In the existing global financial system, the US private central bank controls the right to issue international currency, while the rest of the world have to involuntarily leave their destiny to such system. In the current financial crisis, American government evaded and deviated from due regulation. It is virtually a robbery of other countries as well as a serious infringement upon international human rights. In such a situation, other countries should stick to the international community standard and the protection of international human rights to fairly distribute the interest deriving from the right to issue international currency, and establish a monetary exchange mechanism; or abide by the principle of “one world, one currency” and accordingly come up with a common international currency, or form a monetary union to safeguard the economic sovereignties; or enhance the due position, rights and interest of the developing economies in the existing international financial system; or strengthen efforts in reforming and building the regime of international financial regulation to prevent people’s legitimate property, rights and interest from being infringed.

Creative Monetary Valorization

Nowadays, an important effort is being made throughout the world to assess the economical value of social and environmental actions, through monetary valorization realized in traditional national currencies. However, we find in our classical monetary system an explosive engine of growth driven by money creation, inflation, debt and interest rates that directly imply unsustainable systemic crisis. Furthermore, it is henceforth more and more difficult to argue that economic growth can be decoupled from nature degradation and social inequalities as our economic system is based on resources exploitation and mass consumption where societal integration depends on profession and purchasing power in a constant quest for productivity gains. As a consequence, the sustainable development oriented initiatives, as sustainable investment, solidarity philanthropy, and microfinance which stay in this same system, still leave a lot of issues not addressed. This work is based on the idea of alternatives monetary and economic systems no longer based on the current values, but on a socio-environmental valorization. After an analysis of ethical, economical and sustainable values, we better understand what the values of our societies were and which ones should be exchanged in an alternative currencies system. The fourteen case studies of alternative exchange systems based on socio-environmental values showed the absence of genuine socio-environmental profit and value exchange system. Notwithstanding, alternative currencies have a real potential to create exchangeable socio-environmental values, even if they are not yet based on socio-environmental valorization. They could help to implement a new concept of profit so that sustainable development issues won’t always be managed as wealth redistribution need (loss), but as wealth creation resource (gain). Those creative value currencies will also allow a better economic orientation, incentive through closed market or barter of specific goods and services thanks to the creation of income, quota of exchangeable socio-environmental values. Those creative monetary valorization mechanisms will be based on participatory democracy bank which will only take care of the control and regulation of currency circulation and not its accumulation. Finally, assessing the possibility to apply this kind of system, we suggest that to finance those local communities’ projects, an intermediary service based on private individual philanthropy is necessary.

Will a Taiwan-China Monetary Union be Feasible? Lessons from Europe

The Europeans regard monetary arrangements as a key element of the overwhelming effort to never again allow hostilities to flare up on their continent. For Taiwan and China, a monetary coordination mechanism may also be appealing in order to eliminate hostilities caused by the Chinese civil war since 1949. Due to certain historical and geopolitical reasons, the impact of a China-Taiwan Economic Union on the world can not be measured by its economic scale only. On the basis of Robert Mundell's earlier proposal and the current development of the European Monetary Union, this paper provides a framework to analyze whether the establishment of a Chinese monetary union (CMU) could be sustained after suffering various economic shocks. We assume that a Chinese central bank coordinates the single monetary policy of the Chinese Economic Area and that China and Taiwan maintain their fiscal independence. An international policy coordination approach is used to simulate possible outcomes if the CMU were to be implemented. The simulation indicates that the U.S. and Japan may suffer welfare losses if China and Taiwan insist on their monetary unification. However, if both the U.S. and Japan accept the CMU, further international policy coordination may help them decrease such kind of losses. The analysis is preliminary but may be helpful in considering the East Asian economic policies.

How to Assure Stable Development in Unstable Financial Environment?

Growing involvement of Russian economy in international economic sphere increases the role of external risks. Financial problems which the developed countries are encountered with today result in volatility of Russian stock market, liquidity problems for banks, unstable prices. These factors in total may put longer-term prospects of economic growth in jeopardy. Monetary, foreign exchange and stock market mechanisms become the centerpiece of economic policy approaches which should provide for stable development in the shaky environment.

TRANSMISI KEBIJAKAN MONETER DI INDONESIA: CREDIT VIE W ATAU MONEY VIEW?

One of some problematic issues of identification of the efiectiveness of the monetary policy is the question on whether the monetary policy mechanism transmissions can perform fully in transmitting the changes of monetary policies into the national and regional level of economy. On earlier studies, Muelgini (2004) relatively compares the eflectiveness of monetary policies of the five mechanism transmission channels at the national level of the economy employing impulse response fiznction. The results show that prior to the economic crises in Indonesia credit channel is not eflective, and for after crises periods interest rates, credit, and asset price channels are becoming relatively important. Utilizing similar methodology, Laksono (2005) finds that the eflectiveness of monetary mechanism varies among regions. This research analyzes the findings of both Muelgini ‘s and Laksono's employing dijfkrent methodology to evaluate the channels through which monetary policies are transmitted

An Inquiry into the Nature of Money: An Alternative to the Functional Approach

The paper argues that the functional approach of does not provide a good method to study monetary history and monetary mechanisms. An alternative approach is developed and illustrated by analyzing the role of tobacco and cowry shells in past monetary systems. It is shown that any monetary system has specific properties that most students of do not take into account when theorizing about or analyzing its history. This leads them to miss some important points, and to see monetary systems where none exist. Hence, one can doubt some of the past research on the subject, at least until further investigation is conducted that is based, not on what we think money is, but on what its essential properties are. By comprehending what the main characteristics of a monetary system are, one is able to improve regulation of the system and get some insights into the financial mechanisms of sovereign governments.

MONEY AS A MECHANISM IN A BEWLEY ECONOMY*

We investigate the efficiency property of a monetary economy with spot trade. We prove a conjecture that is essentially due to Bewley (Models of Monetary Economics (1980); Econometrica 51 (1983), 1485–504). The gist is that monetary spot trading is nearly efficient ex ante in an environment where very patient agents can accumulate large enough money stocks to be completely self‐insured. We also study examples where a nonmonetary mechanism is preferred ex ante to any monetary mechanism in a stationary environment, and where an inflationary monetary mechanism is preferred ex ante to a laissez‐faire or deflationary monetary mechanism in an environment with impatient agents.

« Currency Board » et ajustements macroéconomiques : les leçons de l'expérience de l'Argentine

Currency Board and macroeconomic adjustments : the Argentine experience The aim of this study is to address, through the recent Argentine experience, the link between Currency Board’s mechanisms and macroeconomic adjustments, especially in the labour market. First, the authors present how the Argentine monetary system was set up ; secondly they present Currency Board mechanisms and the main features of the Argentine economy. Thirdly, three types of simulations summarize the argentine economic situation at the end of nineties : austerity politics strengthening, financial crisis and regional integration strengthening scenarii. Each simulation explains how the Argentine economy reacts in a framework where monetary mechanisms are constraint by the Currency Board. JEL classification : D58, E42, E58, G28

Political Leadership, Informality, and Regional Integration in East Asia: The Evolution of Asean Plus Three

AbstractSince the late 1990s, moves towards regional integration and cooperation have gained momentum in East Asia. The regional countries have expanded and deepened integration initiatives under the ASEAN Plus Three (APT) framework that consists of ASEAN countries, China, Japan and South Korea. What factors have promoted the development of regional integration and economic cooperation in the region? This article addresses this question in terms of collectively shared norms and political leadership. Informality, a representative common norm, played a catalytic role in first nurturing communication for regional cooperation and inducing a reluctant state to join the cooperative framework. Importantly, the development of regional cooperation under the APT framework was accompanied by a shift in emphasis from informal to formal settings. Moreover, leadership shown by China and Japan has played a crucial role in promoting the regional integration initiatives. While China has taken the initiative in propelling regional free trade agreements and economic development and integration in the Indochina countries, Japan has taken the lead in developing financial and monetary architectures and other cooperative mechanisms. Rivalry for political leadership has induced the two countries to provide regional public goods in a positive-sum game manner.

A monetary mechanism for sharing capital: Diamond and Dybvig meet Kiyotaki and Wright

A monetary mechanism for sharing capital: Diamond and Dybvig meet Kiyotaki and Wright

Monetary Sterilization of Capital Inflows through the Central-Provident-Fund Savings in Singapore

This paper examines the monetary sterilization mechanism of the Singapore economy. We argue that, in the absence of a well-developed open financial market, the Central Provident Fund (CPF) has in fact played a role as a quasi-market mechanism in sterilizing the effect of foreign-exchange assets inflow. Using the error-correction-mechanism (ECM) approach, we model the implicit monetary sterilization mechanism and estimate the offset coefficient between the net-domestic-credit component and the net-foreign-asset component of the monetary base. The estimated ECM regression coefficient suggests that monetary sterilization in Singapore is nearly perfect for the 1984–1995 period. The estimates of other macroeconomic relations also support the hypothesis of the quasi-market monetary sterilization mechanism.

Money as a Mechanism in a Bewley Economy

We study what features an economic environment might possess, such that it would be Pareto efficient for the exchange of goods in that environment to be conducted on spot markets where those goods trade for money. We prove a conjecture that is essentially due to Bewley [1980, 1983]. Monetary spot trading is nearly efficient when there is only a single perishable good (or a composite commodity) at each date and state of the world; random shocks are idiosyncratic, privately observed, and temporary; markets are competitive; and the agents are very patient. This result is a fairly close analogue, for trade using outside, fiat money, of a recent characterization by Levine and Zame [2002] of environments in which spot trade using inside money, in the form of one-period debt payable in a commodity, is nearly Pareto efficient. We also study a example where expansionary monetary mechanism Pareto dominates laissez-faire or contractionary monetary mechanism in an environment with impatient agents.

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.

Economic Consequences of Pegging to the Dollar in a Multicurrency World

The paper studies the monetary mechanism of a three‐country world where two large countries are engaged in floating exchange rates with each other, and a small country is pegged to one of these large countries. Three countries possess an endogenous wage determination process, so that the choice of exchange‐rate regimes has real consequences. This arrangement creates serious difficulties for the small country. The paper evaluates the relative effectiveness of options for the small country, taking account of endogeneity of wage determination. Complete float of the small country and the currency basket pegging both present promising alternatives, but the complete float is likely to be best.