Efficacy Of Monetary Policy Research Articles

Firm Inattention and the Efficacy of Monetary Policy: A Text-Based Approach

Abstract This paper provides empirical evidence of the importance of firm attention to macroeconomic dynamics.We construct a text-based measure of attention to macroeconomic news and document that attention is polarized across firms and countercyclical. Differences in attention lead to asymmetric responses to monetary policy: expansionary monetary shocks raise market values of attentive firms more than those of inattentive firms, and contractionary shocks lower values of attentive firms by less. Attention also mitigates the effects of macroeconomic uncertainty on firm performance. In a quantitative rational inattention model that is calibrated with this new text-based measure, inattention drives monetary non-neutrality. As average attention varies over the business cycle, so does the efficacy of monetary policy.

Asymmetric Effect of Monetary Policy on Asset Prices: Contractionary VS Expansionary Regimes

This research study seeks to investigate the asymmetrical impact of monetary policy on asset prices (stock price and house prices as indicators of asset prices). Understanding this asymmetry is crucial for policymakers and central banks to evaluate the implications of expansionary and contractionary monetary policies on asset price dynamics. The study examines both interest rates and the money supply, which are key tools of monetary policy, to determine if they have similar effects on asset prices across various economic regimes in 51 countries with diverse income levels for the period of 2009 to 2021. Using a linear and non-linear ARDL (NARDL) approach this study analyze the short-run and long-run impacts of monetary policy on stock and house prices, besides comparing the symmetric and asymmetric impacts of monetary policy shocks on these prices. The outcomes accentuate the importance of policymakers being cognizant of the impacts of different policy regimes on asset prices. Notably, the study reveals a significant and negative short-term impact of interest rates on asset prices under contractionary monetary policy. Conversely, expansionary monetary policy does not demonstrate a significant short-term effect on asset prices. This study makes substantial contributions by deepening insights into the efficacy of monetary policy, offering practical guidance for policymakers, and addressing a pivotal void in the extant scholarly discourse.

Post-COVID inflation and the monetary policy dilemma: an agent-based scenario analysis

AbstractThe economic shocks that followed the COVID-19 pandemic have brought to light the difficulty, both for academics and policy makers, of describing and predicting the dynamics of inflation. This paper offers an alternative modelling approach. We study the 2020–2023 period within the well-studied Mark-0 Agent-Based Model, in which economic agents act and react according to plausible behavioural rules. We include a mechanism through which trust of economic agents in the Central Bank can de-anchor. We investigate the influence of regulatory policies on inflationary dynamics resulting from three exogenous shocks, calibrated on those that followed the COVID-19 pandemic: a production/consumption shock due to COVID-related lockdowns, a supply chain shock, and an energy price shock exacerbated by the Russian invasion of Ukraine. By exploring the impact of these shocks under different assumptions about monetary policy efficacy and transmission channels, we review various explanations for the resurgence of inflation in the USA, including demand-pull, cost-push, and profit-driven factors. Our main results are fourfold: (i) without appropriate fiscal policy, the shocked economy can take years to recover, or even tip over into a deep recession; (ii) the success of monetary policy in curbing inflation is primarily due to expectation anchoring, rather than to the direct economic impact of interest rate hikes; (iii) however, perhaps paradoxically, strong inflation anchoring is detrimental to consumption and unemployment, leading to a narrow window of “optimal” policy responses due to the trade-off between inflation and unemployment; (iv) the two most sensitive model parameters are those describing wage and price indexation. The results of our study have implications for Central Bank decision-making, and offer an easy-to-use tool that may help anticipate the consequences of different monetary and fiscal policies.

Euro area monetary policy effects. Does the shape of the yield curve matter?

This paper investigates the effects of monetary policy in the euro area. We make three contributions to the literature. The first is to use the information from movements in the entire yield curve around monetary policy events to shed light on the efficacy of monetary policy. The second contribution is to provide a novel and easy-to-update database of surprises based on intra-day quotes of Euro Area OIS forward rates and sovereign yields of France, Germany, Italy and Spain. Our third contribution is to show that how the term structure of interest rates changes in response to conventional and unconventional monetary policy announcements matters in shaping the response of key macroeconomic variables.

Economics of Fiscal Dominance and Ramifications for the Discharge of Effective Monetary Policy Transmission

This paper explores the intricate dynamics of fiscal dominance and its profound implications for monetary policy efficacy, contributing to the discourse on the interplay between fiscal and monetary policies. The theoretical foundation critically examines existing literature, integrating empirical evidence to construct a comprehensive understanding. Model blocks strategically elucidate the significance of fiscal variables in shaping monetary transmission mechanisms. The ensuing analysis scrutinises the disruptive potential of fiscal dominance on conventional monetary policy tools. The conclusion navigates policy recommendations, emphasising the necessity of coordinated fiscal-monetary strategies to effectively mitigate inflationary pressures. This research provides a nuanced perspective for policymakers, offering theoretical depth and empirical insights to guide decisions in addressing the complex challenges posed by fiscal dominance in economic governance.

Monetary Policy Efficacy Pre- and Post-COVID-19 Pandemic: Evidence from India

Inflation has run higher than the targets of central banks across the globe post the COVID-19 pandemic. India is no exception. The central banks have responded through synchronous interest rate increases. The efficacy of policy measures has been mixed though, underscoring country-specific differences in sources of inflation and monetary transmission across channels. Employing a time-varying vector autoregression framework, we analyse the interaction with output, interest rate and inflation in India. We employ quarterly data on real GDP growth, Wholesale Price Index (WPI) growth, Consumer Price Index (CPI)-Industrial workers (CPI-IW) growth and 1 year-treasury bill rate, from 2005–2006 Q1 to 2021–2022 Q4. We use two measures of inflation to get the dynamics of retail and wholesale inflation. We contrast the interactions of aforesaid variables through time-varying impulse response functions (IRFs) during two big macroeconomic events, namely, the subprime crisis of 2008 and COVID-19 pandemic in 2020. During the subprime crisis in 2008, we saw negligible response in the short, medium and long run. During the COVID-19 period, we find all time-varying IRFs are synchronized. The response of CPI-IW to the interest rate shock is very different from that of WPI, underscoring differences in the composition of these price measures. A shock from the interest rate keeps the CPI-IW stable at best; we do not see any reduction in CPI-IW across the short, medium and long run. The reaction of GDP growth to interest rate shock is rather flat during both the subprime crisis and COVID-19 in the short, medium and long run, pointing towards potential monetary policy ineffectiveness in stimulating the growth.

Evaluating the Efficacy of Monetary Policy in Driving Economic Growth in Turkey

This paper examines the efficacy of monetary policy in fostering output growth in Turkey by analyzing annual time-series data sourced from the Central Bank of the Republic of Turkey (CBRT) spanning from 2005 to 2023. The research employs the Autoregressive Distributed Lag (ARDL) bounds testing procedure. The findings reveal that money supply, considered an indicator of monetary policy in the context of this study, exerts a positive and statistically significant influence on output growth in Turkey in both the short and long term. Additionally, government expenditure has a positive and statistically significant impact on growth in the long term, albeit weaker than the impact of money supply. Lastly, in the long term, inflation negatively affects growth, with statistical significance observed at the 10% level.

Nigerian Economic Growth and Monetary Policy Nexus

Due to the unresolved argument on the efficacy of monetary policy in the growth of an economy, this study is conceived examine whether monetary policy variables have predicted economic growth in Nigeria. To achieve this, data were obtained from Central Bank of Nigerian Statistical bulletin of 2022. The relationship between monetary policy variables and economic growth was estimated with Autoregressive Distributive Lags (ARDL). After the analysis, the outputs revealed that the entire monetary policy variables employed were found to have negative and significant relationship with economic growth in Nigeria within the scope of the study. On this note, the researchers are of the opinion that a flexible monetary policy by the monetary authority will help sustain price stability and economic growth in the country. Policy instruments should be well- coordinated and as well have an optimal mix to significantly influence economic growth and stability.

Impact of Financial Development on Inflation in Tanzania: Empirical Evidence from the VECM Approach

This study examines the impact of financial development on inflation in Tanzania using time series data from 1980 to 2020. By employing the VECM analysis method, the study contributes to the existing literature on the relationship between financial development and inflation. The findings reveal that financial development has a significant long-run impact on inflation in Tanzania, resulting in a reduction in inflation in the country. However, in the short run, the impact of financial development on inflation is not statistically significant. Therefore, the study recommends that the government implement appropriate regulatory policies and supervise financial institutions to promote financial sector stability. Further, to promote financial sector stability, greater financial inclusion, higher investment, and economic growth, the government should improve financial market infrastructure, expand the coverage of financial institutions, and increase access to credit. Additionally, fostering the development of more efficient payment systems, particularly electronic payment systems, can mitigate expenses and potential risks associated with cash transactions. Moreover, promoting financial inclusion can reduce the need for cash and enhance the efficacy of monetary policy, serving as a preventive measure against inflationary pressures and unnecessary credit growth.

Fiscal Dominance and Monetary Policy Efficacy in Nigeria

This study examines the effects of fiscal dominance on monetary policy efficacy in Nigeria. Specifically, it examines the extent to which fiscal deficits influenced the growth of money supply and inflation in Nigeria. It utilizes money growth accounting as the framework, and it is estimated through the Autoregressive Distributed Lag (ARDL) Model to achieve the objectives of the study. The results show that fiscal deficit has a positive and significant relationship with the inflation rate in Nigeria. This indicates evidence of fiscal dominance for Nigeria and that fractions of Nigerian inflationary pressures emanate from fiscal deficits, thus, hampering the efficacy of monetary policy. The study, therefore, suggests that policy attempts to stabilize prices in Nigeria must not only be monetary in nature but must also take cognizance of fiscal actions into considerations. Hence, there is need for continuous fiscal-monetary policy coordination to ensure a delicate balance between the duo in achieving key macroeconomic objectives.

Efficacy of monetary policy in controlling inflation in India in the post reform period: a threshold co-integration approach

Efficacy of monetary policy in controlling inflation in India in the post reform period: a threshold co-integration approach

Analyzing the Efficacy of Monetary Policy in India: A 15-Year Evaluation

This paper presents a comprehensive analysis of the effectiveness of monetary policy in India over a period of 15 years. Monetary policy plays a crucial role in shaping economic conditions and fostering sustainable growth. By examining key indicators such as inflation, interest rates, and economic performance, this study evaluates the impact of monetary policy measures implemented in India between 2007 and 2021. The findings shed light on the strengths and limitations of the monetary policy framework and provide insights into its effectiveness in achieving macroeconomic stability and promoting economic growth. The research also explores potential areas of improvement and suggests policy recommendations to enhance the efficacy of monetary policy in India.

Studi Literatur Peran Bank Indonesia Terhadap Stabilitas Keuangan

Bank Indonesia's primary responsibility in monetary, banking and payment systems is to ensure monetary and financial system stability. Without financial system stability, Bank Indonesia's success in maintaining monetary stability will not be significant. support long-term economic growth. The forces associated with money and monetary soundness resemble different sides of a coin that cannot be separated. Financial stability is the foundation upon which the efficacy of monetary policy is built, and the converse is that monetary policy has a significant impact on financial stability. Because the financial system is one of the monetary policy transmission channels, monetary policy transmission cannot function normally if financial system instability occurs. Conversely, financial system stability will be fundamentally affected by monetary instability due to ineffective financial system operations. Therefore, maintaining financial system stability remains the duty and responsibility of Bank Indonesia.

Digital Currencies and Monetary Policy in the New Era

The centuries-old financial structure and the modern financial system are built on physical currencies. After the global financial crisis of 2008-2009 and the COVID-19 pandemic of 2020, along with the introduction of all-new cryptocurrencies and stable coins, even many central banks have voiced an interest in the introduction of digital currencies. Hence, the pros and cons of the new central bank digital currencies (CBDC) are the newest widely discussed topic. This paper focuses on the ways a new instrument, central bank digital currency (CBDC), is expected to improve the modern payment systems, increase the efficacy of monetary policy and ensure financial stability in the new era. The study concludes that although CBDCs might boost monetary policy effectiveness and financial stability, it is vital to reevaluate and thoroughly analyse the geopolitical, geoeconomic, and geostrategic implications and effects of having a CBDC.

The Law and Economics of Blockchain

This article examines the implications of Distributed Ledger Technology (a.k.a. blockchain) for several areas of law. While cryptocurrencies have received much attention, the implications of DLT are potentially far reaching. DLT raises interesting and important questions relating to rules of evidence, surrounding issues like hearsay and authentication. The advent of initial coin offerings has implications not only for how firms are financed but also for securities law in regulating such offerings. Cryptocurrencies themselves (e.g., Bitcoin) have raised serious issues for tax avoidance and taxation law. Relatedly, the rise of cryptocurrencies raises issues regarding the relationship between private and nationally issued currencies, and even the role and efficacy of monetary policy. Finally, DLT has practical implications for election law and voter turnout, with such technology already begun to be used for security purposes in online voting and permitted in 32 US states.

The Effectiveness of Monetary Policy and the Effect of Global Economic Shock on Net Financial Accounts in Indonesia

The majority of recent research has looked at the effect of the crisis on capital flows. Using Indonesia as a case study, this study examines the efficacy of monetary policy and the impact of global economic shocks on the Net Financial Account, a component of the Balance of Payments, from 1989 to 2020. Dummy variables were used to assess global economic shocks for three crisis periods: the Asian financial crisis in 1998, the global financial crisis in 2008, and the Covid-19 pandemic, which has been ongoing since the end of 2019. The Autoregressive Distributed Lag (ARDL) model was used to examine the long-term and short-term relationships between variables. The findings of the calculation reveal that all variables, that is, monetary policy and global economic shocks, have a short-term and long-term relationship with the Net Financial Account. It is advised that the government and monetary authorities continue to improve economic fundamentals, including financial system stability.

State-Dependent Effects of Monetary Policy: The Refinancing Channel

This paper studies how the impact of monetary policy depends on the distribution of savings from refinancing mortgages. We show that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. We construct a quantitative dynamic life-cycle model that accounts for our findings and use it to study how the response of consumption to a change in mortgage rates depends on the distribution of savings from refinancing. These effects are strongly state dependent. We also use the model to study the impact of a long period of low interest rates on the potency of monetary policy. We find that this potency is substantially reduced both during the period and for a substantial amount of time after interest rates renormalize. (JEL D15, E21, E43, E52, G21, G51, R31)

Efficacy of monetary policy in a currency union? Evidence from Southern Africa's Common Monetary Area

<abstract><p>The Common Monetary Area (CMA) agreement has effectively granted the South African government sole discretion over monetary policy and implementation in the region. The effectiveness of this arrangement has long been under discussion given the heterogeneity of member countries. This paper uses a structural vector autoregressive (SVAR) to examine the efficacy of the interest rate channel in the CMA. Specifically, our analysis uses data from 2000M1-2018M12 to examine how economic output, inflation, money supply, domestic credit, and lending rate spread for each member country respond to shocks in the South African repo rate. The main findings indicate that a positive shock to the South African repo rate has a statistically significant negative impact on economic output and a positive effect on inflation at the 10 percent level for all countries in the CMA. The results also show that money supply, domestic credit, and lending rate spread respond asymmetrically across members countries.</p></abstract>

The Impacts of Government Spending and Monetary Policy Rate in Indonesia

This study reviews the impacts of government policies on the economy. The period of analysis starts from early banking sector reform until the current Covid-19 pandemic crisis. We apply Vector Error Correction Model based on the theory of money demand and inflation to analyze the relationships among income, inflation, money balance, government spending, and policy interest rate. The impacts of money balance and policy interest rate on income are as predicted by money demand. Financial sector growth and different expectation on inflation affect the efficacy of monetary policy. On the other hand, government spending might not be fully growth-enhancing. The need emerges to classify and distinguish the classes of government spending which increase growth.

Monetary Policy Under Imperfect Information and Consumer Confidence

Although it is generally accepted that consumer confidence measures are informative signals about the state of the economy, theoretical macroeconomic models designed for the analysis of monetary policy typically do not provide a role for them. I develop a framework with asymmetric information in which the efficacy of monetary policy can be improved, when the imperfectly informed central banks include confidence measures in their information set. The beneficial welfare effects are quantitatively substantial in both a stylized New Keynesian model with optimal monetary policy and an estimated medium-scale DSGE model.