Monetary Policy Regime Research Articles

How are residential property prices formed in Japan under different monetary policy regimes

Three residential property prices in Tokyo, Nagoya, and Osaka co-move in two monetary policy regimes. No causality is found in the first period, but causality from Tokyo to Osaka is found in the second period. The three residential property prices move together, but independently in the first period. After the BOJ introduces strong non-traditional monetary policies such as quantitative and qualitative easing (QQE) and negative interest rate policy (NIRP), the three residential property prices move together through the transmission from Tokyo to Osaka. This paper possibly gives an international policy implication for other countries suffering from asset deflation.

On the Use of Current or Forward-Looking Data in Monetary Policy: A Behavioural Macroeconomic Approach

We analyse the use of current and forward-looking data in the setting of monetary policy (Taylor rule). We answer the question of whether the use of forward-looking data is to be preferred over the use of current data. We use a behavioural macroeconomic model that generates periods of tranquillity alternating with crisis periods characterized by fat tails in the distribution of output gap. We find that the answer to our question depends on the nature of the monetary policy regime. In general, in a strict inflation targeting regime the use of forward-looking data leads to a lower quality of monetary policymaking than in a dual mandate monetary policy regime. Finally, nowcasting tends to improve the quality of monetary policy especially in a strict inflation targeting regime.

Ortodoksni valutni odbor i valutni odbori druge generacije - operativni aspekti

In this paper, a survey was conducted in five countries, Bosnia and Herzegovina, Bulgaria, Estonia, Lithuania and Hong Kong, whose monetary systems apply the currency board as a monetary policy regime. The research was conducted in the period from 1995 to 2018. The research is based on the use and analysis of Central Bank laws for each of these countries. The key points analyzed in each law are the legal basis and monetary operations. On the basis of exploratory research and comparative analysis of key points, it was found that significant differences appear in the mentioned monetary systems, which function in the currency board. The differences arise from the legal bases in the operational aspects of the application of monetary operations. Precisely on the basis of these differences, which are the facts defined in certain laws, the conclusion is that today we can rightfully talk about two types of currency boards, ie orthodox currency boards and second generation currency boards.

Central Banks’ Response to Inflation, Output Gap, and Exchange Rate in Nigeria and South Africa

In Africa, a number of countries like South Africa have adopted inflation targeting. In Nigeria, different monetary policy regimes have been adopted over the years with rather unsatisfactory succes...

Inflation Persistence, Monetary Regimes and Credibility: A Long-term Perspective

Inflation persistence or ‘inertia’ has important consequences for monetary policy. Inflation which does not get eliminated today tends to persist entailing higher costs in the future. In turn, a monetary regime can exert significant influence on inflation persistence by its credibility and responses in the face of inflationary shocks. In this study, we use a flexible, time-varying parameter approach to analyze inflation persistence in the United Kingdom and United States during 1880-2016. Our results indicate strong evidence for time-varying inflation persistence in conjunction with shifts in monetary policy regimes. Further, we show that credibility of the monetary regime significantly influences inflation persistence observed under the regime, such that higher (lower) regime credibility leads to lower (higher) inflation persistence. Finally, we argue that institutional framework such as adherence to a rule-based policy, provision of a nominal anchor, policy autonomy etc., and the actions of monetary authorities are vital for understanding the shifts in regime credibility and inflation persistence across time. Overall, our findings indicate that appropriate design and credible conduct of monetary policy is crucial for achieving and sustaining price stability.

How are residential property prices formed in Japan under different monetary policy regimes

How are residential property prices formed in Japan under different monetary policy regimes

Policy responses to shocks and monetary effectiveness under inflation targeting: The Philippine case

This article examines how monetary policy responses to economic shocks and monetary policy effectiveness have changed in the Philippines since inflation targeting was implemented in 2002. The study makes use of a structural vector autoregression to estimate financial and monetary policy shocks, among other shocks, based on an identification strategy similar to Gilchrist and Zakrajsek [2012] and Bassetto et al. [2016]. A Philippine financial conditions index (FCI) purged of monetary influences then decomposed according to instrument or market is used to aid estimation and analysis. Results of the recursive vector autoregressions (VAR) comparing pre-inflation-targeting and inflation-targeting periods reveal stronger and more systematic policy responses to non-financial demand shocks, partial and transitory accommodation of supply shocks, and greater exchange rate flexibility initially under the new monetary policy regime. There is, however, an observed weakening of monetary policy responses to financial disturbances and monetary policy transmission to growth likely related to episodes of strong capital inflows.

Does the high-frequency data is helpful for forecasting Russian inflation?

Due to the fact that at the end of 2014 the Central Bank made the transition to a new monetary policy regime for Russia — the inflation targeting regime, the problem of forecasting inflation rates became more relevant than ever. In the new monetary policy regime, it is important for the Bank of Russia to estimate the future inflation rate as quickly as possible in order to take measures to return inflation to the target level. In addition, for effective monetary policy, the households must trust the actions of monetary authorities and they must be aware of the future dynamics of inflation. Thus, to manage inflationary expectations of economic agents, the Central Bank should actively use the information channel, publish accurate forecasts of consumer price growth. The aim of this work is to build a model for nowcasting, as well as short-term forecasting of the rate of Russian inflation using high-frequency data. Using this type of data in models for forecasting is very promising, since this approach allows to use more information about the dynamics of macroeconomic indicators. The paper shows that using MIDAS model with weekly frequency series (RUB/USD exchange rate, the interbank rate MIACR, oil prices) has more accurate forecast of monthly inflation compared to several basic models, which only use low-frequency data.

ІНВЕСТИЦІЙНА ДІЯЛЬНІСТЬ БАНКІВ УКРАЇНИ: ЗАКОНОДАВЧЕ ЗАБЕЗПЕЧЕННЯ ТА ПЕРСПЕКТИВИ РОЗВИТКУ

The article evaluates the investment activity of Ukrainian banks. The authors define the essence of the concept of the bank investment activity; two approaches to the interpretation of this concept in domestic researches are distinguished. The inexpediency of assigning an investment loan to the bank's investment activity is substantiated; it is proposed to consider it in terms of the formation of the investment portfolio of the bank. The reform of the stock market of Ukraine as a factor in the development ofbank investment activity is considered. The dynamics of the structure of the loan and investment portfolio and the structure of the investment portfolio of Ukrainian banks in 2005–2021 was analyzed.Since 2011, the proportion of investment portfolios in credit investment portfolios has gradually increased and reached 16% by the beginning of 2015. The share of Ukrainian banks' investment portfolio increased dramatically in 2016: at the beginning of 2016 – 21%, at the end of 2016 – it had reached 41%. However, at the beginning of 2021 the share of the investment portfolio increased to 45%, which shows the growing interest of banks in stock market operations and the expansion of investment activities of banks.The current restrictions on investment activities by Ukrainian banks are considered. The main factors restricting the investment activities of domestic banks have been identified, including the underdeveloped stock market. Due to changes in the government's monetary policy and the introduction of the currency liberalization system, the world stock market is open to securities investments by Ukrainian banks.Therefore, on the one hand, the weakening of currency regulation has opened up access to the world stock market for Ukrainian residents, and vice versa-the domestic financial market. For domestic banks, this is an opportunity to develop and implement a new service for their clients, namely the opportunity to buy/sell securities on the global stock market.The analysis of NBU regulation 64 "On approval of Provision on organization of risk management system in banks of Ukraine and bank groups", which is directed on regulation of risks by banks, has been carried out. It is concluded that in order to have a positive impact on the country's economy, the state should stimulate the development of stock markets, including through the participation of banks as major participants in the domestic stock market.

Macroeconomic Model with Monetary and Fiscal Policy and Externality: Nonlinear dynamics, Optimization and Control

Abstract Irregular fluctuations in economy lead to unpredictable effects and disrupt its stable functioning. Various tools could be used to stabilize irregular dynamics in economic models. For example, to introduce control into the model as an external function, as well as to take into account the internal characteristics of economic agents in the economy under consideration, we consider agents that use the variables that are under their control to achieve optimum, by minimizing or maximizing cost, profit, or welfare function. However, optimal behavior in economics does not necessarily lead to simple model dynamics. It is therefore important to find the conditions for and understand the mechanism of emergence of complex dynamics. We study two New Keynesian models, including one with externalitites, in continuous-time under different monetary and fiscal policy regimes, which represent the economy where the economic agents solve constrained optimization problems. We show that in case of explosive equilibrium dynamics, limit cycles or more complicated attracting sets could appear, including chaotic attractors of various nature. In this case it is possible to control irregular dynamics, including by adjusting policy parameters that serve as bifurcation parameters, in order to alleviate the implied economic uncertainty and bring agents’ expectations in line with the intended steady state.

Taxes and Firm Investment

We investigate the firm level investment responses to narrative shocks to average personal and corporate tax rates using a universal micro dataset of publicly traded U.S firms for the post- 1962 period. By allowing for heterogeneous effects over the business cycle and accompanying monetary policy regime, as well as over firm-level characteristics, we show that : (i) corporate tax multipliers are negative overall, but this result is driven by smaller firms who face larger borrowing constraints, especially during high-unemployment periods or when the accompanying monetary policy is contractionary; (ii) while the magnitude and the significance of personal income tax multipliers are smaller on the aggregate, there is some evidence of positive personal tax multipliers in high-unemployment state by large (dividend-paying) firms, which is consistent with the recent literature.

Analiza uticaja promene nominalnog deviznog kursa na stopu inflacije na primeru odabranih zemalja

Inflation rate is one of the essential macroeconomics variables and it represents the main goal of monetary policy. It is determined by a great number of factors, so it is necessary to analyse the impact their changes have on inflation rate. The purpose of this research is the analysis of the nominal exchange rate pass-through effect on inflation rate in selected emerging and developed countries in the period 2014-2020, which share the same characteristics of inflation targeting, as main monetary policy regime, and managed floating exchange rate, as exchange rate type. Inverse proportion between volatility of nominal exchange rate and inflation rate is proven (depreciation of nominal exchange rate of national currency leads towards the growth of inflation rate), as well as higher pass-through effect in emerging countries compared to developed countries.

The Impact of Fiscal and Monetary Policy Changes on Investors' Investment Performance: Empirical Evidence from Investors in the Colombo Stock Exchange in Sri Lanka

The effect of fiscal and monetary policy is transmitted in several ways by investor choice and the performance of investments. This study investigates how individual investors perceive government fiscal and monetary policy decisions and how they respond to such policy changes to make profitable investments. The data were gathered from a diversified group of 364 individual investors in the Colombo Stock Exchange (CSE) by administering a structured questionnaire focusing on their opinions of fiscal and monetary policy changes. Factor analysis was carried out to identify the meaningful fiscal and monetary policy actions that determine individual investment decisions and performance. The results of multiple regression analysis show that the government’s choice of tax instruments has a significant influence on stock returns and all taxes jointly depress investor investment performance. Government expenditure as a fiscal policy variable has a positive impact on investor returns, implying that a continual increase in government expenditure will result in the enhancement of firm profits and returns to investors by allowing stock prices to go up. Thus, market participants might assume that expansionary fiscal policy signals an increase in future returns. Further, a decline in interest rates and an increase in money circulation under monetary policy impacts positively on investors’ investment performance. As expected, an increase in money circulation in the economy will persuade investors to invest more in stocks as extra funds are available. These results have important implications for both investors and stock market analysts in their effort to understand the impact of fiscal and monetary policies on the stock return expectations of individual investors, but they should consider both fiscal and monetary policy decisions and their interactions together rather than in isolation.

The Role of Cash-Waqf Capital Ventures to Supply Shock Liquidity of Sharia Banks in East Java: Multivariate Threshold Autoregressive Simulation Model

Adequacy of liquidity is very important for Islamic banks to carry out their main functions as Islamic financial intermediaries and provide financing for the real sector. However, many Islamic banks are proven to have a shock in providing liquidity due to the weak capital structure of the bank. While cash-waqf funds can be a potential source of capital for sharia banks if managed as capital investments in sharia banks with a mudharabah or musyrakah contract. Therefore, using the autoregressive multivariate threshold simulation model approach, this study attempts to analyze the dynamic interaction between the monetary policy regime, cash-capital capital ventures, Islamic bank liquidity and inflation in East Java. The participation of waqf funds on Islamic bank capital is simulated at 1%, 5% and 10% with two regimens of threshold models, namely a tightening monetary policy regime and a monetary policy easing regime. The data in this study were obtained from Statistik Perbankan Syariah (SFS) published by the OJK and BI with the observation period of 2014.M1 - 2018.M6. The results show that the inclusion of waqf funds in Islamic bank capital is able to reduce the length of the period and the sharia bank liquidity shock both in high interest rate policy regime and low interest rate regime.

DOES INFLATION TARGETING WORK IN EMERGING COUNTRIES? AN EXAMPLE OF GEORGIA

Monetary policy is the macroeconomic policy that allows central banks to influence the economy. It involves managing the money supply and interest rates to address macroeconomic challenges such as inflation, consumption, growth and liquidity. Historically, for a long time, the task of monetary policy was limited to controlling the exchange rate, which in turn was fixed (at the beginning of the 20th century on the gold standard) for the purposes of promoting international trade. Eventually such a policy contributed to the Great Depression of the 1930s. After the depression, governments prioritized employment. The central banks have changed their direction based on the relationship between unemployment and inflation, known as the Phillips curve. They believed in the link between unemployment and inflation stability, which is why they decided to use monetary policy (putting money into the economy) to increase total demand and maintain low unemployment. However, this was a misguided decision that led to stagflation in the 1970s and the addition of an oil embargo in 1973. Inflation rose from 5.5% to 12.2% in 1970-1979 and peaked in 1979 at 13.3%. Over the past few decades, central banks have developed a new management technique called «inflation targeting» to control the growth of the overall price index. As part of this practice, central banks are publicizing targeted inflation rate and then, through monetary policy instruments, mainly by changing monetary policy interest rates, trying to bring factual inflation closer to the target. Given that the interest rate and the inflation rate are moving in opposite directions, the measures that the central bank should take by increasing or decreasing the interest rate are becoming more obvious and transparent. One of the biggest advantages of the inflation targeting regime is its transparency and ease of communication with the public, as the pre-determined targets allows the National Bank›s main goal to be precisely defined and form expectations on of monetary policy decisions. Since 2009, the monetary policy of the National Bank of Georgia has been inflation targeting. The inflation target is determined by the National Bank of Georgia and further approved by the Parliament. Since, 2018- 3% is medium term inflation target of National Bank of Georgia. The inflation targeting regime also has its challenges, the bigger these challenges are in developing countries. There are studies that prove that in some emerging countries, the inflation targeting regime does not work and other monetary policy regimes are more efficient. It should be noted that there are several studies on monetary policy and transmission mechanisms in Georgia. Researches made so far around the topic are based on early period data. Monetary policy in the current form with inflation targeting regime started in 2009 and in 2010 monetary policy instruments (refinancing loans, instruments) were introduced accordingly, there are no studies which cover in full the monetary policy rate, monetary policy instruments and their practical usage, path through effect on inflation and economy. It was important to analyze the current monetary policy, its effectiveness, to determine the impact of transmission mechanisms on the small open economy and business development. The study, conducted on 8 variables using VAR model, identified both significant and weak correlations of the variables outside and within the politics like GDP, inflation, refinancing rate, M3, exchange rate USD/GEL, exchange rate USD/TR and dummy factor, allowing to conclude, that through monetary policy channels and through the tools of the National Bank of Georgia, it is possible to have both direct and indirect (through inflation control) effects on both, economic development and price stability

Kebijakan Pemerintah Mempertahankan BI 7-Day Reverse Repo Rate Sebesar 4,50%

The Covid-19 pandemic not only hit the health sector but also rocked a country's economy. Nevertheless, the government has continued to set a series of policies to shore up the economy, including making more fiscal spending, providing tax relief, cutting borrowing rates and bank reserve requirements to revive an economy ravaged by the outbreak and to support jobs. This article aims to discuss the government's monetary policy in the face of economic shocks during the Covid-19 pandemic. Especially specific in Bank Indonesia's decision to keep interest rates on hold, which was announced at the BI Board of Governors Meeting, held on August 18-19, 2020. After analysis and discussion, it was found that this decision was made to maintain external stability amid low inflation and consider the global economy which showed signs of improvement after experiencing severe pressures in the second quarter 2020.

Optimal monetary policy regime switches

An economy that switches between high and low growth regimes creates incentives for the monetary authority to change the parameters in its simple rule. As lower growth tends to produce lower real interest rates, the monetary authority has an incentive to increase the inflation target and increase the degree of inertia in setting rates in an attempt to keep the nominal rate away from the zero lower bound. An optimal simple rule therefore responds to permanently lower growth by slightly increasing both the inflation target and inertia; focusing solely on the inflation target ignores a key margin of adjustment. With repeated growth rate regime switches, an optimal simple rule that switches at the same time internalizes both the direct effects of growth regime change and the indirect expectation effects generated by switching in policy. The switching rule improves economic outcomes relative to a constant rule. A constant rule may be preferred if the monetary authority attempts a switching rule but implements the wrong rule with high enough frequency.

Monetary Policy and Financial Stability

<ns3:p>The 2008 Global Financial Crisis called into question the narrow focus on price stability of inflation targeting regimes. This paper studies the relationship between price stability and financial stability by analyzing alternative monetary policy regimes for an economy that experiences endogenous financial crises due to excessive household sector leverage. We reach four conclusions. First, a central bank can improve both price stability and financial stability by adopting an aggressive inflation targeting regime, in the absence of the zero lower bound (ZLB) constraint on nominal interest rates. Second, in the presence of the ZLB constraint, an aggressive inflation targeting regime may undermine both price stability and financial stability. Third, an aggressive price-level targeting regime can improve both price stability and financial stability, regardless of the presence of the ZLB constraint. Finally, a leaning against the wind policy can be detrimental to both price stability and financial stability when the credit cycle is driven by countercyclical household sector leverage. In this environment, leaning with credit spreads can be more effective.</ns3:p>

Medium‐Term Money Neutrality and the Effective Lower Bound

AbstractConventional wisdom suggests that medium‐term money neutrality imposes strong limitations on the effects of monetary policy. The point of this paper is that models with medium‐ and long‐term money neutrality are prone to generate nonexistence of equilibria at the effective lower bound (ELB) on interest rates. Nonexistence is suggestive of sharp output contractions—so‐called contractionary black holes—at the ELB. Paradoxically, the case for expansionary monetary policy at the ELB is even stronger in models that feature near money neutrality. The results highlight the benefits of a monetary policy regime in which the central bank temporarily overshoots its inflation target once confronted by the ELB.

Inflation targeting: From “constrained discretion” to singularity

In recent years, inflation targeting has become a staple of international monetary policy. The paper considers different challenges this monetary policy regime faces with regard to suppressed inflation, attaining the zero lower bound on the policy interest rates, and committing central banks to simultaneously pursue additional objectives such as financial stability. Inflation targeting has proved inefficient in raising inflation to the target zone from below, and unorthodox monetary policy tools have not proved their validity in this regard yet. As a result, monetary authorities are more inclined to discretion allowing them to compromise different aspects of “pure” inflation targeting. The value of this discretion is based on asymmetric information and boosted by additional functions assumed by central banks. However, it might bring about serious problems of dynamic inconsistency, compounded political uncertainty, and bureaucratic misconduct. Since none of the alternatives to inflation targeting currently looks fully satisfactory, it is concluded that the inflation targeting regime should be transformed to take into account the current situation, but a necessary precondition for the effectiveness of the new regime is enhanced accountability of central banks.