Monetary Policy Stability Research Articles

DETERMINANTS OF INFLATION IN TURKEY AMID ECONOMIC AND GEOPOLITICAL TURMOIL

This study aims to investigate the factors influencing inflation in Turkey between 2006:1-2023:11, taking into account the structural changes that occurred during periods of significant economic, political and geopolitical turmoils. For this purpose, we employ the Hacker and Hatemi-J (2006) bootstrap causality test along with the Fourier Toda-Yamamoto bootstrap causality to capture structural changes. Our findings indicate that when structural changes are taken into account, the drivers of inflation are monetary factors such as the money supply and exchange rate. Furthermore, an exogenous factor such as the oil prices is not a determinant of inflation, suggesting that inflation is a domestic factor. Given these findings, the study emphasizes the importance of strong and stable monetary policies in Turkey to control inflation and achieve price stability.

Reconsideration of modern monetary theory-type fiscal and monetary stabilization policy from a viewpoint of the dynamic Keynesian model

Reconsideration of modern monetary theory-type fiscal and monetary stabilization policy from a viewpoint of the dynamic Keynesian model

Monetary Policy and Bank Risk-taking

As the process of global financial integration deepens, the relationship between bank risk-taking and monetary policy has become increasingly close. In recent years, financial markets have been highly volatile and banking risks have become increasingly prominent. Against this background, the relationship between monetary policy and bank risk-taking in China is studied through both theoretical and empirical evidence, and corresponding policy recommendations are put forward. In addition, the role mechanism of monetary policy affecting bank risk is deeply explored through the theoretical aspect of monetary policy and bank risk capacity bearing, and the theoretical basis for the formulation of related policies is provided. Therefore, it explores the impact of bank risk on the transmission mechanism of monetary policy from the theory, and further improves the theory of monetary policy transmission to enhance the effectiveness and stability of monetary policy. The article analyzes and discusses the impact of monetary policy on bank risk-taking capacity, to provide a reference for the development of the financial industry.

The Specific Impact of Monetary Policy on Macroeconomic Fluctuations

The stability of monetary policy is crucial for overall economic stability, as both excessive tightening and excessive easing may lead to increased economic fluctuations and financial risks. This paper incorporates zero-interest-rate constraints and monetary policy shocks into a general equilibrium model to discuss the specific impact of monetary policy on macroeconomic fluctuations. The study reveals that when the economy reaches the zero lower bound of interest rates, the overall instability and vulnerability of the macroeconomy significantly increase. Even minor shocks can then result in severe fluctuations. In such circumstances, corresponding monetary policies can be employed to maintain the stability of the financial system. Additionally, effective coordination between monetary policy and macroprudential policy should be emphasized to minimize the losses from adverse shocks.

Discussion on the Relationship Between Chinese Government’s Investment in Health Human Capital and Economic Growth

AbstractIn the past decade, the Chinese government has been facing a series of economic difficulties. The policies introduced by the Chinese government not only aim to maintain economic growth but also to achieve stable monetary and fiscal policies. In addition, the three-year pandemic has put greater financial pressure on the Chinese government. However, these efforts are all worthwhile; the Chinese government has not only ensured the health and interests of the Chinese people but also ensured stable economic growth in the region. We aim to study the relationship between Chinese government investment in health human capital and economic growth, using threshold effect models and instrumental variable methods to conduct empirical research on 26 provinces in Mainland China. The results show that, firstly, increasing government investment in health human capital can promote regional economic growth and exhibit a decreasing trend; secondly, there are differences in the influencing factors of government health investment on economic growth among different regions. From this, it can be seen that the government should formulate more scientific and reasonable government investment in health human capital policies based on factors, such as aging degree, residents’ health level, economic structure, and population size in different regions, to alleviate the pressure on government investment in health human capital and promote regional economic growth.

Comparative Analysis of the Monetary Policy Practices: A Case Study of China and the United States

Currency policy plays a crucial role in macroeconomic management and is of significant importance for the economic stability and development of countries and regions. Understanding and evaluating the choices and consequences of different countries' currency policy practices are essential. This paper aims to compare and analyze the currency policy practices of China and the United States, two important economic entities, and explore their core elements, policy objectives, and impact on economic stability and growth. China, as the world's second-largest economy, has implemented a series of unique monetary policy measures to address domestic and external challenges. The United States, as the largest economy in the world, has a long-standing tradition of stable monetary policy and faces challenges and responsibilities consistent with its economic status.

A Mathematical Analysis of a MMT Type Coordinated Fiscal and Monetary Stabilization Policy in a Dynamic Keynesian Model

We study the dynamic properties of the coordinated fiscal and monetary stabilization policy in a modern monetary theory (MMT) type macrodynamic model in detail using advanced mathematical techniques and numerical simulations. The dynamic stability, instability of equilibrium points, and questions of qualitative changes at bifurcation points are investigated both mathematically and numerically. Finally, the economic implications of the analysis of this MMT type dynamic model are discussed in contrast to the more orthodox type of Keynesian stabilization policy mix model.

Housing and the changing impact of monetary policy

Housing is the leading indicator of the business cycle. The impact of monetary policy on housing has thus unsurprisingly been the subject of numerous studies. Some have also investigated whether the impact of monetary policy has changed since the mid-1980s. These papers to date have relied on vector-autoregressions (VARs). To avoid some of the specification issues of VARs, we employ the local projection method. We find a clear effect of monetary shocks on housing variables over the entire sample. However, we also find that over the great moderation of 1983–2008, there is no significant impact of policy shocks on either home prices or investment. Moreover, as the difference between the estimated impact of monetary policy on GDP before and during the great moderation was not as large as the same difference for residential investment, we infer that changes to housing finance, rather than simply more stable monetary policy, deserve some credit for the lesser impact of Fed shocks. Finally, we find that during the zero lower bound years spanning 2009–2020, unconventional monetary policy (UMP) appears to have had a palpable impact on the housing sector. This result is consistent with previous findings on the effectiveness of UMP.

The Impacts of Employment-to-Population, Interest Rate Spread and Inflation on Malaysian Economic Growth: Evidence from 1991 to 2019

The International Monetary Fund (IMF), in its latest Global Financial Stability Report issued in October 2022, foresees that the world economy is going to be in deep recession in 2023. The main issues highlighted in the report that contribute to the global recession are the multi-decades higher-than-anticipated inflation and the hike in the interest rates. The report further highlights that the large-sized firms are facing a declining profitability due to skyrocketing cost and the increasing number of bankruptcy cases among the small and medium-sized firms because of rising borrowing cost. In the wake of this, the firms need to close down the businesses or to scale down by cutting down the number of employees. This, consequently, will affect the employment rate relative to increasing number of world population. Therefore, based on these current issues, we aim to examine the relationship and the impacts of the macroeconomic determinants on the economic growth focusing on Malaysia. Four macroeconomic determinants were selected namely employment-to-total population ratio (EPR), MYR-to-USD exchange rate (EXC), lending-borrowing interest rate spread (IRS) and consumer price index (CPI). Gross domestic product growth rate (GDPGR) was used as a proxy for the economic growth. Annual secondary data from 1991 to 2019 were gathered from the World Bank Open Data and the Department of Statistics Malaysia (DOSM) Official Portal. We based our analyses on the descriptive statistics to look at the mean, maximum-minimum and standard deviation of the data of respective variables, then we use the Pearson’s correlation test to show the negative or positive correlation between the dependent variable (DV) and independent variables (IVs) and finally we employ the multiple regressions test to reveal the significant or insignificant relationships together with the positive or negative impacts of each IV on the DV. The main findings from the correlation test indicate EPR, EXC and IRS have negative correlations, where EXC has moderate correlation whilst the other two have very weak correlations with GDPGR. Meanwhile, CPI shows positive but very weak correlation with GDPGR. Meanwhile, the regressions test reveals EPR and IRS positively influence GDPGR whilst EXC and CPI have negative impacts on the Malaysian economic growth. However, only EXC is found to be significant out of the four determinants. The results imply the higher employment creates larger productivity to the economy and the more stable monetary policy (IRS) the better contribution to economic growth. On contrary, depreciation of MYR against USD and fluctuation in price level of goods and services lead to economic instability. The findings have significant implications for policy makers, businesses and investors in their decision making. For future research, we suggest to test on other economic variables such as industrial production index, foreign direct investment and money supply together with non-economic variables such as human development index, corruption perception index and global peace index of the country. We also suggest future studies to apply other methodologies for robustness. Comparison with other countries will also make the findings more meaningful.

Analysis of Systemic Risk Scenarios and Stabilization Effect of Monetary Policy under the COVID-19 Shock and Pharmaceutical Economic Recession

The Global Financial Crisis (GFC) will cause turbulence in the pharmaceutical market and the stagnation of market liquidity, leading to a deep recession in the pharmaceutical economy. After the COVID-19 outbreak, the pharmaceutical economic recession and the rising pharmaceutical financial crisis caused by the closure and control of the COVID-19 outbreak in China were important reasons for the accumulation of systemic financial risks in China. To realize the pharmaceutical economy and financial stability, this paper studies the weakening mechanism of the stabilization effect in systemic risk scenarios and analyzes how the evolution of systemic risk under the COVID-19 shock affects the stabilization effect of monetary policy. Under the COVID-19 shock, in the stage of falling China Financial Stress Index (CFSI), the systemic risk is relatively low, and the impact of traditional policy on macroeconomic stability is more significant; in the rising stage of CFSI, the systemic risk is relatively high, and the impact of traditional policy on macroeconomic stability is limited. This paper develops a Time-Varying Modified CRITIC weighting method and constructs a Time-Varying CFSI. This paper identifies systemic risk scenarios under the COVID-19 shock based on the Markov-Switching Mean Heteroskedastic Vector Auto-Regressive (MSMH-VAR) model and evaluates the stabilizing effects of monetary policy in different economic and financial regional systems (normal times and systemic risk scenarios). The results show that in normal times, loose monetary policy increases price levels, and tight monetary policy reduces price levels with a time lag. In systemic risk scenarios under the COVID-19 shock, the easing effect of policy on output growth is relatively small, and tighter policy increases output growth and prices in the short run and increases volatility in output growth and price levels in the long run. That is, under the COVID-19 shock in systemic risk scenarios, it is difficult to achieve stable growth and stable prices with monetary policy, and the stabilization effect is weakened. This paper focuses on the relationship between systemic risks, monetary policy, and output stability under the COVID-19 shock, analyzes the weakening of stabilization effects after the crisis, and expands the theoretical path of monetary policy stabilization and enriches the research scope of the new framework.

COVID-19 Pandemic Impact on Copper Futures Prices

The COVID-19 pandemic has halted the global economy, causing significant changes in the economic policies of various countries, which have had a significant impact on the relationship between supply and demand for various commodities. Under these circumstances, commodity prices have fluctuated significantly. This paper concentrates on the influence of the COVID-19 pandemic on copper prices to forecast the long-term movement of copper futures prices and provide investment conditions for transacting copper futures contracts. Comparing the timing of different monetary policy announcements in the United States with the trend of copper futures prices reveals a negative correlation between the copper futures prices and the Fed's rate. Moreover, copper storage is susceptible to logistical disruptions, and copper's financial properties have outweighed its industrial properties during monetary policy changes, resulting in a volatile downward trend in copper futures prices in the short term. Copper's industrial properties will be the primary contributor to stable monetary policy and economic expansion, resulting in a gradual upward trend in copper futures prices. In conclusion, hedging investors can profit from long copper futures when quantitative easing is announced, as future copper prices are anticipated to rise. Conversely, speculating investors can profit from long copper futures immediately after the contractionary monetary policy has been announced, as copper futures prices at that time are predicted to be at a trough and rebound shortly.

Characteristic Evolution of Inter-Industry Liquidity Spillover Effect in China's Stock Market -- An Analysis based on Complex Network

In recent years, the liquidity risk of China's stock market occurs frequently and spreads among different industries. The study of liquidity spillover is of great significance to prevent systematic financial risk. Based on the industry transaction data of China's stock market from 2011 to 2021, this paper calculates the market liquidity of different industry indexes, constructs Granger causality network in stages, and discusses the heterogeneity of the spillover effect of liquidity at the industry level in different economic stages. It is found that there is a significant liquidity spillover effect among industries; Compared with the stage of high leverage and loose monetary policy, under the background of stable macro leverage ratio and stable monetary policy, the liquidity spillover effect among industries will be weakened; The impact of liquidity has gradually changed from the spillover impact of traditional industries to the spillover impact of emerging industries.

FEATURES OF PUBLIC DEBT REGULATION IN GEORGIA: CURRENT CIRCUMSTANCES AND MODERN CHALLENGES

The article addresses the issues of ensuring the exchange rate stability of GEL - the national currency of our country and effective management and regulation of public debt as well as attaches weight to the mechanisms for overcoming the challenges of economic development in the country and to the selection and use of flexible tools. The article highlights the efforts of the leaders of the government and the National Bank of the country in developing and implementing the optimal macroeconomic policies, as well as in maintaining monetary policy stability and achieving sustainable economic development. Furthermore, considerable attention is given to the GEL exchange rate not only against to major currencies - the USD or the euro - but also to the currencies of the other partner countries of Georgia. The article analyzes the dynamics of changes in the GEL exchange rate against the currencies of partner countries, based on the statistical data of the National Bank of Georgia. Factors influencing both effective nominal and real exchange rates as well as government domestic and external debt are also assessed at different time intervals. Thus, the purpose of this article is to identify the issues related to the management and regulation of public debt based on the analysis of the dynamics and structure of public debt of Georgia, as well as to study the factors that have a positive and negative effect on them. This article aims to identify the issues related to the management and regulation of public debt obligations, on the basis of public debt sustainability analysis. The article, on the basis of statistical data, analyzes the dynamics and structure of public debt in 2010-2020. The problematic issues in the financial and monetary system are also identified and their determinants are investigated. Recommendations have been developed to reduce the debt burden and overcome the negative consequences caused by them. Based on the analysis of the economic situation in Georgia and the dynamics of the exchange rate, the recommendations for stabilizing the exchange rate of the financial sector, effective management of public debt and achieving sustainable economic growth have been developed in this article. Subject and object of research. The subject of the article's research is to identify problems related to the fluctuation of the Georgian national currency exchange rate and public debt regulation. While the object of the article is monetary policy that have been developed and implemented by the National Bank of Georgia and the Ministry of Finance of Georgia. Research methods. Relevant scientific literature as well as statistical data from the National Bank of Georgia, the Ministry of Finance and the National Statistics Office of Georgia were found at the initial stage of the research. In addition, the studies and articles by Georgian and foreign scholars on public debt issues and the materials of the International Monetary Fund were used. The scientific value of the article. The article analyzes the dynamics and structure of the GEL exchange rate and public debt in 2010-2020 based on the statistical data of Geostat and the Ministry of Finance of Georgia. Problematic issues in the field of finance and monetary-credit have been identified and their causes have been investigated. The recommendations have been developed to alleviate the debt burden of Georgia and overcome the negative consequences caused by them. Based on the analysis of the economic situation in Georgia and the dynamics of the GEL exchange rate, the article develops recommendations for improving the financial sector, stabilizing the exchange rate and ensuring effective public debt management and sustainable economic growth. It should also be noted that, the article addresses and assesses the approaches of the leaders of Government of Georgia and the National Bank to ensuring the formation and improvement of a stable macroeconomic environment. The role of monetary policy in ensuring the sustainable development of the economy is revealed. In addition, the mistakes in exchange rate regulation and public debt management are also identified and assessed. The article substantiates the crucial role of ensuring the stability of the GEL exchange rate in achieving economic growth. Besides, reviewing the GEL exchange rate is important not only against the USD, but also against the currencies of other trading partner countries. Accordingly, the paper, based on the statistical data, also analyzes the dynamics of changes in the GEL exchange rate against the currencies of partner countries. The article also analyzes the key factors affecting both effective nominal and real exchange rates, as well as domestic and external debt at different time intervals.

Effective Demand Failures and the Limits of Monetary Stabilization Policy

The challenge for stabilization policy presented by the COVID-19 pandemic stems above all from disruption of the circular flow of payments, resulting in a failure of what Keynes (1936) calls “effective demand.” As a consequence, economic activity in many sectors can be inefficiently low, and interest-rate policy cannot eliminate the distortions—not because of a limit on the extent to which interest rates can be reduced, but because interest-rate reductions fail to stimulate demand of the right sorts. Fiscal transfers are instead well suited to addressing the fundamental problem, and can under certain circumstances achieve a first-best allocation of resources. (JEL E23, E32, E43, E52, E62, E63, H63)

Impact of Monetary Policy on Inflation and Investment in Pakistan: A Time Series Analysis

Purpose: This study aims to explore the impact of monetary policy on inflation and investment in Pakistan.
 Methodology: Our study employs the Autoregressive distributed lag model (ARDL) over the time of 1972 to 2019.
 Findings: The empirical findings show that in the long-run impact of money supply has significant and positive on investment and other variables trade, foreign direct investment, gross domestic saving, services are also positively associated with the investment. While other variables interest rate and exchange rate negatively linked with investment. Empirical findings of the second econometric model show the core variable money supply has a significant and positive on inflation including other variables foreign direct investment, exchange rate, exports and government expenditures on education but other variables interest rate, gross domestic saving and agriculture output negatively linked with inflation.
 Implications: The study indicates that a stable monetary policy should be introduced to improve a country's economic development. Monetary policy should be used to build an agreeable environment of uncertainty that draws both domestic and outside investors to promote economic growth. Economic growth can be accomplished by encouraging efficient monetary policy steps for inflation stability and attractive interest rates.

Fiscal and monetary stabilization policy at the zero lower bound: Consequences of limited foresight

This paper reconsiders the degree to which macroeconomic stabilization is possible when the zero lower bound is a relevant constraint on the effectiveness of conventional monetary policy, under an assumption of bounded rationality. In particular, we reconsider the potential role of countercyclical fiscal transfers as a tool of stabilization policy. Because Ricardian Equivalence no longer holds when planning horizons are finite (even when relatively long), we find that fiscal transfers can be a powerful tool to reduce the contractionary impact of an increased financial wedge during a crisis, and can even make possible complete stabilization of both aggregate output and inflation under certain circumstances, despite the binding lower bound on interest rates. However, the power of such policies depends on the degree of monetary policy accommodation. We also show that a higher level of welfare is generally possible if both monetary and fiscal authorities commit themselves to history-dependent policies in the period after the financial disturbance that causes the lower bound to bind has dissipated.

Comments on “Fiscal and monetary stabilization policy at the zero lower bound: Consequences of limited foresight” by Woodford and Xie

Comments on “Fiscal and monetary stabilization policy at the zero lower bound: Consequences of limited foresight” by Woodford and Xie

Housing and the Changing Impact of Monetary Policy

Housing is the leading indicator of the business cycle. The impact of monetary policy on housing has thus unsurprisingly been the subject of numerous studies. Some have also investigated whether the impact of monetary policy has changed since the mid-1980s. These papers to date have relied on vector-autoregressions (VARs). To avoid some of the specification issues of VARs, we employ the local projection method. We find a clear effect of monetary shocks on housing variables over the entire sample. However, we also find that since 1983, there is no significant impact of policy shocks on either home prices or investment. Moreover, as the difference between the estimated impact of monetary policy on GDP before and after 1983 was not as large as the same difference for housing variables, we infer that changes to housing finance, rather than simply more stable monetary policy, deserve some credit for the lesser impact of Fed shocks.

Coordinated Fiscal and Monetary Stabilization Policy in the Manner of MMT: A Study by Means of Dynamic Keynesian Model

Coordinated Fiscal and Monetary Stabilization Policy in the Manner of MMT: A Study by Means of Dynamic Keynesian Model

What’s in the R- Stars for Korea?

Korea’s stars tell of an economy saddled with a real neutral rate (r-star) that has declined significantly in recent decades and is currently below zero. This reflects a significant decline in trend growth, and two large financial crises that triggered significant shifts in the saving-investment balance. Larger fiscal deficits and frothy financial conditions since 2012 have helped offset rising demand for safer assets, preventing the neutral rate from falling further. Nonetheless, the fall in the neutral rate, coupled with its effects on asset returns, has complicated the task of monetary policy stabilization. Korea’s neutral rate is likely to remain low over the medium-term and could fall further, reflecting a structural savings-investment imbalance owing to declining productivity and a rotation in demographics increasing the demand for precautionary saving and convenience yield, and widening the capital risk premia. The COVID pandemic risks magnifying these trends.