Policy Transmission Channels Research Articles

Growth, governance, and fiscal policy transmission channels in low-income countries

Private investment is the principal transmission channel through which fiscal policy affects growth in high-income countries. In low-income countries, governance and also other considerations suggest that the primary channel is factor productivity. Empirical results reported in this paper confirm this expectation: in low-income countries factor productivity is some four times more effective than investment as a channel for increasing growth through fiscal policy. Although the private investment response to fiscal contraction may be minor, high-deficit low-income countries can nonetheless benefit by reducing unsustainable fiscal deficits because of governance-related factor productivity responses that increase growth.

La juste valeur : quels enjeux en termes de politique monétaire et de stabilité financière ?

"Fair value accounting : its implications for monetary policy and financial stability" The current debate on the macroeconomic implications of the fair value accounting method emphasises the financial senior as an essential player in the allocation of financial resources. This article discusses the impact of this accounting method on monetary policy and financial stability, with a special emphasis on the non-financial sector. It covers four points : the effect of the fair value accounting method on monetary policy transmission channels, as well as on the quality of credit risk analysis, management prudence, and the effectiveness of corporate governance. JEL classifications : E4, E44, G14, G3, M4

Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries

Private investment is the principal transmission channel through which fiscal policy affects growth in high-income countries. In low-income countries, governance and also other considerations suggest that the primary channel is factor productivity. Empirical results reported in this paper confirm this expectation: in low-income countries, factor productivity is some four times more effective than investment as a channel for increasing growth through fiscal policy. Although the private investment response to fiscal contraction may be minor, high-deficit, low-income countries can nonetheless benefit from a reduction in unsustainable fiscal deficits because of governance-related factor productivity responses that increase growth.

Fair value accounting : what are implications for monetary and financial stability?

The current debate on the macroeconomic implications of the fair value accounting method emphasises the financial sector as an essential player in the allocation of financial resources. This article discusses the impact of this accounting method on monetary policy and financial stability, with a special emphasis on the non-financial sector. It covers four points : the effect of the fair value accounting method on monetary policy transmission channels, as well as on the quality of credit risk analysis, management prudence, and the effectiveness of corporate governance, JEL classifications : E4, E44, G14, G3, M4

Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries

Private investment is the principal transmission channel through which fiscal policy affects growth in high-income countries. In low-income countries, governance and also other considerations suggest that the primary channel is factor productivity. Empirical results reported in this paper confirm this expectation: in low-income countries, factor productivity is some four times more effective than investment as a channel for increasing growth through fiscal policy. Although the private investment response to fiscal contraction may be minor, high-deficit, low-income countries can nonetheless benefit from a reduction in unsustainable fiscal deficits because of governance-related factor productivity responses that increase growth.

Monetary Policy Transmission, Interest Rate Rules and Inflation Targeting in Three Transition Countries

In 1991, the rate of inflation in the Czech Republic, Hungary and Poland was between 35% and 70%. At the end of 2001, it is below 8%. We setup a small structural macro model of these economies to explain the process of disinflation. Contrary to a widespread skepticism, which permeated a large part of previous research on these issues, we show that a simple open macroeconomic model, along the lines of Svensson (2000, Journal of International Economics), with forward-looking inflation and exchange rate expectations, can adequately characterize the relationship between the output gap, inflation, the real interest rate and the exchange rate during the course of transition. We use the estimated models to interpret the main features of monetary policy in each country and identify the channels of policy transmission. We characterize the policy rules and assess the relative importance of the interest rate channel (on aggregate demand) and the exchange rate channel (which affects both aggregate demand and supply) in determining the path of (dis)inflation. In the same context, we also tentatively analyze the consequences of attempting a faster path of disinflation. Finally, we evaluate the appropriateness of the inflation targeting framework which has been adopted recently in all three countries, and discuss to what extent it represents a discontinuity with the past.

A Measure of Monetary Conditions

This paper explains why the overall stance of monetary policy is effected by both interest rates and the exchange rate, and hence why a Monetary Conditions Indicator can provide useful information about the stance of policy. Three output gap equations estimated in this paper reveal that the real interest rate and the real exchange rate both affect excess demand but that the real interest rate is the more powerful and faster acting policy transmission channel.

Channels of international policy transmission

Four channels of international budgetary and monetary policy transmission are analysed within the context of nominal wage sluggishness. The first is based on capital gains on holdings of foreign assets. Spill-over effects arising through the second and third channels depend on whether home and foreign goods are gross substitutes or gross complements and on whether the elasticity of intertemporal substitution is less or greater than one. The final channel assumes finite lifetimes and no bequest motive. It departs from debt neutrality in order to give a non-trivial role to wealth effects and current-account dynamics.

MONETARY POLICY AND LIQUIDITY: SIMULATION RESULTS

Recent work finds that the balance-sheet position of households plays an important role in the demand for consumer durables, thus leading to new channels of monetary policy effects on aggregate demand. In this paper, these monetary policy transmission channels are explored with dynamic simulation experiments using a previously estimated consumer durables model and a large scale macro-econometric model. The experiments indicate that these channels are indeed critical to the operation of the macroeconomic system and to the potency of monetary policy.