Single Monetary Policy Research Articles

Financial inclusion and monetary policy targets: Evidence from the ECOWAS countries

The study examines the impact of financial inclusion on monetary policy targets in the Economic Community of West African States for the period between 2004 and 2020. To capture how a shock to financial inclusion affects monetary policy targets in the ECOWAS sub-region, the study employs panel vector autoregression via the Generalized Method of Moments framework and uses the impulse response functions. The results show that in all ECOWAS countries, financial inclusion leads to an appreciation of the local currency, thereby improving the value of the exchange rate. However, it reduces the effectiveness of monetary policy. In particular, financial inclusion increases consumer prices and interest rates. Based on the findings, the study recommends, among others, the need for a single monetary policy in the ECOWAS sub-region to properly integrate its monetary policy framework in line with the economic and monetary integration policy of the West African Monetary Zone.

Inflation synchronisation strengthening in Europe in post-quantitative easing and post-pandemic high inflation times: consequences for single monetary policy management

This paper aims to find out whether the inflation rates of individual European Union (EU) countries are synchronised with those of the EU as a whole and with the euro area (EA). Another objective is to examine the mutual inflation interconnections and its synchronisation across countries. We use the Minimum Spanning Tree (MST) and cross-correlations (C-C). Based on structural break tests, the period is divided into four periods: January 2001 - December 2008, January 2009 - March 2015, April 2015 - July 2021, August 2021 - April 2023. The results showed that the direction of the inflation transmission is not the same across the periods under study. Before the financial and economic crisis, Estonian inflation influenced Lithuanian inflation, which in turn influenced the Latvian one; while after the crisis (but just before the application of the ECB's quantitative easing) Latvian inflation is already influenced by Bulgarian inflation. Once quantitative easing had already been applied but in times before the ‘high inflation’ period, the inflation in Lithuania has no impact on the Latvian one. During the ‘high inflation’ period, results conclude the impact of Latvian inflation on the Estonian one. We also point out that inflation rates in some states are not always aligned with average inflation in the EU, the EA. Although, MST results showed that inflation is transmitted mainly from the EA average or the EA countries, having a more central position (e.g. Slovakia has generally a more central position than the Czech Republic, Hungary, or Poland). Therefore, countries having common monetary policy are more resistant to external inflation shocks and rather influence the inflation of other countries. Finally, even if inflation rates are synchronised, inflation may be outpaced or lagged by one to several months, which may present policymakers with the question of the appropriate monetary policy stance.

The Coordination Between Macro-Prudential Supervision and Monetary Policy — From the Perspective of Financial Stability

The onset of the 2008 economic crisis forced central banks to acknowledge that the monetary policy and micro prudential policy-based financial regulatory framework is insufficient to avert systemic risks. Compared with the low efficiency of micro prudential supervision in preventing and controlling financial systemic risks and the weakness of a single monetary policy tool in controlling financial systemic risks, the current theorists agree that monetary policy and macro prudential supervision policies are effective in coordinating and resisting financial risks. The link with both macro prudential regulation and monetary policy, as well as how to collaborate and coordinate the two policies, are thus major issues that we must address. Based on this background, this paper systematically combs and analyzes the necessity of coordination between monetary policy and macro prudential policy and the practical experience of relevant research on coordination mode through theoretical research on macro prudential regulation and reference of relevant policies at home and abroad. This paper uses the literature research method and comparative analysis method to analyze the macro prudential policy and monetary policy in depth. The theoretical basis of macro prudential regulation and monetary policy is formed by classifying, summarizing and sorting out the relevant researches on macro prudential regulation and monetary policy made by scholars from various countries. The implementation of macro prudential policies in developed economies like the United States and the United Kingdom, as well as their monetary policy coordination models, are compared and introduced in this dissertation. It also examines the traits and practical application of macro prudential and monetary policy cooperation in various nations. Based on the systematic risk theory, micro prudential supervision, macro prudential supervision theory and monetary policy, combined with the current situation of financial regulatory structures in various countries, using the literature research method and comparative analysis, this paper mainly draws the following conclusions: The financial system can only continue to run smoothly under a combined application of macro and micro prudential regulation; Systemic hazards can be efficiently prevented and mitigated by macro prudential oversight methods; Traditional monetary policy is unable to preserve both financial system stability and monetary stability; According to international experience, the central bank’s coordination of monetary policy and macro prudential policy can better play the complementary effects of the two programs.

Canada's Economic Situation and Policy Analysis in the Current Inflation

Since 2022, the global energy prices have been increasing, leading to a rise in the price index. This has resulted in inflationary pressures in major economies such as Canada, leading national governments to implement interest rate hikes as a coping strategy. This paper focuses on the Canadian economy and analyzes its inflation performance, strategies for raising interest rates, the price level, and the labor market. Using economic data from Canada, the Commonwealth of Nations, and past literature, the study finds that Canada's inflation performance is not satisfactory. The paper argues that inflation cannot be fundamentally curbed by using a single monetary policy instrument, such as interest rate hikes, and that an effective economic response requires a combination of monetary and fiscal policies. Additionally, the paper suggests that Canada should develop and improve industrial policies consistent with its national endowments, labor and immigration policies that match industrial policies, and trade policies that are effective in fighting inflation.

Currency Areas, Labor Markets, and Regional Cyclical Sensitivity

In his papers during the lead up to the birth of the European Monetary Union, Obstfeld considered whether the countries forming the EMU were sufficiently similar to survive a single monetary policy--and more importantly, whether they had the capacity to adjust to asymmetric shocks given a single monetary and exchange rate policy. The convention at the time was to take the United States as the baseline for a smoothly functioning currency union. We document the evolution of the literature on regional labor market adjustment within the United States, expanding on stylized facts illustrating how stratification in local labor market outcomes appears far more persistent today than 30 years ago in the context of what Obstfeld and Peri (1998) call non-adjustment in unemployment rates. We then extend the currency union literature by adding an additional consideration: differences in regional cyclical sensitivity. Using measures of cyclicality and Obstfeld-Peri-type non-adjustment, we explore the characteristics of places that can get left behind when local labor markets respond differently to national shocks and discuss implications for policy.

State-level Taylor rule and monetary policy stress

Research background: Taylor rule is a widely adopted approach to follow monetary policy and investigate various mechanisms related to or triggered by monetary policy. To date, no in-depth examination of scale, determinants and spillovers of state-level monetary policy stress, stemming from the Federal Reserve Board?s (Fed?s) policy has been performed. Purpose of the article: This paper aims to investigate the nature of monetary policy stress on US States delivered by the single monetary policy by using a quarterly dataset spanning the years between 1989 and 2017. Methods: We apply a wide array of time series and panel regressions, such as unit root tests, co-integration tests, co-integrating FMOLS and DOLS regressions, and Spatial Panel SAR and SEM models. Findings & value added: When average stress imposed on states is calculated, it is observed that the level of stress is moderate, but the distribution across states is asymmetric. The cross-state determinants behind the average stress show that states with a higher percentage of working-age and highly educated population, as well as those with higher population density and more export-oriented are negatively stressed (i.e. they experience excessively low interest rates), whereas higher unemployment rate contributes to a positive stress (too high interest rates). To the best of our knowledge, the contribution of this paper lies in estimating monetary policy stress at the state level and unveiling some of the determinants of this stress. Moreover, the paper makes the first attempt to empirically test spatial spillovers of the stress, which are indeed found significant and negative.

Incorporation of Environmental Objectives into the ECB’s Mandate and the Potential Effects on the Single Monetary Policy

Incorporation of Environmental Objectives into the ECB’s Mandate and the Potential Effects on the Single Monetary Policy

ЄВРОПЕЙСЬКА ВАЛЮТНА СИСТЕМА: ПОЗИТИВНІ ТА НЕГАТИВНІ АСПЕКТИ

The development of the state, first of all, depends on the stability of the national and world currency systems, and their international relations. The functioning of the world economy is based on the establishment of an effective currency and monetary system of relations between states, leading to the strengthening of internationalization processes. One of the examples of the prevalence of internationalization processes is the creation of a single currency system within the European Union (EU). This, in turn, ensures the competitiveness of national economies based on an increase in the volume of production of goods and provision of services, making capital investments in the industry. The creation of the European Monetary System (EMS) means the exchange of goods, services, capital, and labor, as well as the establishment of a single monetary and currency policy, ensuring the economically advantageous positions of the member countries of this association on the world market. Therefore, the question arises of distinguishing the positive and negative aspects of the European monetary system, and its influence on the state of the global economy. The article covers the issue of the peculiarities of the formation of the European monetary system. The main purpose of the study is to analyze the features of currency integration in the European Monetary Union in today's conditions. As a result, the following tasks were set: to investigate the characteristic features of the creation of the EMU; to form the goal of creating a researched regional currency union; highlight the main elements of this European currency integration; to analyze the advantages and disadvantages of the formation of the European Monetary System. The work presents the definition of the concept of "currency system", types of currency systems, and their constituent elements. The positive and negative aspects of the European monetary system are singled out, the stages of the introduction of the European Monetary Union are described, its main institutions and their functions are displayed, and statistical data on the percentage of the US dollar and euro in official currency reserves in the world during 1999–2021 are given.

A Single Monetary Policy for Heterogeneous Labour Markets: The Case of the Euro Area

A Single Monetary Policy for Heterogeneous Labour Markets: The Case of the Euro Area

THE EUROPEAN MONETARY INTEGRATION TRAP: INCOMPLETE SOVEREIGNTY AND THE STATE-MIMICKING METHOD

The author identifies the two main (external and internal) dimensions of incomplete sovereignty in the EMU and the respective caveats affecting the scope of the single monetary policy, here described as a ‘monetary policy integration trap’. The author details the main implications caused by this curtailed sovereignty both in its external and internal dimensions – e.g. on the one hand, the polarisation of external positions and, on the other hand, the effects of limited European fiscal/budgetary sovereignty and the atypical interaction between the latter and the single monetary policy. Finally, the way the E(M)U has in recent years addressed this integration trap is analysed, making use of a heterodox method here labelled as the ‘State-mimicking’ method. The main conclusion is that such a method is the possible yet imperfect policy solution to bypass the monetary policy integration trap, given the E(M)U’s ontological ambiguities - a quasi-State afraid to become one.

EXCESSIVE DEFICIT PROCEDURE: PAST, PRESENT, PERFECT?

The Economic and Monetary Union combines a single monetary policy with decentralised economic, especially fiscal policies under the responsibility of Member States. From the Treaty of Maastricht the EU is trying to optimise the specific institutions of one-armed European economic governance – with more or less success. The excessive deficit procedure is an elementary part of the system. The study focuses on the changes and criticism of the procedure paying particular attention to public debt and the sanctions that may be imposed.

Inflation and unemployment, new insights during the EMU accession

In the process of EU integration, toward the EA accession, we try to understand, how changes in exchange rate regime, attributed to the switch through the ERM-II and to the EA accession, influence the dynamic between inflation and unemployment, that is, swings on the Phillips curve coefficient. We look at a panel of EA countries, before and after their EA entry, over the last twenty years, using a recent work from McLeay and Tenreyro (2020) , to clarify the impact of losing the monetary autonomy. Accession to the Eurozone leads to a non-significant inflation/unemployment relationship. Accession to the Eurozone induces a non-significant inflation/unemployment relationship. We link this result to the fact that the small economies of the Eurozone do not have sufficient weight to influence the single monetary policy. This is corroborated by the fact that within the Eurozone, what we call the “economic leaders” maintain a significant trade-off between inflation and unemployment.

Analysis of the effects of fiscal policy shocks in the Baltic region

The study aims to compare the effects of fiscal policy shocks in three Baltic countries – Estonia, Latvia, and Lithuania - within SVAR framework, using the identification scheme proposed by Blanchard and Perotti (2002). The time sample covers quarterly data over the period of 2002q1-2019q4. The main idea of the study is to identify the effects of fiscal policy shocks in three euro area member states under a single monetary policy of the European Central Bank, but with country-specific fiscal policy shaped by the European fiscal framework. The results show that, generally, in the short term (up to four quarters), output reacts consistently with the Keynesian view, emphasizing the importance of using discretionary fiscal policy tools in stimulating economic activity in the Baltic region. However, in Estonia and Latvia, the calculated impact multipliers for net taxes are larger than spending multipliers. Although each country reacts differently to its country-specific fiscal shock, the response to the euro area money market interest rate innovation is quite similar with respect to the direction of the effect, which may indicate the robustness of the Baltic region in terms of the euro area shocks. Thus, the results emphasize the importance of conducting domestic fiscal policy adapted to the conditions of each of the analysed economies. Based on the assumptions and the methodology used in this study, the obtained findings show the limited effects of spending on Baltic economies in comparison with the effects caused by the shocks in net taxes. Moreover, due to the lack of large-scale analysis regarding the effectiveness of fiscal policy in Baltic states, the obtained results are a valuable contribution to the debate about the ‘appropriate’ size of the fiscal multipliers for the Baltic region.

Стратегічне управління державними фінансами: євроінтеграційний курс, міжнародні тренди, національні особливості

The experience of public finance management in the EU in the framework of tightly controlled coordination of medium-term fiscal policy and the single monetary policy of the European Monetary Union (EMU) indicates that Strategic Public Finance Governance (SPFG) should be distinguished from the strategy for reforming the public finance management system within the established approaches of Public Finance Management (PFM) as general from special. The Strategic Public Finance Governance Mission (SPFG) is seen as enhancing the government’s financial capacity to respond in a timely and adequate manner to global challenges and threats through coordinated and targeted participation in relevant international activities and programs that correlate with the solution of certain global problems. The mission also includes expanding the fiscal space for public financial support of national sustainable development priorities that meet national interests, the criteria of national security in general and economic, financial, fiscal in particular. This involves the use of both domestic and borrowed (from other countries, international organizations, etc.) financial resources. Nowadays, the PFM approach covers mainly the general government sector. Strategic Public Finance Governance (SPFG) should cover the public sector as a whole. In our opinion, this is the main direction of further European integration reform of the public finance management system in Ukraine.

Mixed Monetary–Fiscal Policies and Macroeconomic Fluctuations: An Analysis Based on the Dynamic Stochastic General Equilibrium Model

AbstractThe existing literature on macroeconomic policy research is mainly concerned with the impact of a single monetary or fiscal policy on China's macroeconomic fluctuations in a closed economy. However, the effect of a mix of monetary and fiscal policies has been neglected. This paper addresses this issue with an open economy dynamic stochastic general equilibrium model. It applies impulse‐response and welfare analyses to explore the stabilization effect of various mixes of monetary and fiscal policies. The results show that the optimal monetary policy and fiscal policy mix varies in different cases. When government spending shocks happen, the aggressive fiscal policy and passive monetary policy would be the best choice. In contrast, for domestic interest rate shocks, foreign interest rate shocks, and foreign consumption shocks, the passive fiscal policy and aggressive monetary policy are more applicable. This article explains China's economic fluctuations and highlights the importance of mix of monetary and fiscal policies in the face of different shocks.

House prices and household credit in the Eurozone: A single monetary policy with dissonant transmission mechanisms

Booms and busts in house prices and household credit highlighted by the recent economic financial crisis, encourage a discussion on how the channels of monetary policy work. This paper studies the role of house prices and household credit in the transmission mechanism of the ECB monetary policy focusing on a panel of 12 Eurozone countries between 2000.Q1 and 2019.Q4. Considering the heterogeneity that characterized the Eurozone housing markets, the analysis distinguishes two groups of countries defined by their average growth of house prices, besides isolating the period that follows 2008.Q3 to capture the impact of the economic crisis. Using panel vector auto-regression models, the estimations indicate nominal money having an asymmetric impact across the Eurozone, being better adjusted to member countries with lower growth rates of house prices. For the whole period, house prices are more effective than credit as a monetary policy transmission channel to output fluctuations. However, the channels of monetary policy altered after the crisis, switching from a strong housing channel to a strong credit channel, especially for countries that experienced lower increase in house prices.

Stärkung der finanziellen Souveränität Europas mit Hilfe der Kapitalmarktunion

‘Competitiveness is crucial to make the European Union more attractive,’ wrote European Commission (EC) President Jean-Claude Juncker in his guidelines when he announced the ‘Capital Markets Union Action Plan’ in 2015. Over the past six years, we have seen good progress: Most of the announced legislative proposals have been agreed upon, while nonlegislative measures have been finalized in total. Companies, both small- and mediumsized enterprises, should be able to obtain funding all over the European Union (EU). The market players need efficient, Europe-wide reliable framework conditions. The Capital Markets Union (CMU) aims to create added value for the people of Europe, regardless of where they live or work. As for their savings and investments, households should have more choice, be well-informed, and enjoy adequate protection. The European System of Central Banks significantly supports these efforts, as this also reduces the risk of the monetary union drifting apart. The greater integration of capital market activities underpins the transmission of the single monetary policy. The fulfillment of the European Central Bank’s (ECB) mandate to maintain price stability is simplified. Developed and integrated capital markets in the euro area strengthen the euro’s international role. At the presentation of the new CMU action plan ‘A Capital Markets Union for People and Business’ in September 2020, EC President Ursula von der Leyen encouraged the EU to further improve its financial system. One of the three main objectives (along with green finance and crossborder capital flows) is to shape the regulatory framework so that investors, savers, and households can save and invest safely throughout the EU. In implementing the CMU project, some measures may take longer to achieve tangible benefits. The road still brings some challenges, such as corporate insolvency regimes and the formation of a common capital-market supervisory authority at the EU level. Successful implementation would obtain more cross-border investment and financing with lower administrative burdens and financing costs.

Legal Aspects of the Single Monetary Policy in the Euro Area: From the Establishment of the Eurosystem to the Current Pandemic Crisis

The present University notes contain a brief presentation and analysis of the legal framework governing the single monetary policy in the euro area, as this developed from the establishment of the Eurosystem until today. It is structured in four Sections: Section A deals with the definition of the single monetary policy in the Eurosystem after a brief presentation of the notions of monetary system and (conventional and unconventional) monetary policy. Particular emphasis is given to the definition of price stability in the euro area. The legal framework governing the implementation of the single monetary policy is discussed in Section B. In this respect, the instruments for the implementation of monetary policy (i.e., open market operations, standing facilities and minimum reserves), the eligible counterparties and the assets eligible as collateral in the Eurosystem are discussed in turn. The focus in Section C is on the implementation of the single monetary policy following the recent (2007-2009) global financial crisis (GFC) and the subsequent fiscal crisis in the euro area, discussing in detail the ECB asset purchase programmes (APPs) and the programme for targeted longer-term refinancing operations (TLTROs). Section D reviews then the developments relating to the implementation of the single monetary policy since the outbreak of the current pandemic crisis, discussing, inter alia, the pandemic emergency longer-term refinancing operations (PELTROs), the Pandemic Emergency Purchase Programme (PEPP) and the amendments introduced to other APPs. Finally, the Excursus at the end of the notes briefly presents the newly introduced euro short-term rate (€STR). It is noted that Tables 5 and 6 present (respectively) the evolution of the Eurosystem’s consolidated balance sheet during the period 2007-2017, to highlight the impact of the measures taken after the 2007-2009 GFC and the subsequent euro area fiscal crisis, as well as during the period December 2019 – March 2021 to show the impact of the measures taken amidst the pandemic crisis.

Impact of fiscal integration on eurozone members (The case of Slovakia)

The eurozone is both a unique project and an unprecedented case in the history of monetary unions. It has the characteristic of a single monetary policy but with sixteen national fiscal policies. The national fiscal policy measures that are aimed at compensating for the absence of a more complete fiscal union have been orientated mainly toward domestic fiscal policy and follow domestic fiscal policy discipline. The aim of the paper is to outline polemical views on fiscal integration, identify potential forms of deeper fiscal integration and simulate its impact on the integration of the Slovak economy using the computable general equilibrium (CGE) model. The collected evidence shows that either deeper fiscal integration taking the form of transfers or a common European tax would be beneficial for the eurozone Member States. Member States would thus have a tool to address unexpected developments in and asymmetric shocks to the eurozone.

Variations in the Effects of a Single Monetary Policy: The Case of Russian Regions

This research analyses regional heterogeneity in the reaction of core inflation to shocks of a single monetary policy on the example of Russia. We use a global vector autoregression model to reveal impulse response functions of core inflation in Russian regions to monetary policy shocks. The average 5-year cumulative response of regional core inflation to a MIACR shock of 1 percentage point (pp) is ‒0.74 pp. For 77 out of 80 regions, the 5-year cumulative core inflation response is found to be statistically significant. If we exclude three statistically insignificant responses and discard the four regions with the highest and lowest responses, we get a spread of ‒0.55 to ‒0.93 pp with a standard deviation of 0.12. We show that, over a one-year horizon, the heterogeneous response to monetary policy shocks can moderately reduce the heterogeneity of the response of regional inflation to exchange rate shocks. However, the magnitude of this effect is limited. According to the analysis of the regional heterogeneity factors, the higher are the share of extractive industries in the gross regional product of a region, the share of loans to manufacturing sector, the share of loans to small enterprises, as well as the unemployment rate, the stronger will be the reaction of the core inflation to the monetary policy shock. The degree of heterogeneity in the Russian regions’ core inflation response to monetary policy shocks, the set of factors explaining this heterogeneity, and the explained variation in the regional response (30–40% depending on the model specification) turn out to be comparable to similar indicators in other countries with pronounced regional heterogeneity.