Single Monetary Research Articles

Central Bank Balance Sheet Policies and Spillovers to Emerging Markets

We develop a theoretical model that shows that in the near future, the monetary policies of some key central banks in advanced economies (AEs) will have two dimensions — changes in short-term policy rates and balance sheet adjustments. This will affect emerging market economies (EMs), especially those with a pegged exchange rate, as these EMs primarily use a single monetary policy tool, i.e., the short-term policy rate. We show that changes in policy rates and balance sheet adjustments in AEs may differ in their respective financial spillovers to pegged EMs. Thus, it will be difficult for EMs to mitigate different types of spillovers with a single monetary policy tool. In that context, we use the model to show how EMs might use additional tools — capital controls and/or macro-prudential policy — to complement their monetary policy and financial stability toolkit. We also discuss how balance sheet adjustments that affect long-term interest rates may percolate to influence short-term interest rates via financial plumbing.

Central Bank Balance Sheet Policies and Spillovers to Emerging Markets

We develop a theoretical model that shows that in the near future, the monetary policies of some key central banks in advanced economies (AEs) will have two dimensions—changes in short-term policy rates and balance sheet adjustments. This will affect emerging market economies (EMs), especially those with a pegged exchange rate, as these EMs primarily use a single monetary policy tool, i.e., the short-term policy rate. We show that changes in policy rates and balance sheet adjustments in AEs may differ in their respective financial spillovers to pegged EMs. Thus, it will be difficult for EMs to mitigate different types of spillovers with a single monetary policy tool. In that context, we use the model to show how EMs might use additional tools—capital controls and/or macro-prudential policy—to complement their monetary policy and financial stability toolkit. We also discuss how balance sheet adjustments that affect long-term interest rates may percolate to influence short-term interest rates via financial plumbing.

Nominal and Real Convergence as a Determinant for Joining the European Monetary Union

SummaryThe thematic framework of this work is the nominal and real convergence as a determinant for joining the European monetary union. The focus of the work is to prove that realising the criteria of the convergence affects the stability of the European monetary union, that is, that the cause of destabilisation is exactly the fact that certain member nations have not realised the assigned convergence criteria. The financial integration is an important question because it contributes to the economic growth affecting free exchange with the goal of a more efficient allocation of capital; it is the result of the economic theory and the empirical research. Introducing the Euro as a single payment method while losing the monetary sovereignty of the countries which have accepted it is the main reason for forming the European Central Bank. The mission of the European Central Bank is to define and conduct a single monetary policy within the Eurozone. Because of the already mentioned facts, the challenges of conducting the fiscal policy within the Eurozone as well as the key aspects of the monetary unification of Europe have been analysed. The results of this analysis should point out the stability of the EMU by the convergence degree of the member nations from a single monetary area.

CAN BANKING UNION HELP THE VIABILITY OF EUROZONE BANKING SECTOR? SOME PRELIMINARY RESULTS

Although financial integration and convergence of EMU member countries reached a high level, the financial crisis, that has developed into a banking and debt crisis, has caused an intense process of fragmentation of financial markets along national borders. This significantly complicated the implementation of the single monetary policy and disrupted the monetary transmission mechanism. Furthermore, in EMU, the crisis was much more intense than in other economies, and was rapidly transmitted among Member States. Besides, the contagion spread quickly from banks to sovereigns and vice versa, creating a “vicious loop” between banks and national finances.This paper attempts to show that adequate, strong and politically independent supranational bank regulation and resolution is necessary for the viability of banking sector, but also the economies in European monetary union. It should restore the market confidence and harmonize the rules of the game in the single financial market. Although the project is on its very beginning, there are some first encouraging results.

Optimum Monetary Policy in European Monetary Union

The euro has been introduced to a region that contains many discrepancies and differences. While there are many countries with different business cycles, exerting a single monetary policy which favors all the countries is impossible. I will show that in a simple open macro model by using “weighted mean mechanism”, monetary authorities can exert a common monetary policy to synchronize business cycles and to diminish loss functions in the member states. As we can see by using optimal monetary policy, the business cycles become much more stable and even in 2009 we do not see any recession for Germany and France. Although In this model between 2006 till 2012 the MU (Monetary Union) interest rate should be higher than the United States one, the agent’s countries would be in boom rather recession. If MU interest rates in 2012 and 2013 were less than the actual ones, recession in two countries would change to boom for them.

The role of direct single monetary grants in residents’ choice of field of residency

Background: In an attempt to address severe medical manpower shortages in several medical disciplines, the Israeli Ministry of Health offered grants to residents who chose one of these fields.Methods: A total of 220 residents from various disciplines were surveyed on demographic, academic, and professional data, and asked to rank considerations in the choice of their field of residency.Results: Residents in targeted fields attributed significantly more importance to the grant in their decision-making process (U = 3704.5, p < 0.001). This effect remained significant in a multivariate model (OR 1.67, 95%CI 1.32–2.10, p < 0.001). Higher age (OR 1.15, 95%CI 1.01–1.31, p = 0.031) and attribution of significance to the working conditions compared to other residency fields (OR 1.69, 95%CI 1.23–2.32, p = 0.001) were significantly associated with receptivity toward the grant in a multivariate analysis.Discussion: Receptivity toward the offered grants correlated with real-life data shows a rise in physician in these fields, and the weak association between such receptivity and most variables tested may suggest that the grants were perceived as a property of the specific choice rather than a special bonus.Conclusions: Grants may be useful in diverting medical manpower. Further analysis and modeling are required to determine causal relationship and budgetary feasibility.

On the Determinants of Output Co-Movements in the CEMAC Zone: Examining the Role of Trade, Policy Channel, Economic Structure and Common Factors

This paper aims to examine the forces driving co-movements in the CEMAC. For that purpose, a two-step methodology is employed. First, a DCC-GARCH is used to assess correlations between member states. Second, panel models are employed to examine whether and the extent to which trade, policies, economic structure and common factors determine output growth correlations. Results from the DCC-GARCH model suggest that spikes of co-movements appear during high volatility oil prices episodes namely the 1998 oil crisis, the 2008 financial crisis and the recent 2014 collapse. Panel regressions suggest that trade has negative effects on output co-movements. The differential fiscal policy displays strong and significant positive effects on output correlations while the role of the single monetary policy is not robust across models. The degree of specialization has negative effects while the financial development increase co-movements. The landlocked situation of Chad and Central Africa reduces their co-movements with other member states. Results also reveal non-linearities in the effects of trade linkages which are non-significant when the country is landlocked. As a policy implication, national governments may limit the cyclical behaviour of their fiscal policy in order to in increase co-movements in the region.

Monetary Policy Stretched to the Limit: How Could Governments Support the European Central Bank?

New-style central banking in many advanced economies, involving the use of unconventional monetary policy instruments and forward guidance at the effective lower bound for interest rates, has raised questions about the appropriate role of fiscal policy – also in the euro area, where a fiscal counterpart to the European Central Bank (ECB) and the Eurosystem is missing. This paper considers three areas where euro area governments could act as the ‘joint sovereign’ behind the euro and support the ECB in its task of maintaining price stability, staying within the boundaries of the Maastricht Treaty. First, member countries could coordinate a growth-friendly aggregate economic policy mix that is supportive of the single monetary policy, with the help of a central fiscal capacity subject to common decision-making. Second, they could introduce a safe sovereign asset for the eurozone without assuming common liability in order to anchor financial integration and facilitate monetary policy implementation. Third, the significant benefits for the Eurosystem from a lower burden on monetary policy and a reduced exposure to sovereign risk could make it acceptable for euro area governments to indemnify it against potential large losses on its much expanded balance sheet. The fundamental solution, however, lies in advancing with fiscal integration to address the ‘institutional loneliness’ of the Eurosystem with full respect for its independent status.

Effects of Euro Area Monetary Policy on Institutional Sectors: The Case of Portugal

We study the effects of the euro area monetary policy on the institutional sectors in Portugal during the period 2000:4 2015:4. Our results show that the single monetary policy affected some variables that are proxies for the funding of each institutional sector of the economy: general government, other monetary financial institutions, non-financial corporations, households and the external sector. The period of the economic and financial adjustment programme influenced all institutional sectors, and financial integration in the euro area had an effect on the funding for the economy: there was a reduction of long term-to-GDP ratio, external funding to the Portuguese other MFIs, and new loans to households.

Central Bank Balance Sheet Policies and Spillovers to Emerging Markets

We develop a theoretical model that shows that in the near future, the monetary policies of some key central banks in advanced economies (AEs) will have two dimensions—changes in short-term policy rates and balance sheet adjustments. This will affect emerging market economies (EMs), especially those with a pegged exchange rate, as these EMs primarily use a single monetary policy tool, i.e., the short-term policy rate. We show that changes in policy rates and balance sheet adjustments in AEs may differ in their respective financial spillovers to pegged EMs. Thus, it will be difficult for EMs to mitigate different types of spillovers with a single monetary policy tool. In that context, we use the model to show how EMs might use additional tools—capital controls and/or macro-prudential policy—to complement their monetary policy and financial stability toolkit. We also discuss how balance sheet adjustments that affect long-term interest rates may percolate to influence short-term interest rates via financial plumbing.

National Natural Rates of Interest and the Single Monetary Policy in the Euro Area

Using a semi-structural approach, we jointly estimate time-varying national natural real rates of interest for the largest four economies of the Euro area over 1999-2016 and discuss the associated challenges for the single monetary policy. We find evidence of an increased dispersion of real equilibrium rates across major Euro area economies during the Euro area sovereign debt crisis. This dispersion translated into significantly diverging national real interest rate gaps, a synthetic metrics of the monetary policy stance, between core and Southern countries, notably Spain. Real interest rate gaps have nonetheless converged towards zero in all four economies as of 2014, suggesting that it took the acceleration of unconventional policies since mid-2013 to eventually restore the conditions for a really common monetary policy in the Euro area.

Assessing Urban Wastewater System Upgrades Using Integrated Modeling, Life Cycle Analysis, and Shadow Pricing.

This study assesses the environmental impacts of four measures proposed for upgrading of the urban wastewater system of Eindhoven and the Dommel River in The Netherlands, against the base case, "do-nothing" option. The measures aim to reduce the overall environmental impact of the Eindhoven urban wastewater system (UWS) by targeting river dissolved oxygen depletion and ammonia peaks, reducing combined sewer overflows, and enhancing nutrient removal. The measures are evaluated using a life cycle analysis with the boundaries including the receiving river section by means of an integrated model of the UWS. An uncertainty analysis of the estimated impacts has been performed to support the outcomes. The study also uses the economic concept of shadow prices to assign relative weights of socio-economic importance to the estimated life cycle impacts. This novel integration of tools complements the assessments of this UWS with the inclusion of long-term global environmental impacts and the investigation of trade-offs between different environmental impacts through a single monetary unit. The results support the selection of deeper clarifiers as the most environmentally beneficial measure for upgrade.

Stocks or Flows? New Thinking About Monetary Transmission Through the Lending Channel

The lending channel is conventionally understood to transmit monetary policy through new loans. We postulate that the lending channel may also operate via the stock of existing loans. In this context, this paper documents a wide diversity in borrowers’ features, loan features and price developments across euro area Member States. Better understanding the individual and combined implications of these features is of the outmost importance for being able to conduct an effective monetary policy in the euro area. Significant differences in these factors across euro area Member States can distort a homogeneous transmission of the single monetary policy.

How to Abandon the Common Currency in Exchange for a New National Currency

The question how to leave a currency union has become an important economic issue during last few years. Asymmetric shocks, low growth and increasing federalism have left several countries of the Eurozone more open to considering whether the economic and political costs associated with euro membership have become too high. Having an individual currency can produce benefits to a country compared to a common currency of a monetary union, particularly if the single monetary policy proves unsuitable for the macroeconomic development of the country in question. However, uncertainty relating to the costs of an exit can discourage political leaders from taking decisive steps towards an exit. This article provides thoughts on how an exit from a modern currency union can be managed. We will show that the costs related to the exit can be controlled, but also that the process includes many uncertainties that the exiting country needs to be prepared for since they cannot be reduced.

One Size Fits Some : A Reassessment of EMU’s Core–periphery Framework

This study provides a new multivariate assessment of core–periphery structures within the European Union. By applying different cluster algorithms to the broad set of Macroeconomic Imbalance Procedure indicators, we detect a relatively stability-oriented and homogeneous group of European Union core countries that would be suitable for having a common currency. Unlike previous results, our analysis shows that countries such as the United Kingdom, Denmark, and Sweden would also fit well within such a hypothetical euro area. However, Greece, Ireland, Italy, Portugal, and Spain plus Cyprus and Croatia on the southern periphery, as well as most of the countries of the eastern enlargement are found to form very distinct clusters in terms of competitiveness, indebtedness, and economic performance. Our findings thus reveal that a single monetary policy can be appropriate only for some countries, even when measured using the official Macroeconomic Imbalance Procedure scoreboard specifically designed to monitor the smooth functioning of the Economic and Monetary Union.

Chinese Wallss within the European Central Bank after the Establishment of the Single Supervisory Mechanism

This article overviews systematically the provisions laid down in secondary EU law with regard to the creation of ‘Chinese walls’ within the European Central Bank (the ‘ECB’) after the establishment of the Single Supervisory Mechanism (the ‘SSM’), in order to ensure that the ECB carries out its (new) specific supervisory tasks separately from its tasks relating to the definition and implementation of the single monetary policy and from its other tasks. It is structured in three (3) sections:(a) Section 1 provides an overview of the main features of the basic legal act governing the SSM, notably Council Regulation (EU) No 1024/2013, a classification of the ECB tasks, as currently in force, and the rationale underlying the adoption of the principle of separation between the ECB’s supervisory and other tasks.(b) This is followed by Section 2, which examines the general provisions of the regulatory framework governing the ‘Chinese walls’ within the ECB.(c) Finally, Section 3 deals in particular with the ‘Mediation Panel’, a new internal ECB body established by virtue of Article 25 of the above Council Regulation.

Developing a User-Based Decision-Aid Framework for Water Storage Systems in Sub-Saharan Africa: The Case of Blue Nile Basin in Ethiopia

The development of water storage schemes in Sub-Saharan Africa (SSA) is considered a major aid for those regions with unequal water distribution, limited accessibility and anticipated climate change impacts. Great attention is given by many SSA countries to set up different water storage schemes that may improve rural and urban development on a national level. The funding for the water storage schemes is often derived from foreign agencies which conduct feasibility studies for the financing of potential investments. Often however, the feasibility studies rely on a single monetary criterion which may not identify the most appropriate water storage in each case. In addition, limited data availability in many SSA countries increases the difficulty of identifying the most suitable storage option. This paper develops a multicriteria framework for the integrated evaluation of water storage strategies in Sub-Saharan African countries. A set of economic, agronomic and opinion-based criteria are assessed through the PROMETHEE II outranking approach. The introduction of crop modeling complements the limited field data available in agronomic criteria and enhances the scientific rigor of the method. Ethiopia is adopted as a representative case of SSA countries where a diverse set of water storage options is currently under construction, often financed by foreign agencies.

Sovereigns and Banks–Specific Regulatory Proposal

In einer Wahrungsunion mit gemeinsamer Geldpolitik und Bankenaufsicht, aber fehlender Fiskalunion, ist die wechselseitige Abhangigkeit zwischen Banken und Staaten von besonderer Brisanz. Denn die Mitgliedstaaten verschulden sich in einer Wahrung, uber die sie keine geldpolitische Hoheit ausuben. Viele Banken in der Eurozone haben hohe Forderungsbestande gegenuber den Mitgliedstaaten aufgebaut, was nicht zuletzt im Interesse der Regierungen lag. Die Autoren machen einen konkreten Vorschlag, wie dieses Geflecht aufzubrechen ist. Dabei geht es nicht um die endgultige Festlegung der Parameter, sondern um zentrale Stellschrauben fur eine praxistaugliche, anreizkompatible Losung.

Democracy or Euro: Who Will Surrender?

This article offers insights into the eurozone, one of the most challenging experiments toward market and political integration through a single monetary unit—namely, the euro. However, whereas markets might be fully integrated even without a common European currency, the euro and its functional institutions are shrinking sovereignty within member states. Today, the eurozone records the lowest percentage of growth in the world; it is an island of stagnation, deflation, and high unemployment rate. Six years after the beginning of the crisis, most of the European countries have not yet recovered the value of gross domestic product (GDP) recorded in 2008. Dani Rodrik's trilemma states that democracy, national sovereignty, and global economic integration are mutually incompatible. Yet the European Union is even shrinking both democracy and national sovereignty toward a global economic integration. Consequently, either democracy shall raise and abort such political project or euro will shrink democracy to village governance level only. © 2015 Wiley Periodicals, Inc.

Letter From the Editor

Letter From the Editor