Submitted by Bernardo Dutra (btdutra@globo.com) on 2015-06-01T22:56:24Z No. of bitstreams: 1 Dissertação_Bernardo.pdf: 1312660 bytes, checksum: df59f930e5c26a2087f17e85baa0af68 (MD5) / Approved for entry into archive by Suzinei Teles Garcia Garcia (suzinei.garcia@fgv.br) on 2015-06-02T12:29:17Z (GMT) No. of bitstreams: 1 Dissertação_Bernardo.pdf: 1312660 bytes, checksum: df59f930e5c26a2087f17e85baa0af68 (MD5) / Made available in DSpace on 2015-06-02T17:21:37Z (GMT). No. of bitstreams: 1 Dissertação_Bernardo.pdf: 1312660 bytes, checksum: df59f930e5c26a2087f17e85baa0af68 (MD5) Previous issue date: 2015-05-07 / Using microdata from the FGV/IBRE Consumer Survey we investigate if brazilian consumers form expectations consistent with the Taylor rule and if consistency changes according to monetary policy conducted by the Central Bank of Brazil. Based on an analysis similar to Carvalho and Nechio (2014), we find that the public can properly understand the relationship between interest rates and inflation in the rule framework, but not the relationship between interest rates and unemployment, probably due to the single mandate adopted in Brazil and some features of the data. Furthermore, we find that the consistency of expectations signifi- cantly drops in periods that the central bank deviates from the Taylor rule, indicating that a higher tolerance to inflationary shocks can damage the coordination of society’s expectations. / Utilizando microdados da Sondagem do Consumidor do FGV/IBRE, investigamos se os consumidores brasileiros formam expectativas consistentes sobre a regra de Taylor e se essa consistência se altera de acordo com a condução da política monetária feita pelo Banco Central do Brasil. A partir de uma análise semelhante a de Carvalho e Nechio (2014), encontramos que o público consegue capturar corretamente a relação entre juros e inflação no arcabouço da regra, mas não a relação entre juros e desemprego, provavelmente por causa do regime de política monetária adotado no país e por particularidades dos dados. Além disso, encontramos que a consistência das expectativas sofre quedas significativas nos períodos em que o banco central desvia da regra de Taylor, indicando que uma maior tolerância a choques inflacionários por parte da autoridade monetária pode prejudicar a coordenação das expectativas da sociedade.

Este trabalho analisa se entre 2011 e 2016 a economia brasileira operou sob um regime de dominância fiscal ou de dominância monetária. Considerando que cada um destes regimes implica ações diametralmente opostas para a política econômica, a identificação de qual regime está em vigor é de fundamental importância para as autoridades fiscal e monetária. Para realizar esta avaliação, foram testados quatro modelos distintos, cada qual com uma estrutura particular que objetiva identificar sob qual regime a economia está operando. De modo geral, os resultados apontaram que durante o período de interesse predominou o regime de dominância monetária. Contudo, há sinais de que em determinados momentos a economia se encontrou próxima um regime de dominância fiscal, algo que implica em alterações na importância das políticas fiscal e monetária para o equilíbrio da economia. / This paper analyzes if between 2011 and 2016 the Brazilian economy operated under a regime of fiscal dominance or monetary dominance. Considering that each of these regimes implies diametrically opposed actions for the economic policy, the identification of which regime is in force is of fundamental importance for the fiscal and monetary authorities. In order to carry out this evaluation, four distinct models were tested, each one with a particular structure that aims to identify under which regime the economy is operating. In general, the results pointed out that during the period of interest the regime of monetary dominance prevailed. However, there are signs that at certain times the economy has found itself close to a regime of fiscal dominance, something that implies changes in the importance of fiscal and monetary policies for the equilibrium of the economy.

Este trabalho analisa se entre 2011 e 2016 a economia brasileira operou sob um regime de dominância fiscal ou de dominância monetária. Considerando que cada um destes regimes implica ações diametralmente opostas para a política econômica, a identificação de qual regime está em vigor é de fundamental importância para as autoridades fiscal e monetária. Para realizar esta avaliação, foram testados quatro modelos distintos, cada qual com uma estrutura particular que objetiva identificar sob qual regime a economia está operando. De modo geral, os resultados apontaram que durante o período de interesse predominou o regime de dominância monetária. Contudo, há sinais de que em determinados momentos a economia se encontrou próxima um regime de dominância fiscal, algo que implica em alterações na importância das políticas fiscal e monetária para o equilíbrio da economia. / This paper analyzes if between 2011 and 2016 the Brazilian economy operated under a regime of fiscal dominance or monetary dominance. Considering that each of these regimes implies diametrically opposed actions for the economic policy, the identification of which regime is in force is of fundamental importance for the fiscal and monetary authorities. In order to carry out this evaluation, four distinct models were tested, each one with a particular structure that aims to identify under which regime the economy is operating. In general, the results pointed out that during the period of interest the regime of monetary dominance prevailed. However, there are signs that at certain times the economy has found itself close to a regime of fiscal dominance, something that implies changes in the importance of fiscal and monetary policies for the equilibrium of the economy.

The 2008-2009 crisis showed that the main macroeconomic challenge facing an economy such as Peru's is the management of external shocks that deteriorate the balance of payments and reduce aggregate demand. The aim of this paper is to discuss what the monetary policy response to theseexternal shocks should be. Since inflation targeting was implemented in 2002, the most important instrument of Peruvian monetary policy has been a short-term interest rate. Another key instrument of monetary policy has been sterilized intervention in the foreign exchange market. In order to compare the different monetary policy responses to external shocks, these central bank instruments are incorporated into a textbook IS-LM-BP model. This model is adapted to the financial conditions of an economy such as Peru’s, which has a banking system that operates in both domestic and foreign currency.The conclusion of this paper, in keeping with that of Blanchard et al. (2010), is that a monetary policy which combines a Taylor rule for setting the interest rate, aimed at internal equilibrium, with a foreign exchange intervention policy of leaning against the wind, aimed at external equilibrium, can stabilize both price levels and economic activity in the face of external shocks.The central bank should reduce the interest rate and sell foreign currency to face adverse external shocks, and should raise the interest rate and buy foreign currency to face favorable external shocks. / La crisis de 2008-2009 demostró que el principal desafío macroeconómico que enfrenta una economía como la peruana es el manejo de los choques externos adversos que deterioran la balanzade pagos y reducen la demanda agregada. El objetivo de este artículo es discutir cual debiera ser la respuesta de política monetaria a estos choques externos. Desde que se implementó el sistema de metas de inflación en 2002, el instrumento principal dela política monetaria peruana ha sido una tasa de interés corto plazo. La otra herramienta clave de la política monetaria ha sido la intervención esterilizada en el mercado cambiario. Para comparar las respuestas de política monetaria ante los choques externos adversos, se incorporan estos diversos instrumentos del banco central en un modelo IS-LM-BP, similar al del libro de texto. Este modelo es adaptado a las condiciones financieras de una economía como la peruana que tiene un sistema bancario que opera en moneda nacional y extranjera. La conclusión del texto es que una política monetaria, como la sugerida por Blanchard et al (2010), que combine una regla de Taylor para el manejo de la tasa de interés, dirigida al equilibrio interno, con una regla de intervención cambiaria que rema en contra de la corriente, dirigida al equilibrio externo, puede estabilizar el nivel de precios y la actividad económica ante los choques externos. El banco central debe reducir la tasa de interés y vender moneda extranjera ante choques externos adversos y debe subir la tasa de interés y comprar moneda extranjera ante choques externos favorables.

CHARLES UNIVERSITY FACULTY OF SOCIAL SCIENCES Institute of Economic Studies Essays on monetary policy Abstract Author: Mgr. Jan Žáček Advisor: doc. Mgr. Tomáš Holub, Ph.D. Academic year: 2020/2021 Abstract The dissertation thesis consists of three research papers in the field of mone- tary policy. All three papers connect the same topic - monetary policy rules. The first two papers focus on monetary policy rules augmented with finan- cial variables from a theoretical point of view, while the third paper provides international empirical evidence on the monetary policy conduct taking into account financial cycle developments. In the first paper I employ a small-open economy dynamic stochastic gen- eral equilibrium (DSGE) model to examine whether the central bank's direct reaction to asset prices or credit-to-GDP ratio brings macroeconomic benefits in terms of lower volatility of inflation and output. I find that direct reaction to asset prices can be beneficial for a central bank; however, the result holds only for some domestic shocks. When facing shocks originating abroad, the usefulness of the augmented monetary policy rule deteriorates. Overall, the performance of the rule augmented with asset prices is shock-dependent, and therefore, any strict rule-like behaviour for a central bank operating within a...

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[pt] Nesse artigo aplicamos a técnica de estimação dos nowcasts apresentada por Giannone, Reichlin e Small (2008), para o PIB e inflação brasileiros. Extraímos informações de um elevado número de variáveis e produzimos modelos capazes de informar contemporaneamente uma medida para as variáveis em questão. Em posse dessa leitura cotidiana, produzida por esses modelos, estimamos uma regra de Taylor diária para o Banco Central do Brasil (BCB), o que permitiu melhor identificar choques monetários e alterações na função de reação do BCB ao longo do tempo. Concluímos, primeiramente, que os modelos nowcasts apresentam acurácia comparável às previsões do relatório Focus do BCB. Segundo, 2 (duas) comparações históricas realizadas mostraram indícios que nossa proxy para choques monetários diários está relacionada às decisões explícitas de política monetária. Por fim, encontramos evidências que os modelos nowcasts puderam capturar grande parte da informação relevante para a determinação da taxa de juros de curto prazo, o que deveria estimular a aplicação de tais modelos nos processos decisórios públicos e privados. / [en] In this article we apply the two-steps nowcasting method, described in Giannone, Reichlin, and Small (2008), to build nowcast models for Brazilian GDP and inflation. Throught the application of this method, we could extract information from a large data-set and build models which could be used to produce a daily measurement of GDP and inflation. Using this measurement was possible to build a daily Taylor rule for the Brazilian Central Bank (BCB). This new application of nowcast models allowed us to extract a daily measurement of monetary shocks. Our study produced three main findings. First, the nowcast model showed an accuracy close to projections presented in the Focus survey. Second, we identified by historical comparison that the monetary shocks proxy, measured by the differences between the daily Taylor rule and the movements in the short-term interest rate, are related with unanticipated monetary policies decisions. Finally, nowcasts were able to capture a great part of relevant information to determine the short-term interest rate, which should stimulate the policymakers and financial markets members to apply those models.

My dissertation topic is on the impact of changes in the monetary policy interest rate target on bank distress and systemic risk in the U.S. banking system. The financial crisis of 2007-2009 had devastating effects on the banking system worldwide. The feeble performance of financial institutions during the crisis heightened the necessity of understanding systemic risk exhibited the critical role of monitoring the banking system, and strongly necessitated quantification of the risks to which banks are exposed, for incorporation in policy formulation. In the aftermath of the crisis, US bank regulators focused on overhauling the then existing regulatory framework in order to provide comprehensive capital buffers against bank losses. In this context, the Basel Committee proposed in 2011, the Basel III framework in order to strengthen the regulatory capital structure as a buffer against bank losses. The reform under Basel III framework aimed at raising the quality and the quantity of regulatory capital base and enhancing the risk coverage of the capital structure. Separately, US bank regulators adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) to implement stress tests on systemically important bank holding companies (SIBs). Concerns about system-wide distress have broadened the debate on banking regulation towards a macro prudential approach. In this context, limiting bank risk and systemic risk has become a prolific research field at the crossroads of banking, macroeconomics, econometrics, and network theory over the last decade (Kuritzkes et al., 2005; Goodhart and Sergoviano, 2008; Geluk et al., 2009; Acharya et al., 2010, 2017; Tarashev et al., 2010; Huang et al., 2012; Browless and Engle, 2012, 2017 and Cummins, 2014). The European Central Bank (ECB) (2010) defines systemic risk as a risk of financial instability “so widespread that it impairs the functioning of a financial system to the point where economic growth and welfare suffer materially.” While US bank regulators and policy-makers have moved to strengthen the regulatory framework in the post-crisis period in order to prevent another financial crisis, a growing recent line of research has suggested that there is a significant link between monetary policy and bank distress (Bernanke, Gertler and Gilchrist, 1999; Borio and Zhu, 2008; Gertler and Kiyotaki, 2010; Delis and Kouretas, 2010; Gertler and Karadi, 2011; Delis et al., 2017). In my research, I examine the link between the monetary policy and bank distress. In the first chapter, I investigate the impact of the federal funds rate (FFR) changes on the banking system distress between 2001 and 2013 within an unrestricted vector auto-regression model. The Fed used FFR as a primary policy tool before the financial crisis of 2007-2009, but focused on quantitative easing (QE) during the crisis and post-crisis periods when the FFR hit the zero bound. I use the Taylor rule rate (TRR, 1993) as an “implied policy rate”, instead of the FFR, to account for the impact of QE on the economy. The base model of distress includes three macroeconomic indicators—real GDP growth, inflation, and TRR—and a systemic risk indicator (Expected capital shortfall (ES)). I consider two model extensions; (i) I include a measure of bank lending standards to account for the changes in the systemic risk due to credit tightening, (ii) I replace inflation with house price growth rate to see if the results remain robust. Three main results can be drawn. First, the impulse response functions (IRFs) show that raising the monetary policy rate contributed to insolvency problems for the U.S. banks, with a one percentage point increase in the rate raising the banking systemic stress by 1.6 and 0.8 percentage points, respectively, in the base and extend models. Second, variance decomposition (VDs) analysis shows that up to ten percent of error variation in systemic risk indicator can be attributed to innovations in the policy rate in the extended model. Third, my results supplement the view that policy rate hikes led to housing bubble burst and contributed to the financial crisis of 2007-2009. This is an example for how monetary policy-making gets more complex and must be conducted with utmost caution if there is a bubble in the economy. In the second chapter, I examine the prevalence and asymmetry of the effects on bank distress from positive and negative shocks to the target fed fund rate (FFR) in the period leading to the financial crisis (2001-2008). A panel model with three blocks of control variables is used. The blocks include: positive/negative FFR shocks, macroeconomic drivers, and bank balance sheet indicators. A distress indicator similar to Texas Ratio is used to proxy distress. Shocks to FFR are defined along the lines suggested by Morgan (1993). Three main results are obtained. First, FFR shocks, either positive or negative, raise bank distress over the following year. Second, the magnitudes of the effects from positive and negative shocks are unequal (asymmetric); a 100 bps positive (negative) shock raises the bank distress indicator (scaled from 0 to 1) by 9 bps (3 bps) over the next year. Put differently, after a 100 bps positive (negative) shock, the probability of bankruptcy rises from 10% to 19% (13%). Third, expanding operations into non-banking activities by FHCs does not benefit them in terms of distress due to unanticipated changes in the FFR as FFR shocks (positive or negative) create similar levels of distress for BHCs and FHCs. In the third chapter, I explore the systemic risk contributions of U.S. bank holding companies (BHCs) from 2001 to 2015 by using the expected shortfall approach. Developed by analogy with the component expected shortfall concept, I decompose the aggregate systemic risk, as measured by expected shortfall, into several subgroups of banks by using publicly available balance sheet data to define the probability of bank default. The risk measure, thus, encompasses the entire universe of banks. I find that concentration of assets in a smaller number of larger banks raises systemic risk. The systemic risk contribution of banks designated as SIFIs increased sharply during the financial crisis and reached 74% at the end of 2015. Two-thirds of this risk contribution is attributed to the four largest banks in the U.S.: Bank of America, JP Morgan Chase, Citigroup and Wells Fargo. I also find that diversifying business operations by expanding into nontraditional operations does not reduce the systemic risk contribution of financial holding companies (FHCs). In general, FHCs are individually riskier than BHCs despite their more diversified basket of products; FHCs contribute a disproportionate amount to systemic risk given their size, all else being equal. I believe monetary policy-making in the last decade carries many lessons for policy makers. Particularly, the link between the monetary policy target rate and bank distress and systemic risk is an interesting topic by all accounts due to its implications and challenges (explained in more detail in first and second chapters). The literature studying the relation between bank distress and monetary policy is fairly small but developing fast. The models I investigate in my work are simple in many ways but they may serve as a basis for more sophisticated models. / Economics

We estimate a multivariate unobserved components stochastic volatility model to explain the dynamics of a panel of six exchange rates against the US Dollar. The empirical model is based on the assumption that both countries' monetary policy strategies may be well described by Taylor rules with a time-varying inflation target, a time-varying natural rate of unemployment, and interest rate smoothing. The estimates closely track major movements along with important time series properties of real and nominal exchange rates across all currencies considered. The model generally outperforms a benchmark model that does not account for changes in trend inflation and trend unemployment. (authors' abstract) / Series: Department of Economics Working Paper Series

La thèse se propose, dans une première partie, de décrire l'origine des débats sur la nécessité d'une banque centrale jusqu'aux formulations actuelles. Sont examinés les éléments qui ont posé les bases d'un prêteur ultime et favorisé la maturation de ce métier, de même que sont mis en relief les résultats accumulés depuis deux siècles. Notre attention porte sur la Réserve Fédérale des Etats-Unis. Les économistes sont en quête de solutions afin de prévenir les crises financières. Ainsi a été proposé un élargissement du tableau de bord de manière à contenir les prix d'actif dans une approche macro et micro-prudentielle. Parallèlement, sont analysés les canaux par lesquels la politique monétaire influence les variables réelles et financières de l'économie, et qui attestent alors du rôle pouvant être théoriquement assumé par la banque centrale sur les marchés financiers. La deuxième partie concentre le propos sur les ressorts des crises financières. Nous nous intéressons au paradoxe de la surliquidité et du surendettement, en insistant sur les particularités des marchés financiers devenant plus vulnérables. La contribution de la thèse dans cette étape consiste à vérifier si la banque centrale contribue à la manifestation de comportements abusifs et excessifs sur les marchés financiers par l'abondante création de liquidité. Notre étude empirique devrait permettre de répondre à cette question à travers une modélisation économétrique et des tests statistiques (dont le test de Chow) appliqués à une politique monétaire active (type règle de Taylor). En ce sens, cette recherche sur les actions de la Fed vise à forger une opinion sur le métier de banquier central et sur son devenir. / The thesis proposes, in a first part, to describe the origin of the debate on the need for a central bank up until the recent formulations. They were examined the elements which have posed the bases of an "ultimate lender" and promoted the maturation of this function, as were highlighted the results accumulated over two centuries. Our attention is drawn to the Federal Reserve of the United States. The economists are always in search for solutions to prevent financial crises. It has thus been proposed to extend the dashboard of central banks as to contain asset prices in a macro and micro-prudential approach. In parallel, in order to support this debate, we analyze the mechanisms by which the monetary policy affects the real and financial variables of the economy, which also affirm the role that can be assumed in theory by a central bank on financial markets. The second part focuses on the recurrence and intensity of financial crises. We consider the paradox of excess liquidity and over-indebtedness, with an emphasis on properties of financial markets becoming more vulnerable and their recent development. The contribution of the thesis in this stage consists of checking whether the central bank is responsible of abusive and excessive behavior on the financial markets by the abundant creation of liquidity. Our empirical study should help to answer this question through an econometric modeling and statistical tests (including the Chow test) applied to an active monetary policy (type Taylor rule). In this way, our research on the actions of the Fed aims to forge an opinion on the profession of modern central bankers, and perhaps on the future of central banks themselves.