The main objective of the thesis is to analyse the suitability of inflation targeting, a monetary policy regime which focuses on the achievement of the price stability, for the emerging market economies. The performance of inflation targeting countries is compared to the performance of non-inflation targeting countries which use other monetary policies such as the monetary aggregate target or exchange rate anchor. Regressions, using the difference-in-differences estimation approach, are run to assess the contribution of the inflation targeting framework to the development of economic variables such as the CPI, GDP, national interest rate etc. Economic outcomes of the financial crisis period (2007- 2010) are crucial part of the thesis. The convenience of the inflation targeting framework for the emerging market economies is derived. This holds also for the severe situations such as the crisis since it lowers the volatility of the main variables of the interest. Keywords: inflation targeting, monetary economics, monetary policy, emerging market economies, difference in differences estimation, financial crisis

The present paper has attempted to provide an empirically argumented basis on the existing conflict about effectiveness of IT regime on lowering inflation and inflation volatility. In the first part we perform panel analysis on a group of 43 emerging and developing economies for a more recent period ranging from 1997 to 2011, distinguishing between normal and crisis times as well as between geographical regions. Differently from common studies we applied dynamic panel model specification that controls for reverse causality of regime adoption. Despite broad arguments addresing IT ineffectiveness, our results support the regime and imply that shifting to IT will lower both inflation and inflation volatility in normal times. Model specification during the external shocks was inconclusive on the selected sample with relatively recent IT history. Regarding the geographical IT performance, we outlined that regime effectiveness was uniform along analyzed regions. In the second part we perform a preliminary analysis of a developing economy IT experience and conclude that, even though there are some problems of technical nature and main policy rate is still a weak instrument of transmission channel, the Republic of Moldova chose right time for regime adoption and has made considerable progress towards the...

M.Com. (Economics) / The theoretical principle of the Report is by no means clearly outlined by the Commission although the Report states that it was compiled by experts. The study tried to identify the position of the Report within the broad spectrum of beliefs on monetary policy. For the purpose of analysis, the Monetaristic School, the Keynesian School as well as the ultra free market approach of the Austrian School of Economists were looked at specifically. The study yielded interesting results such as: * The disparagement of the Report of a fixed money supply rule and interest rates which are not allowed to find their own levels at all times, forms an unbridgeable gap between the monetarists and the Commission. Of the most important incidences between the two viewpoints is the fact that inflation is regarded as a monetary phenomenon and that direct control measures are rejected. * The fact that the Report recommends that the money supply be controlled from the demand side and that we therefore, at least in the short term, have to do with an endogenous money supply which is determined by the demand therefore, supports the view of the Keynesian School. * No definite incidences between the Report and the ultra free market approach could be identified. * A more functional approach implies that discretionary decision making power of the monetary authorities ought to be scaled down and altered as the approach of the Commission with regard to control over the money supply is being questioned. The reason for this is that behavourial variables that the Commission tries to influence are not known variables. * A money supply rule in South Africa can presently not be applied effectively as a result of the fact that all markets in the economy are not fully competitive. * It is recommended that more freedom can be g,ranted to the private banking sector in the form of the denationalization of money. It can for example take place through extensive scaling down in discount rendering by the Reserve Bank. Banks are consequently forced to keep their own reserves and to create money on the basis of their current reserves. That alone forms a control mechanism over the creation of money because of the fact that competition between banks will ensure that no bank would like its currency to depreciate against the currencies of the other banks as a result of excessive money creation.

M.Com. (Economics) / Please refer to full text to view abstract

Thesis advisor: Peter N. Ireland / This dissertation consists of three essays that examine macroeconomic implications of trade liberalization. There has been a long-lasting debate on how trade openness influences the effectiveness of monetary policy. The first two essays provide a novel empirical and theoretical investigation into this issue. Motivated by recent new phenomena in U.S. labor market, the third essay is a work in progress that seeks to explore the evolution of U.S. manufacturing employment structural dynamics, and its connection with import competition. The first essay uses annual data of US manufacturing industries at 4-digit SIC level from 1972 to 2005 to conduct the empirical analysis. It shows that trade openness is negatively associated with industry-level effect of monetary policy, and at a given degree of trade openness, industries that involve in offshoring don't necessarily exhibit weaker responses. These empirical findings are hard to reconcile with the implications of standard open economy New Keynesian model, which indicates that trade openness strengthens the effectiveness of monetary policy and doesn't model offshoring separately. The second essay provides a new open economy New Keynesian model that can explain the empirical findings in the first essay. The model features endogenously determined international trade pattern based on Ricardian trade theory, and one-way offshoring from the advanced economy to the less developed one. This model highlights a new channel through which trade openness influences the monetary transmission mechanism: a decline in both trade and offshoring costs raises labor demand elasticity. Trade openness weakens the effects of monetary policy changes on output and inflation by dampening the responses of the domestic labor market. The calibrated model indicates that, when the economy moves from trade and financial autarky to a modern trade regime with an incomplete international financial market, the monetary policy shocks have 22% less of an effect on real GDP and consumer price inflation. The third essay provides the motivation on why to explore the evolution of U.S. manufacturing employment structural dynamics, introduces the methodology, and describes the dataset as well as future works. / Thesis (PhD) — Boston College, 2016. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Thesis advisor: Susanto Basu / This dissertation consists of three essays that study macroeconomic modeling and its application with a particular focus on monetary economics. In Chapter 1, I develop a New Keynesian model with heterogeneous workers whose wage settings are subject to downward nominal wage rigidity (DNWR) to address two puzzles of inflation dynamics: the missing deflation during the Great Recession and the excessive disinflation afterward. I demonstrate that DNWR introduces a time-varying wedge between the output gap and the marginal cost of producing one unit of output, which makes the observed Phillips curve flatter during recessions. Endogenous evolution of cross-sectional wage distribution generates various dimensions of non-linearities, while the presence of the zero lower bound (ZLB) of the nominal interest rate further reinforces the mechanism. Consequently, the model can quantitatively account for the inflation dynamics during and after the Great Recession under plausible parameter values that are consistent with micro evidence. In Chapter 2, I study welfare-maximizing monetary policy rule in the heterogeneous agent New Keynesian model with DNWR that is developed in Chapter 1. The optimal monetary policy rule responds strongly to output to address the inefficiency generated by DNWR, while responsiveness to inflation plays a minor role in welfare. Moreover, monetary policy can improve social welfare by responding more aggressively to a contractionary shock than to an expansionary one to offset the asymmetry stemming from DNWR. In the presence of the ZLB, on the other hand, alternative policy rules such as forward guidance and price-level targeting can partly offset the adverse effects of it by committing to a future low interest rate policy. I also investigate the optimal steady-state inflation rate. In Chapter 3, which is coauthored with Dongho Song and Jenny Tang, we propose a method of introducing theory-driven priors into the estimation of the vector autoregression (VAR). Our methodology is more flexible than existing methods in that it allows a researcher to incorporate prior beliefs on a subset of variables in theoretical models that are of key interest while remaining agnostic about other variables in the VAR. We apply to the problem of exchange rate forecasting for the British pound versus the US dollar. By imposing different combinations of priors informed by uncovered interest rate or purchasing power parity, we find that substantial gains are realized at longer forecast horizons. / Thesis (PhD) — Boston College, 2018. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

A presente tese é um estudo empírico sobre o regime de metas de inflação. Especificamente, concentramos o esforço de pesquisa na verificação da contribuição do regime de metas para a redução das taxas de sacrifício nos episódios de desinflação e na identificação das variáveis que determinam sua implementação, como estratégia de política monetária. A redução dos custos de desinflação é um dos benefícios atribuídos, em teoria, ao regime de metas de inflação. Os estudos empíricos anteriores a esse não encontraram, no entanto, evidências de redução das taxas de sacrifício nos episódios de desinflação realizados sob regime de metas. No capítulo um dessa tese examinamos a relação entre taxas de sacrifício e a presença do regime de metas utilizando uma amostra de 99 episódios de desinflação identificados nos países da OCDE e 46 episódios de desinflação identificados em países emergentes. Considerando-se os episódios de desinflação que se iniciaram pelo menos seis meses depois da implementação do regime, nossos resultados confirmaram os benefícios atribuídos em nível teórico ao regime de metas. Em 1990, a Nova Zelândia era o único país do mundo com regime de metas de inflação. Em 2006, vinte e dois países já haviam aderido ao sistema de metas. O crescimento do número de países que adotaram o regime de metas de inflação a partir de 1990 motivou uma pesquisa sobre os fatores determinantes para implementação dessa estratégia de política monetária, apresentada no capítulo dois. Considerando o grupo de países da OCDE, os resultados de um modelo de variável dependente binária indicaram que a taxa de inflação e a dívida pública como proporção do PIB alteram significativamente a probabilidade de adoção do regime de metas, enquanto que alternância de poder entre partidos e a volatilidade de choques de oferta não parecem ser fatores relevantes. Devido ao pequeno número de observações da amostra de países, utilizamos adicionalmente neste capítulo o método de boostrap paramétrico para a construção de intervalos de confiança e para os testes de especificação do modelo. Os resultados das simulações confirmaram os obtidos pela teoria assintótica. A análise do capitulo dois indicou que a opção pela estratégia do regime de metas não é aleatória. Uma conseqüência da violação da hipótese de exogeneidade na escolha do regime de metas - presente no estudo sobre metas de inflação e taxas de sacrifício no capítulo um - é que a possível correlação entre a razão de sacrifício e as variáveis que determinam a adoção ou não adoção do regime de metas de inflação pode levar à estimativas viesadas do efeito do regime de metas sobre as razões de sacrifício. No capítulo três examinamos os efeitos do regime de metas de inflação sobre as razões de sacrifício dos episódios de desinflação considerando endogeneidade na escolha do regime de metas, através de métodos de regressão baseados em propensity scores, para a correção de possíveis vieses no estimador dos efeitos. A análise dos episódios de desinflação nos países da OCDE confirma os benefícios teoricamente atribuídos ao regime de metas. / This doctoral thesis is an empirical essay about inflation targeting. The main objective is to verify the contribution of inflation targeting regime to diminish sacrifice ratios in disinflation episodes and identify the factors behind a country?s decision to choice this type of monetary policy strategy. The reduction of sacrifice ratios is one of the theoretically alleged benefits of inflation targeting. Previous empirical studies did not find, however, support to this result. In chapter one we examine the relation between sacrifice ratios and inflation targeting from a sample of 99 disinflation episodes identified in OECD countries and 46 episodes in emerging economies. Considering disinflation episodes starting at least six months after the adoption of inflation targeting regime, our results corroborate the theory. In 1990, New Zealand was the sole country worldwide with an inflation targeting regime in place. In 2006, twenty two countries had already adhered to this monetary policy modus operandi. Motivated by the impressive rise in the number of inflation targeters, we seek also to identify the factors that influence the implementation of inflation targeting. Running a Probit model for the set of OECD countries, we find that high past inflation and low debt levels increase the probability that a country will end up opting for the inflation targeting system, but the degree of political instability and incidence of external shocks do not seem to be important factors. Due to the small sample size, we construct additionally parametric boostrap confidence intervals and bootstrap specification tests. The results of simulations confirmed that obtained with asymptotic theory. The Probit model has revealed that the adoption of inflation targeting between countries is endogenous. As a consequence, the econometric model of chapter one can produce biased coefficient estimates. In chapter three we examine the effects of inflation targeting regime on sacrifice ratios considering endogenous choice of IT. We apply regression methods based on propensity scores to correct possible bias in the coefficient estimates of IT effects on sacrifice ratios. The results of OECD countries indicate that bringing down inflation entails much smaller output losses if the country inflation targets.

This Ph.D. dissertation contains three essays on Open Economy Macroeconomics. The first chapter investigates monetary policy problem of emerging economies known as the Tosovsky Dilemma, which says that when an emerging economy experiences a boom associated with capital inflows and exchange rate appreciation, it is not appealing to tighten monetary policy to counteract inflationary pressures as this might further exacerbate inflows and appreciation. In the chapter, I develop an intertemporal general equilibrium framework of the monetary transmission mechanism to investigate how this dilemma shapes optimal monetary policy. In the model, financing is decentralized and collateralized by physical capital, which is nontradable and costly to adjust over time. The Dilemma materializes when there is a positive external shock that increases capital inflows and generates real exchange rate appreciation and inflation in the nontradable sector, all of which are inefficient. Contrary to conventional wisdom, the Ramsey optimal monetary policy calls for lowering the policy rate in such circumstances in order to suppress capital inflows and appreciation, while accepting inflation in the nontradable sector. If the capital flows can be controlled by an additional policy instrument, then optimal policy becomes countercyclical, as in the conventional framework without the Dilemma. The second and third chapters focus on dynamics of labor shares over the business cycles in small open economies. The second chapter uses annual labor shares data of 40 years for 35 small open economy countries and finds three empirical regularities. First, labor shares are not constant, but they are as volatile as output. Second, labor shares in emerging economies are about twice as volatile as labor shares in advanced economies. Third, labor shares in emerging economies are procyclical on average, whereas they are countercyclical in most advanced economies. The empirical findings offer a skeptical view of the conventional beliefs about the unitary elasticity of substitution between capital and labor, and countercyclical labor shares in the short-run. The third chapter paper builds a theoretical model which can comprehensively explain the empirical findings in the second chapter. The model is a dynamic stochastic general equilibrium, small open economy, composed of tradable and nontradable sectors with CES production functions. In the model, there are two margins of labor share fluctuations over the business cycles, which are fluctuations of the capital-labor ratio in each sector and fluctuations in the relative value of sectoral production. The estimated models show a countercyclical labor share and volatility near that of output in Canada, and procyclical and excessively volatile labor share in Mexico, all of which are in line with the data.

Zhu, Tingting. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2009. / Includes bibliographical references (leaves 21-23). / Abstract also in Chinese. / Chapter Chapter 1 --- Introduction --- p.1 / Chapter Chapter 2 --- Literature Review and Background --- p.2 / Chapter 2.1 --- The literature on price stickiness --- p.2 / Chapter 2.2 --- The literature on monetary policy --- p.3 / Chapter Chapter 3 --- Model and Data --- p.4 / Chapter 3.1 --- The model --- p.4 / Chapter 3.2 --- Model estimation --- p.6 / Chapter 3.3 --- Data --- p.7 / Chapter Chapter 4 --- Price Fluctuations in Disaggregated Data --- p.7 / Chapter 4.1 --- Sources of fluctuations and persistence in price series --- p.8 / Chapter 4.1.1 --- China inflation volatility --- p.8 / Chapter 4.1.2 --- China inflation persistence --- p.10 / Chapter 4.1.3 --- India inflation volatility --- p.10 / Chapter 4.1.4 --- India inflation persistence --- p.11 / Chapter 4.2 --- Effects of macroeconomic and sector-specific shocks on price --- p.12 / Chapter 4.2.1 --- China sectoral price response to various shocks --- p.12 / Chapter 4.2.2 --- India sectoral price response to various shocks --- p.13 / Chapter 4.3 --- Urban and rural price responses to various shocks --- p.13 / Chapter Chapter 5 --- Effects of Monetary Policy Shocks --- p.15 / Chapter 5.1 --- Effects of monetary shocks in China --- p.15 / Chapter 5.2 --- Effects of monetary shocks in India --- p.17 / Chapter Chapter 6 --- Conclusion --- p.18 / Bibliography --- p.21 / Table 1: China volatility and persistence of monthly inflation series --- p.24 / Table 2: China cross-sectional correlations of various statistics --- p.25 / Table 3: India volatility and persistence of monthly inflation series --- p.26 / Table 4: India cross-sectional correlations of various statistics --- p.27 / Table 5: Response of price series to a monetary policy shock in China --- p.28 / Table 6: Response of price series to a monetary policy shock in India --- p.29 / Figure 1: China sectoral price responses to shocks (Base Rate as the monetary instrument)…… --- p.30 / Figure 2: China sectoral price responses to shocks (M2 as the monetary instrument) --- p.31 / Figure 3: India sectoral price responses to shocks (Bank Rate as the monetary instrument) --- p.32 / Figure 4: India sectoral price responses to shocks (M3 as the monetary instrument) --- p.33 / Figure 5: China urban and rural CPI responses to various shocks --- p.34 / Figure 6: India urban and rural CPI responses to various shocks --- p.35 / Figure 7: China impulse responses to an identified monetary shock (Base Rate) --- p.36 / Figure 8: China impulse responses to an identified monetary shock (M2) --- p.37 / Figure 9: China sectoral price responses to monetary shocks with long-run restriction (Base Rate) --- p.38 / Figure 10: China sectoral price responses to monetary shocks with long-run restriction (M2) --- p.39 / Figure 11: India impulse responses to an identified monetary shock (Bank Rate) --- p.40 / Figure 12: India impulse responses to an identified monetary shock (M3) --- p.41 / Figure 13: India sectoral price responses to monetary shocks with long-run restriction (Bank Rate) --- p.42 / Figure 14: India sectoral price responses to monetary shocks with long-run restriction (M3) --- p.43 / Appendix --- p.44

This thesis examines the problems posed by Japan???s recent macroeconomic experience for conventional monetary policy theory and practice. Japan???s experience with deflation and the zero lower bound for nominal official interest rates is placed in the context of neo-Wicksellian and monetarist interpretations of the monetary policy transmission mechanism. The neo-Wicksellian approach to the zero bound problem is shown to suffer significant limitations in view of Japan???s experience, while a monetarist interpretation of the transmission mechanism is shown to be more robust. The thesis considers the role of the official interest rate and the money base in vector autoregression models of the Japanese economy, finding that the economy became less amenable to effective stabilisation by monetary policy from the early 1990s onwards. A new approach to estimating a neo-Wicksellian monetary policy rule for the Bank of Japan is proposed and the robustness of the parameters of this rule determined. The thesis motivates a role for the money base in the determination of real output and inflation. A policy rule in the growth rate of the nominal money base is estimated and the stability of its parameters with respect to a hypothesised structural break and changes in the governorship of the Bank of Japan is considered. Aggregate demand and supply specifications for the Japanese economy are estimated that show a distinct role for the money base that is independent of the official interest rate. These specifications are extended to develop a model of the Japanese economy. The model is distinctive in incorporating both neo-Wicksellian and monetarist views of the monetary policy transmission mechanism. The macroeconomic stabilisation properties of various interest rate and money base growth rules are compared in the context of the model, using stochastic simulation methods. In particular, a policy rule in the growth rate of the nominal money base with the nominal official interest rate set to zero is simulated and shown to have macroeconomic stabilisation properties that compare favourably to conventional interest rate rules. The thesis concludes that the neglect of money in contemporary monetary policy theory and practice is mistaken in view of Japan???s recent macroeconomic experience.