Both the ECB and the Fed implemented various unconventional measures in response to the last crisis. While the ECB's policies were based on direct lending to banks, the FED adopted large-scale asset purchases. According to the empirical evidence these policies had economically beneficial effects in the US and the Eurozone but these measures have also certain spillovers which scope and exact impacts are quite difficult to estimate. There have been already many papers focusing on cross-border impacts of the FED's policies, but far less studied the spillovers of the ECB's policies. This work provides a theoretical background concerning the unconventional monetary policies implemented by the ECB and the FED after 2008 and analyse the impacts of ECB's policies on six particular countries outside euro area. The Impulse Responses of output, inflation, domestic interest rate and exchange rate are analyzed via block-restricted VAR model. My results confirm that euro area monetary policy does have an impact on non-euro area countries, although the response of macroeconomic variables in analysed countries are heterogeneous and also differ in the period before and after September 2008. Countries seem to be indeed affected more by conventional monetary policies until September 2008, but the euro-area monetary policy spills over via unconventional policies after September 2008. Overall, the ECB's policies affect economic activity outside euro area, but does not have significant impact on inflation. Furthermore, the exchange rate just initially drops in response to monetary tightening, but this reaction usually does not last for more than four months.

Using survey-based measures of future interest rate expectations from the Blue Chip Economic Indicators and the Survey of Professional Forecasters, we examine the relationship between monetary policy uncertainty, captured as the dispersion of interest rate forecasts, and fluctuations in real economic activity and core inflation. We use a flexible time-varying parameter vector autoregression (TVP-VAR) model to clearly isolate the dynamic effects of shocks to monetary policy uncertainty. To further study possible a possible nonlinear relationship between monetary policy uncertainty and the macroeconomic aggregates, we extract the impulse-response functions (IRF’s) estimated at each quarter in the time series, and use a multi-variate regression with various measures of the shape of the IRF’s and the level of monetary policy uncertainty at that quarter in the TVP-VAR model to gauge the relationship between the effectiveness of traditional monetary policy (shocks to the Federal Funds rate), forward guidance (shocks to expected interest rates) and uncertainty. The results show that monetary policy uncertainty can have a quantitatively significant impact on output, with a one standard deviation shock to uncertainty associated with a 0.6% rise in unemployment. The indirect effects are more substantial, with a one standard deviation increase in monetary policy uncertainty associated with a 23% decrease in the maximum response of unemployment to a forward guidance episode (interest rate expectations shock). This evidence points to the importance of managing monetary policy uncertainty (clear and direct forward guidance) as a key policy tool in both stimulating economic activity as well as propagating other monetary policy through the macroeconomy.

published_or_final_version / Economics and Finance / Master / Master of Economics

No description available.

The nature of the Thai banking system in the pre-crisis era has been of great interest in the aftermath of Thailand’s 1997 financial crisis. Scores of studies have put great emphasis on the factors contributing to the crisis. There has been scant prior research on how Thai banks operate in practice since the crisis and the researcher was interested in better understanding this, particularly how the banks deal with information-related problems. The main objective of the research is to give an insight into the actions that Thai bankers carry out and how their activities are perceived by corporate borrowers, auditors, regulators and the bankers themselves. In dealing with informational problems, Thai banks employ screening techniques, collateral requirements, loan covenants, monitoring, and their relationships with borrowers in an attempt to mitigate the costs of both adverse selection and moral hazard problems. The study finds that there have been significant improvements in the banking system which has made Thai banks more compliant with internationally accepted lending practice. However, there is still room for further studies on how to create incentives to improve financial disclosure among small and medium enterprises (SMEs), how to establish sound corporate governance of banks, and how to minimise political interference in Thai state-owned banks.

Inflation targeting has become an increasingly popular regime among emerging markets. Focusing on the experience of inflation targeting adoption in the countries in Central and Eastern Europe and Commonwealth of Independent States, this thesis highlights the main features of the inflation targeting framework. A clear economic condition bringing these countries together is considered the dollarization issue which gains importance when designing the inflation targeting framework. The empirical study on the impact of inflation targeting in inflation, inflation volatility, output, output volatility and deposit dollarization shows clear benefits of inflation targeting in terms of inflation and inflation volatility, which are not achieved at the expense of output growth. Also, dollarization does not harm the positive impact of inflation targeting on inflation.

This dissertation applies vector autoregression approaches to assess the effects of the monetary policy in South Africa. First, the dissertation quantified declines in the consumption expenditure attributed to the combined house wealth and credit effects due to the contractionary monetary policy shocks. The results at the peak of interest rates effects on consumption on the sixth quarter provide little support that the indirect house wealth channel is the dominant source of monetary policy transmission to consumption. Second, the dissertation assessed how real interest rate reacts to positive inflation rate shocks, exchange rate depreciation shocks and the existence of Fisher effect over longer periods. Evidence confirmed the Fisher effect holds over longer horizons and the real interest rate reacts negatively to the inflation and exchange rate shocks. In addition, findings show that the strict inflation-targeting approach is not compatible with significant real output growth. The results show that only the real effective exchange rate is growth enhancing under flexible inflation targeting approach. Third, the dissertation investigated and compared the effects of contractionary monetary policy and exchangerate appreciation shocks on trade balance in South Africa. Evidence suggests that the exchange rate appreciation shocks worsen the trade balance for longer periods than contractionary monetary policy shocks in South Africa. In addition, the findings indicate that monetary policy operates through the expenditure switching channel rather than the income channel in the short run to lower net trade balance. Finally, the dissertation investigated the effect of contractionary monetary policy shocks on output in South Africa and Korea. The chapter compared what the estimated structural shocks suggested about policy shocks relative to bank systematic responses. Evidence shows that a contractionary monetary policy shock reduces output persistently in South Africa compared to transitory declines in Korea. The estimated monetary policy shocks suggest that Korean monetary policy was expansionary during the recession in 2009 unlike the South Africa counterparty. I attribute the differences to monetary policy intervention tools such as swap arrangement, in addition to interest rate reductions used to deal with recession in Korea.

by Yan Chi-Wai. / Thesis (M.B.A.)--Chinese University of Hong Kong, 1987. / Bibliography: leaf 68.

It has been well established for a long time that sticky prices are fundamental to our understanding of monetary policy. Indeed, sticky prices are a common micro-foundation in models of monetary policy and nominal aggregate fluctuations, as monetary variables typically do not have real economic effects if prices are fuly flexible. This is why price stickiness has been the focus of much research, both theoretical and empirical. A particularly exciting development in this literature has been the recent availability of large, detailed, micro data sets of individual prices, which allow us to observe when and how often the prices of individual goods and sevices change. This type of data has greatly improved our ability to discipline the theoretical models that are used to analyze monetary policy, and advances in sticky price modelling have also provided important questions to ask of the data. The most common data set used in this literature has been the micro data underlying the U.S. Consumer Price Index. While work with this data has produced important results, an important limitation is that it has, until recently, only been available going back to 1988. This is a limitation because it means that the data set only cover periods of low and stable inflation, which limits the types of questions that the price data can help answer. In this dissertation, I present an extension to this data set: in work carried out with Emi Nakamura, Jón Steinsson and Patrick Sun, we re-constructed an older portion of the data to extend it back to 1977. With this new sample, we can study the high inflation periods of the late 1970's and early 1980's, and in this dissertation I explore various questions related to monetary policy, and show that several important insights can be gained from this new data set. Chapter 1, ``The Elusive Costs of Inflation: Price Dispersion during the U.S. Great Inflation", presents the extended CPI data set and addresses a key policy question: How high an inflation rate should central banks target? This depends crucially on the costs of inflation. An important concern is that high inflation will lead to inefficient price dispersion. Workhorse New Keynesian models imply that this cost of inflation is very large. An increase in steady state inflation from 0% to 10% yields a welfare loss that is an order of magnitude greater than the welfare loss from business cycle fluctuations in output in these models. We assess this prediction empirically using a new dataset on price behavior during the Great Inflation of the late 1970's and early 1980's in the United States. If price dispersion increases rapidly with inflation, we should see the absolute size of price changes increasing with inflation: price changes should become larger as prices drift further from their optimal level at higher inflation rates. We find no evidence that the absolute size of price changes rose during the Great Inflation. This suggests that the standard New Keynesian analysis of the welfare costs of inflation is wrong and its implications for the optimal inflation rate need to be reassessed. We also find that (non-sale) prices have not become more flexible over the past 40 years. Chapter 2, ``The Skewness of the Price Change Distribution: A New Touchstone for Sticky Price Models", documents the predictions of a broad class of existing price setting models on how various statistics of the price change distribution change with the rate of aggregate inflation. Notably, menu cost models uniformly feature the price change distribution becoming less dispersed and less skewed as inflation rises, while in the Calvo model both relations are positive. Using a novel data set, the micro data underlying the U.S. CPI from the late 1970's onwards, we evaluate these predictions using the large variation in inflation over this period. Price change dispersion does indeed fall with inflation, but skewness does not, meaning that menu cost models are at odds with these empirical patterns. The Calvo model's prediction on price change skewness are consistent with the data, but it fails to match the positive relationship between inflation and the frequency of price change, and the negative relationship between inflation and price change dispersion. Since the negative correlations for dispersion and skewness are driven by the selection effect in menu cost models, the evidence presented suggests that selection is less substantial than in menu cost models. Chapter 3, ``The Selection Effect and Monetary Non-Neutrality in a Random Menu Cost Model", presents a random menu cost model that nests the Golosov and Lucas (2007) and Calvo (1983) models as extreme cases, as well as intermediate cases, depending on the distribution of menu costs. This model includes idiosyncratic technology shocks and aggregate demand shocks, so it can be applied to price micro data, and to evaluate the degree of monetary non-neutrality implied by different kinds of menu cost distributions. This model can match the empirical patterns presented in Chapter 2. I find that a random menu cost model with a much weaker selection effect (than in existing menu cost models) no longer predicts such a negative relationship between inflation and price change skewness, but still predicts that the frequency of price change rises with inflation, as in the data, and contrary to the Calvo model. This model also predicts a very high degree of monetary non-neutrality, and the results overall provide evidence in favor of high non-neutrality. Chapter 4, ``The State-Dependent Price Adjustment Hazard Function: Evidence from High Inflation Periods", considers a model-free approach to understanding sticky prices and non-neutrality. The price adjustment hazard function has been used to establish the relationship between individual firms' price setting behavior (micro-level price stickiness) and the response of the aggregate price level to monetary shocks (aggregate stickiness, or monetary non-neutrality), but scant work has been done to estimate the function empirically. We show first that various types of hazard functions (with widely different levels of implied aggregate stickiness) can match the unconditional moments that have been the focus of empirical work on sticky prices (such as the average frequency and size of price changes). However, the relationship between inflation and the shape of the price change distribution over time provides considerable information on the shape of the hazard function. In particular, we find that in order to match the positive inflation-frequency correlation, and the non-negative inflation-price change skewness correlations, the hazard function has to be asymmetric around zero (price increases are overall more likely than decreases) and relatively flat for small to intermediate values of the desired price gap. The latter feature means that our estimated hazard function implies a large degree of aggregate flexibility.

This paper tries to assess the Ethiopian monetary policy, in order to investigate the prospect of inflation targeting. The paper starts by reviewing the literature on the evolution of Ethiopian monetary policy and Macroeconomy. This is followed, by the requirements of adopting inflation targeting and the practical experience of inflation targeting countries; finally the paper focuses on the requirement to have a stable and persistent relationship between the policy instrument and price level. Vector auto regression model with some monetary policy instrument and macroeconomic variables was used. To explore different transmission mechanism i have analyzed the Granger causality, impulse response, and Variance decomposition. Result showed that, there is a weak relationship among prices, interest rate and exchange rate channel. The paper, therefore, recommended it is not the right time to adopt the full-fledged inflation targeting. Rather, better try to adopt inflation targeting as an implicit policy.