This thesis investigates the exchange rate pass-through to consumer prices, and its non-linearity and asymmetry effect in Mongolia. The recursive VAR model and non-linear econometric model are applied using monthly data from January 2000 to December 2013. We find that exchange rate pass-through is high and incomplete both in the short and in the long run in Mongolia. There is a statistically significant asymmetry effect, which states that impact of exchange rate depreciation on consumer price is higher than appreciation. However, we do not find an evidence of non-linearity in consumer price reaction to the large and small absolute changes of the exchange rate relative to its sample average and median as a threshold level. Additionally, we estimate the importance of the exchange rate shock for the consumer price variation using variance decomposition technique. In spite of this relatively high pass through, the exchange rate shocks explain a relatively small percentage of the variation in CPI inflation. Powered by TCPDF (www.tcpdf.org)

The study of interest pass through has been on the core attention of researchers since it serves as an incentive to evaluate the accuracy of monetary policy transmission mechanism. Therefore there are a lot of studies conducted under this topic encompassing a large number of countries and data. My aim, inspired by the great previous works, is to develop the same topic but by focusing on Balkan countries and more specifically on Albania. Being a developing country located on the heart of Balkan while aspiring the EU integration, Albania has gone under a considerable number of economic reforms which are also reflected on the degree and speed of transmission of policy rates to landing rates and on the determinants of such rates. Crisis of 2008 had a global impact but yet several conducted studies revealed that Albania was not directly affected by it. My contribution to this thesis consists in measuring how the pass-through mechanism performance was affected by the crisis and the implications derived from it. Powered by TCPDF (www.tcpdf.org)

Doctor of Philosophy / Department of Economics / Steven P. Cassou / This dissertation consists of three essays relating to asymmetric preferences in optimal monetary policy models. Optimal monetary policy models are theoretical optimal control problems that seek to identify how the monetary authority makes decisions and ultimately formulate decision rules for monetary policy actions. These models are important to policy makers because they help to define expectations of policy responses by the central bank. By identifying how researchers perceive the central bank’s actions over time, the monetary authority can identify how to manage those expectations better and formulate effective policy measures. In chapter 1, using a model of an optimizing monetary authority which has preferences that weigh inflation and unemployment, Ruge-Murcia (2003a; 2004) finds empirical evidence that the monetary authority has asymmetric preferences for unemployment. We extend this model to weigh inflation and output and show that the empirical evidence using these series also supports an asymmetric preference hypothesis, only in our case, preferences are asymmetricforoutput. Wealsofindevidencethatthemonetaryauthoritytargetspotential output rather than some higher output level as would be the case in an extended Barro and Gordon (1983) model. Chapter 2 extends the asymmetric monetary policy problem of Surico (2007) by relaxing the assumption that inflation and interest rate targets are constant using a time varying parameter approach. By estimating a system of equations using iterative maximum likeli- hood, all of the monetary planner’s structural parameters are identified. Evidence indicates that the inflation and interest rate targets are not constant over time for all models esti- mated. Results also indicate that the Federal Reserve does exhibit asymmetric preferences toward inflationary and output gap movements for the full data sample. The results are robust when accounting for changing monetary policy targeting behavior in an extended model. The asymmetry for both inflation and output gaps disappears over the post-Volcker subsample, as in Surico (2007). In chapter 3, Walsh (2003b)’s speed limit objective function is generalized to allow for asymmetry of policy response. A structural model is estimated using unobserved compo- nents to account for core inflation and measure the output gap as in Harvey, Trimbur and Van Dijk (2007) and Harvey (2011). Full sample estimates provide evidence for asymmetry in changes in inflation over time, but reject asymmetry for the traditional speed limit for the output gap. Post-Volcker subsample estimates see asymmetry disappear as in a more traditional asymmetric preferences model like Surico (2007).

M.Comm. (Econometrics) / Please refer to full text to view abstract

Thesis (M.M. (Finance & Investment)--University of the Witwatersrand, Faculty of Commerce, Law and Management, Wits Business School, 2016. / This paper builds upon Blanchard's (1981) model of asset prices, and provides an empirical evidence for good news cases (GNC) and/or bad news cases (BNC) as de ned in Blanchard's paper. We update Blanchard's model by introducing Taylor's rule of monetary policy and explicitly incorporate income distribution in a small, open economy. The ndings indicate that, the labour share is a strong and signi cant variable that should be considered in asset pricing models. The real exchange rate plays a signi cant role in the determination of asset prices in most of the selected countries, but the signi cance is stronger in the emerging markets economies. As the main objective of the paper, the study has found four of the selected countries to be bad news cases and eight of them are good news cases. / MT2016

This thesis examined the extent to which there is convergence in inflation rates, interest rates and incomes in the Common Monetary Area (CMA). It also investigated if countries in the area exhibit asymmetric adjustments to aggregate shocks. Based on optimum currency area theory, lack of convergence and the presence of asymmetric adjustments to shocks is likely to pose serious challenges that need to be addressed as the CMA moves towards a fully-fledged monetary union. I formulated and estimated a macroeconomic model to capture the transmission of shocks in the CMA. The model consists of four equations namely; Phillips curve, IS curve, exchange rate and monetary policy rule. The model links the CMA countries via the aggregate demand, inflation and interest rate equations. I simulated the model to assess the economic performance of the smaller countries when subjected to either a single monetary policy rule or country specific monetary policy rules. Such an analysis is used to gauge if a move towards a fully-fledged monetary union will result in higher benefits for the smaller countries. Furthermore, I estimated a structural VAR model based on the theoretical model. The identification restrictions in the VAR are also derived from the model. The analysis confirms monetary convergence, which is supported by the strong evidence of co-movement in interest rates and inflation rates in the CMA. Monetary convergence is an indicator of strong financial sector integration in the area. There is also evidence that inflation in the smaller countries is driven by that of South Africa. This result is mainly attributable to the strong trade links in the area as well as the existing parity between currencies in the area. The results also show that countries in the area are likely to face asymmetric shocks based on their composition of exports as well as the low correlation of growth rates. However, this asymmetry does not mean that countries cannot move towards iii creation of a fully-fledged monetary union, but rather that the existing asymmetries should be considered seriously by ensuring that other adjustment mechanisms are put in place. Extending the analysis to the SADC region shows that this region exhibits weak monetary convergence even though the poor countries show some form of real convergence with South Africa. Simulations from the VAR model show a price puzzle for Swaziland and South Africa but it is not prolonged. Based on the analysis the study concludes that a monetary union is possible in the CMA and is likely to be less costly. However, the evident asymmetries call for gradual step by step phasing in of the monetary union.

Un spectre hante l’Europe : le spectre de l’éclatement de la zone euro. A la suite de la crise des subprimes qui éclate, aux Etats-Unis, au cours de l’année 2007, la face du monde change radicalement. La crise immobilière américaine se mue alors en crise financière aux Etats-Unis puis, via les mécanismes de titrisation, en crise financière internationale, qui, par le canal de la restriction du crédit, va déboucher sur une crise économique internationale. Plusieurs pays européens, notamment méditerranéens, subissent particulièrement les effets de la crise économique, dégradés par les agences de notation, s’assignant bon gré mal gré à des politiques d’austérité, quand d’autres, à l’instar de l’Allemagne ou de l’Autriche maintiennent de niveaux de croissance et de chômage satisfaisants.La disparité des situations macroéconomiques des pays européens soulève alors une question fondamentale : la zone euro est-­elle viable ? Peut­on conserver une monnaie et une politique monétaire unique pour dix­ huit pays connaissant des situations conjoncturelles et des réalités structurelles si différentes ? Revient alors à nos esprits le nom d’un économiste canadien, Robert Mundell, et d’un concept forgé par celui­-ci en 1961 : la zone euro est­ elle une zone monétaire optimale ? L’évolution de la théorie économique permet de mettre en relief divers critères, puis d’inverser le raisonnement, avec la théorie endogène des zones monétaires optimales : la mise en œuvre d’une monnaie unique permet­ t'elle d’enclencher un processus de convergence macroéconomique ? L’Histoire économique permet d’étayer ces réflexions. Après la suspension de la convertibilité du dollar en or, décidée unilatéralement par le Président américain Richard Nixon, et annoncée à la télévision, le dimanche 15 août 1971, le système monétaire international vole en éclat. Dès 1972, les pays européens, ne pouvant tolérer un régime de changes totalement flottants entre leurs devises, s’organisent et mettent en place le Serpent monétaire européen, dont le fonctionnement n’est pas de tout repos. Une nouvelle pierre à l’édifice monétaire européen est posée le 13 mars 1979, jour de la création du Système Monétaire Européen. [...] / No English summary available.

Thesis. 1975. Ph.D.--Massachusetts Institute of Technology. Alfred P. Sloan School of Management. / Bibliography: leaves 240-247. / by William W. Behrens, III. / Ph.D.

This dissertation contains three essays on monetary policy under informational frictions. All three chapters study the situation in which the private sector has imperfect information about the underlying economy and extracts information about the unobserved shocks from the central bank's interest rate decisions. In this situation, monetary policy has an informational effect, in addition to its direct effect on the nominal budget of the household. Chapter 1 studies how the equilibrium interest rate of an optimizing discretionary central bank is changed when the interest rate has an informational effect. I build a New Keynesian model in which firms are subject to both nominal frictions and informational frictions. There are two types of aggregate shocks in the private sector: the natural-rate shock, which is mapped from the aggregate component of technology shocks, and the cost-push shock, which is mapped from the aggregate component of wage-markup shocks. The central bank has perfect information on the realization of shocks, and has only one policy instrument which is the nominal interest rate. Private agents do not observe the realization of shocks, and use the interest rate as a public signal to extract information about the shocks. I show that the equilibrium discretionary monetary policy reacts more aggressively to natural-rate shocks and less aggressively to cost-push shocks, relative to the optimal response under perfect information. Chapter 2 analyzes the how the informational effect of interest rates leads to the gains from commitment, and its implications on optimal direct communication strategy. Built upon the model in the previous chapter, I show how commitment to a state-contingent policy rule can change the sensitivity of expected shocks to the interest rate. The key mechanism that yields the gains from commitment is analyzed through the lens of the Phillips curve, which shows the output gap versus inflation trade-off becomes endogenous to the central bank's interest-rate decisions. In addition to optimally control the beliefs in the private sector through policy commitment, this chapter also studies the optimal direct communication strategy which interacts with the informational effect through policy rates. Finally, Chapter 3 explores the optimal strategy for the central bank to conduct monetary policy when both the private sector and the central bank face imperfect information. Forward guidance is modeled as the central bank providing its expectations on monetary policy, conditional on its own imperfect information. I compare three strategies of forward guidance. The first strategy is called instrument-based forward guidance, in which case the central bank announces and commits to its estimate of future policy actions conditional on its information which is currently noisy. The second strategy is called Delphic forward guidance, in which case the central bank only reveals its noisy information, and waits to decide the actual monetary policy when perfect information becomes available. I show that the optimal Delphic forward guidance involves the central bank doing backward induction, where it takes into account the change in the beliefs in the private sector due to its re-optimization in later periods. Lastly, I show the optimal monetary policy is rule-based Odyssean forward guidance, which is a state-contingent commitment that specifies how the central bank reacts to both the actual shock and the noise in its own information.

My dissertation focuses upon low inflation. Many developed countries, especially Japan and the Eurozone, have recently experienced prolonged periods of below-target inflation. This has been blamed for many economic ills including worsening the Great Recession and generating a slow recovery, making monetary policy ineffective and leading to lower labor market flexibility. I study what has caused low inflation, its potential effects and how it could be prevented. In Chapter 1, I look at how effective raising the inflation target would be in mitigating the problems of low inflation. Many economists have proposed raising the inflation target to reduce the probability of hitting the zero lower bound (ZLB). It is both widely assumed and a feature of standard models that raising the inflation target does not impact the equilibrium real rate. I demonstrate that once heterogeneity is introduced, raising the inflation target causes the equilibrium real rate to fall in the New Keynesian model. This implies that raising the inflation target will increase the nominal interest rate by less than expected and thus will be less effective in reducing the probability of hitting the ZLB. The channel is that a rise in the inflation target lowers the average markup by price rigidities and a fall in the average markup lowers the equilibrium real rate by household heterogeneity which could come from overlapping generations or idiosyncratic labor shocks. Raising the inflation target from 2% to 4% lowers the equilibrium real rate by 0.38 percentage points in my baseline calibration. I also analyse the optimal inflation level and provide empirical evidence in support of the model mechanism. In Chapter 2, I study to what degree the recent fall in inflation can explain the rise in firm profitability which has been blamed for a rise in inequality. A theoretical relationship between inflation and profitability is known to exist. I investigate the degree to which the recent fall in inflation can explain the rise in firm profitability. My three primary findings are: 1. The negative relationship between inflation and profitability does not hinge upon the Calvo assumption. Raising inflation significantly lowers profitability under all common price rigidities. The relationship can actually be significantly stronger under menu costs. 2. A rise in the degree to which firms discount the future magnifies the effect; a rise in elasticity of substitution can increase or decrease the effect depending upon the price rigidity. 3. The profit share has risen by around 3.5p.p. since the 1990s. In a richer model with firm heterogeneity, the recent fall in inflation is estimated to explain 14% of the rise. This can increase to 29% if firms are allowed to discount the future by more in line with estimates from the finance literature. I also provide empirical evidence for the negative relationship between inflation and firm profits. In Chapter 3, I examine whether behavioral features can help to explain why some countries have persistently experienced low inflation at the zero lower bound. Economists are keen to introduce behavioral assumptions into modern macroeconomic models. A popular framework for doing so is sparse dynamic programming, which assumes that agents partly base their expectations upon a default model which is typically the steady state. This means agents' expectations will be wrong if there are long-run deviations from the default model and assumes agents can compute the default. I introduce an alternative form of sparse dynamic programming which tackles these problems by allowing for long-run updating to the behavioral part of agents' expectations. I apply this to derive a long-run behavioral New Keynesian model. Within this model, fixed interest rates yield indeterminacy and the costs of remaining at the zero lower bound are unbounded. These results are very different to a behavioral New Keynesian model based upon standard sparse dynamic programming, which can yield determinacy under fixed interest rates and bounded costs of the zero lower bound.