This paper aims to use different Taylor rules in analyzing the interest rate for the Euro Area. The Euro Area was chosen because it consists of all the countries that use the Euro. The European Central Bank also behaves with the national banks in much the same as manner as the US Federal Reserve Bank system. The Taylor rule is used because the main objective of the Euro Area is price stability. Two different Taylor rules are used in this paper: simple Taylor rule, and dynamic Taylor rule. Each Taylor rule is also broken down to include the individual country coefficients. This allows for the effect each country has on the Euro Area's monetary policy to be determined.

The introduction of inflation-targeting frameworks around the world prompts the question whether Central Banks focus solely on inflation. The paper uses the Taylor rule to characterize the Namibian Monetary Policy and to see whether the Bank of Namibia considers the economy in setting the Bank rate. Based on this rule, the Bank rate follows the Taylor rule over the sample period but there are several deviations. My results point to the following: Firstly, the Bank increases the policy rate to counter rising inflation but keeps the rate constant when inflation declines. Secondly, the Bank tends to smooth their rate adjustments. Using the lags of right hand side variables, hints at the fact that past inflation is important for the Bank to adjust the policy rate. Thirdly, the Bank of Namibia seems to focus more on inflation compared to the output gap. This is confirmed by the weight allocation which seems to be larger for inflation. Finally, the inclusion of additional variables that are deemed important in setting the Bank rate, improves the overall fit. Therefore, the model could be utilized to indicate where the policy rate should be.

This dissertation studies monetary-fiscal policy interactions and adaptive learning applications in regime-switching DSGE models. A common thread through my research is understanding how policymakers may be affected by the interaction of policy regime change and agents' beliefs about past, current or future policy in general equilibrium. The work I present in this dissertation shows that conventional and unconventional policy outcomes, as well as the existence, uniqueness and expectational stability of rational expectations solutions, depend heavily on the expectational effects of time-varying policy. These findings suggest that uncertainty over future fiscal policy may curb the effectiveness of monetary policy, or otherwise constrain the actions of central bankers. In carrying out this research agenda, my work also examines the relationship between determinacy and expectational stability in a general class of Markov-switching DSGE models.

Financial innovation is a process that is not fully understood because of ~ts nebulous nature and the difficulties in determining its causes and effects. The pace of financial innovation has increased rapidly in recent years. With this increased level of new financial instruments and processes has also come the realisation that financial innovation may well influence the successful application of monetary policy. Under certain circumstances monetary policy may hampered or may be rendered ineffective by financial innovation. This dissertation examines the nature and causes of financial innovation and its implication for the successful application of monetary policy both internationally and in South Africa. / Economics / M. Com (Economics)

The thesis presents three papers in macroeconomics and monetary economics with an emphasis on financial instability and crises. The first paper, entitled "Interbank Market Crises and Financial Openness," studies the effect of financial openness on financial stability by extending a closed-economy DSGE model (Boissay, Collard and Smets, 2015) to an open economy in which banks are allowed to invest abroad. Financial internationalisation in the form of outward banking flows alters the behaviour of the economy in the run up to a typical interbank crisis, reducing the role played by domestic credit build ups. Prior to an interbank crisis, the level of assets typically builds up in an economy without access to international investment opportunities. In contrast, financial openness attenuates the build up of assets during productivity booms, which reduces the likelihood of financial overheating resulting in a banking crisis once productivity reverts to trend. Simulations of the model show that the open economy would generally experience fewer banking crises in the long run compared to an economy blocked from investing abroad. This finding may not obtain in the short run, however, should the economy be subject to large negative productivity shocks consequent upon a financial opening up to the external domain. The second paper, entitled "Unconventional Monetary Policy and Asset Allocation of International Mutual Funds," a joint work with Gino Cenedese and Menno Middeldorp (both at the Bank of England), analyses the spillovers of unconventional monetary policy from the US to the Rest of the World. Using panel regressions on a fund-level data-set of globally domiciled mutual funds, the study examines the degree to which the operations and surprises of US unconventional monetary policy prompt mutual fund managers to change their portfolio country weightings. Our study permits an analysis of the portfolio choice of mutual fund managers, as differentiated from the portfolio rebalancing behaviour of their underlying investors. It allows for a quantitative examination as to whether and to what extent fund managers undo or exacerbate the allocation decisions by their respective underlying investors. Unconventional monetary policy by the US Federal Reserve is found to induce fund managers to reduce their portfolio exposure to the US whilst increasing it to other countries in the Rest of the World. Specifically, the Fed's purchases of Treasury securities trigger portfolio rebalancing in equity funds, while its acquisition of mortgage backed securities and agency debt has a minimal effect on equity and bond fund portfolio allocations. Fed policy surprises do affect the portfolio allocations of equity funds. The main results continue to hold in a number of robustness checks. An extension of the study examines portfolio rebalancing effects of policy surprises by three other major monetary authorities, the ECB, BoJ and BoE. The main focus of the paper, however, is on the broader effects of US unconventional monetary policy on the asset allocation of international mutual funds. The third paper, entitled "Sovereign Debt Negotiations as a Macroeconomic Game with Strategic Interactions among Players," aims to show that existing methods analysing games with more than two players can be usefully applied to macroeconomic games involving strategic interactions among three or more players. This is shown in the context of sovereign refinancing negotiations which are modelled as a bargaining game between three players: a debtor country in need of finance (player 1); its creditors from the international official-sector (player 2); and its foreign private-sector creditors in the form of international banks (player 3). The presence of a third player has important effects on the distribution of the gains from trade and the stability of the game if one allows for the possibility that any two players may form a coalition against another player. After deriving these general results, the model is applied to the Greek sovereign debt crisis to provide an economic application and to show that the framework can be applied to a wide range of other macroeconomic games.

La crise économique survenue à l’échelle mondiale en 2008 et dont les effets se font encore ressentir près d’une décennie plus tard, a mis en lumière le rôle déterminant des facteurs financiers dans les cycles économiques ainsi que dans la conduite de politiques de stabilisation conjoncturelle, au premier rang desquelles se trouve la politique monétaire. De ce point, les crises constituent une expérience privilégiée pour revoir les propriétés empiriques des modèles macroéconomiques et les aspects plus normatifs des politiques économiques. Par ailleurs, les développements observés au sein de la zone euro illustrent d’autant mieux les défis auxquels sont confrontés une union monétaire lorsque les risques financiers se mêlent aux risques de soutenabilités des dettes souveraines.La Thèse s’attachera à évaluer la conduite des politiques économiques en présence de frictions financières sous une perspective à la fois empirique, utilisant des modèles de séries temporelles multivariés, et structurelle, sur la base de modèles aux fondements théoriques plus explicites. La thèse présentera ainsi des contributions originales dans divers domaines de la macroéconomie financière.Premièrement, une série de travaux empiriques entendent démontrer la prééminence de chocs financiers dans les performances économiques européennes durant la crise. En particulier, deux articles utilisent les modèles BVAR pour identifier des chocs d’offre de crédit et quantifier leur contribution aux différentes récessions survenues dans la zone euro au cours des dix dernières années.En outre, si les chocs financiers peuvent expliquer certains faits stylisés de la crise, leur nature, leurs mécanismes de transmission et leur dimension asymétrique au sein des pays de la zone euro peuvent faire l’objet d’une analyse plus structurelle. Plusieurs travaux exposent des modèles DSGE incorporant un ensemble assez détaillé de frictions financières portant à la fois sur l’offre et la demande de crédit. Ces modèles apportent de nouvelles perspectives sur la propagation macroéconomique des chocs financiers en isolant en particulier le rôle des bilans bancaires et des schémas d’amplification entre la sphère réelle et la sphère financière.Un troisième axe de recherche se focalise sur l’évaluation des politiques monétaires. Dans le cadre de modèles DSGE présentant des propriétés empiriques satisfaisantes (et pour la plupart estimés sur des données macroéconomiques européennes), plusieurs articles analysent les caractéristiques de plusieurs concepts de politiques monétaires optimales. Ces travaux explorent la stabilisation optimale de chocs réels, nominaux ou financiers, dans des conditions d’économie ouverte ou fermée.Par la suite, la thèse s’attachera à examiner la conduite de la politique monétaire en situation de crise dans laquelle des chocs financiers ont poussé les taux d’intérêts sans risques à leur limite basse. Dans ces conditions, plusieurs articles étudient le rôle des politiques non-conventionnelles comme les achats de titres par la banque centrale ou encore, l’octroi de liquidité à long terme. Une attention toute particulière est portée sur canal du crédit de ces différentes mesures. Par ailleurs, la conduite optimale d’achat d’actifs est analysée.Enfin, les aspects normatifs de la conduite de la politique monétaire en présence de frictions financières amènent naturellement à considérer les interactions stratégiques avec d'autres politiques économiques et financières, et notamment les politiques macroprudentielles. Sur la base de modèles DSGE incluant une description pertinente du secteur bancaire, la transmission de politiques macroprudentielles peut être quantifiée ainsi que ses implications sur la politique monétaire. Les bénéfices d’une articulation efficace des politiques monétaires et macroprudentielles se trouvent d’ailleurs renforcer au sein une union monétaire, et peuvent être illustrés dans le cadre d’un modèle DSGE à deux pays. / The Thesis aims at evaluating monetary policy in presence of financial frictions both from an empirical and structural perspective. Along those lines, multi-variate time-series framework as well as model with more explicit theoretical foundations will be deployed. The Thesis presents original contributions in various fields of monetary and financial macroeconomics.The main motivation for the applied research presented in this Thesis are twofold. It responded both to the need for deeper research on macro-financial linkages and to the growing interest of policy institutions for the model-based policy advise. First, the Great recession and in particular, the typology of crisis episodes in Europe over the last decade, unveiled new challenges for monetary policy conduct, notably related to the prevalence of financial factors in cyclical fluctuations, the design of non-standard measures and the interactions with financial service policies. The second motivation has to do with the growing role for structural models in the preparation of monetary policy within central banks. Over the last decades, academic research and central bank practices have mutually benefited from strong synergies, whereby quantitative methods and theoretical advances have had a lasting influence on main preparation avenues for monetary policy making.In Chapter 1, a set of empirical studies intend to demonstrate the prevalence of financial shocks underlying the euro area macroeconomic performance during the Great recession. In particular, BVAR models can identify credit supply shocks and quantify their contribution to the various recessionary episodes over the last decade.Thereafter, Chapter 2 explores more structurally the transmission mechanism of financial shocks together with their heterogeneity across the euro area through the lens of DSGE models featuring a relevant set of demand-side as well as supply-side credit frictions.Against this background, the Thesis examine more normative aspects of monetary policy conduct starting with derivation of optimal monetary policy in selected DSGE models, which is the focus of Chapter 3. The Ramsey approach to optimal monetary provides a clear benchmark for formulating normative prescriptions. We analyse the main properties of the Ramsey allocation within a set of quantitative DSGE models, thereby bring new insight on various closed economy and open economy policy challenges.At times of crisis, as financial-driven recessions bring the monetary policy interest rates to their effective lower bound, central bank deployed a set of non-standard measures in order to engineer the intended policy accommodation. Chapter 4 presents several studies which extend DSGE models to analyse the role of non-standard monetary policy measures like asset purchase programmes or long-term liquidity operations. The credit channel of those measures will be the focus of the analysis. From a more normative standpoint, the optimal central bank asset purchase strategy will be derived.Finally, in Chapter 5, the normative assessment of monetary policy conduct in presence of financial frictions calls for considering strategic interactions with other policies, and notably macroprudential policy. Such interactions are all the more relevant when analysed in a monetary union context through multi-country DSGE models.

The 2008/2009 world financial crisis, as well as the 2010 onwards European sovereign debt crisis, retriggered the debate on costs and benefits of a European Monetary Union membership. This thesis examines whether Sweden experienced net costs or benefits in opting out the EMU, especially in comparison to Finland due to the close link between both economies, as well as cultural and geographical similarities. While both countries were drawing a convergent economic path from the 1990’s, in 1999, with the Euro adoption in Finland, the two Scandinavian economies chose different tracks in terms of monetary policies. Sweden opted to remain outside the EMU and maintain the floating exchange rate and the control of domestic monetary issues, while Finland chose to relinquish monetary policy autonomy and started to follow the rules and constraints of the European Central Bank. Furthermore, the paper analyzes the economic development of UK in comparison with France, due to the approximate size of both economies (one EMU member and the other an outsider), and also Germany, the EMU leader, and the Euro area as a whole. The data base from Eurostat and the Synthetic Counterfactual Method have shown that there were net benefits for Sweden not to had joined the EMU. Moreover, the paper presents the Theory of Optimum Currency Area, first introduced by Mundell in 1961 as the starting point on the discussion of costs and benefits of an EMU membership.

Os investidores institucionais desempenham um importante papel para o crescimento econômico do país, especialmente os componentes da previdência complementar: fundos de pensão e seguradoras. O significativo volume de aplicações financeiras desses segmentos contribui com o funding do investimento produtivode acordo com Keynes. O perfil de longo prazo desses investidores é essencial para a eficiência dos mercados de capitais. Como precisam constituir provisões técnicas em função do valor presente de suas obrigações, seus cálculos necessitam da projeção da taxa de juros de longo prazo. Contudo, essas projeções sãofrágeis porque, segundo a teoria da preferência pela liquidez, a taxa de juros é um fenômeno monetário e, portanto,asua formação depende das inferências do Banco Central quanto a suas metas intermediárias e objetivo finais. Alimitada curva de rendimentos e o nível elevado da Taxa Selic contribuem com essa fragilidade. Dessa forma, o objetivo do presente trabalho é avaliar os impactos da política monetária nacional sobre os fundos de pensão e as seguradoras.Como metodologia, é empregada a pesquisa bibliográfica e quantitativa, inclusive dados dos segmentos para uso em simulações de impacto.A volatilidade da Taxa Seliccausa efeitos em qualquer das três modalidades de planos de previdência. Quando a estrutura de cálculo é atuarial, os impactos são mais preocupantes para os gestores e, quando é financeira, para os participantes. Os efeitos também diferem entre os segmentos. No fechado, são transferidos para os participantes e patrocinadores através do plano de custeio e, no aberto, são absorvidos pelas seguradoras e são agravados pela tributação. Sobre o ativo, a principal consequência é o risco inerente à gestão com visão de curto prazo. Quanto à taxa de desconto do passivo, ambos os órgãos reguladores adotaram parâmetros referenciados pelos juros de mercado,sendo esta uma necessidade imposta pelaexecução da política monetária brasileira. / Institutional investors play an important role in the economic growth of the country, especially the components of private pension: pension funds and insurance companies. The significant volume of investments in these segments contributes to the funding of productive investment according to Keynes. The long-term profile of these investors is essential for the efficiency of capital markets. Given thatthey must constitute technical provisions based on the present value of its obligations, its calculations require the projection of long-term interest rates. However, these projections are fragile because, according to the theory of liquidity preference, the interest rate is a monetary phenomenon and therefore its formation depends on the inferences the Central Bank as its intermediatetarget and final goals. The limited yield curve and the high level of the Selic Rate contribute to this weakness. Thus, the objective of this study is to evaluate the impact of domestic monetary policy on pension funds and insurers. As methodology, it was used the bibliographical and quantitative research, including data segments for use in impact simulations. The volatility of the Selic Rate causes effects in any of the three types of pension plans. When calculation structure isactuarial, the impacts are most worrisome for managers and, when it is financial, for the participants. The effects also differ between segments. In closed one, they are transferred to the participants and sponsors through funding plan and, in the open, are absorbed by insurers and are compounded by taxation. On assets, the main consequence is the risk inherent in management with short-term view. As the discount rate liabilities, both regulators have adopted parameters referenced by market interest, which is a necessity imposed by the implementation of Brazilian monetary policy.

Esta tese é composta por três ensaios sobre a estimação bayesiana de modelos DSGE com fricções financeiras para o Brasil. O primeiro ensaio tem o objetivo de analisar como a incorporação de intermediários financeiros num modelo DSGE influenciam na análise do ciclo econômico, bem como uma política de crédito pode ser utilizada para mitigar os choques no mercado de crédito sobre a atividade. O governo brasileiro expandiu o crédito na economia através das instituições financeiras públicas tendo como custo o aumento da dívida pública. Para isso, foi estimado um modelo inspirado em Gertler e Karadi (2011) para avaliar o comportamento da economia brasileira sob a influência de uma política de crédito. Política de crédito mostrou-se efetiva para mitigar os efeitos recessivos de uma crise financeira que atinja a cotação dos ativos privados ou o patrimônio das instituições financeiras. Contudo, a política monetária tradicional se mostrou mais eficiente para a estabilização da inflação em momentos de normalidade. O segundo ensaio consiste na estimação de um modelo DSGE-VAR para a economia brasileira. A parte DSGE consiste em uma economia pequena, aberta e com fricções financeiras na linha de Gertler, Gilchrist e Natalucci (2007). A estimação do modelo indicou que flexibilização do espaço paramétrico possibilitado pelo modelo DSGE-VAR proporcionou ganhos em relação ao ajuste aos dados em relação a modelos alternativos. O exercício também obteve indicações de que os choques externos apresentam impactos significativos no patrimônio e no endividamento das firmas domésticas. Esse resultado fortalece a evidência de que um canal importante de transmissão dos movimentos da economia mundial para a o Brasil ocorre através das firmas. Por fim, no terceiro ensaio tem como foco a transmissão dos choques no spread de crédito bancário para as demais variáveis da economia e suas implicações para a condução da política monetária no brasil. Para isso, foi estimado um modelo DSGE com fricções financeiras para a economia brasileira. O modelo é baseado em Cúrdia e Woodford (2010), que propuseram uma extensão do modelo de Woodford (2003) para incorporar a existência de um diferencial entre a taxa de juros disponíveis aos poupadores e tomadores de empréstimos, que pode variar por razões tanto endógenas quanto exógenos. Nessa economia, a política monetária pode responder não somente às variações na taxa de inflação e hiato do produto através de uma regra simples, como também por meio de uma regra ajustada pelo spread de crédito da economia. Os resultados mostram que a inclusão do spread de crédito no modelo Novo Keynesiano não altera significativamente as conclusões dos modelos DSGE em respostas a perturbações exógenas tradicionais, como choques na taxa de juros, na produtividade da economia e no dispêndio público. Porém, nos eventos que ocasionam a deterioração da intermediação financeira, por meio de choques exógenos sobre o spread de crédito, o impacto sobre o ciclo econômico foi significativo e a adoção de uma regra de política monetária ajustada pelo spread pode conseguir estabilizar a economia mais rapidamente do que uma regra tradicional. / The present thesis is a collection of three essays on Bayesian estimation of DSGE models with financial frictions in the Brazilian economy. The first essay intends to investigate how the incorporation of financial intermediaries in a DSGE model influences the analysis of the economic cycle, as well as how the credit policy can be employed to mitigate the effects of shocks in the credit market on the economic activity. The Brazilian government expanded the credit in the economy through public financial institutions, which resulted in an increase of public debt. it estimated a model inspired by Gertler and Karadi (2011) to evaluate the performance of the Brazilian economy under the influence of a credit policy. Credit policy was effective to mitigate the recessionary effects of a financial crisis that affects the valuation of private assets and the net worth of financial institutions. However, the traditional monetary policy was more efficient for the stabilization of inflation in times of normality. The second essay consist of a DSGE-VAR model for the Brazilian economy. The DSGE model was estimated for a small, open economy with financial frictions, in line with Gertler, Gilchrist and Natalucci (2007). The results indicates that the estimation of DSGE-VAR provides an advantage for the data fitting in comparison to alternative models. In addition, the results indicate that external shocks have significant impacts in the equity and debt of domestic firms. This result strengthens (supports) the evidence that an important channel of transmission of the movements of the world economy for the Brazil takes place through productive sector. The third essay analyze the transmission of shocks in the banking credit spread for the other variables of the economy and its implications for the conduct of monetary policy in Brazil. We do so by estimating a DSGE model with financial frictions for the Brazilian economy. The model is based on Cúrdia and Woodford (2010), who proposed an extension of the model Woodford (2003) to incorporate the existence of a differential between the interest rates available to savers and borrowers, which can vary by both endogenous and exogenous reasons. In this model, monetary policy can respond not only to changes in the inflation rate and output gap through a simple rule, but also through a rule set by the credit spread of the economy. The results show that the inclusion of credit spread in the New Keynesian model does not significantly changes the conclusions of DSGE models in traditional responses to exogenous shocks, such as shocks in the interest rate, in the productivity of the economy and in public spending. However, in the events that cause the deterioration of financial intermediation through exogenous shocks on the credit spread, the impact on the business cycle was significant and the adoption of a monetary policy rule set by the spread can achieve a faster stabilization of the economy than a traditional rule.

A hipótese da neutralidade da moeda tem como marco teórico a Teoria Quantitativa da Moeda (TQM), que é fundamentada a partir da equação de trocas de Fisher, supondo que a velocidade-renda da moeda é constante, sendo o produto real determinado exogenamente por variáveis não-monetárias, tais como a tecnologia, o estoque de capital e a oferta de trabalho. Mas, o produto real é realmente exógeno no Brasil? Ou, em outras palavras, é válida a hipótese de neutralidade da moeda? Esse tema tem sido objeto de muitos estudos empíricos. Ademais, o efeito Tobin e as teorias de crescimento endógeno sugerem que pode haver um efeito real da moeda no longo prazo. Este trabalho investigou as possíveis relações de longo prazo entre a oferta nominal de moeda, o nível de preços e o Produto Interno Bruto (PIB) real para o Brasil de 1946 a 2008, utilizando dados de baixa frequência (anuais). Para a parte empírica foi utilizado o teste de cointegração de Johansen e integração das variáveis, com destaque para o estudo de estacionaridade da velocidade de circulação da moeda, que se mostrou ser constante apenas na presença de quebras estruturais. Principalmente, foram utilizados testes de exogeneidade, com o objetivo de permitir ao pesquisador trabalhar com um conjunto de informações o mais amplo possível, vale dizer, que englobasse as informações que proviessem da teoria econômica e do processo gerador de dados. Quanto aos testes de raiz unitária, encontrou-se que as variáveis em estudo (y, m e p) são I(1), ou seja, são estacionárias apenas em primeira diferença. Os resultados encontrados vão no sentido de validar a exogeneidade do produto real, apesar de os resultados provenientes do teste de causalidade Granger não ter sido conclusivo. Dessa forma, este trabalho cria evidências a favor da hipótese da neutralidade da moeda. / The hypothesis of neutrality of money is the theoretical framework of the Quantity Theory of Money (QTM), which is based from the Fishers equation of exchange, assuming that the income-velocity of money is constant, the real output is exogenously determined by nonmonetary variables, such as technology, capital stock and labor supply. But the real output is truly exogenous in Brazil? Or, in other words, it is valid the hypothesis of neutrality of money? This theme has been the subject of many studies. In addition, the Tobin effect and the endogenous growth theories suggest that there may be a real effect of money in the long run. This study investigated the possible long-run relationships between the nominal money supply, the price level and real Gross Domestic Product (GDP) for Brazil from 1946 to 2008, using low frequency (annual) data . For the empirical test was used the Johansen cointegration and integration of the variables, especially the study of the stationarity of the velocity of money circulation, which provided to be constant only in the presence of structural breaks. Mainly, we used exogeneity tests in order to allow the researcher to work with a set of information as broad as possible, ie, encompassing the information come from the economic theory and data generator process. For the unit root tests, it was found that the study variables (y, m e p) are I (1), ie, are stationary only in first difference. The results are in line to validate the exogeneity of real output, although the results from the Granger causality test was not conclusive. Thus, this work creates evidence for the hypothesis of neutrality of money.