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So Young Kim - One of the best experts on this subject based on the ideXlab platform.

  • exchange rate stabilization in the erm identifying european Monetary policy reactions
    Journal of International Money and Finance, 2002
    Co-Authors: So Young Kim
    Abstract:

    The structural VAR models for European countries (France, Denmark, and Germany) are developed to examine the Monetary policy reactions, especially the within-ERM exchange rate stabilization, during the ERM period. First, impulse responses of Monetary Instrument and the exchange rate to shocks destabilizing the exchange rate, and the variance decomposition of exchange rate due to shocks destabilizing the exchange rate and shocks to the Monetary Instrument are examined to infer the Monetary policy reactions. Second, the full Monetary policy reaction functions recovered from the VAR models are presented in an interpretable manner wihtout introducing additional assumptions. The results suggest that some asymmetry in exchange rate stabilization; non-German exchange rate stabilization was stronger than German exchange rate stabilization. However, the results do not support the hypothesis that German Monetary policy was independent of the ERM: the Bundesbank also stabilized the within-ERM exchange rate to some extent.

  • Monetary Instrument problem revisited the role of fiscal policy
    Social Science Research Network, 2001
    Co-Authors: So Young Kim
    Abstract:

    The Monetary Instrument problem is examined in an endowment economy model with various stochastic disturbances, with minimizing the variance of inflation as the policy objective. Following current developments in the theory of fiscal determination of the price level, for different Monetary policies, active or passive fiscal policy is specified to guarantee a unique equilibrium. The responses of inflation to various structural disturbances in the constant money growth rate-passive fiscal (the active Monetary-passive fiscal regime, or the conventional regime where Ricardian equivalence and Quantity Theory of Money hold) and the constant interest rate-active fiscal regime (the passive Monetary-active fiscal regime, or the regime where fiscal policy determines the price level) are explained based on Monetary and fiscal policies' role in financing government deficit changes and satisfying the government budget constraint in each regime, which is different from the explanations of past research following Poole. One of the interesting findings is that an increase in the steady state real value of nominal government debts (bonds) reduces the variance of inflation in the passive Monetary-active fiscal regime.

  • Monetary Instrument problem revisited the role of fiscal policy
    Computing in Economics and Finance, 2001
    Co-Authors: So Young Kim
    Abstract:

    The Monetary Instrument problem is examined in an endowment economy model with various stochastic disturbances, with minimizing the variance of inflation as the policy objective. Following current developments in the theory of fiscal determination of the price level, for different Monetary policies, active or passive fiscal policy is specified to guarantee a unique equilibrium. The responses of inflation to various structural disturbances in the constant money growth rate-passive fiscal (the active Monetary-passive fiscal regime, or the conventional regime where Ricardian equivalence and Quantity Theory of Money hold) and the constant interest rate-active fiscal regime (the passive Monetary-active fiscal regime, or the regime where fiscal policy determines the price level) are explained based on Monetary and fiscal policiesƒy role in financing government deficit changes and satisfying the government budget constraint in each regime, which is different from the explanations of past research following Poole. One of interesting findings is that an increase in the steady state real value of nominal government debts (bonds) reduces the variance of inflation in the passive Monetary-active fiscal regime.

Andrew Lee Smith - One of the best experts on this subject based on the ideXlab platform.

  • the optimal Monetary Instrument and the mis use of causality tests
    Social Science Research Network, 2018
    Co-Authors: John W Keating, Andrew Lee Smith
    Abstract:

    This paper uses a New-Keynesian model with multiple Monetary assets to show that if the choice of Instrument is based solely on its propensity to predict macroeconomic targets, a central bank may choose an inferior policy Instrument. We compare a standard interest rate rule to a k-percent rule for three alternative Monetary aggregates determined within our model: the Monetary base, the simple sum measure of money, and the Divisia measure. Welfare results are striking. While the interest rate dominates the other two Monetary aggregate k-percent rules, the Divisia k-percent rule outperforms the interest rate rule. Next we study the ability of Granger Causality tests -- in the context of data generated from our model -- to correctly identify welfare improving Instruments. All of the policy Instruments considered, except for Divisia, Granger Cause both output and prices at extremely high levels of significance. Divisia fails to Granger Cause prices despite the Divisia rule stabilizing inflation better than these alternative policy Instruments. The causality results are robust to using a popular version of the Sims Causality test for which we show standard asymptotics remain valid when the variables are integrated, as in our case.

John W Keating - One of the best experts on this subject based on the ideXlab platform.

  • the optimal Monetary Instrument and the mis use of causality tests
    Journal of Financial Stability, 2018
    Co-Authors: John W Keating, Lee A Smith
    Abstract:

    Abstract This paper investigates the optimal Monetary Instrument in a New-Keynesian model with multiple Monetary assets. We compare a standard interest rate rule to a k-percent rule for three alternative Monetary aggregates determined within our model: the Monetary base, the simple sum measure of money, and the Divisia measure. Welfare results are striking. While the interest rate dominates the other two Monetary aggregate k-percent rules, the Divisia k-percent rule outperforms the interest rate rule. Next we study the ability of Granger Causality tests – in the context of data generated from our model – to correctly identify welfare improving Instruments. We find the interest rate Granger Causes both output and prices at extremely high significance levels. The same result is obtained for Monetary base and the simple-sum Monetary aggregate. The test results for Divisia are the weakest as Divisia fails to Granger Cause prices. We conclude that if the choice of Instrument is based solely on its propensity to Granger Cause macroeconomic targets, a central bank may choose an inferior policy Instrument.

  • the optimal Monetary Instrument and the mis use of causality tests
    Social Science Research Network, 2018
    Co-Authors: John W Keating, Andrew Lee Smith
    Abstract:

    This paper uses a New-Keynesian model with multiple Monetary assets to show that if the choice of Instrument is based solely on its propensity to predict macroeconomic targets, a central bank may choose an inferior policy Instrument. We compare a standard interest rate rule to a k-percent rule for three alternative Monetary aggregates determined within our model: the Monetary base, the simple sum measure of money, and the Divisia measure. Welfare results are striking. While the interest rate dominates the other two Monetary aggregate k-percent rules, the Divisia k-percent rule outperforms the interest rate rule. Next we study the ability of Granger Causality tests -- in the context of data generated from our model -- to correctly identify welfare improving Instruments. All of the policy Instruments considered, except for Divisia, Granger Cause both output and prices at extremely high levels of significance. Divisia fails to Granger Cause prices despite the Divisia rule stabilizing inflation better than these alternative policy Instruments. The causality results are robust to using a popular version of the Sims Causality test for which we show standard asymptotics remain valid when the variables are integrated, as in our case.

Seisho Sato - One of the best experts on this subject based on the ideXlab platform.

  • dynamic Instrument rules based on time varying coefficients vector autoregressive modeling and forecast based Monetary policy
    Social Science Research Network, 2005
    Co-Authors: Koiti Yano, Seisho Sato
    Abstract:

    This paper proposes a method to construct Monetary Instrument rules whose coefficients are time varying. We refer the Instrument rules as the dynamic Instrument rules. Our approach is a statistical and practical tool for the central bank to achieve some specified targets. The dynamic Instrument rules consist of two elements: (1) time varying coefficients vector autoregressive modeling (time varying VAR) with the vector of control variables and (2) linear quadratic dynamic programming. The coefficients of time varying VAR are assumed to change gradually (this assumption is widely known as smoothness priors of the Bayesian procedure), and they are estimated by the Kalman filer. Based on the estimated time varying VAR and linear quadratic dynamic programming, the dynamic Instrument rules are derived in each period for achieving the targets. Our approach is convenient and effective for the practitioners in the central bank when they are unaware of the true model of the economy. However, it is not based on the theory of the economic agents who have rational expectations. In our empirical analyses, we show the effectiveness of our approach by applying it to the inflation targeting of the United Kingdom and the nominal growth rate targeting of Japan. Furthermore, we emphasize that the optimal Monetary policy must be forecast-based because there exist lags of Monetary policy. Our method realizes a forecast-based policy. Additionally, we find that the coefficients of time varying VAR change in response to the changes of Monetary policy.

Michael R Pakko - One of the best experts on this subject based on the ideXlab platform.

  • the Monetary Instrument matters
    Research Papers in Economics, 2005
    Co-Authors: William T Gavin, Benjamin D Keen, Michael R Pakko
    Abstract:

    This paper revisits the issue of money growth versus the interest rate as the Instrument of Monetary policy. Using a dynamic stochastic general equilibrium framework, we examine the effects of alternative Monetary policy rules on inflation persistence, the information content of Monetary data, and real variables. We show that inflation persistence and the variability of inflation relative to money growth depends on whether the central bank follows a money growth rule or an interest rate rule. With a money growth rule, inflation is not persistent and the price level is much more volatile than the money supply. Those counterfactual implications are eliminated by the use of interest rate rules whether prices are sticky or not. A central bank’s utilization of interest rate rules, however, obscures the information content of Monetary aggregates and also leads to subtle problems for econometricians trying to estimate money demand functions or to identify shocks to the trend and cycle components of the money stock.

  • the Monetary Instrument matters
    Federal Reserve Bank of St Louis Review, 2004
    Co-Authors: William T Gavin, Benjamin D Keen, Michael R Pakko
    Abstract:

    This paper revisits the issue of the money supply versus the interest rate as the Instrument of Monetary policy. Using a dynamic stochastic general equilibrium framework, we examine the effects of alternative Monetary policy rules on inflation persistence, the information content of Monetary data, and real variables. We show that inflation persistence and the variability of inflation relative to money growth depend on whether the central bank follows a money growth rule or an interest rate rule. With a money growth rule, inflation is not persistent and the price level is much more volatile than the money supply. Those counterfactual implications are eliminated by the use of interest rate rules whether prices are sticky or not. A central bank’s utilization of interest rate rules, however, obscures the information content of Monetary aggregates and also leads to subtle problems for econometricians trying to estimate money demand functions or to identify shocks to the trend and cycle components of the money stock.