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Three essays on monetary policy in the UK
Get PDFThe dissertation studies monetary policy in the UK and specifically three topics: the monetary policy reaction function of the Bank of England, the influence of QE on nominal income and the determination of inflation and the role of money in it.
In the study of the reaction function of the Bank of England in chapter 2 (which draws on Cobham and Kang, 2012a), there are two issues involved a comparison of two different approaches: the GMM approach and the ex ante forecast approach. The first issue is the time horizons for inflation and the output gap. The estimations using the GMM method indicate that the best fit is for inflation one year ahead and for the output gap one quarter ahead. The estimations in the ex ante forecast approach indicate the best fit should be for inflation two years ahead and output growth one quarter ahead, which is closer to the Bank of England’s view. The second issue is about the smoothing behaviour in interest rate decisions. The GMM method suggests smoothing behaviour incorporated in a lagged dependent variable while the ex ante forecast method suggests no smoothing since the lagged change of the interest rate is not significant in the regression. The latter suggestion is also closer to former policy makers’ views. In addition, the GMM method may suffer from a weak instruments problem and the ex ante forecast approach is a better method to estimate the monetary policy reaction function. I also try to apply the ex ante forecast approach to the reaction function of the European Central Bank, with results which are less precise but still closer to what the ECB claims to do.
The third and the fourth chapters address the monetary aggregates, which have been ignored in monetary policy research for a long time but fluctuated strongly during the financial crisis period and after QE was implemented. What’s more, while most work in recent years focuses on the fluctuations in financial markets, the dissertation discusses the influence of the crisis and QE on macroeconomic activity. In chapter 3 (which draws on Cobham and Kang, 2012b), a flow of funds matrix is used to illustrate the monetary developments. This is followed by regressions of a naïve ad hoc reduced form model which considers the growth of nominal spending as determined by the growth of
nominal money and other variables. The results of the regression suggest that money has had a bigger role since the crisis and under QE. Then various counterfactual assumptions about money growth are made and the counterfactual paths of nominal spending are calculated by using the estimated parameters of the regression above. The comparison of those counterfactuals indicates that QE has had a considerable influence on nominal spending. In the fourth chapter, money growth is studied in a long-run perspective, in terms of its relation with inflation. In a reduced-form Phillips curve, inflation is explained by variables at different frequencies. The money growth, GDP growth and interest rate change which are included in the Quantity Theory of Money are expected to link inflation at low frequency while the output gap as well as exchange rate and import price has a relation with inflation at high frequency. The frequency-domain technique is used in this process. The estimated results suggest money has a relationship with inflation only at low frequency while the output gap, on the other hand, relates inflation at high frequency. Then regressions on low frequency and high frequency are also run. Frequency-wise causality measures follow to support the indications. From the results given by the third and fourth chapters, it is suggested that it is the time to pay attention to money again in monetary policy research. And it would be useful to incorporate money or credit into wider macroeconometric models of the UK economy
Employment and Wage Adjustment: Insider-Outsider Control in a Polish Privatization Panel Study
No full textEmployment and wages in transition : panel evidence from Poland
No full textNew survey data for a panel of Polish firms is used to estimate employment and wage adjustments under various forms of ownership (insider vs. outsider) and asymmetric response to exogenous shocks. In contrast to earlier studies, dynamic panel data estimators (GMM) allow for endogeneity of observed variables and partial adjustment to shocks. Results differ from other findings in the transition literature: wages have little effect on dynamic labor demand and the firm-size wage effect is confirmed. Firms that expand employment have to pay significantly larger wage increases and rising sales add little to employment, suggesting labor hoarding. Dec1ining sales, however, significantly reduce employment and privatization (or anticipation thereof) has the expected benefits
Issues and Problems Related to Eurozone Entry of the New Accession Countries: An Analytical Review:Discussion
No full textThis chapter focuses on issues related to the entry to the eurozone of eight new EU member states from Central and Eastern Europe (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia). It does not deal with the two new member states that have not undergone the transition from a centrally planned economy to a market-based one (Cyprus and Malta)
Employment and wage adjustment:Insider-outsider control in a polish privatization panel study
No full textNew survey data for a panel of Polish firms are used to study employment and wage adjustment in state-owned enterprises, and insider- and outsider-controlled privatized firms. In contrast to earlier studies, dynamic panel data estimators allow for endogeneity of observed variables and partial adjustment to shocks. Asymmetric demand and productivity shocks have differing effects across ownership categories that are missed by the simpler and more aggregated specifications used in the previous literature. We confirm rent-seeking behavior in insider-controlled firms and find a significant employment growth-wage effect. © 2002 Association for Comparative Economic Studies. Published by Elsevier Science (USA). All rights reserved.</p
EMU, EU, capital market integration and consumption smoothing
No full textThis empirical study of the impact of EMU on capital market integration and consumption smoothing comes to three conclusions: first, EMU promotes members’ holdings of foreign assets and foreign liabilities; second, no benefits of consumption smoothing result; third, EU membership, not a single money, nevertheless increases consumption smoothing. The source of this last influence on consumption smoothing is an important issue. Theoretically it could come from more tradable capital through greater price competition, more contestable home markets and the greater harmonization of regulations. There is also a seeming conflict between our results and those of one strand of the literature. However, the relevant writings concentrate on the effects of asymmetric output shocks while we study the unconditional impact of international portfolio di-versification in the presence of all shocks. This can explain the difference.capital market integration; consumption smoothing; currency union; European Monetary Union; European Union
Long-run purchasing power parity, prices and exchange rates in transition: The case of six Central and East European countries
No full textA note on Allen-Uzawa partial elasticities of substitution: the case of the translog cost function
Get PDFThis note provides a useful property of the Allen-Uzawa partials for the translog cost function. It also suggests how the main results extend to any functional form with certain properties. The curvature of the Allen-Uzawa matrix is the same as the curvature of the Hessian matrix. Intuitively and empirically, the Allen-Uzawa partials allow for the verification of curvature properties
Money and inflation:Is monetary policy useful?
No full textIn this paper, we establish a connection between money growth and inflation identified under different monetary policy regimes using UK data. We study the (in)stability of this quantity theoretic relationship, and interpret it through the lens of a New Keynesian model of monetary policy with alternative policy rules. We document the implied instability of low-frequency correlations between money growth and inflation emerging as a result of differences in monetary policies epitomizing the UK experience since the 1970s. In general, we show that monetary policy regime shifts contribute to the breakdown of the quantity theoretic propositions. Our findings seem to lend support to related work for the US over the last century.</p
Transparency Matters
No full textUsing data from 60 resource-abundant countries, we analyze the impact of the Extractive Industry Transparency Initiative (EITI) membership on foreign direct investment, corruption and the cost of sovereign borrowing. Greater fiscal transparency, measure by EITI membership, tends to increase foreign direct investment flows into the country and reduce the incidence of corruption. These results have important policy implications for governments, investors and civil society groups. Natural-resource-rich countries interested in eradicating corruption and attracting more direct investments from foreign countries ought to enhance fiscal transparency and establish policies in line with economic fundamentals
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