169 research outputs found
If the Fed sneezes, who catches a cold?
No full textThis paper studies the international spillovers of US monetary policy shocks on a number of macroeconomic and financial variables in 36 advanced and emerging economies. In most countries, a surprise US monetary tightening leads to depreciation against the dollar; industrial production and real GDP fall, unemployment rises. Inflation declines especially in advanced economies. At the same time, there is significant heterogeneity across countries in the response of asset prices, and portfolio and banking cross-border flows. However, no clear-cut systematic relation emerges between country responses and likely relevant country characteristics, such as their income level, dollar exchange rate flexibility, financial openness, trade openness vs. the US, dollar exposure in foreign assets and liabilities, and incidence of commodity exports
Housing finance and monetary policy
No full textEmpirical and theoretical analysis of effects of monetary policy shocks on different OECD countries as a function of the characteristics of the mortgage marke
Playing chicken in times of turbulence: M3 overshooting and the ECB monetary stance. EUMA Papers, Vol.4, No. 23 November 2007
No full textThis summer subprime crisis and the subsequent credit crunch have placed central banks again on the spot. In the USA and Europe, central banks have made significant steps to calm down financial turbulence by engineering liquidity injections, and interest rate shift. In Europe, following a recent Banking Lending Survey (October 2007) signaling a tightening of the credit standards for loans to enterprises, the ECB, in a counter-cyclical effort, has managed to leave on hold interest rate. As sound as sensible the ECB move can be seen, it appears the bank set to delay action on excess of liquidity, as shown in the persisting overshooting of M3. The ECB rates halt, or a likely near-term cut, as some would suggest, could only send the wrong signal. A neglect of M3 overshooting while accelerating inflationary pressures reveals the bank’s weakness in front of eurozone politicians claiming a more accommodative policy to offset the euro’s trend appreciation. In order to escape being entrapped into the rate dilemma, this paper suggests the bank has just to make a clear-cut choice: carry out the objective of cracking down on M3 overshooting, or hand over M3 quantitative target. If not, it will be seen playing chicken in the game
Banks and Real Estate Prices
No full textThe willingness of banks to provide funding for real estate purchases depends on the creditworthiness of their borrowers. Beside other factors, the creditworthiness of borrowers depends on the development of real estate prices. Real estate prices, in turn, depend on the demand for homes which is influenced by the willingness of banks to provide funding for real estate purchases. In this paper I develop a theoretical model which describes and explains this circular relationship. Using this model, I show how different kinds of expectation formations can lead to fluctuations of real estate prices. Furthermore, I show that banks make above average profits in the upswing phase of the real estate cycle but suffer high losses when the market turns.Credit Cycle, Real Estate Prices, Bubbles
The natural real interest rate and the output gap in the euro area: a joint estimation
No full textThe notion of a natural real rate of interest, due to Wicksell (1936), is widely used in current central bank research. The idea is that there exists a level at which the real interest rate would be compatible with output being at its potential and stationary inflation. This paper applies the method recently suggested by Laubach and Williams to jointly estimate the natural real interest rate and the output gap in the euro area over the past 40 years. Our results suggest that the natural rate of interest has declined gradually over the past 40 years. They also indicate that monetary policy in the euro area was on average stimulative during the 1960s and the 1970s, while it contributed to dampen the output gap and inflation in the 1980s and the 1990s. JEL Classification: C32, E43, E52, O40euro area, Kalman filter, output gap, Real interest rate gap
Keeping up with the Joneses, reference dependence, and equilibrium indeterminacy
No full textThis model extends the keeping up with the Joneses (KUJ) model to incorporate the notion that positional concerns in consumption are best modelled with a reference dependence specification of preferences, as postulated by Tversky and Kahneman (1991) in the context of riskless choice. In line with this specification, which has received substantial empirical support in the literature, we assume that the marginal returns on the own consumption are increasing below the aggregate per capita levels of consumption (which is the reference point in our model). The main conclusion of the paper is that in our KUJ model aggregate consumption may be subject to sunspot fluctuations and the equilibrium level of consumption is not uniquely pinned down. The paper also discusses the role that fiscal policy can play in order to undo the effect of consumption externalities on both the determinacy and the desirability of the equilibrium. JEL Classification: D11, H21Consumption externalities, equilibrium indeterminacy, keeping up with the Joneses, optimal taxation, reference dependence
Does money matter in the IS curve? The case of the UK
No full textNarrow and broad money measures (including Divisia aggregates) have been found to have explanatory power for UK output in backward-looking specifications of the IS curve. In this paper, we explore whether or not real balances enter into a forward-looking IS curve for the UK, building on the theoretical framework of Ireland (2004). To do this, we test for additive separability between consumption and money over a sizeable part of the post-ERM period using non-parametric methods. If consumption and money are not additively separable, then real money balances enter into the forward-looking IS curve (the converse does not hold, however). A main finding is that the UK data seem to be broadly consistent with additive separability for the the more recent period from 1999 to 2007. JEL Classification: C14, C43, C63, E21, E41Additive Separability, Divisia Monetary Aggregates, IS Curve, measurement error, Non-Parametric Tests
A speed limit monetary policy rule for the euro area
No full textThis paper estimates a hybrid New Keynesian model on euro area data and evaluates the performance of different simple policy rules and of the optimal unconstrained rule under commitment. The study reaches two main conclusions. First, inflation is found to be mainly forward-looking in the euro area, which implies the optimal policy reaction to cost push shocks is a muted one. Second, a "speed limit" rule of the type recently proposed by Walsh (2003) is able to closely approximate the performance of the optimal rule under commitment. The optimal speed limit rule is also characterised by super-inertia, making it a first difference rule similar to those recently proposed as a possible solution to measurement problems in the level of the natural interest rate and of potential output
DELEGATED PORTFOLIO MANAGEMENT: A SURVEY OF THE THEORETICAL LITERATURE
No full textThis paper provides a selective review of the theoretical literature on delegated portfolio management as a principal-agent relationship. The main focus of the paper is to review the analytical issues raised by the peculiar nature of the delegated portfolio management relationship within the broader class of principal-agent models. In particular, the paper discusses the performance of linear versus nonlinear compensation contracts in a single-period setting, the possible effects of limited liability of portfolio managers, the role of reputational concerns in a multiperiod framework, and the incentives to noise trading. In addition, the paper deals with some general equilibrium dimensions and asset pricing implications of delegated portfolio management. The paper also suggests some directions for future research. Copyright 2006 The Author Journal compilation � 2006 Blackwell Publishing Ltd.
Heterogeneity in money holdings across euro area countries: The role of housing
No full textIn this paper we examine why monetary aggregates of euro area Member States have developed differently since the inception of the euro. We derive a money demand equation that incorporates housing wealth and collateral as well as substitution effects on real money holdings. Empirically, we show that cross-country differences in real balances are determined not only by income differences, a standard determinant of money demand, but also by house price developments. Higher house prices and higher user costs of housing are both associated with larger money holdings. Country-specific money holdings are also connected with structural features of the housing market. --Money,housing,national contribution,euro area
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