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Begin New Search Topic Interest Rates Author Steven B. Kamin

1. Financial Globalization and Monetary Policy

Author:
Steven B. Kamin
Publication Date:
06-2010
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper reviews the available evidence and previous research on potential effects of financial globalization, that is, the international integration of financial markets. In particular, we address the questions: Has financial globalization materially increased the influence of external developments on domestic monetary conditions? And, has it reduced the influence of central banks over financial and economic conditions in their own country? We find that central banks with floating currencies retain the ability to independently determine short-term interest rates and thus influence broader financial conditions and macroeconomic performance in their economies. However, domestic financial conditions appear to have become more vulnerable to a wide range of external shocks, complicating the task of making appropriate monetary policy decisions. Moreover, the financial crisis has highlighted the importance of cross-border channels for the transmission of liquidity and credit shocks. With financial transactions increasingly being undertaken in vehicle currencies such as dollars and euros, the liquidity provision and the lender-of-last resort functions of many central banks are being challenged. Accordingly, international arrangements for liquidity provision may become increasingly important in the future.
Topic:
Economics, Globalization, International Cooperation, Monetary Policy, and Interest Rates
Political Geography:
Global Focus

2. Did Easy Money in the Dollar Bloc Fuel the Global Commodity Boom?

Author:
Christopher Erceg, Luca Guerrieri, and Steven B. Kamin
Publication Date:
08-2009
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Among the various explanations for the runup in oil and commodity prices of recent years, one story focuses on the role of monetary policy in the United States and in developing economies. In this view, developing countries that peg their currencies to the dollar were forced to ease their monetary policies after reductions in U.S. interest rates, leading to economic overheating, excess demand for oil and other commodities, and rising commodity prices. We assess that hypothesis using the Federal Reserve staff’s forward-looking, multi- country, dynamic general equilibrium model, SIGMA. We find that even if many developing country currencies were pegged to the dollar, an easing of U.S. monetary policy would lead to only a transitory runup in oil prices. Instead, strong economic growth in many developing economies, as well as shortfalls in oil production, better explain the sustained runup in oil prices observed until earlier this year. Moreover, a closer look at exchange rates and interest rates around the world suggests that the monetary policies of many developing economies, including in East Asia, are less closely influenced by U.S. policies than is frequently assumed.
Topic:
Energy Policy, Oil, Commodities, and Interest Rates
Political Geography:
United States and North America