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Begin New Search Topic Monetary Policy Political Geography United States of America

31. Beyond Competitive Devaluations: The Monetary Dimensions of Comparative Advantage

Author:
Paul R. Bergin
Publication Date:
05-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Motivated by the long-standing debate on the pros and cons of competitive devaluation, we propose a new perspective on how monetary and exchange rate policies can contribute to a country’s international competitiveness. We refocus the analysis on the implications of monetary stabilization for a country’s comparative advantage. Motivated by the long-standing debate on the pros and cons of competitive devaluation, we propose a new perspective on how monetary and exchange rate policies can contribute to a country’s international competitiveness. We refocus the analysis on the implications of monetary stabilization for a country’s comparative advantage. We develop a two-country New-Keynesian model allowing for two tradable sectors in each country: while one sector is perfectly competitive, firms in the other sector produce differentiated goods under monopolistic competition subject to sunk entry costs and nominal rigidities, hence their performance is more sensitive to macroeconomic uncertainty. We show that, by stabilizing markups, monetary policy can foster the competitiveness of these firms, encouraging investment and entry in the differentiated goods sector, and ultimately affecting the composition of domestic output and exports. Panel regressions based on worldwide exports to the U.S. by sector lend empirical support to the theory. Constraining monetary policy with an exchange rate peg lowers a country’s share of differentiated goods in exports between 4 and 12 percent.
Topic:
Monetary Policy, Monopoly, Strategic Competition, and Financial Stability
Political Geography:
North America and United States of America

32. U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies

Author:
David Bowman, Juan M. Londono, and Horacio Sapriza
Publication Date:
06-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We investigate the effects of U.S. unconventional monetary policies on sovereign yields, foreign exchange rates, and stock prices in emerging market economies (EMEs), and we analyze how these effects depend on country-specifc characteristics. We find that, although EME asset prices, mainly those of sovereign bonds, responded strongly to unconventional monetary policy announcements, these responses were not outsized with respect to a model that takes into account each country's time-varying vulnerability to U.S. interest rates affected by monetary policy shocks.
Topic:
Economics, Emerging Markets, Foreign Exchange, Markets, Monetary Policy, Exchange Rate Policy, Interest Rates, and Stock Markets
Political Geography:
North America and United States of America

33. The Role of Oil Price Shocks in Causing U.S. Recessions

Author:
Lutz Kilian and Robert J. Vigfusson
Publication Date:
08-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Although oil price shocks have long been viewed as one of the leading candidates for explaining U.S. recessions, surprisingly little is known about the extent to which oil price shocks explain recessions. We provide a formal analysis of this question with special attention to the possible role of net oil price increases in amplifying the transmission of oil price shocks. We quantify the conditional recessionary effect of oil price shocks in the net oil price increase model for all episodes of net oil price increases since the mid-1970s. Compared to the linear model, the cumulative effect of oil price shocks over the course of the next two years is much larger in the net oil price increase model. For example, oil price shocks explain a 3 percent cumulative reduction in U.S. real GDP in the late 1970s and early 1980s and a 5 percent cumulative reduction during the financial crisis. An obvious concern is that some of these estimates are an artifact of net oil price increases being correlated with other variables that explain recessions. We show that the explanatory power of oil price shocks largely persists even after augmenting the nonlinear model with a measure of credit supply conditions, of the monetary policy stance and of consumer confidence. There is evidence, however, that the conditional fit of the net oil price increase model is worse on average than the fit of the corresponding linear model, suggesting much smaller cumulative effects of oil price shocks for these episodes of at most 1 percent.
Topic:
Energy Policy, Oil, Global Recession, Natural Resources, Monetary Policy, and GDP
Political Geography:
North America and United States of America

34. Do Central Banks' Forecasts Take Into Account Public Opinion and Views?

Author:
Ricardo Nunes
Publication Date:
05-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The Federal Reserve through the Federal Open Market Committee (FOMC) regularly releases macroeconomic forecasts to the general public and the US congress with the purpose of explaining the likely evolution of the economy and the appropriate stance of monetary policy. Immediately before doing so, the FOMC receives a forecast produced by the Federal Reserve staff which remains private for five years. The literature has pointed out that, despite the informational advantage of the FOMC, its forecast differs from and is not always more accurate than the staff forecast. This finding has raised concerns regarding the loss of relevant information and the usefulness of the FOMC forecasts. This paper brings evidence that the FOMC forecast also incorporates other publicly available forecasts and views, and that the weight attributed to public forecasts is larger than what is optimal given a mean squared error objective. These findings are consistent with i) the institutional role of the FOMC in being representative of a variety of public views, ii) the academic literature recommendation to use equal weights and not to overfit specific forecasts based on past performance. The statistical model can also account for several empirical regularities of the forecasts.
Topic:
Economics, Monetary Policy, Governance, and Banking
Political Geography:
North America and United States of America

35. Capital Flows to Emerging Market Economies: A Brave New World?

Author:
Shaghil Ahmed and Andrei Zlate
Publication Date:
06-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We examine the determinants of net private capital inflows to emerging market economies. These inflows are computed from quarterly balance-of-payments data from 2002:Q1 to 2012:Q2. Our main findings are: First, growth and interest rate differentials between EMEs and advanced economies and global risk appetite are statistically and economically important determinants of net private capital inflows. Second, there have been significant changes in the behavior of net inflows from the period before the recent global financial crisis to the post-crisis period, especially for portfolio inflows, partly explained by the greater sensitivity of such .flows to interest rate differentials and risk aversion. Third, capital control measures introduced in recent years do appear to have discouraged both total and portfolio inflows. Fourth, in the pre-crisis period, there is some evidence that greater foreign exchange intervention to curb currency appreciation pressures brought more capital inflows down the line, but we cannot identify such an effect in the post-crisis period. Finally, we do not find statistically significant positive effects of unconventional U.S. monetary expansion on total net EME inflows, although there does seem to be a change in composition toward portfolio flows. Even for portfolio flows, U.S. unconventional policy is only one among several important factors.
Topic:
Emerging Markets, Monetary Policy, Economic Growth, Interest Rates, and Capital
Political Geography:
North America and United States of America

36. The Role of Monetary Policy in the Face of Crises

Author:
Anna J. Schwartz
Publication Date:
07-2007
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In this article I first review the Greenspan Fed’s record of providing liquidity in response to its perception of shocks the economy is facing. It assumed that the shocks were likely to generate financial crises. No financial crises, however, have occurred. Yet the Fed was dilatory in draining the market of unneeded liquidity. Failure to do so meant that monetary policy remained accommodative. I next discuss whether there is a connection between the Fed’s accommodative policy and the depreciation since 2002 of the exchange value of the dollar as well as the twin deficits and growing global imbalances. In that discussion I refer to the need to raise the national saving rate, in part by eliminating the budget deficit as well as projected deficits from the unfunded liabilities of Social Security and Medicare. Monetary policy, however, must be independent of fiscal policy. I conclude with some observations on the advisability of adoption by the Fed of inflation targeting.
Topic:
Monetary Policy, Federal Reserve, and Economy
Political Geography:
North America and United States of America

37. Global Imbalances: Do They Matter?

Author:
Miranda Xafa
Publication Date:
01-2007
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
This article reviews the recent literature on global imbalances and discusses the policy implications of the various theories that have been advanced to explain their unprecedented increase. Most of these theories fit the stylized facts, namely, the steady increase in the U.S. current account deficit, the shift to a surplus position of the developing countries, and the low nominal and real interest rates globally. The “low U.S. savings” theory—reflecting the increase in the fiscal deficit and in housing wealth—views the current account deficit as the result of fiscal and monetary policy decisions in the United States that need to be urgently reversed to prevent a crash landing. Other theories however, focusing on developments outside the United States, portfolio balance effects, or previously neglected benign factors, do not yield such a doomsday scenario. It is relevant to note that there is no historical precedent of disorderly exchange rate adjustment in industrial countries that keep inflation under control (Croke, Kamin, and Leduc 2005). Concerns over a disorderly unwinding of global imbalances therefore appear exaggerated. This view, prevalent among market participants and several prominent academics, has not been widely embraced by policymakers.
Topic:
Monetary Policy, Economy, Wealth, and Savings
Political Geography:
Global Focus and United States of America

38. Independent Central Banks: New and Old

Author:
John H. Wood
Publication Date:
10-2006
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In the 1990s, several governments gave their central banks operational independence to pursue low inflation, and steps were taken to make the new monetary policy more credible by making it more transparent (Bernanke et al. 1999). The governor of the Reserve Bank of New Zealand is subject to dismissal if inflation is outside the assigned range. In the United Kingdom, if inflation misses the target by more than 1 percentage point, the governor must explain publicly why the divergence occurred and what steps the Bank of England is taking to deal with it. The new transparency “facilitates public understanding of monetary policy and increases the incentives for the central bank to pursue the announced goals of monetary policy” (Svensson 1999: 631–32). Accountability is increased, indeed made possible, by the choice of a unique objective, which implies “a stronger commitment to a systematic and rational optimizing monetary policy than other monetary policy regimes” (p. 608).
Topic:
Monetary Policy, Inflation, and Central Bank
Political Geography:
England and United States of America