scholarly journals Keynesian Macroeconomics without the LM Curve

2000 ◽  
Vol 14 (2) ◽  
pp. 149-170 ◽  
Author(s):  
David Romer
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Policy Analysis ◽  
Central Bank ◽  
Money Supply ◽  
Alternative Model ◽  
Baseline Model ◽  
Short Run ◽  
Interest Rate Rule

Changes in both the macroeconomy and in macroeconomics suggest that the IS-LM-AS model is no longer the best baseline model of short-run fluctuations for teaching and policy analysis. This paper presents an alternative model that replaces the assumption that the central bank targets the money supply with an assumption that it follows a simple interest rate rule. The resulting model is simpler, more realistic, and more coherent than IS-LM-AS, not just in its treatment of monetary policy but in many other ways. The paper also discusses other alternatives to IS-LMAS.

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

HAS MONETARY POLICY CAUSED HOUSING PRICES TO RISE OR FALL IN CHINA?

2018 ◽  
pp. 1-18 ◽  
Author(s):  
XIAO-CUI YIN ◽  
CHI-WEI SU ◽  
RAN TAO
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Housing Market ◽  
Money Supply ◽  
Asset Price ◽  
Housing Prices ◽  
User Cost ◽  
Rate System ◽  
Short Run ◽  
The Impact

This paper examines whether broader money supply (M2) and interest rate as two monetary policy tools may have differently affected housing prices in China. Empirical results show that there is a co-movement between housing prices and M2 in the short run and it becomes more pronounced after 2006 in the medium run. In addition, generally M2 positively affects housing prices. This supports the asset price channel which indicates that an easing monetary policy offers ample liquidity and results in raising the housing prices. The excess liquidity after 2008 spread to housing market, resulting in too much money chasing relatively few assets and triggering a surge in housing prices. On the other hand, we observe that co-movement between housing prices and interest rate is not very evident in most time. Moreover, we find that interest rate has a positive effect on housing prices which is not consistent with the user cost approach and indicates that a contracting monetary policy is not effective in curbing housing market. Not completely liberalized interest rate system and the high return on housing investments reduce the impact of interest rate on housing prices. These findings indicate that money supply is more effective than interest rate as channel to control the housing prices in China. The results are helpful for the scientific formulation of monetary policy for reasonable regulation of the market.

scholarly journals Interest on reserves, helicopter money and new monetary policy

PLoS ONE ◽  
2021 ◽  
Vol 16 (7) ◽  
pp. e0253956
Author(s):  
Duong Ngotran
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Money Supply ◽  
Taylor Rule ◽  
Policy Framework ◽  
Nonlinear Dynamic Model ◽  
Demand Deposits ◽  
Currency Demand ◽  
Bank Reserves

We build a nonlinear dynamic model with currency, demand deposits and bank reserves. Monetary base is controlled by central bank, while money supply is determined by the interactions between central bank, commercial banks and public. In economic crises when banks cut loans, monetary policy following a Taylor rule is not efficient. Negative interest on reserves or forward guidance is effective, but deflation is still likely to be persistent. If central bank simultaneously targets both interest rate and money supply by a Taylor rule and a Friedman’s k-percent rule, inflation and output are stabilized. An interest rate rule policy is just a subset of a more general monetary policy framework in which central bank can move interest rate and money supply in every direction.

scholarly journals Credibility of the Philippine Central Bank: Evidenced by the Interest Rate Pass-Through

2017 ◽  
Vol 3 (1) ◽  
pp. 47-56
Author(s):  
Chu V. Nguyen
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Empirical Finding ◽  
Policy Makers ◽  
Long Run ◽  
Short Run ◽  
Pass Through ◽  
The Interest Rate

This study investigates the Philippine interest rate pass-through over the December 2001 through January 2016 period. The empirical findings suggest that the Philippine Central Bank has not been very effective in formulating and implementing its countercyclical monetary policy. Specifically, the empirical results reveal very low short-run and long- run interest rate pass-through. The Bounds test results indicate no long-term relationship between countercyclical monetary policy and market rates. Notwithstanding the banking system's remarkable performance in the recent years, amid lingering uncertainties in global financial markets, the Philippine Central Bank lacked the credibility in conducting its countercyclical monetary policy. This empirical finding may not be desirable but it forewarns the monetary policy makers of challenges in formulating and implementing their monetary policy.

Estimating the ECB Policy Reaction Function

2006 ◽  
Vol 7 (1) ◽  
pp. 1-34 ◽  
Author(s):  
Kai Carstensen
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
European Central Bank ◽  
Probit Model ◽  
Ordered Probit ◽  
Reaction Function ◽  
Baseline Model ◽  
European Central ◽  
Policy Reaction Function

Abstract This paper estimates the policy reaction function of the European Central Bank in the first four years of EMU using an ordered probit model which accounts for the fact that central bank rates are set at multiples of 25 basis points. Starting from a baseline model which mimics the Taylor rule, the impacts of different economic variables on interest rate decisions are analysed. It is concluded that the monetary growth measure which was announced by the ECB as the first pillar of their monetary strategy does not play an outstanding role for the actual interest rate decisions. More sophisticated measures like the money overhang which uses information from both pillars are better suited. Overall, it is concluded that the revision of the monetary policy strategy in May 2003 which implied a downgrading of the first pillar will not induce any observable changes in monetary policy decisions.

Hauptrefinanzierungszins, Interbankenmarkt und Geldangebot im Euroraum

2011 ◽  
Vol 62 (2) ◽  
Author(s):  
Achim Hauck ◽  
Ulrike Neyer ◽  
Thomas Vieten
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Money Supply ◽  
Interbank Market ◽  
Policy Variable ◽  
Operating Target ◽  
The Interest Rate ◽  
Transmission Of Monetary Policy

SummaryIn macroeconomic models, the nominal money supply, the long-term nominal interest rate, or even the inflation rate usually serves as the monetary policy variable. In practice, however, none of these variables is directly controlled by the central bank. Consequently, these models do not accurately reflect the implementation of monetary policy. Based on a theoretical model which incorporates the main institutional features of the euro area, this paper analyzes the transmission of monetary policy impulses from their implementation (setting the interest rate at which banks can obtain liquidity from the central bank) via the interbank market to the aggregate money and credit supply in an economy. Building on this analysis, we discuss the ability of the central bank to steer its operating target, the interbank market interest rate, and the money supply.

scholarly journals The credit channels of monetary policy transmission: implications on output and employment in Nigeria

2018 ◽  
Vol 13 (4) ◽  
pp. 103-118 ◽  
Author(s):  
Abiola John Asaleye ◽  
Olabisi Popoola ◽  
Adedoyin Isola Lawal ◽  
Adeyemi Ogundipe ◽  
Omotola Ezenwoke
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Money Supply ◽  
Forecast Error ◽  
Time Frame ◽  
Monetary Policy Transmission ◽  
Long Run ◽  
Policy Transmission ◽  
Short Run ◽  
Credit Channels

There has been an increasing trend in the unemployment rate despite the growth rate witnessed. Monetary policy is presumed as one of the ways to improve the situation. Likewise, the relationship between monetary policy and employment has generated controversial debates in the literature. Though its connection has been extensively studied, however, the implications of monetary policy in respect to time frame perspectives on employment and output have not been widely addressed in the literature. This study provides evidence on shock effects, long and short-run impacts of monetary policy transmission through the credit channels on output and employment in Nigeria within the period of 1981 to 2016 using the Structural Vector Autoregression and Autoregressive distributed lags (ARDL). Evidence from the forecast error shock showed that variations in monetary policy indicators affect output more than employment in the first two periods; however, it affects employment more afterwards. The ARDL results show no evidence of co-integration when output is used as the dependent variable; conversely, cointegration exists when employment is used as the dependent variable. The monetary policy indicators: money supply, bank deposit liability and interest rate are statistically and economically significant with employment in the long run. In the short run, money supply and interest rate are economically and statistically significant. The findings revealed that the Nigerian government can maximize the long-run benefits of monetary policy through the credit channels on employment. Hence, there is a need for policymakers to look beyond short-run gain and promote long-run employment via monetary policy among others.

scholarly journals Monetary Policy And Economic Stabilisation In Nigeria; 1986 – 2019; (Distributional Koyck Lag Model Approach)

2021 ◽  
Vol 07 (07) ◽  
Author(s):  
Bernard Onwe Chinedu Omogo ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Price Level ◽  
Money Stock ◽  
General Price Level ◽  
Short Run ◽  
Lag Model ◽  
Lag Period

This study examined the relevance of Monetary Policy in stabilizing the Nigerian Economy for the period (1986-2019); using the Koyck Model, regression. The results obtained reveal that the rate of growth in the money stock has significant impact on output, contrary to its impact on inflation. Changes in money supply did not exert significant influence on the lending interest rate; however operating lag period of money stock on interest rate was instantaneous. The lending interest rates were exogenously determined by lending institutions. Lending interest rates influenced investment significantly, though with a very long operating lag period. The immediate past value of Money supply significantly influenced the succeeding inflation rate and investment. Likewise, inflation caused growth in the gross domestic output. The joint influences of money stock and national output impacted significantly on the general price level. Consequently, monetary policy measures through adjustments in money stock were better in stabilizing growth than Inflation. Measures that make cash directly available to economic units stimulated investment.Based on the results of this study,we recommend that; the growth of Money Supply cannot be used to influence the general price level and the lending Interest Rate especially in the short run. Changes in the stock of Money Supply can be used to stimulate Economic Growth. Inflation can better be managed with proportionate growths in Money Supply and the Gross Domestic Product. Investment can be tracked by manipulating the lending interest rate. Preview

Endogeneity of Monetary Policy Reaction Fun~tion: An Experience from Pakistan's Economy

1991 ◽  
Vol 30 (4II) ◽  
pp. 931-941
Author(s):  
M. Aynul Hasan ◽  
Qazi Masood Ahmed
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Money Supply ◽  
Relative Effectiveness ◽  
Reaction Function ◽  
Standard Result ◽  
Policy Variable ◽  
Target Values ◽  
Monetary Policy Reaction Function ◽  
Policy Reaction Function

Monetary policy, in general, refers to those steps taken by the Central Bank to achieve such broader objectives of the economy as growth, employment, external balance and price stability through changes in the money supply, interest rates and credit policies. The money supply thus created by the Central Bank should be in response to the changes in key macroeconomic target variables such as GNP, balance of payments, inflation, internal debt and unemployment. Indeed, a properly estimated monetary policy reaction function can provide useful information regarding such matters as to whether the Central Bank, in fact, has been systematically accommodating to the changes in the target variables. The reaction function can also provide insight into the question as to what should be the relevant indicators of the monetary policy. In addition, as argued by Havrilesky (1967), it may also play a crucial role in the formulation of long-term monetary policy strategy. The other important consideration in the development of a monetary policy reaction function pertains to the endogeneity of the monetary policy. As pointed out by Goldfeld and Blinder (1972), if a policy variable responds to the lagged (or expected) target values, then considering such a policy variable as exogenous would not only introduce the problem of misspecification but will also produce serious biases in the parameters estimated from those models. In particular, if the monetary policy variable happens to be strongly influenced by target variables, then the standard result of the relative effectiveness of the monetary policy vis-a-vis fiscal policy can be questionable on the grounds of reverse causation problem.

Sign in / Sign up

Export Citation Format

Share Document