Essays on financial sector and optimal monetary policy

2016 ◽  
Author(s):  
◽  
Ting Wang
Keyword(s):  
Monetary Policy ◽  
Business Cycle ◽  
Central Bank ◽  
Financial Sector ◽  
Supply Side ◽  
Financial Shocks ◽  
External Finance ◽  
Business Cycle Fluctuations ◽  
The Relationship

[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT REQUEST OF AUTHOR.] The 2007-2009 economic events have renewed interests in the relationship between the financial sector and the macroeconomy and suggested that shocks originated in the financial sector may be a potential source of business cycle fluctuations. In this regard, this dissertation focuses on quantifying and assessing the role of shocks originated from the financial sector in driving business cycle fluctuations and how monetary policy could possibly respond from a welfare prospective. The dissertation consists of three chapters. The first chapter attempts to model the relationship between the financial sector and the macroeconomy theoretically. Specifically, I build a dynamic stochastic general equilibrium (DSGE) model by incorporating a financial sector with frictions between investors and banks. The existence of such frictions affect the healthiness of the financial sector and increase its riskiness, whereas would not affect those of the non-financial sector by much. I regard this type of frictions as supply-side financial shocks that are originated in the financial sector. Under this framework, the external finance premium in the financial sector can be determined endogenously. To study how the financial shocks would affect the dynamics of the model, impulse responses are used to show that the inclusion of those financial shocks yield larger amplification effects. Thus the model is able to generate higher volatility in aggregate outcomes, especially in the financial sector. This provides theoretical grounds to study the role of supply-side financial shocks for the next two chapters. Chapter two seeks to quantify empirically the effects of the financial shocks on the macroeconomy in a structural vector autoregression (SVAR) model. Based on the model implications derived from Chapter one, two types of financial shocks can be discriminated|the demand-side financial shock that comes from the entrepreneurial sector and the supply-side financial shock that comes from the financial sector. The identification strategy is that these two types of shocks affect the standards deviation of the equity returns in financial and entrepreneurial sectors in opposite directions. The overall SVAR results show that the effects of financial shocks on the real economic activities are non-trivial, although not major. In particular, the supply-side financial shocks originating from the financial sector explain a non-negligible part of the variabilities for the key macro variables; whereas for the financial variables, they are the main drivers, especially during the 2007-2009 crisis period. Chapter three studies how monetary policy should respond to this type of supplyside financial shocks from a prospective of social welfare. In particular, I consider a Taylor-type monetary policy rule augmented with a financial variable|the external finance premium. By doing so, it allows the central bank to react to the changes in the riskiness of the financial sector, in addition to the conventional output and inflation targets. The welfare results show that it is optimal for the central bank to respond to the financial variable. In other words, when there are shocks originated in the financial sector, the riskiness of the financial sector increases, and so do the external financing costs and the external finance premium in the financial sector. The banks' balance sheet conditions worsen and the central bank should cut its policy rate. The welfare analysis also implies that the inflation stabilization is still the most important target of the central bank, which in line with the literature that emphasizes the importance of inflation targeting.

scholarly journals LOAN PRODUCTION AND MONETARY POLICY

2017 ◽  
Vol 23 (1) ◽  
pp. 101-143
Author(s):  
Miguel Casares ◽  
Luca Deidda ◽  
Jose E. Galdon-Sanchez
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Business Cycle ◽  
Financial Frictions ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Optimal Monetary Policy ◽  
External Finance ◽  
Business Cycle Fluctuations ◽  
Keynesian Model

We examine optimal monetary policy in a New Keynesian model with unemployment and financial frictions where banks produce loans using equity as collateral. Firms and households demand loans to finance externally a fraction of their flows of expenditures. Our findings show amplifying business-cycle effects of a more rigid loan production technology. In the monetary policy analysis, the optimal rule clearly outperforms a Taylor-type rule. The optimized interest-rate response to the external finance premium turns significantly negative when either banking rigidities are high or when financial shocks are the only source of business cycle fluctuations.

scholarly journals Blending in: A Case Study of Transitional Ambidexterity in the Financial Sector

2021 ◽  
Vol 13 (4) ◽  
pp. 1690
Author(s):  
Beniamino Callegari ◽  
Ranvir S. Rai
Keyword(s):  
Financial Sector ◽  
Economic Sustainability ◽  
Organizational Ambidexterity ◽  
Management Literature ◽  
Innovative Capabilities ◽  
Financial Firm ◽  
The Relationship

Organizational ambidexterity is widely recognized as necessary for the economic sustainability of firms operating in the financial sector. While the management literature has recognized several forms of ambidexterity, the relationship between them and their relative merits remain unclear. By studying a process of implementation of ambidextrous capabilities within a large Scandinavian financial firm, we explore the role of top-down reforms and bottom-up reactions in determining the development of sector-specific innovative capabilities. We find that blended ambidexterity follows naturally from the attempt to correct the tensions arising from harmonic ambidextrous blueprints. The resulting blended practice appears to be closely related to the reciprocal model of ambidexterity, which appears to be a necessity rather than a choice, for large firms attempting to develop innovative capabilities. Consequently, we suggest to re-interpret current taxonomies of ambidexterity not as alternative blueprints, but rather as stages in a long-term process of transition.

scholarly journals Money Decentralization under Direct Democracy Procedures. The Case of Classical Athens

2021 ◽  
Vol 14 (1) ◽  
pp. 30
Author(s):  
Emmanouil-Marios L. Economou ◽  
Nicholas C. Kyriazis ◽  
Nikolaos A. Kyriazis
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Direct Democracy ◽  
Hellenistic Period ◽  
International Currency ◽  
Monetary System ◽  
Mediterranean World ◽  
The Stability ◽  
City State

By analyzing the case of Athens during the Classical period (508-323 BCE) the main thesis of this paper is that under direct democracy procedures and the related institutional setup, a monetary system without a Central Bank may function relatively well. We focus on the following issues: (i) Τhe procedures of currency issuing in the Athenian city-state, (ii) why the Athenian drachma become the leading international currency in the Mediterranean world (iii) how and towards which targets monetary policy without a Central Bank was possible (iv) defining the targets of monetary policy and the mechanisms for its implementation (v) the role of money in the economy (vi) the issue of deficit spending (vii) the reasons of the replacement of the Athenian drachma as a leading currency by others from the Hellenistic period onwards (viii) the correlation of our findings regarding the decentralized character of monetary policy in Classical Athens to today’s realities, such as the issue of cryptocurrencies. Our analysis shows that monetary policy without a Central Bank was possible, with its foremost aim being the stability of the currency (mainly, silver coins) in order to enhance trust in it and so, make it an international currency which could outcompete other currencies. Since there was no Central Bank like today, monetary policy decisions were taken by the popular assembly of citizens in combination with the market forces themselves.

scholarly journals News-Driven Business Cycles: Insights and Challenges

2014 ◽  
Vol 52 (4) ◽  
pp. 993-1074 ◽  
Author(s):  
Paul Beaudry ◽  
Franck Portier
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Empirical Evidence ◽  
Economic Fluctuations ◽  
Aggregate Fluctuations ◽  
Business Cycle Fluctuations ◽  
Widespread Belief ◽  
Way Of Thinking ◽  
The Many

There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The news view of business cycles offers a formalization of this perspective. In this paper we discuss mechanisms by which changes in agents' information, due to the arrival of news, can cause business cycle fluctuations driven by expectational change, and we review the empirical evidence aimed at evaluating their relevance. In particular, we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations, while at the same time we emphasize the many challenges that must be addressed before a proper assessment of the role of news in business cycles can be established. (JEL D83, D84, E13, E32, O33)

scholarly journals FUNGSI BANK INDONESIA SEBAGAI PENGAWAS PERBANKAN DI INDONESIA

2007 ◽  
Vol 37 (4) ◽  
pp. 514
Author(s):  
Mutiara Hikmah
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Market Economy ◽  
Payment System ◽  
Banking Supervision ◽  
Command Economy ◽  
The Law

AbstrakThis article giving elaboration regarding Bank Indonesia role as centralbank that hold significant's role and position in Indonesian economicprogress, so Bank Indonesia ought to take position in the change of economicsystem from command economy to market economy. Considering thatcircumstance the role of Bank Indonesia under Article 23D of Constitution ofRepublic Indonesia has been endorsed to promulgating Peraturan BankIndonesia (Bank Indonesia Regulation) which is has same level withPresidential regulation. That regulation considers to the Bank Indonesiaroles to accomplishing through implementation of Law Number 23 year 1999regarding Bank Indonesia. Under the Law central bank have responsibilityto assure and conserve toward rupiah stability. monetary policy. continuityof payment system and banking supervision

scholarly journals Psychological Capital of Employees’ Engagement: Moderating Impact of Conflict Management in the Financial Sector of Pakistan

2019 ◽  
Vol IV (III) ◽  
pp. 115-123
Author(s):  
Muhammad Asif ◽  
Muhammad Azizullah Khan ◽  
Malik Adil Pasha
Keyword(s):  
Conflict Management ◽  
Psychological Capital ◽  
Financial Sector ◽  
Insurance Companies ◽  
Investment Companies ◽  
History Of ◽  
Brokerage Firms ◽  
The Relationship ◽  
Goals And Objectives

Human capital is the backbone of any business and its behavior reflects how the company would achieve its goals and objectives in its business. This study examines the relationship between psychological capital (PC) and employees’ engagement (EE) with the moderating role of conflict management (CM) in the financial sector of Pakistan. A questionnaire composed of established scales were administered to 278 employees in the financial sector, including various banks, investment companies, real estate companies, insurance companies, and brokerage firms at Islamabad. After determining the reliability, the model was analyzed with the help of correlation and regression. Research indicates that PC positively influences EE. This relationship improves further positively when conflicts are handled effectively. Overall, this effort contributes to the existing literature on the history of worker’s involvement by examining the direct impact of PC and CM on EE and moderation of CM.

scholarly journals Business cycle synchronization and monetary policy in Bosnia and Herzegovina

Bankarstvo ◽  
2021 ◽  
Vol 50 (2) ◽  
pp. 8-20
Author(s):  
Dragan Jović
Keyword(s):  
Monetary Policy ◽  
Business Cycle ◽  
Central Bank ◽  
Bosnia And Herzegovina ◽  
Great Part ◽  
Currency Board ◽  
The Business Cycle ◽  
Further Development ◽  
Discretionary Monetary Policy ◽  
New Instruments

By adopting the currency board at the end of the last century, and by pegging its exchange rate to the Euro, a quarter of a century ago, Bosnia and Herzegovina surrendered a great part of its monetary policy in the hand of European Central Bank in the hope that the synchronization of the business cycle will make foreign monetary policy completely suitable for Bosnia and Herzegovina. At the same time during these two decades, the Central Bank of Bosnia and Herzegovina has been developing and using reserve requirement and remuneration as discretionary instruments of monetary policy. The research shows that the domestic business cycle and the foreign one are relatively weakly synchronized compared to other countries' degree of synchronization, and by this findings current discretionary monetary policy and its further development and enrichment with new instruments is fully justified. Bosnia and Herzegovina must continue with developing its own discretionary monetary policy without relying on foreign monetary policy.

scholarly journals The role of inventories for the propagation of aggregate fluctuations: lessons for Bulgaria (1999–2019)

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Aleksandar Vasilev
Keyword(s):  
Business Cycle ◽  
Design Methodology ◽  
Aggregate Fluctuations ◽  
Content Type ◽  
Consumption Volatility ◽  
Business Cycle Fluctuations ◽  
The Government ◽  
Rbc Models ◽  
Quantitative Importance

PurposeIn this study, inventories are introduced as a productive input into a real-business-cycle (RBC) setup augmented with the government.Design/methodology/approachThe model is calibrated to Bulgarian data for the period 1999–2019. The quantitative importance of the presence of inventories is investigated.FindingsThe quantitative effect of inventories is found to be important: decreasing consumption volatility and increasing employment variability. Those results, however, are at the expense of decreasing wage volatility and increasing investment volatility, and generally worsening the contemporaneous correlations of the main variables with output.Originality/valueFluctuations in inventory levels matter for business cycle fluctuations in Bulgaria, which is a novel result. Still, there is a need for more research on the incorporation of inventories into RBC models to better fit the Bulgarian experience.

scholarly journals THE ROLE OF THE CENTRAL BANK IN THE FUNCTION OF IMPROVEMENT OF LIQUIDITY OF BANKING SECTOR IN BOSNIA AND HERZEGOVINA

2019 ◽  
Vol 12 (24) ◽  
Author(s):  
Goran Mitrović ◽  
Živko Erceg
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Bosnia And Herzegovina ◽  
Banking Sector ◽  
Banking System ◽  
Policy Instruments ◽  
Foreign Banks ◽  
Dayton Agreement ◽  
The Impact

The monetary policy of Bosnia andHerzegovina is rather limited because it is basedon the principles of a currency boardcharacterized by the impossibility of implementingthe basic monetary policy instruments incomparison with the monetary policy of theEuropean Union. However, the constant presenceof European integrations should point the need fora more drastic change in the monetary policy ofBosnia and Herzegovina. By entering theEuropean Monetary Union (EMU), the monetaryterritory of Bosnia and Herzegovina will becomeone of the branches of the European Central Bank(ECB). In addition, it is not difficult to concludewhy the Law about the Central Bank of Bosnia andHerzegovina has been adopted with the first lawsof the Dayton Agreement, if it is known that thelargest part of the banking system, and thereforethe financial market, is owned by foreign banks.This work will point out the significance of theCentral Bank of Bosnia and Herzegovina, as oneof the most important factors for maintaining thepermanent liquidity of the banking sector inBosnia and Herzegovina. The possibilities andlimitations of the Central Bank of Bosnia andHerzegovina will be determined, with theassumption of macroeconomic sustainability overa longer period of time. The need of reforming thebanking system in Bosnia and Herzegovina will beanalyzed through the constant implementation ofthe Basel standards with the increasingparticipation of foreign banks in the Bosnia andHerzegovina. It will be determined the impact ofthe implementation of the Basel III in the bankingindustry in Bosnia and Herzegovina and itsconsequences on the banking and economicsystem.models, on the ways of financing theelimination of adverse consequences of naturaldisasters.

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