the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

the fisher hypothesis and the forecastability and persistence of inflation abstract for the period 1860 to 1939 the simple correlation of the u s commercial paper rate with the contemporaneous inflation rate is 0 17 the corresponding correlation for the period 1950 to 1979 is 0 71 this paper attributes this apparent change in the fisher relation to differences in the stochastic process of inflation rather than a change in any structural relationship between interest rates and expected inflation contrary to recent claims in the literature there is little evidence of inflation non neutrality in data from the pre world war i period

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

a comparison of managers perceptions of short termism in sweden and the u s u s and u k firms have been thought to invest in a more short term manner than japanese and german firms this article uses a questionnaire and interviews to compare u s and swedish top executiv

the open economy consequences of u s monetary policy a failure to identify movements in the federal funds rate that are both unpredictable and independent of other determinants of open economy variables may lead to attenuation bias in the estimated effects of u s monetary policy on the exchange rate and foreign variables using a u s monetary policy measure which isolates unpredictable and independent federal funds rate changes we quantify the magnitude of the attenuation bias for the exchange rate and foreign variables the exchange rate appreciation following a monetary contraction is up to 4 times larger than a recursively identified var estimate there is stronger evidence of foreign interest rate pass through the expenditure reducing effects of a u s monetary policy contraction dominate any expenditure switching effects leading to a positive conditional correlation of international outputs and prices we compare our results with those obtained using identification based upon 1 non recursive var restrictions and 2 restrictions derived from high frequency asset price behavior

dynamic forecasts of qualitative variables a qual var model of u s recessions this article presents a new qual var model for incorporating information from qualitative and or discrete variables in vector autoregressions with a qual var it is possible to create dynamic forecasts of the qualitative variable using standard var projections previous forecasting methods for qualitative variables in contrast produce only static forecasts i apply the qual var to forecasting the 2001 business recession out of sample and to analyzing the romer and romer narrative measure of monetary policy contractions as an endogenous variable in a var out of sample the model predicts the timing of the 2001 recession quite well relative to the recession probabilities put forth at the time by professional forecasters qual vars which include information about the qualitative variable can also enhance the quality of density forecasts of the other variables in the system

alternative maximum likelihood estimation of structural vector autoregressive models partially identified with short run restrictions this paper presents an alternative maximum likelihood estimation method for partially identified vector autoregressive models this method might be especially useful to handle very large systems of variables by reducing the dimension of the likelihood space as an application we consider an open economy model to investigate the effects of monetary policy on exchange rates and term structures we find that exchange rates tend to overshoot and term structures have hump shaped responses to monetary policy shocks

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

raise rates to raise inflation neo fisherianism in the new keynesian model increasing the inflation target in a new keynesian nk model may require increasing rather than decreasing the nominal interest rate in the short run we refer to this positive short run comovement between the nominal rates and inflation conditional on a nominal shock as neo fisherianism we show that the nk model is more likely to be neo fisherian the more persistent is the change in the inflation target and the more flexible are prices neo fisherianism is driven by the forward looking nature of the model modifications that make the framework less forward looking make it less likely for the model to exhibit neo fisherianism

monetary policy regimes and the reduced form for interest rates this study investigates whether the recent poor performance and inst ability of reduced form interest rate equations can be accounted for by changes in monetary policy regimes the results imply that reduced form coefficients move by statistically significant and economically meaningful amounts in response to such policy parameter shifts both in sample and out of sample predictions from the models that allow f or the endogeneity of the money stock outperform those produced by the conventional specification copyright 1987 by ohio state university press

monetary policy and investment dynamics evidence from disaggregate data we use disaggregated data on the components of private fixed investment pfi to estimate industry level responses of real investment and capital prices to unanticipated monetary policy the response functions derive from a restricted large scale var estimated over 1959 2007 our results point to significant cross sector heterogeneity in the behavior of pfi prices and quantities for assets belonging to the equipment category of fixed investment we find that quantities rather than prices absorb most of the fallout from a policy shock by contrast the price effects tend to be higher and the output effects lower for nonresidential structures

evidence on the cross country transmission of monetary shocks the international transmission of monetary shocks between the us and canada is explored focusing on real variables such as consumption investment employment and the bilateral trade balance along with measures of us and canadian money the empirical analysis examines the impact of a monetary shock in one country on real activity in both countries the long run analysis provides evidence of cointegration among the variables and suggests that money plays an important role in the equilibrium relationships between the two countries variance decompositions and impulse response functions reveal interesting avenues of real transmission in the short run the short run analysis provides strong evidence that us monetary shocks affect real activity in both the usa and canada the analysis also indicates that canadian monetary disturbances affect canadian and us real activity and that many of these effects are similar in magnitude to the effects of us monetary shocks the importance of the nominal exchange rate

is the us dollar a suitable anchor for the newly proposed gcc currency responses of inflation and non oil output growth from the gulf cooperation council gcc countries to monetary policy shocks from the united states us were estimated to determine whether there is evidence to support the us dollar as the anchor for the proposed unified currency a structural vector autoregression identified with short run restrictions was employed for each country with fed funds rate as the us monetary policy instrument non oil output growth and inflation the main results suggest that for inflation the gcc countries show synchronised responses to monetary policy shocks from the us which are similar to inflation in the us and for non oil output growth there is no clear indication that us monetary policy can be as effective for the gcc countries as it is domestically consequently importing us monetary policy via a dollar peg may guarantee only stable inflation for the gcc countries not necessarily stable non oil output growth if the non oil output response is made conscientiously and there are concerns over the dollar s ability to perform its role as a store of value a basket peg with both the us dollar and the euro may be a sound alternative as confirmed by the variance decomposition analysis of our augmented svar with a proxy for the european short term interest rate

potential information and target variables for uk monetary policy the relationship between traditional monetary policy goal variables nominal gdp real gpd and the inflation rate and a number of financial market variables is investigated the question examined is which if any of these financial market variables monetary aggregates interest rates and interest rate spreads are potentially useful as either information variables or intermediate targets while the implications concerning the usefulness of the financial variables considered are pessimistic concerning nominal gdp more robust relationships are found for real gdp and inflation the latter finding is of interest given the current uk monetary policy strategy of inflation targeting our results are however more supportive of the usefulness of several financial variables as information variables than as intermediate targets

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

on the low frequency relationship between public deficits and inflation summary we estimate the low frequency relationship between fiscal deficits and inflation and pay special attention to its potential time variation by estimating a time varying vector autoregression model for us data from 1900 to 2011 we find the strongest relationship neither in times of crisis nor in times of high public deficits but from the mid 1960s up to 1980 employing a structural decomposition of the low frequency relationship and further narrative evidence we interpret our results such that the low frequency relationship between fiscal deficits and inflation is strongly related to the conduct of monetary policy and its interaction with fiscal policy after world war ii copyright 2015 john wiley sons ltd

a floor and ceiling model of us output abstract building on previous nonlinear time series models we further examine the form of nonlinearity in us output we develop a model of us output that allows for floor and ceiling effects to alter the dynamics of output growth the model estimated on post korean war quarterly data displays features similar to nonlinear trade cycle models of the 1940s and 1950s thus as predicted by many of the earlier theoretical models our empirical results suggest that the turning points of the business cycle provide new initial conditions for the ensuing growth process we also find important asymmetries in the responses of output to positive and negative shocks this history and shock dependence property is not present in linear or approximately linear models of the type that arise in the standard implementations of real business cycle theory

the vanishing liquidity effect of money on interest analysis and implications for policy this paper seeks to re examine the effects of money on interest rates the earlier literature on this topic determined fairly well the pattern of response of interest rates to changes in money growth the notable studies of cagan 1972 cagan and gandolfi 1969 and gibson 1970 served to establish the professions stylized pattern as presented in section i section ii presents new evidence on the subject and finds that the old empirical generalizations no longer hold specifically the results suggest that the initial liquidity effect of faster money growth is likely to be offset within the month following the monetary policy change sections iii and iv investigate the reasons for the changing pattern of monetary effects on interest rates and discuss the policy implications of the new pattern

the dynamic eects of monetary policy a structural factor model approach we use the structural factor model proposed by forni giannone lippi and reichlin 2007 to study the eects of monetary policy the advantage with respect to the traditional vector autoregression model is that we can exploit information from a large data set made up of 112 us monthly macroeconomic series monetary policy shocks are identified using a standard recursive scheme in which the impact eects

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

endogenous thresholds and tests for asymmetry in us prime rate movements abstract this paper tests the hypothesis that movements in the prime rate are dependent upon the interest rate regime we find that the responsiveness of prime to changes in the federal funds rate is relatively symmetric but that the speed of adjustment of prime is faster when there is a substantial deviation from the equilibrium relationship linking these rates these two results would confirm that lending markets are competitive in the us and that monetary policy actions are readily transmitted to lending rates

investment financing and the role of roa and wacc in value creation abstract evaluating an industrial opportunity often means to engage in financial modeling which results in estimation of a large amount of economic and accounting data which are then gathered in an economically rational framework the pro forma financial statements while the standard net present value npv condenses all the available pieces of information into a single metric we make full use of the crucial information supplied in the pro forma financial statements and give a more detailed account of how economic value is created in particular we construct a general model allowing for varying interest rates which decomposes the project into investment side and financing side and quantifies the value created by either side an equity debt decomposition is also accomplished which enables to appreciate the role of debt in adding or subtracting value to equityholders further the major role of accounting rates of return as value drivers is highlighted and new relative measures of worth are introduced the project roa and the project wacc which aggregate information deriving from the period rates of return to achieve these results we make use of the average internal rate of return airr approach recently introduced which rests on capital weighted arithmetic means and sets a direct relation between holding period rates and npv

a reapraisal of the capital goods sector in hong kong the case for free trade abstract this paper was provoked by an earlier one by fransman 1982 in which he examined the functioning of the capital goods sector in hong kong and came to the conclusion that it needed special protection by the government to allow it to reap the benefits of externalities essential for increasing its design and production capabilities statistical evidence is provided indicating that the capital goods sector as conventionally defined is prospering even following fransman 1982 and equating the capital goods sector with the machine producing sector the latest survey of production indicates considerable dynamism his case for infant industry protection is further weakened by consideration of the nature of the particular industrial structure of hong kong and the quality of the social relations that prevail between entrepreneurs it is argued that the costs of singling out the capital goods sector for special treatment in terms of the impact of the highly competitive export oriented manufacturing sector are likely to be high while the theoretical benefits from externalities are liable to be illusory in a small economy

corporate ownership and managerial short termism results from a finnish study of management perceptions abstract increased media exposure to layoffs and corporate quarterly financial reporting have created arguable a common perception especially favored by the media itself that the companies have been forced to improve their financial performance from quarter to quarter academically the relevant question is whether companies themselves feel that they are exposed to short term pressure to perform even if it means that they have to compromise company s long term future this paper studies this issue using results from a survey conducted among the 500 largest companies in finland the results indicate that companies in general feel moderate short term pressure with reasonable dispersion across firms there seems to be a link between the degree of pressure felt and the firm s ownership structure i e we find some support for the existence of potentially short term versus long term owners we also find significant ownership related differences in line with expectations in how such short term pressure is reflected in actual decision variables such as the investment criteria used

monetary policy and price responsiveness to aggregate shocks under rational inattention this paper presents a general equilibrium model that is consistent with recent empirical evidence showing that the u s price level and inflation are much more responsive to aggregate technology shocks than to monetary policy shocks the model of this paper builds on recent work by mackowiak and wiederholt 2009 who show that models of endogenous attention allocation deliver prices to be more responsive to more volatile shocks as everything else being equal firms pay relatively more attention to more volatile shocks in fact according to the u s data aggregate technology shocks are more volatile than monetary policy shocks inducing in this paper firms to pay more attention to the former than to the latter however most important this work adds to the literature by showing that the ability of the model of this paper to account for observed price dynamics crucially depends on monetary policy in particular this paper shows how interest rate feedback rules affect the incentives faced by firms in allocating attention a policy rate responding more actively to expected inflation and output fluctuations induces firms to pay relatively more attention to more volatile shocks this new mechanism of transmission of monetary policy helps rationalizing the observed behavior of prices in response to technology and monetary policy shocks and implies novel predictions about the impact of changes in taylor rules coefficients on economic fluctuations

competition in banking and the lending channel evidence from bank level data in asia and latin america abstract this paper examines how banking competition affects the transmission of monetary policy through the bank lending channel we apply a two step estimation procedure using bank level panel data for commercial banks in 10 asian and 10 latin american countries during the period from 1996 to 2006 in the first step we measure the degree of banking competition by applying the methodology proposed by panzar and rosse 1987 in the second step we estimate a loan growth equation where the explanatory variables include the panzar rosse measure of banking competition the estimation results provide consistent evidence that increased competition in the banking sector weakens the transmission of monetary policy through the bank lending channel this is especially true for banks in latin american countries and banks of small size low liquidity and low capitalization we also discuss the policy implications of the main findings of this paper

the effects of monetary policy using structural factor analysis the traditional vector autoregression var method is widely used to trace out the effects of monetary policy innovations on the economy however this method suffers from the curse of dimensionality so that in practice vars are estimated on a limited number of variables leading to a potential missing information problem in this article we use the method of structural factor analysis to evaluate the effects of monetary policy on key macroeconomic variables in a data rich environment this methodology allows us to extract information on monetary policy and its impact on the economy from a much larger data set than is possible with the traditional var method we propose two structural factor models one is the structural factor augmented vector autoregressive sfavar model and the other is the structural factor vector autoregressive sfvar model compared to the traditional var both models incorporate information from hundreds of data series series that can be and are monitored by the central bank in

the euro area bond free float and the implications for qe this paper examines how shocks to government bond duration risk held by price sensitive investors affect the euro area term structure of interest rates and the wider macroeconomy we construct a new measure of the bond free float which adjusts total debt for foreign official holdings and weights by residual maturity using a small macrofinance bayesian vector autoregression var model we estimate that the first round of asset purchases under the european central bank s ecb public sector purchase program reduced euro area 10 year bond yields by around 30 bps in 2015 the positive impact on the output gap and inflation in 2016 was about 0 2 and 0 3 ppt respectively

nonlinear autoregressive leading indicator models of output in g 7 countries this paper studies linear and nonlinear autoregressive leading indicator models of business cycles in g 7 countries our models use the spread between short term and long term interest rates as leading indicators for gdp we examine data admissibility by determining whether these models have the ability to produce time series with classical cycles that resemble the observed classical cycles in the data and then we ask whether this data admissibility lends itself to better predictions of the probability of recession copyright 2007 john wiley sons ltd

how well does sticky information explain the dynamics of inflation output and real wages abstract this paper finds that a model with sticky information is less successful than a standard model featuring nominal rigidities inflation indexation and habits in generating the dynamics triggered by technology shocks as estimated by a vector autoregression using u s macroeconomic data the real wage responses after a permanent increase in productivity clearly favor the standard model the sticky information model fails to replicate the observed inertial response in the real wage whereas the standard model relies on inflation indexation in wage setting to achieve a better fit the two models are however statistically equivalent after a shock in monetary policy

dynamic effects of credit shocks in a data rich environment we examine the dynamic effects of credit shocks using a large dataset of u s economic and financial indicators in a structural factor model an identified credit shock resulting in an unanticipate

what caused the early millennium slowdown evidence based on vector autoregressions this paper uses a simple var for the usa and euro area to analyse the underlying shocks of the early millennium slowdown i e supply demand monetary policy and oil price shocks the results of two identification strategies are compared one is based on traditional zero restrictions and as an alternative an identification scheme based on more recent sign restrictions is proposed the main conclusion is that the recent slowdown is caused by a combination of several shocks negative aggregate supply and aggregate spending shocks the increase of oil prices in 1999 and restrictive monetary policy in 2000 these shocks are more pronounced in the usa than the euro area the results are somewhat different depending on the identification strategy it is illustrated that traditional zero restrictions can have an influence on the estimated impact of certain shocks copyright 2005 john wiley sons ltd

investments and investment processes in professional service groups this article describes and analyses the size and character of investments the investment criteria and the investment processes in some professional service groups the focus is on means of control used by the corporate level to influence the volume and direction of investments in groups of companies comparisons are made with standardized service and manufacturing groups professional service groups are of special interest because theirs is a growth industry moreover many manufacturing groups have become more knowledge intensive and have adopted project based structures similar to those found in professional service groups the article shows that professional service groups invest just as heavily as do manufacturing firms but concentrate their investments on training and the development of new knowledge the principles of investment planning and control are the same as in manufacturing groups but the means and the weight attached to them differ investment requests are initiated on the business unit level and major investment requests are channelled through the executive team system for approval however there is no system of defining requesting and reviewing intangible investments rather review is by projects and units the focus is on market and social not administrative means of control

aggregate return on investment for investments under uncertainty abstract this paper deals with capital budgeting decisions under uncertainty we present an aggregate return on investment aroi obtained as the ratio of total undiscounted cash flow to total invested capital and show that it is a genuine rate of return which compared with the risk adjusted cost of capital correctly signals wealth creation for choosing between two mutually exclusive projects we derive an incremental aroi and an incremental risk adjusted cost of capital by means of which two unequal risk projects can be correctly compared iterating the incremental procedure we show that the aroi approach correctly ranks any bundle of different risk competing projects relations with other criteria such as modified internal rate of return average irr cash multiple and profitability index are provided theoretically the aroi approach constitutes a link between arbitrage choice theory and corporate investment theory and shows that explicit discounting is not necessary for measuring economic profitability practically the aroi is a user friendly easy to compute rate of return derived from the same set of data required by the net present value npv also it does not incur the difficulties met by the internal rate of return irr in particular it is unique and it is based on economically significant capital values i e market driven values as such the aroi significantly expresses the efficiency of the project s invested capital

search for a monetary propagation mechanism abstract this paper examines a monetary propagation mechanism in an economy where exchanges in goods and labor markets involve costly search it is shown that an increase in the money growth rate increases steady state employment and output when the money growth rate is low but reduces steady state employment and output when the money growth rate is already high the model produces persistent hump shaped responses in employment and output to money growth shocks even when the shocks have no persistence the model also generates desirable features in job vacancy sales inventory and the velocity of money all these features emerge here in an economy with perfectly flexible prices and wages journal of economic literatureclassification numbers e40 e30

commodity price volatility with endogenous natural resources abstract natural resource reserves are exogenous in models of small commodity exporters changes in the stock of reserves play no role in the macroeconomy including in business cycle volatility trade dynamics or exchange rate volatility we consider richer supply dynamics and model exploration and depletion we show that an endogenous supply of reserves is important for capturing the stylised facts associated with commodity price shocks including a commodity currency the crowding out of non commodity activity dutch disease and a volatile business cycle we also consider how exploration and depletion affect the ranking of optimal monetary and taxation policies when natural resource reserves are held fixed monetary policy is an efficient tool for stabilising the effects of commodity price shocks however when exploration and depletion are accounted for using interest rates to stabilise the effects of commodity price changes becomes inefficient using taxes on the resource sector specifically an ad valorem royalty remains efficient

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

when did unsystematic monetary policy have an effect on inflation abstract an important stylized fact to emerge from var estimates is that exogenous monetary policy shocks also labelled unsystematic monetary policy have a delayed persistent hump shaped effect on inflation i argue that this empirical pattern is fragile in particular it disappears when one examines periods without large shifts in the level of inflation such as 1984 2005 an important consequence is that the hump shaped var estimated response of inflation is not appropriate to fit stylized models of the response of inflation around a stable steady state inflation level

learning and the capital goods sector under free trade the case of hongkong abstract attention is focused on technological change and attendant learning processes in the more industrialized third world countries the importance of relatively simple learning processes is stressed and the conditions necessary for facilitating more complex forms of learning particularly protection and promotion are examined here it is shown that the capital goods sector is of central importance the case study material deals with the machine producing sector in hong kong chosen as the representative case of free trade and minimal government intervention and comparison is made with learning processes in a number of other more industrialized third world countries including india argentina and taiwan in the final section the implications of the discussion of learning for theories and techniques of investment allocation including social cost benefit analysis the effective rate of protection and the related domestic cost of foreign exchange are examined

in search of the liquidity effect abstract a short run negative relationship between monetary aggregates and interest rates the liquidity effect is central to discussions of monetary policy this paper searches for this empirical relationship we investigate whether the characterization of the liquidity effect is sensitive to i changes in sample period ii conditioning the correlations on past information iii assuming money growth is exogenous and iv treating monetary changes as anticipated or unanticipated the correlations change substantially in each case we conclude that the traditional analysis and modern models which rely completely on demand side behavior cannot explain the observed correlations a successful characterization of the liquidity effect requires identification of both private and policy behavior

nonlinearities and price puzzle in brazil what is called a price puzzle is a positive and persistent response of ination to a unit shock in the interest rate s innovation using a var to analyse monetary policy in brazil this paper comes to the conclusion that when nonlinearities in the data were considered most of this e ect vanishes this is done rstly by checking if the series are unit root processes or nonlinear trend stationary after that a nonparametric co trending analysis was applied the test result favored a common nonlinear trend between ination and the interest rate which seems to a ect the system innovation analysis inducing most of the price puzzle e ect

models and their uses it is argued that economists ought to recognize that modeling in different styles will be appropriate for different purposes or different stages in the development of an area of economics as an example the paper displays simulations of a stochastic general equilibrium model which shed light on the interpretation of widely discussed small macroeconomic vector autoregressive models connecting monetary variables to output and prices this abstract was borrowed from another version of this item

curtailing the black box german banking groups in the transmission of monetary policy abstract the paper examines the role of portfolio decisions of german banking groups in the transmission of monetary policy a small econometric model is augmented with segregated bank balance sheet variables in order to study potentially different effects of tight money on these variables the results provide evidence for banks playing an active role in the transmission process and are beneficial for two fields of research the findings indicate sectoral differences of monetary policy in line with transmission models based on informational frictions in addition the results lend econometric support to the existence of close bank customer ties for certain banking groups in germany whereas large banks adjust their credit position markedly following a monetary shock the smaller savings banks and credit cooperatives seem to shield their customers from the brunt of a policy tightening

average rates of return working capital and npv consistency in project appraisal a sensitivity analysis approach abstract in project appraisal under uncertainty the economic reliability of a measure of financial efficiency such as a rate of return depends on its strong npv consistency meaning that the performance metric i supplies the same recommendation in accept reject decisions as the npv ii ranks competing projects in the same way as the npv iii has the same sensitivity to perturbations in the input data as the npv in real life projects financial efficiency is greatly affected by the management of the working capital using a sensitivity analysis approach and taking into explicit account the role of working capital we show that the average return on investment roi is not strongly npv consistent in accept reject decisions if the working capital is uncertain and changes under changes in revenues and costs also it is not strongly npv consistent in project ranking we also show that the internal rate of return irr is not strongly npv consistent and economic analysis may even turn out to be impossible owing to possible nonexistence and multiplicity caused by perturbations in the input data as well as to possible shifts in the financial meaning of irr under changes in the project s value drivers we introduce the straight line rate of return slrr based on the notion of average rate of change which overcomes all the problems encountered by average roi and irr it always exists is unique strongly npv consistent for both accept reject decisions and project ranking and has an unambiguous financial nature

the relation between narrative and money market indicators of monetary policy this paper studies the relation between narrative based indicators of monetary policy and widely used money market indicators of monetary policy three principal findings emerge first changes in monetary policy as measured by the narrative based policy indices are associated with persistent changes in the levels of m2 and the monetary base in contrast changes in the narrative policy indicators lead to transitory changes in short term interest rates nonborrowed reserves and the spread between the six month commercial paper rate and the three month treasury bill rate third these findings are generally robust across different narrative based policy indices

do exchange rate shocks have asymmetric effects on reserve accumulation evidence from emerging markets it is generally argued that central banks in emerging market countries motivated by a desire to defend export competitiveness tend to intervene in foreign exchange markets to limit currency appreciations rather than depreciations using panel data from 13 emerging market countries for the period 1998 m1 to 2016 m12 we find that exchange rate shocks play an important role in determining the accumulation of international reserves moreover we find evidence that central banks in emerging markets tend to follow a leaning against the depreciation wind policy rather than the appreciation wind i e we provide evidence of a fear of depreciation

increasing goal congruence in project evaluation by introducing a strict market depreciation schedule abstract the economic accuracy of accrual based managerial performance measures is most essential for value added investment decisions in decentralised firms contemporary eva literature often lends support to annuity based depreciation schedules for accomplishing congruence between capital budgeting criteria like npv and accounting measures like roi and ri this is incongruent with the principal agent literature aiming at designing managerial incentive contracts we introduce a strict market based depreciation schedule which is shown to be superior to ordinary straight line annuity based or irr based depreciation schedules it gives the right managerial investment incentives also in the case of growth inflation or technological development

the role of money supply shocks in the short run demand for money abstract previous money demand models are either inconsistent with contemporaneous adjustment of the price level to expected changes in the nominal money supply or imply implausible interest rate fluctuations in response to innovations in nominal money we propose a shock absorber money demand model in which money supply shocks affect the synchronization of asset transactions and so engender a temporary increase or decrease in desired money holdings expected changes do not engender such fluctuations in real money inventories in simultaneous estimates for eight industrial countries the shock absorber model proved empirically superior

exchange rate stabilization in the erm identifying european monetary policy reactions abstract we develop the structural var models for european countries france denmark and germany during the erm period to examine the monetary policy reactions especially the within erm exchange rate stabilization in addition to analyzing the impulse responses and variance decomposition we present the full monetary reaction function in an interpretable manner without introducing additional assumptions the results suggest some asymmetry in exchange rate stabilization non german exchange rate stabilization is stronger than german exchange rate stabilization but do not support the hypothesis that german monetary policy was independent of the erm

indeterminacy change points and the price puzzle in an estimated dsge model abstract we extend lubik and schorfheide s 2004 testing for indeterminacy an application to u s monetary policy american economic review 94 190 217 likelihood based estimation of dynamic stochastic general equilibrium dsge models under indeterminacy to encompass a sample period the includes both determinacy and indeterminacy by implementing a change point methodology chib s 1998 estimation and comparison of multiple change point models journal of econometrics 86 221 241 by letting the data provide estimates of the dates of the determinacy regimes and allowing the estimates of structural parameters to be the same across regimes we obtain more precise estimates of the differences in characteristics such as the impulse responses across the regimes the most striking finding about the indeterminacy regime which is estimated to coincide with the great inflation of the 1970s is that it exhibits the price puzzle in that the inflation rate rises immediately and in a sustained manner following a positive interest rate shock thus the price puzzle might have been a genuine phenomenon under indeterminacy rather than a false finding to be excised through specification search and parameter restrictions

capital budgeting methods among sweden s largest groups of companies the state of the art and a comparison with earlier studies abstract this study presents a general description of the state of the art of capital budgeting methods used by swedish corporations it is based on a questionnaire sent to 528 companies selected from 500 of the largest swedish corporations and some from the o list of companies the response rate is 24 4 the study shows that the public sector companies are most frequent users of discounted cash flow dcf methods the payback method is the most used in all industries also matters size of company the use of the net present value method has increased over the years although the use of dcf methods is generally unchanged value based management models have been introduced in the listed companies another conclusion is that tradition is an important factor explaining the choice of capital budgeting method large companies within the manufacturing industry use dcf methods more often than other companies in general the companies seem unconcerned with the tax consequences of capital budgeting decisions it would appear as if the public companies have not adopted capital budgeting practices supporting shareholder value increases

reconsidering monetary policy an empirical examination of the relationship between interest rates and nominal gdp growth in the u s u k germany and japan abstract the rate of interest the price of money is said to be a key policy tool economics has in general emphasised prices this theoretical bias results from the axiomatic deductive methodology centring on equilibrium without equilibrium quantity constraints are more important than prices in determining market outcomes in disequilibrium interest rates should be far less useful as policy variable and economics should be more concerned with quantities including resource constraints to investigate we test the received belief that lower interest rates result in higher growth and higher rates result in lower growth examining the relationship between 3 month and 10 year benchmark rates and nominal gdp growth over half a century in four of the five largest economies we find that interest rates follow gdp growth and are consistently positively correlated with growth if policy makers really aimed at setting rates consistent with a recovery they would need to raise them we conclude that conventional monetary policy as operated by central banks for the past half century is fundamentally flawed policy makers had better focus on the quantity variables that cause growth

an alternative explanation of the price puzzle abstract this paper proposes an explanation for the frequent appearance of a price puzzle in vars designed for monetary policy analysis it assumes that the data are generated by a model in which output and output gap are not equivalent while an econometrician follows the common practice of including only output in the var the omission of the output gap is shown to spuriously produce a price puzzle and several other incorrect conclusions in a class of commonly used models this can happen even if the model admits a triangular identification and if the forecasts produced by the misspecified var are optimal when the model is tested on us data all predictions are supported a commodity price index is not needed to solve the puzzle

credibility and changes in policy regime this paper addresses the issue of credibility from an econometric perspective it develops a rational expectations model of inflation in which the dynamics are driven by the level of government spending and by the effect of past inflation rates on the value of real taxes government expenditure is modeled as an exogenous autoregressive process subject to discrete changes in regime the regimes are defined by whether the level of spending is or is not consistent with the rate of inflation targeted by the government as part of a stabilization program in making their money demand decision the agents need to construct probability inferences regarding the state of the expenditure process credibility is quantified by the agents inferred probability that the joint observation of inflation the nominal interest rate and government spending is generated by the reformed expenditure regime in an application to israel results indicate that the failed stabilization program of november 1984 was less than fully c

interest rates and the channels of monetary transmission some sectoral estimates abstract we estimate a small sectoral var model of the uk macroeconomy this model is then used to simulate the effects of an exogenous monetary policy shock upon asset prices bank balance sheet variables and final target variables activity and prices for the personal and corporate sectors significant sectoral differences are found among the channels of monetary transmission in addition the use of sectoral data facilitates the identification of distinct money and credit channels in the transmission of monetary policy these results contrast with the ambiguous findings on the roles of money and credit in the literature to date

what do the vars mean measuring the output effects of monetary policy abstract vars describe the history of output and other variables following monetary shocks to measure the effects of monetary shocks one must add economic identifying assumptions i specify the relative effects of anticipated and unanticipated money and i calculate how var based measures of the effect of money on output change as one varies this assumption the anticipated unanticipated assumption influences measured output effects as much or more than the variable selection and shock orthogonalization assumptions on which the var literature focuses assuming that anticipated monetary policy can have some effect on output results in much shorter smaller and perhaps more believable estimates of the output response to monetary shocks

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

are the effects of monetary policy asymmetric huntley schaller by building on the hamilton 1989 markov switching model we examine questions like does monetary policy have the same effect in expansions and recessions given that the economy is currently in a recession does a fall in interest rates increase the probability of an expansion does monetary policy have an incremental effect on the growth rate within a given state or does it only affect the economy if it is sufficiently strong to induce a state change e g from recession to expansion as suggested by models with sticky prices or finance constraints interest rate changes have larger effects during recessions jel e52 e32 much of the recent work in macroeconomics has proceeded under the assumption that variables follow linear stochastic processes with constant coefficients as a result some of the richness of the burns mitchell analysis such as its focus on asymmetries between recessions and expansions may well have been lost blanchard and fischer 1989 7 i introduction for decades macroeconomists have debated whether monetary policy has the same effect on real output in expansions and recessions as far back as the 1930s keynes and pigou debated whether monetary policy would have less effect on output during a severe economic downturn in the 1960s there were active debates on a very different proposition namely whether the rightward portion of the aggregate supply curve was vertical so that monetary policy would have less effect on real output during expansions in this article we provide a new type of evidence on whether monetary policy has different effects depending on whether the economy is in an expansion or recession empirical evidence on this issue is particularly relevant in light of new theoretical work in macroeconomics that predicts asymmetric effects of demand shocks conditional on the state of the economy two examples of this work are s s type models of price adjustment and models in which there are agency costs of financial intermediation 1 the intuition for the latter class of models is simple 2 when there is information asymmetry in financial markets agents may behave as if they were constrained for a variety of reasons these finance constraints are more likely to bind during recessions when the net worth of agents is low an increase in interest rates will then have two effects on investment the standard effect of increasing the cost of capital and therefore reducing investment demand and an additional effect of reducing liquidity e g by increasing debt service obligations and thus reducing investment demand for constrained agents as a result monetary policy actions that change interest rates will have greater effects during a recession 3 the s s type price adjustment models of ball and mankiw 1994 caballero and engel 1992 and tsiddon 1993 lead to a convex aggregate supply curve and therefore also imply that monetary policy will have stronger effects during recessions one of the more frequently cited empirical papers on the potentially asymmetric effects of monetary policy is cover 1992 which finds evidence that positive monetary shocks have different effects from negative monetary shocks we are looking at a different type of asymmetry namely between booms and recessions we study asymmetries using an extension of the markov switching model developed by hamilton 1989 estimated over the period 1955 93 in hamilton s econometric specification the growth rate of output depends on a state variable that corresponds to an expansion or recession this approach has several advantages first unlike linear projections it allows for nonlinearities and asymmetries second in estimating the recession coefficients it gives greater relative weight to observations that most clearly correspond to recessions and similarly for the expansion coefficients

intermediate monetary targets and macroeconomic fluctuations it is investigated whether the choice of intermediate target has altered macroeconomic fluctuations and whether the observed changes are consistent with predictions from economic theory since implications from the theoretical literature focus on the effects of structural disturbances an empirical analysis must identify these effects the structural vector autoregressive var technique estimates structural disturbances using restrictions from standard macroeconomic theory based on descriptions of actual targeting procedures by insiders to federal reserve policy decisions the intermediate target for the united states is identified as the interest rate from 1951 to 1969 and money from 1970 to 1986 var models are estimated over each subsample to assess whether the estimated structural disturbances cause endogenous variables to behave as economic theory predicts tests are also performed to assess whether or not the targeting rule affects the variance of endogenous variables attributable to structural sh

the price puzzle in the monetary transmission vars with long run restrictions abstract this study addresses the price puzzle a positive response of prices to monetary tightening in var models by using long run instead of the usual short run restrictions on the us data including output prices and interest rate we find that monetary tightening had a negative effect on prices

asymmetric monetary effects on interest rates across monetary policy stances this paper provides new evidence that the interest rates response to a money supply shock varies across the state of the monetary policy stance the state is assigned to one of the tight neutral and loose regimes based on an estimated policy stance index the results of threshold vector autoregression analysis imply that pure liquidity and expected inflation effects vary across regimes with agents reactions to policy the results exhibit a persistent dominating liquidity effect under the neutral and loose regimes but a reversed liquidity effect after a short lag under the tight regime

monetary policy housing rents and inflation dynamics in this paper we study the effect of monetary policy shocks on housing rents our main finding is that in contrast to house prices housing rents increase in response to contractionary monetary policy shocks we also find that after a contractionary monetary policy shock rental vacancies and the homeownership rate decline this combination of results suggests that monetary policy may affect housing tenure decisions own versus rent in addition we show that with the exception of the shelter component all other main components of the consumer price index cpi either decline in response to a contractionary monetary policy shock or are not responsive these findings motivated us to study the statistical properties of alternative measures of inflation that exclude the shelter component we find that measures of inflation that exclude shelter have most of the statistical properties of the widely used measures of inflation such as the cpi and the price index for personal consumption expenditures but have higher standard deviations and react more to monetary policy shocks finally we show that the response of housing rents accounts for a large proportion of the price puzzle found in the literature

monetary policy shocks and foreign investment income evidence from a large bayesian var abstract this paper assesses the transmission of monetary policy in a large bayesian vector autoregression based on the approach proposed by banbura et al 2010 the paper analyzes the impact of monetary policy shocks in the united states and canada not only on a range of domestic aggregates trade flows and exchange rates but also foreign investment income the analysis provides three main results first a surprise monetary policy contraction has a statistically important impact on both gross and net foreign investment income flows in both countries against the background of growing foreign wealth and investment income this result provides preliminary evidence that foreign balance sheet channels might play an increasingly significant role for monetary transmission second the impact of monetary policy on foreign investment income flows differs considerably across asset categories and over time suggesting that the investment instruments and the currency denomination of a country s foreign assets and liabilities are potentially relevant for the way in which monetary policy affects the domestic economy finally the results support existing evidence on the effectiveness of large vector autoregressions and the bayesian shrinkage approach in eliminating price and exchange rate puzzles

the impact of money on short term interest rates this study reviews empirical evidence from four research methods related to the impact of money on short term nominal rates the studies consistently fail to find evidence supporting the much hypothesized short term negative relationship between money and nominal rates since at least april 1975 reasons for the absence of a negative relationship include the tendency of financial markets to anticipate corrective action by the fed whenever ml deviates from targeted growth ranges and a rapid adjustment of inflationary expectations to changes in money growth

monetary shocks in the g 6 countries is there a puzzle les auteurs cherchent a clarifier la dynamique du mecanisme de transmission de la politique monetaire l identification des chocs de politique monetaire est au coeur de ce genre d analyse divers chercheurs ont reussi recemment a isoler de tels chocs en imposant des restrictions de suridentification a des modeles vectoriels autoregressifs var

the effect of monetary policy shocks on macroeconomic variables evidence from the eurozone this paper investigates how european central bank ecb monetary policy shocks impact industrial production output and inflation prices i gather a novel dataset of macroeconomic forecasts and using a narrative approach i construct a new measure of monetary policy shocks industrial production responds to an unpredictable positive monetary policy shock of 100 basis points with a decline of over 0 5 on the contrary inflation responds weakly with a very modest decrease of 0 05

house prices and stock prices different roles in the us monetary transmission mechanism we analyze the role of house prices and stock prices in the monetary policy transmission mechanism in the us using a structural vector autoregressive model if we allow the interest rate and asset prices to react simultaneously to news we find different roles for house prices and stock prices in the monetary transmission mechanism following a contractionary monetary policy shock stock prices fall immediately while the response in house prices is more gradual regarding the systematic response in monetary policy stock prices play a more important role than house prices as a consequence house prices contribute more than stock prices to fluctuations in gross domestic product and inflation

asymmetric effects of positive and negative money supply shocks this paper examines whether positive and negative money supply shocks have symmetric effects on output the results are consistent with the hypothesis that positive money supply shocks do not have an effect on output while negative money supply shocks do have an effect on output this finding is independent of whether or not expected money is assumed to affect output the results reported in this paper imply that the fed could increase the growth rate of real output by reducing the standard deviation of unexpected changes in the money supply