a simple framework for international monetary policy analysis abstract we study the international monetary policy design problem within an optimizing two country sticky price model where each country faces a short run tradeoff between output and inflation the model is sufficiently tractable to solve analytically we find that in the nash equilibrium the policy problem for each central bank is isomorphic to the one it would face if it were a closed economy gains from cooperation arise however that stem from the impact of foreign economic activity on the domestic marginal cost of production while under nash central banks need only adjust the interest rate in response to domestic inflation under cooperation they should respond to foreign inflation as well in either scenario flexible exchange rates are desirable

contagion as a wealth effect financial contagion is described as a wealth effect in a continuous time model with two risky assets and three types of traders noise traders trade randomly in one market long term investors provide liquidity using a linear rule based on fundamentals convergence traders with logarithmic utility trade optimally in both markets asset price dynamics are endogenously determined numerically as functions of endogenous wealth and exogenous noise when convergence traders lose money they liquidate positions in both markets this creates contagion in that returns become more volatile and more correlated contagion reduces benefits from portfolio diversification and raises issues for risk management during the f inancial panic associated with the default of the russian government in august 1998 and the subsequent collapse of the hedge fund long term capital management numerous hedge funds banks and securities firms tried simultaneously to reduce exposures to a variety of financial instruments such as russian bonds brazilian stocks u s mortgages spreads between on therun and off the run government securities and spreads between swaps and u s treasuries although the fundamental values of these positions would appear to have little correlation during this financial crisis the asset prices in these markets exhibited the following common empirical pattern 1 financial intermediaries suffered losses as prices moved against their positions 2 market depth and liquidity decreased simultaneously in several markets 3 the volatility of prices increased simultaneously in several markets and

food versus fuel an updated and expanded evidence abstract this paper replicates the study of zhang et al 2010 food versus fuel what do prices tell us energy policy 38 pp 445 451 we confirm the findings of the original paper that there was only a weak relationship between ethanol and food commodities in the period between march 1989 and july 2008 in addition we extend that study and examine the cointegration relationship between biofuels and related commodities for a considerably enlarged dataset 3 vs 1 market 26 vs 8 commodities analysis up till 2017 vs 2008 weekly vs monthly data frequency focusing on the biofuel markets of brazil the eu and the usa in the three separate periods before during and after the food crisis of 2007 and 2008 we show that studying the time variation of the relationships plays an essential role in their proper understanding our results help to clarify the wide extensive discussion about the role of biofuels prices in food shortages manifested particularly during the food crises in agreement with the original study we confirm that price series data do not support strong statements about biofuels uniformly serving as main leading source of high food prices and consequently the food shortages

optimal monetary policy in a small open economy with home bias we analyze optimal monetary policy in a small open economy characterized by home bias in consumption peculiar to our framework is the application of a ramseytype analysis to a model of the recent open economy new keynesian literature we show that home bias in consumption is a su cient condition for inducing the monetary policy maker of an open economy to deviate from a strategy of strict markup stabilization and contemplate some optimal degree of exchange rate stabilization we focus on the optimal setting of policy both in the case of rms setting prices one period in advance and in a gradual fashion subject to adjustment costs while the rst setup allows us to analytically highlight home bias as an independent source of equilibrium

index investment and financialization of commodities the authors found that concurrent with the rapidly growing index investment in commodity markets since the early 2000s prices of non energy commodity futures in the united states have become incr

the case for open market purchases in a liquidity trap prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short term nominal interest rate renders open market operations ineffective for achieving macroeconomic stabilization goals we show that even were this the case there remains a powerful argument for large scale open market operations as a fiscal policy tool as we also demonstrate however this same reasoning implies that open market operations will be beneficial for stabilization as well even when the economy is expected to remain mired in a liquidity trap for some time thus the microeconomic fiscal benefits of open market operations in a liquidity trap go hand in hand with standard macroeconomic objectives motivated by japan s recent economic experience we use a dynamic general equilibrium model to assess the welfare impact of open market operations for an economy in japan s predicament we argue japan can achieve a substantial welfare improvement through large open market purchases of domestic government debt

have food and financial markets integrated this article analyses comovements and discusses possibly greater market integration between aggregate food commodity and stock prices in the period 1990 to 2012 return correlations price return distributions cointegration and granger causalities are tested in subsamples on monthly fao food price index and msci world stock market index empirical results suggest that while there is only weak indication of greater comovements concurrent with structural changes such as changed agricultural policies new demand due to growth in emerging markets and energy mandates and the financialization of food markets since the early 2000s they did start to increase substantially in particular during the financial stress of the lehman crisis and the great recession while structural changes may have amplified price linkages across markets results do not suggest that they are the key factors for greater price comovements instead the effects of the late 2000s recession as a time of great economic weakness and uncertai

on the links between stock and commodity markets volatility this paper investigates the links between price returns for 25 commodities and stocks over the period from january 2001 to november 2011 by paying a particular attention to energy raw materials relying on the dynamic conditional correlation dcc garch methodology we show that the correlations between commodity and stock markets evolve through time and are highly volatile particularly since the 2007 2008 financial crisis the latter has played a key role emphasizing the links between commodity and stock markets and underlining the financialization of commodity markets at the idiosyncratic level a speculation phenomenon is highlighted for oil coffee and cocoa while the safe haven role of gold is evidenced

should investors include commodities in their portfolios after all new evidence abstract this paper investigates whether an investor is made better off by including commodities in a portfolio that consists of traditional asset classes first we revisit the posed question within an in sample setting by employing mean variance and non mean variance spanning tests then we form optimal portfolios by taking into account the higher order moments of the portfolio returns distribution and evaluate their out of sample performance under the in sample setting we find that commodities are beneficial only to non mean variance investors however these benefits are not preserved out of sample our findings challenge the alleged diversification benefits of commodities and are robust across a number of performance evaluation measures utility functions and datasets the results hold even when transaction costs are considered and across various sub periods not surprisingly the only exception appears over the 2005 2008 unprecedented commodity boom period

index investment and the financialization of commodities the authors found that concurrent with the rapidly growing index investment in commodity markets since the early 2000s prices of non energy commodity futures in the united states have become increasingly correlated with oil prices this trend has been significantly more pronounced for commodities in two popular commodity indices this finding reflects the financialization of the commodity markets and helps explain the large increase in the price volatility of non energy commodities around 2008

commodity trade and international risk sharing how much do financial markets matter abstract this paper evaluates the social gains from international risk sharing in some simple general equilibrium models with output uncertainty a simulation model calibrated to selected moments of u s and japanese data estimates the incremental loss from a ban on international portfolio diversification to be on the order of 0 20 percent of output per year even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology the paper argues that the small magnitude of potential trade gains may help explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility

on the dynamic dependence between equity markets commodity futures and economic uncertainty indexes this paper provides a thorough analysis on multiscale dependence schemes between equity markets commodity futures and uncertainty indexes based on decomposed return series we provide an exhausti

wavelet dynamics for oil stock world interactions abstract a previous research ignores the distinction between short term and long term and by decomposing financial variables world general and stock market indexes and the macroeconomic variable oil prices at various time scales we study the relationship among series on a daily scale by scale basis continuous time wavelets help to circumvent the problems associated to basic linear regressions and given that stock oil relationships are usually described as complicated we extend previous findings by providing more generalized and convincing results in analyzing contagion and interdependence issues as well as lead and lag effects for both world general and sector stock levels between december 1992 and october 2012 the relationship between oil prices and sector stock returns is ambiguous because results seem to show that there are both phase and anti phase relationships where mostly it is oil that is the lagging variable independently of the sector under analysis there is higher coherence among series for higher scales thus supporting the interdependence hypothesis showing that long run market dynamics are more uncertain empirical results indicate a bidirectional relationship between both series for large time horizons which can be associated to fundamentalist traders especially fund managers and institutional investors and which depend on the historical period under analysis

interest rate rules for fixed exchange rate regimes abstract this paper shows that properly designed interest rate rules can be consistent with maintaining exchange rate stability it sheds light on the relation between interest rate rules exchange rate regimes and determinacy of the rational expectation equilibrium in a modern macroeconomic framework

wti crude oil futures in portfolio diversification the time to maturity effect the aim of the paper is to analyze the diversification effect brought by crude oil futures contracts the most liquid commodity futures into a portfolio of stocks the studies that have documented the very low and essentially negative correlations between commodities and equities typically rely on normally distributed returns which is not the case for crude oil futures and stocks indexes moreover the particular time to maturity chosen for the future contract used as an investment vehicle is an important matter that needs to be addressed in presence of forward curves switching between backwardation and contango shapes our goal in this paper is twofold a we introduce copula functions to have a better representation of the dependence structure of oil futures with equity indexes b using this copula representation we are able to analyze in a precise manner the maturity effect in the choice of crude oil future contract with respect to its diversification benefits our finding is that in the case of distant maturities futures e g 18 months the negative correlation effect is more pronounced whether stock prices increase or decrease this property has the merit to avoid the hurdles of a frequent roll over while being quite desirable in the current trendless equity markets empirical evidence is exhibited on a database comprising the nymex wti crude oil futures and s p 500 index over a 15 year time period

co movement of major energy agricultural and food commodity price returns a time series assessment abstract using monthly data between 1970 and 2013 we provide a comprehensive analysis of the extent of co movement measured by correlation coefficients among the nominal price returns of 11 major energy agricultural and food commodities we study the degree and the time evolution of unconditional and conditional correlations using a uniform spacings estimation and testing approach multivariate dynamic conditional correlation models and a rolling regression procedure we find that 1 the price returns of energy and agricultural commodities are highly correlated 2 the overall level of co movement among commodities increased in recent years especially between energy and agricultural commodities and in particular in the cases of maize and soybean oil which are important inputs in the production of biofuels and 3 the stock market volatility is positively associated with the co movement of price returns across markets especially after 2007

volatility behavior of oil industrial commodity and stock markets in a regime switching environment abstract this study supplements previous regime switching studies on wti crude oil and finds two possible volatility regimes for the strategic commodity prices of brent oil wti oil copper gold and silver and the s p 500 index but with varying high to low volatility ratios the dynamic conditional correlations dccs indicate increasing correlations among all the commodities since the 2003 iraq war but decreasing correlations with the s p 500 index the commodities also show different volatility persistence responses to financial and geopolitical crises while the s p 500 index responds to both financial and geopolitical crises implications are discussed

the directional volatility connectedness between crude oil and equity markets new evidence from implied volatility indexes in this paper we use a set of newly introduced implied volatility indexes to investigate the directional connectedness between oil and equities in eleven major stock exchanges around the globe from 2008 to 2015 the inference on the oil equity implied volatility relationships depends on diebold and yilmaz 2012 2014 2015 who proposed a set of directional measures that enable the dynamic and directional characterization of the relationships among financial variables we find uniform results across the sample countries indicating that the connectedness between oil and equity is established by the bi directional information spillovers between the two markets however we find that the bulk of association is largely dominated by the transmissions from the oil market to equity markets and not the other way around the pattern of transmissions is varying over the sample period however most of the linkages between oil and equities are established from the mid of 2009 to the mid of 2012 which is a period that witnessed the start of global recovery

the rise of agile demand response enabler and foundation for change abstract the distributed resources distributed generations storage electric vehicles and smart appliances have fueled many disruptions in the conventional grid dynamics increasing tough and competitive situations at demand side have led the stakeholders of power system to reform because people are more informed and can make decisions that has given rise to turbulent and volatile electricity markets in such highly diversified and open market environment the integrated control strategy has expedited the concept of demand response currently the important questions in the area of demand response are likely to shift from whether to adopt dynamic pricing to how to achieve fast demand response by the combination of technology and a competitive retail electricity market this paper assembles the part and parcel in the light of existing technologies for the development of the concept of agility in demand response that can play a role as a service package which is designed to meet the customer satisfaction efficiently and reliably as well as improve the market responsiveness for the first time this paper encompasses the concept of agile demand response that is defined as the ability of power system to survive and prosper in the competitive retail market by reacting to the market needs fast and effectively which are driven by the customers this paper also presents the key enablers of the agile demand response which are 1 retail market 2 virtual supply demand matching mechanism 3 integrated information system and 4 stay committed the paper concludes that by bringing the enablers together agile dr improves the responsiveness to the retail market changes unambiguously

are oil shocks inflationary asymmetric and nonlinear specifications versus changes in regime this paper identifies a structural break in core u s inflation phillips curves such that oil prices contributed substantially before 1981 but since that time pass through has been negligible this characterization is robust to a variety of re specifications and fits the data better than asymmetric and nonlinear oil price alternatives evidence does not support the hypotheses that declining energy intensity or deregulation of energy producing and consuming industries played an important role monetary policy did not itself become less accommodative of oil shocks but may have helped create a regime where inflation is less sensitive to price shocks more generally

designing targeting rules for international monetary policy cooperation this study analyzes a two country dynamic general equilibrium model with nominal rigidities monopolistic competition and producer currency pricing a quadratic approximation to the utility of the consumers is derived and assumed as the policy objective function of the policymakers it is shown that only under special conditions there are no gains from cooperation and moreover that the paths of the exchange rate and prices in the constrained efficient solution depend on the kind of disturbance that affects the economy it might be the case either for fixed or floating exchange rates despite this result simple targeting rules that involve only targets for the growth of output and for both domestic gdp and cpi inflation rates can replicate the cooperative allocation

commodity and equity markets some stylized facts from a copula approach abstract in this paper we propose to identify the dependence structure that exists between returns on equity and commodity futures and its development over the past 20 years the key point is that we do not impose any dependence structure but let the data select it to do so we model the dependence between commodity metal agriculture and energy and stock markets using a flexible approach that allows us to investigate whether the co movement is i symmetrical and frequent ii a symmetrical and mostly present during extreme events and iii asymmetrical and mostly present during extreme events we also allow for this dependence to be time varying from january 1990 to february 2012 our analysis uncovers three major stylised facts first we find that the dependence between commodity and stock markets is time varying symmetrical and occurs most of the time as opposed to mostly during extreme events second not allowing for time varying parameters in the dependence distribution generates a bias towards an evidence of tail dependence similarly considering only tail dependence may lead to false evidence of asymmetry third a growing co movement between industrial metals and equity markets is identified as early as 2003 this co movement spreads to all commodity classes and becomes unambiguously stronger with the global financial crisis after fall 2008

recent hikes in oil equity market correlations transitory or permanent this paper empirically examines the long run behavior of eight oil equity correlations based on the adcc asymmetric dynamic conditional correlation model and a novel decomposing approach we select equity price indexes from three developed countries the us the uk and germany and five brics member countries brazil russia india china and south africa and consider ten economic financial events for investigation seven correlations exhibit a positively sloped trend and one exhibits a horizontal trend all of these trends have undergone one or two structural breaks which moved the corresponding correlations to their highest ever evolutionary paths these structural breaks are associated with one or more of the ten episodes considered and a common event impacting all eight of the correlation trends is detected to be the 2008 adverse oil shock the broken trends explain why the correlations were low in the early years and high in the recent years our findings indicate that recent hikes in the oil equity correlations are a long run phenomenon

unconventional fiscal policy at the zero bound when the zero lower bound on nominal interest rates binds monetary policy cannot provide appropriate stimulus we show that in the standard new keynesian model tax policy can deliver such stimulus at no cost and in a time consistent manner there is no need to use inecient policies such as

on the dynamic links between commodities and islamic equity abstract this paper investigates whether commodities offer potential diversification benefits for islamic equity index investors in light of possible financialization of commodity markets using mgarch dcc and wavelet coherence analyses our findings reveal that correlations between commodity markets and the dow jones islamic market world index are time varying and highly volatile throughout the january 1999 april 2015 period a substantial and persistent increase was observed in the return correlations between commodities and islamic equity at the onset of the 2008 financial crisis however trends in the recent two years suggest that this association is heading towards its pre crisis levels offering again diversification benefits for islamic equity holders these benefits vary across different commodities in various time scales overall gold natural gas soft commodities grains and livestock are better portfolio diversifiers than oil and other metals relative to medium to long term investors short term investors less than 32 days horizon gained better diversification benefits in most commodities during bullish bearish and market recovery periods these findings have implications for investors who are heterogeneous in risk tolerance and time preference as well as for policymakers who are concerned with market stability

dynamic conditional correlations in political science time varying relationships and volatility are two methodological challenges that are particular to the field of time series in the case of the former more comprehensive understanding can emerge when we ask under what circumstances relationships may change the impact of context such as the political environment the state of the economy the international situation etc is often missing in dynamic analyses that estimate time invariant parameters in addition time varying volatility presents a number of challenges including threats to inference if left unchecked among time varying parameter models the dynamic conditional correlation dcc model is a creative and useful approach that deals effectively with over time variation in both the mean and variance of time series the dcc model allows us to study the evolution of relationships over time in a multivariate setting by relaxing model assumptions and offers researchers a chance to reinvigorate understandings that are tested using time series data we demonstrate the method s potential in the first example by showing how the importance of subjective evaluations of the economy are not constant but vary considerably over time as predictors of presidential approval a second example using international dyadic time series data shows that the story of movement and comovement is incomplete without an understanding of the dynamics of their variance as well as their means

dynamic risk spillovers between gold oil prices and conventional sustainability and islamic equity aggregates and sectors with portfolio implications this paper investigates the time varying equicorrelations and risk spillovers between crude oil gold and the dow jones conventional sustainability and islamic stock index aggregates and 10 associated disaggregated islamic sector stock indexes basic materials consumer services consumer goods energy financials health care technology industrials telecommunications and utilities using the multivariate deco fiaparch model and the spillover index of diebold and yilmaz 2012 we also conduct a risk management analysis at the sector level for commodity islamic stock sector index portfolios using different risk exposure measures for comparison purposes we add the aggregate conventional dow jones global index and the dow jones sustainability world index the results show evidence of time varying risk spillovers between these markets moreover there are increases in the correlations among the markets in the aftermath of the 2008 2009 gfc further the oil gold energy financial technology and telecommunications sectors are net receivers of risk spillovers while the sustainability and conventional aggregate djim indexes as well as the remaining islamic stock sectors are net contributors of risk spillovers finally we provide evidence that gold offers better portfolio diversification benefits and downside risk reductions than oil

optimal monetary policy at the zero interest rate bound what should a central bank do when faced with a weak aggregate demand even after reducing the short term nominal interest rate to zero to address this question we solve a central bank s intertemporal loss minimization problem in which the non negativity constraint on nominal interest rates is explicitly considered we find that the optimal path is characterized by policy inertia in the sense that a zero interest rate policy should be continued for a while even after the natural rate of interest returns to a positive level by making such a commitment the central bank is able to achieve higher expected inflation lower long term nominal interest rates and a weaker domestic currency in the adverse periods when the natural rate of interest significantly deviates from a steady state level

optimal fiscal policy in a world liquidity trap we construct a model of the international transmission of liquidity trap shocks and examine the case for international coordination of scal policy to respond to the liquidity trap integrated nancial markets tend to propagate liquidity traps in a global environment scal policy may be eective in raising gdp when the economy is stuck in a liquidity trap but it does so in a beggar thy neighbor fashion when one economy is in a liquidity trap the cross country spillover eect of scal policy is negative we examine the welfare optimizing policy response to a liquidity trap when countries coordinate on scal policy fiscal policy may be an eective tool in responding to a liquidity trap although it is never optimal to use scal expansion su ciently to fully eliminate a downturn moreover there is little case for coordinated global scal expansion for the most part the country worst hit by a liquidity trap shock should use its own policies to respond without much help from foreign policies

exchange rate flexibility under the zero lower bound an independent monetary policy and a flexible exchange rate generally help a country in adjusting to macroeconomic shocks but recently in many countries interest rates have been pushed down close to the lower bound limiting the ability of policy makers to accommodate shocks even with flexible exchange rates this paper argues that when the zero bound constraint on nominal interest rates is binding and policy lacks an effective forward guidance mechanism a flexible exchange rate system may be inferior to a single currency area with monetary policy constrained by the zero bound a flexible exchange rate exacerbates the impact of shocks remarkably this may hold true even if only a subset of countries are constrained by the zero bound and other countries optimally adjust their interest rate targets for a regime of multiple currencies to dominate a single currency in a zero bound environment it is necessary to have effective forward guidance in monetary policy

time frequency contained co movement of crude oil and world food prices a wavelet based analysis abstract this paper evaluates the association between crude oil prices and world food price indices first within general space and time and then within the combined time frequency sphere monthly price data spanning from january 1990 to february 2016 were used for the analysis the johansen cointegration test conducted within the time domain confirmed the statistically significant cointegrated relationship between crude oil prices and the price indices of food and its sub categories such as dairy cereals vegetable oil and sugar however frequency information was not accounted for to incorporate both the time and frequency features of the data we used a wavelet method that has shown that the world food prices along with the prices of cereals vegetable oils and sugar co move with and are led by crude oil prices results that remain relevant from the short run policy perspective the outcome of toda yamamoto causality confirmed the spillover of crude oil price changes to the world food price index also in the long run the paper ends with the policy implications of these results

global liquidity trap abstract how should monetary policy respond to a global liquidity trap where the two countries may fall into a liquidity trap simultaneously using a two country new open economy macroeconomics model we first characterize optimal monetary policy and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap we next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules the interest rate rule targeting the producer price index performs well in this respect