Monetary Transmission in Diverse Economies

Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Figures......Page 9
Tables......Page 11
Contributors......Page 13
Acknowledgements......Page 14
URL disclaimer......Page 15
1.1 How does the central bank analyse the transmission mechanism?......Page 17
1.2 How can we derive the policy implications?......Page 21
1.3 What makes a good model for analysing the transmission mechanism?......Page 23
1.4 How can these difficulties in modelling the transmission mechanism affect monetary policy in practice?......Page 25
1.5 What are the implications of practical difficulties for monetary policy modelling?......Page 27
1.6.1 The monetary sector......Page 30
1.6.2 Exchange rates......Page 33
1.7 Conclusion......Page 35
Information......Page 38
Notes......Page 40
2.1 Introduction......Page 44
2.2 Is there a common cycle in the euro area?......Page 47
2.3 The asymmetric effects of area-wide monetary policy shocks......Page 51
2.3.1 A monetary policy VAR for the euro area......Page 54
2.3.2 Monetary policy shocks in the multivariate MSM model......Page 55
2.5 Does monetary policy change the likelihood of a recession?......Page 58
2.6 Conclusions......Page 62
Notes......Page 63
3.1 Introduction......Page 65
3.2 The real rate of interest: some observations......Page 68
3.3.1 The representative agent......Page 70
3.3.2 The representative firm......Page 72
3.3.4 The model with variable capacity utilisation......Page 74
3.4 The steady state of the model......Page 76
3.5 Results......Page 77
3.5.1 Wicksellian flavours......Page 80
Notes......Page 82
4.1 Introduction......Page 84
4.2.1 Statistical structure......Page 85
4.2.2 Economic structure......Page 88
4.3 Average estimates......Page 90
4.4 Dispersion......Page 94
4.5 Explanations......Page 98
4.6 Conclusions......Page 100
Appendix 1: the Swamy random coefficient model estimator......Page 101
Appendix 2: data......Page 102
Appendix 3: tables of results......Page 103
Note......Page 115
5.1 Introduction......Page 116
5.2 Invariance tests......Page 118
5.3.1 Standard VAR analysis......Page 125
5.3.2 Bayesian VAR analysis......Page 128
5.4 Conclusions......Page 138
Appendix 1: invariance/superexogeneity tests......Page 139
Notes......Page 141
6.1 The nature of the 1997–98 recession......Page 143
6.2 The monetary policy response to the credit crunch......Page 144
6.3 The adoption of the zero interest rate policy......Page 146
6.4 The transmission channels of the ZIRP......Page 147
6.5.1 Arguments against the rate hike......Page 149
6.5.2 Arguments for the rate hike......Page 150
6.7 Acknowledgements......Page 151
Notes......Page 152
7.1 Introduction......Page 153
7.2.1 Why did the Great Inflation of the 1970s happen?......Page 154
7.2.2 Is the Phillips curve consistent with inflation being a monetary phenomenon?......Page 161
7.2.3 Measurement of potential output......Page 162
7.3 The IS relationship in the United Kingdom: an empirical puzzle......Page 164
7.4 Conclusions......Page 167
Notes......Page 168
8 Modelling the transmission mechanism of monetary policy......Page 172
9.1 Introduction......Page 183
9.2 A framework for modelling credit markets......Page 184
9.2.1 Private non-financial corporations (PNFCs)......Page 185
9.2.2 Banks......Page 187
9.2.3 Households......Page 188
9.2.4 Financial market clearing......Page 189
9.2.6 Other financial corporations......Page 190
9.3.1 A dynamic model for the PNFC and household sectors......Page 192
9.3.2 Introducing the OFC sector......Page 193
9.4.1 Private non-financial corporations......Page 194
9.4.2 Households......Page 197
9.4.3 Credit from other financial corporations (OFCs)......Page 202
Notes......Page 205
10.1 Introduction......Page 207
10.2 The Central Bank of Brazil exchange rate forecast models......Page 209
10.3 UIP with fundamentals: the five-equation model......Page 211
10.4 The system solution......Page 212
10.5 Simulations......Page 213
10.6 Conclusions and final remarks......Page 215
Appendix......Page 219
Notes......Page 222
11.1 Introduction......Page 224
11.2 Conceptual issues regarding UIP......Page 225
11.3 Empirical tests of the 'unbiasedness' hypothesis......Page 228
11.3.1 Fama’s puzzles......Page 229
11.3.2 Recent evidence on UIP......Page 231
11.4.2 An extended model......Page 233
11.4.3 Implications for monetary transmission......Page 240
11.5 Future exchange rates, UIP and monetary transmission......Page 242
11.6 UIP and the liquidity trap......Page 247
11.7 Concluding remarks......Page 250
Notes......Page 251
Bibliography......Page 253
Index......Page 270