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399 entries found on 20 pages. starting on record 1 ending on 20

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Title: Consumer inflation expectations in Poland
Abstract
Inflation expectations constitute a subject of particular contemporary interest to central banks, especially those pursuing a monetary policy based on a strategy of direct inflation targeting. Macroeconomic theory indicates that the transmission of monetary policy impulses and their impact on the real and nominal sectors of the economy bear a close relationship to properties of inflation expectations. Qualitative data on inflation expectations, as obtained from surveys, can be quantified with the use of probability or regression methods. This paper presents the results of two versions of the probability method, implemented in order to estimate numerical measures of Polish consumer inflation expectations, based on the monthly Ipsos-Demoskop survey. In addition, the unbiasedness and macroeconomic efficiency of Polish consumer inflation expectations are tested, as are the way in which these are formed. The pattern of responses to the survey question and quantified measures of Polish consumer inflation expectations are also compared with the respective findings for the euro area. [Tomasz £yziak]
Author: £yziak, Tomasz
Series Title: Working paper series / European Central Bank ; 287
Publisher: European Central Bank
Year: 2003
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyInflation expectationsPolandConsumersCentral Bankmonetary policyinflationPoland
consumercentral bank
Subject: Economic conditionsCurrency. Monetary policy
Countries Scheme: Poland
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Title: The credibility of the monetary policy "free lunch"
Abstract
Price level targeting has been proposed as an alternative to in?ation targeting that may confer bene?ts if a central bank sets policy under discretion, even if society's loss function is speci?ed in terms of in?ation (instead of price level) volatility. This paper demonstrates the sensitivity of this argument. If even a small portion of agents use a rule-of-thumb to form in?ation expectations, or does not fully understand the nature of the target, price level targeting may in fact impose costs on society rather than bene?ts. While rational expectations and perfect credibility are generally bene?cial with either a price level or an in?ation target, an in?ation target is more robust to alternative assumptions. These results suggest that caution should be exercised in considering a price level target as the basis for monetary policy, unless society has preferences speci?ed in terms of price level, rather than in?ation, volatility. [James Yetman]
Author: Yetman, James
Series Title: Working paper series / European Central Bank ; 284
Publisher: European Central Bank
Year: 2003
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCredibilityInflation targetingPrice stabilityRational expectationsTheoryCentral Bank
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Title: Indeterminacy of rational expectations equilibria in sequential financial markets
Abstract
We provide a general characterization of the structure of rational expectations equilibria of any degree of revelation for pure exchange, sequential economies, with deffinitely many states of private information, an incomplete financial market and nominal assets. We estimate the dimension of the rational expectations equilibria for any degree of revelation. Then, we show how a central bank, by deciding on the money supply, may affect the revelation of information at equilibrium. [Paola Donati]
Author: Donati, Paola
Series Title: Working paper series / European Central Bank ; 262
Publisher: European Central Bank
Year: 2003
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Asymmetric informationFinancial marketMonetary PolicyRational expectationsTheoryIncomplete marketCentral Bank
Subject: Currency. Monetary policyInvestment returns. Financial market. Interest rates
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Title: Interest rate reaction functions and the Taylor rule in the euro area
Abstract
Traditional Taylor rules, which are estimated using a level specification linking the short-term interest rate to inflation and the output gap, are unstable when estimated on euro area data and forecast poorly out of sample. We present an alternative reaction function which takes the non-stationarity of the data into account. The estimated interest rate rule is stable and forecasts well. In contrast to the traditional Taylor rule, we find a ignificant role for the long rate, which we argue reflects shifts in the public's perception of the long-run inflation objective. [Petra Gerlach-Kristen]
Author: Gerlach-Kristen, Petra
Series Title: Working paper series / European Central Bank ; 258
Publisher: European Central Bank
Year: 2003
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: EU countriesEuropean Economic and Monetary UnionCointegrationTaylor ruleCentral BankTerm structure of interest rates
Subject: Currency. Monetary policy
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Title: How does the ECB allot liquidity in its weekly main refinancing operations?
Title (other): A look at the empirical evidence
Abstract
This paper provides a simple weekly model of the regular supply of liquidity in the euro area, with a view to understanding the functioning of the euro area money market. The main result of the analysis is that liquidity has normally been provided by the ECB in a neutral and smooth manner, but also that there has been some attempt, albeit very limited, to correct deviations of the overnight rate from the main refinancing rate. Moreover the paper finds that liquidity has affected the overnight interest rate to a significant extend only after the last main refinancing operation of the maintenance period, when it is not possible for the ECB to adjust liquidity imbalances except by making recourse to fine-tuning operations. [Steen Ejerskov, Clara Martin Moss and Livio Stracca]
Author: Ejerskov, Steen | Moss, Clara Martin | Stracca, Livio
Series Title: The European Central Bank - Working papers review
Publisher: European Central Bank
Year: 2003
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Bank liquidityEU countriesMonetary PolicyLiquidity effectMartingaleCentral BankEUEuropean Central Bank
monetary policyliquidity
Subject: Currency. Monetary policy
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Title: Maintaining price stability under free-floating
Title (other): a fearless way out of the corner?
Abstract
The behaviour of the exchange rate under a floating exchange rate regime for a small open economy with perfect capital mobility may appear like a managed float or even a firmer peg. We present a canonical new neo-classical synthesis open economy model where the central bank follows a strategy directed at maintaining price stability. It is shown that the behaviour of the exchange rate depends on the structure of the economy and on the nature of the relevant shocks. In the case of very open economies the exchange rate will look quasi-fixed in response to shocks stemming from the international capital markets. It is also shown that the joined endogeneity of the interest rate and the exchange rate has important implications for the empirical testing of uncovered interest rate parity. [Carsten Detken and Vítor Gaspar]
Author: Detken, Carsten | Gaspar, Vítor
Series Title: Working paper series / European Central Bank ; 241
Publisher: European Central Bank
Year: 2003
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Flexible exchange rateMonetary targetCapital mobilitySmall open economyPrice stabilityTheoryCentral BankInterest Rate
Subject: Currency. Monetary policy
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Title: Describing the Fed's conduct with Taylor rules
Title (other): is interest rate smoothing important?
Abstract
In this paper we estimate simple Taylor rules paying particular attention to interest rate smoothing. Following English, Nelson, and Sack (2002), we employ a model in first differences to gain some insights into the presence and signifcance of the degree of partial adjustment as opposed to a serially correlated policy shock. Moreover, we estimate a nested model to take into account both interest rate smoothing and serially correlated deviations from various Taylor rates prescriptions. Our findings suggest that the lagged interest rate enters the Taylor rule in its own right, and may very well coexist with (usually omitted) variables that relate to asymmetric preferences on the output gap, or financial market indicators. Therefore, while we cannot exclude that serially correlated policy shocks may play a role in describing the federal funds rate path, our results significantly support the importance of the lagged interest rate in Taylor-type models. [Efrem Castelnuovo]
Author: Castelnuovo, Efrem
Series Title: Working paper series / European Central Bank ; 232
Publisher: European Central Bank
Year: 2003
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyTaylor ruleUnited StatesCentral BankInterest Rate
Subject: Currency. Monetary policy
Countries Scheme: USA
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Title: Optimal allotment policy in the Eurosystem's main refinancing operations
Abstract
On several occasions during the period 2001-2003, the European Central Bank (ECB) decided to deviate from its "neutral" benchmark allotment rule, with the effect of not alleviating a temporary liquidity shortage in the banking system. This is remarkable because it implied the possibility of short-term interest rates raising significantly above the main policy rate. In the present paper, we show that when the monetary authority cares for both liquidity and interest rate conditions, the optimal allotment policy may entail a discontinuous reaction to initial conditions. More precisely, we prove that there is a threshold level for the accumulated aggregate liquidity position in the banking system prior to the last operation in a given maintenance period, so that the benchmark allotment is optimal whenever liquidity conditions are above the threshold, and a tight allotment is optimal whenever liquidity conditions are below the threshold. [Christian Ewerhart, Nuno Cassola, Steen Ejerskov, Natacha Valla]
Author: Ewerhart, Christian | Cassola, Nuno | Ejerskov, Steen | Valla, Natacha
Series Title: Working paper series / European Central Bank ; 295
Publisher: European Central Bank
Year: 2003
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Bank liquidityEU countriesMonetary PolicyRefinancingCentral BankInterest rate policy
Subject: Currency. Monetary policyInvestment returns. Financial market. Interest rates
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Title: Option-implied asymmetries in bond market expectations around monetary policy actions of the ECB
Abstract
This paper uses data on German government bond futures options to examine the behaviour of market expectations around monetary policy actions of the European Central Bank (ECB). In particular, this paper focuses on the asymmetries in bond market expectations, as measured by the skewness of option-implied probability distributions of future bond yields. The results show that market expectations are systematically asymmetric around monetary policy actions of the ECB. Around monetary policy tightening, option-implied yield distributions are positively skewed, indicating that market participants attach higher probabilities for sharp yield increases than for sharp decreases. Correspondingly, around loosening of the policy, implied yield distributions are negatively skewed, suggesting that markets assign higher probabilities for sharp yield decreases than for increases. Furthermore, the results indicate that market expectations are significantly altered around monetary policy actions, as asymmetries in market expectations tend to increase before changes in the monetary policy stance, and to decrease afterwards. [Sami Vähämaa]
Author: Vähämaa, Sami
Series Title: Working paper series / European Central Bank ; 315
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: GermanyEU countriesMonetary PolicyRational expectationsCentral BankPublic bond
Subject: Currency. Monetary policyFinancing. Private finance. Financial policy
Countries Scheme: Germany. General Resources
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Title: Cross-country differences in monetary policy transmission
Abstract
This paper examines possible explanations for observed differences in the transmission of euro area monetary policy in central bank large-scale macroeconomic models. In particular it considers the extent to which these differences are due to differences in the underlying economies or (possibly unrelated) differences in the modelling strategies adopted for each country. It finds that, against most yardsticks, the cross-country variations in the results are found to be plausible in the sense that they correspond with other evidence or observed characteristics of the economies in question. Nevertheless, the role of differing modelling strategies may also play a role. Important features of the models - for instance in the treatment of expectations or wealth - can have a major bearing on the results that may not necessarily reflect differences in the underlying economies. [Robert-Paul Berben, Alberto Locarno, Julian Morgan and Javier Valles]
Author: Berben, Robert-Paul | Locarno, Alberto | Morgan, Julian | Vallés, Javier
Series Title: Working paper series / European Central Bank ; 400
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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Title: Foreign direct investment and international business cycle comovement
Abstract
This paper investigates the relationship between bilateral FDI positions and cross-country business cycle correlations in the period 1982–2001. We find that countries that have comparatively intensive FDI relations also have more synchronized business cycles during 1995–2001. Before 1995, we also find a positive association between FDI linkages and output comovement, but this may partly reflect the effects of trade relations. Moreover, more intensive FDI links are also associated with a greater vulnerability to lagged output spillovers from abroad, whereas trade links are not. Policy implications of our research are (1) that there is an underlying tendency for business cycles to exhibit greater comovement in the future, and (2) that policy makers need to incorporate the FDI linkage among economies in their models and analytical framework for policy analysis. [W. Jos Jansen and Ad C.J. Stokman]
Author: Jansen, W. Jos | Stokman, Ad C. J.
Series Title: Working paper series / European Central Bank ; 401
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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Title: The great inflation of the 1970s
Abstract
Was the high inflation of the 1970s mostly due to incomplete information about the structure of the economy (an unavoidable mistake as suggested by Orphanides, 2000)? Or, to weak reaction to expected inflation and/or excessive policy activism that led to indeterminacies (a policy mistake, a scenario suggested by Clarida, Gali and Gertler, 2000)? We study this question within the NNS model with policy commitment and imperfect information, requiring that the model have satisfactory overall empirical performance. We find that both explanations do a good job in accounting for the great inflation. Even with the commonly used specification of the interest policy rule, high and persistent inflation can occur following a significant productivity slowdown if policymakers significantly and persistently underestimate ”core” inflation. [Fabrice Collard and Harris Dellas]
Author: Collard, Fabrice | Dellas, Harris
Series Title: Working paper series / European Central Bank ; 336
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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Title: The decline of activist stabilization policy
Title (other): natural rate misperceptions, learning, and expectations
Abstract
We develop an estimated model of the U.S. economy in which agents form expectations by continually updating their beliefs regarding the behavior of the economy and monetary policy. We explore the effects of policymakers' misperceptions of the natural rate of unemployment during the late 1960s and 1970s on the formation of expectations and macroeconomic outcomes. We find that the combination of monetary policy directed at tight stabilization of unemployment near its perceived natural rate and large real-time errors in estimates of the natural rate uprooted heretofore quiescent inflation expectations and destabilized the economy. Had monetary policy reacted less aggressively to perceived unemployment gaps, inflation expectations would have remained anchored and the stagflation of the 1970s would have been avoided. Indeed, we find that less activist policies would have been more effective at stabilizing both inflation and unemployment. We argue that policymakers, learning from the experience of the 1970s, eschewed activist policies in favor of policies that concentrated on the achievement of price stability, contributing to the subsequent improvements in macroeconomic performance of the U.S. economy. [Athanasios Orphanides and John C. Williams]
Author: Orphanides, Athanasios | Williams, John C.
Series Title: Working paper series / European Central Bank ; 337
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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Title: The optimal degree of discretion in monetary policy
Abstract
How much discretion should the monetary authority have in setting its policy? This question is analyzed in an economy with an agreed-upon social welfare function that depends on the randomly fluctuating state of the economy. The monetary authority has private information about that state. In the model, well-designed rules trade off society’s desire to give the monetary authority discretion to react to its private information against society’s need to guard against the time inconsistency problem arising from the temptation to stimulate the economy with unexpected inflation. Although this dynamic mechanism design problem seems complex, society can implement the optimal policy simply by legislating an inflation cap that specifies the highest allowable inflation rate. The more severe the time inconsistency problem, the more tightly the cap constrains policy and the smaller is the degree of discretion. As this problem becomes sufficiently severe, the optimal degree of discretion is none. [Susan Athey, Andrew Atkeson and Patrick J. Kehoe]
Author: Athey, Susan | Atkeson, Andrew | Kehoe, Patrick J.
Series Title: Working paper series / European Central Bank ; 338
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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Title: Understanding the effects of government spending on consumption
Abstract
Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending. [Jordi Galí, J. David López-Salido and Javier Vallés]
Author: Galí, Jordi | López-Salido, J. David | Vallés, Javier
Series Title: Working paper series / European Central Bank ; 339
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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Title: Indeterminacy with inflation-forecast-based rules in a two-bloc model
Abstract
We examine the performance of forward-looking inflation-forecast-based rules in open economies. In a New Keynesian two-bloc model, a methodology first employed by Batini and Pearlman (2002) is used to obtain analytically the feedback parameters/horizon pairs associated with unique and stable equilibria. Three key findings emerge: first, indeterminacy occurs for any value of the feedback parameter on inflation if the forecast horizon lies too far into the future. Second, the problem of indeterminacy is intrinsically more serious in the open economy. Third, the problem is compounded further in the open economy when central banks respond to expected consumer, rather than pro- ducer price inflation. [Nicoletta Batini, Paul Levine and Joseph Pearlman]
Author: Batini, Nicoletta | Levine, Paul | Pearlman, Joseph
Series Title: Working paper series / European Central Bank ; 340
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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Title: Benefits and spillovers of greater competition in Europe
Title (other): a macroeconomic assessment
Abstract
Using a general-equilibrium simulation model featuring nominal rigidities and monopolistic competition in product and labor markets, this paper estimates the macroeconomic benefits and international spillovers of an increase in competition. After calibrating the model to the euro area vs. the rest of the industrial world, the paper draws three conclusions. First, greater competition produces large effects on macroeconomic performance, as measured by standard indicators. In particular, we show that differences in competition can account for over half of the current gap in GDP per capita between the euro area and the US. Second, it may improve macroeconomic management by increasing the responsiveness of wages and prices to market conditions. Third, greater competition can generate positive spillovers to the rest of the world through its impact on the terms of trade. [Tamim Bayoumi, Douglas Laxton and Paolo Pesenti]
Author: Bayoumi, Tamim | Laxton, Douglas | Pesenti, Paolo
Series Title: Working paper series / European Central Bank ; 341
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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Title: Equal size, equal role?
Title (other): Interdependence between the euro area and the United States
Abstract
This paper investigates whether the degree and the nature of economic and monetary policy interdependence between the United States and the euro area have changed with the advent of EMU. Using real-time data, it addresses this issue from the perspective of financial markets by analysing the effects of monetary policy announcements and macroeconomic news on daily interest rates in the United States and the euro area. First, the paper finds that the interdependence of money markets has increased strongly around EMU. Although spillover effects from the United States to the euro area remain stronger than in the opposite direction, we present evidence that US markets have started reacting also to euro area developments since the onset of EMU. Second, beyond these general linkages, the paper finds that certain macroeconomic news about the US economy have a large and significant effect on euro area money markets, and that these effects have become stronger in recent years. Finally, we show that US macroeconomic news have become good leading indicators for economic developments in the euro area. This indicates that the higher money market interdependence between the United States and the euro area is at least partly explained by the increased real integration of the two economies in recent years. [Michael Ehrmann and Marcel Fratzscher]
Author: Ehrmann, Michael | Fratzscher, Marcel
Series Title: Working paper series / European Central Bank ; 342
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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Title: Monetary discretion, pricing complementarity and dynamic multiple equilibria
Abstract
In a plain-vanilla New Keynesian model with two-period staggered price-setting, discretionary monetary policy leads to multiple equilibria. Complementarity between pricing decisions of forward-looking firms underlies the multiplicity, which is intrinsically dynamic in nature. At each point in time, the discretionary monetary authority optimally accommodates the level of predetermined prices when setting the money supply because it is concerned solely about real activity. Hence, if other firms set a high price in the current period, an individual firm will optimally choose a high price because it knows that the monetary authority next period will accommodate with a high money supply. Under commitment, the mechanism generating complementarity is absent: the monetary authority commits not to respond to future predetermined prices. Multiple equilibria also arise in other similar contexts where (i) a policymaker cannot commit, and (ii) forward-looking agents determine a state variable to which future policy responds. [Robert G. King and Alexander L.Wolman]
Author: King, Robert G. | Wolman, Alexander L.
Series Title: Working paper series / European Central Bank ; 343
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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Title: Ramsey monetary policy and international relative prices
Abstract
We analyze welfare maximizing monetary policy in a dynamic two-country model with price stickiness and imperfect competition. In this context, a typical terms of trade externality affects policy interaction between independent monetary authorities. Unlike the existing literature, we remain consistent to a public finance approach by an explicit consideration of all the distortions that are relevant to the Ramsey planner. This strategy entails two main advantages. First, it allows an accurate characterization of optimal policy in an economy that evolves around a steady-state which is not necessarily efficient. Second, it allows to describe a full range of alternative dynamic equilibria when price setters in both countries are completely forwardlooking and households’ preferences are not restricted. In this context, we study optimal policy both in the long-run and along a dynamic path, and we compare optimal commitment policy under Nash competition and under cooperation. By deriving a second order accurate solution to the policy functions, we also characterize the welfare gains from international policy cooperation. [Ester Faia and Tommaso Monacelli]
Author: Faia, Ester | Monacelli, Tommaso
Series Title: Working paper series / European Central Bank ; 344
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Monetary PolicyCentral Bank
Subject: Currency. Monetary policy
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