FI6042  –   Research in Finance Workshops   Student: Frank Gallagher (0643149) The effectiveness of anti-deflationary mone...
Research Question <ul><li>The effectiveness of anti-deflationary monetary expansion in the US. </li></ul><ul><ul><li>Zammi...
Objectives of the Research <ul><li>To empirically investigate the effectiveness of both QE policies adopted by the Fed in ...
Chapter 2 = Literature Review <ul><li>Deflation  </li></ul><ul><ul><li>American Experience </li></ul></ul><ul><ul><ul><li>...
Chapter 3 = The Model <ul><li>Attempt to build 3 econometric models </li></ul><ul><ul><li>Explanatory Variable  </li></ul>...
Chapter 3 = The Model <ul><ul><li>Second Variable </li></ul></ul><ul><ul><ul><li>Interest rates on newly issued ten-year b...
Chapter 3 = The Model <ul><li>Data </li></ul><ul><ul><li>Period 2005 – August 2011. </li></ul></ul><ul><ul><li>Approx 72+ ...
Chapter 4 = Empirical Results <ul><li>Empirical Findings </li></ul><ul><ul><li>Each Individual Model </li></ul></ul><ul><l...
Some important readings <ul><li>Koo, R.C (2009).  The Holy Grail of MacroEconomics . 2nd ed. Japan: John Wiley and Sons Pt...
Segmented Analysis <ul><li>Two objectives of this round of QE </li></ul><ul><ul><li>To inflate asset prices. </li></ul></u...
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The Effectiveness Of Anti Deflationary Monetary Expansion In The

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This is my dissertation proposal which I will be investigating with Dr Stephen Kinsella this summer.
Any imput/corrections would be greatly appreciated.

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The Effectiveness Of Anti Deflationary Monetary Expansion In The

  1. 1. FI6042 – Research in Finance Workshops Student: Frank Gallagher (0643149) The effectiveness of anti-deflationary monetary expansion in the US. Supervisor: Dr Stephen Kinsella
  2. 2. Research Question <ul><li>The effectiveness of anti-deflationary monetary expansion in the US. </li></ul><ul><ul><li>Zammit, R (2007) - Japan </li></ul></ul><ul><li>Stakeholders </li></ul><ul><ul><li>Economists </li></ul></ul><ul><ul><li>Monetary Policy Makers </li></ul></ul><ul><ul><li>Investors </li></ul></ul><ul><ul><li>General Public </li></ul></ul>
  3. 3. Objectives of the Research <ul><li>To empirically investigate the effectiveness of both QE policies adopted by the Fed in recent years. </li></ul><ul><ul><li>Establish effects of QE policies on consumption and investment within the domestic economy. </li></ul></ul><ul><ul><li>Determine successfulness of QE in influencing long-term interest rates. </li></ul></ul><ul><ul><li>Obtain evidence about effects of QE on inflationary pressures and expectations. </li></ul></ul>
  4. 4. Chapter 2 = Literature Review <ul><li>Deflation </li></ul><ul><ul><li>American Experience </li></ul></ul><ul><ul><ul><li>Deflationary pressures </li></ul></ul></ul><ul><ul><ul><ul><li>Their causes and Potential effects. </li></ul></ul></ul></ul><ul><li>The Monetary Policy Argument Post 2006 </li></ul><ul><ul><li>Monetary Policy and the Zero bound Interest Rate argument. </li></ul></ul><ul><ul><ul><li>Liquidity Traps and Balance Sheet Recessions. </li></ul></ul></ul><ul><li>Quantitative Easing </li></ul><ul><ul><li>QE1… “Stabilization” effects. </li></ul></ul><ul><ul><li>QE2… $600 billion </li></ul></ul><ul><ul><li>Effects of QE Process </li></ul></ul>
  5. 5. Chapter 3 = The Model <ul><li>Attempt to build 3 econometric models </li></ul><ul><ul><li>Explanatory Variable </li></ul></ul><ul><ul><ul><li>Current Account Balances of Financial Institutions at the Federal Reserve. </li></ul></ul></ul><ul><ul><li>Why? </li></ul></ul><ul><ul><ul><li>Fed is flooding the market with liquidity in these institutions. </li></ul></ul></ul><ul><ul><li>How? </li></ul></ul><ul><ul><ul><li>Government debt bond purchases. </li></ul></ul></ul><ul><ul><li>Importance? </li></ul></ul><ul><ul><ul><li>Quantify extent and magnitude of Fed’s QE strategy. </li></ul></ul></ul><ul><li>Three variables: </li></ul><ul><ul><li>First Variable </li></ul></ul><ul><ul><ul><li>Cash Currency in circulation + Deposit Money + Quasi money. </li></ul></ul></ul><ul><ul><li>Why? </li></ul></ul><ul><ul><ul><li>Provide proxy for bank lending. </li></ul></ul></ul><ul><ul><ul><li>Particularly in relation to domestic consumption and investment. </li></ul></ul></ul>
  6. 6. Chapter 3 = The Model <ul><ul><li>Second Variable </li></ul></ul><ul><ul><ul><li>Interest rates on newly issued ten-year bonds. </li></ul></ul></ul><ul><ul><li>Why? </li></ul></ul><ul><ul><ul><li>Yardstick for Fed long-term Monetary Policy. </li></ul></ul></ul><ul><ul><ul><li>Show whether QE succeeds in influencing changes to long-term interest rates. </li></ul></ul></ul><ul><ul><li>Third Variable </li></ul></ul><ul><ul><ul><li>Yields on ten-year government debt bonds future contracts. </li></ul></ul></ul><ul><ul><li>Why? </li></ul></ul><ul><ul><ul><li>Proxy for general expectations regarding performance and return of long-term gov bonds. </li></ul></ul></ul><ul><ul><ul><li>Indications of inflationary expectations. </li></ul></ul></ul>
  7. 7. Chapter 3 = The Model <ul><li>Data </li></ul><ul><ul><li>Period 2005 – August 2011. </li></ul></ul><ul><ul><li>Approx 72+ sample periods. </li></ul></ul><ul><li>Econometric Testing </li></ul><ul><ul><li>1. Correlogram Tests </li></ul></ul><ul><ul><ul><li>Investigate issues of non-stationarity in time-series data. </li></ul></ul></ul><ul><ul><li>2. Unit Root Tests </li></ul></ul><ul><ul><ul><li>Checks for stationarity in time-series data by regressing observations against their lagged times. </li></ul></ul></ul><ul><ul><li>3. Co-integration Tests </li></ul></ul><ul><ul><ul><li>Offers valuable insights into the non-spurious relationship between non stationary economic time series. </li></ul></ul></ul>
  8. 8. Chapter 4 = Empirical Results <ul><li>Empirical Findings </li></ul><ul><ul><li>Each Individual Model </li></ul></ul><ul><li>Limitations </li></ul><ul><li>Recommendations </li></ul><ul><li>Conclusion </li></ul>
  9. 9. Some important readings <ul><li>Koo, R.C (2009). The Holy Grail of MacroEconomics . 2nd ed. Japan: John Wiley and Sons Pte. Ltd. Pg253-309. </li></ul><ul><li>Shiratsuka, S. (2010). Size and Composition of the Central Bank Balance Sheet: Revisiting Japan's experience of the Quantitative Easing Policy. Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute . 42 (1), Pg2-32. </li></ul><ul><li>Taylor, J.B & Williams, C.J. (2009). Simple and Robust Rules for Monetary Policy. Handbook of Monetary Economics . 1 (1), pg1-23. </li></ul><ul><li>Ugai, H (2007). Quantitative Easing Policy: A survey of Empirical Analyses . Japan: Bank of Japan. pg1-37. </li></ul><ul><li>White, W.R. (2009). Should Monetary Policy “Lean or Clean”?*. Federal Reserve Bank of Dallas . 34 (1), pg1-21. </li></ul><ul><li>Zammit, R. (2007).  Japanese Quantitative Easing: The Effects and Constraints of Anti-Deflationary Monetary Expansions.  Available: http://mpra.ub.uni-muenchen.de/3361/. Last accessed 20 Feb 2011. </li></ul>
  10. 10. Segmented Analysis <ul><li>Two objectives of this round of QE </li></ul><ul><ul><li>To inflate asset prices. </li></ul></ul><ul><ul><ul><li>QE has had clear effects on asset prices. </li></ul></ul></ul><ul><ul><ul><li>Commodity Hoarding. </li></ul></ul></ul><ul><ul><ul><li>S&P 500 doubled in 23 months. </li></ul></ul></ul><ul><ul><li>To create inflationary pressures. </li></ul></ul><ul><ul><ul><li>I will investigate its ability to act as a tonic for deflation and as a catalyst for inflation of growth in the domestic economy. </li></ul></ul></ul>

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