This document discusses inflation targeting as a monetary policy framework. It argues that inflation targeting is more effective than monetary targeting at stabilizing prices and maintaining credibility for central banks. The document outlines Ben Bernanke's concept of "constrained discretion" which allows central banks to set medium-term inflation targets while having flexibility to respond to economic shocks. Empirical evidence from Switzerland and the US suggests that inflation targeting has helped reduce inflation volatility and price uncertainty compared to monetary targeting.
Over the past thirty years the neutral real interest rate across developed economies has declined substantially. Evidence suggests that secular rather than transitory factors are driving its decline. A lower neutral interest rate implies that the cumulative amount of tightening required for monetary policy to become neutral is much smaller than previously thought.
LPL Weekly Economic Commentary 7-24-17
The structural and demographic problems that will drive the deficit over the next several decades remain in place.
Over the past thirty years the neutral real interest rate across developed economies has declined substantially. Evidence suggests that secular rather than transitory factors are driving its decline. A lower neutral interest rate implies that the cumulative amount of tightening required for monetary policy to become neutral is much smaller than previously thought.
LPL Weekly Economic Commentary 7-24-17
The structural and demographic problems that will drive the deficit over the next several decades remain in place.
Do you or your users need information on the South's unemployment, housing and more? We’ll share strategies to enhance expertise with finding essential resources about these timely topics. (Sponsored by GLA GIIG.) Presented at GaCOMO12 by Patricia Kenly and Bette Finn.
Lately, there's been a lot of focus on the Fed and the potential for tapering. In today's Topic Talks, NEPC's Jennifer Appel breaks down the Federal Reserve's toolbox, the basics of quantitative easing, how tapering works, and what it could mean for capital markets.
The Hitchhiker's Guide to Yellen's Speech
We spent all week waiting anxiously to see what Our Glorious Leader would say only to get a confused mash-up of central bank water-cooler conversation.
If you want to know what she really said - and, more importantly, didn't say - you might like to read this translation.
Empirical Analysis of Fiscal Dominance and the Conduct of Monetary Policy in ...AJHSSR Journal
The study empirically investigates fiscal dominance and the conduct of monetary policy in
Nigeria, using quarterly data from 1986Q1 to 2016Q4. It adopts the vector error correction mechanism (VECM)
and cointegration technique to analyze the data and make inference. The findings reveal that there is no
evidence of fiscal dominance in Nigeria. The empirical results show that budget deficit, domestic debt and
money supply have no significant influence on the average price level. However, budget deficit and domestic
debt are shown to have significant influence on money supply, but only in the short-run. The policy implication
is that the government should enforce fiscal discipline through the appropriate institution and the Central Bank
should be given autonomy to perform the primary function of long-term price stability, among other functions.
At an event at its central London Headquarters, chaired by The Times’ Economics Editor Philip Aldrick, Resolution Foundation Chief Economist Matthew Whittaker presented new analysis on the impact of monetary policy during the downturn. Former MPC member Kate Barker and Chief Economics Commentator at the Financial Times Martin Wolf then debated the future role of monetary policy, before taking part in a wider Q&A.
Do you or your users need information on the South's unemployment, housing and more? We’ll share strategies to enhance expertise with finding essential resources about these timely topics. (Sponsored by GLA GIIG.) Presented at GaCOMO12 by Patricia Kenly and Bette Finn.
Lately, there's been a lot of focus on the Fed and the potential for tapering. In today's Topic Talks, NEPC's Jennifer Appel breaks down the Federal Reserve's toolbox, the basics of quantitative easing, how tapering works, and what it could mean for capital markets.
The Hitchhiker's Guide to Yellen's Speech
We spent all week waiting anxiously to see what Our Glorious Leader would say only to get a confused mash-up of central bank water-cooler conversation.
If you want to know what she really said - and, more importantly, didn't say - you might like to read this translation.
Empirical Analysis of Fiscal Dominance and the Conduct of Monetary Policy in ...AJHSSR Journal
The study empirically investigates fiscal dominance and the conduct of monetary policy in
Nigeria, using quarterly data from 1986Q1 to 2016Q4. It adopts the vector error correction mechanism (VECM)
and cointegration technique to analyze the data and make inference. The findings reveal that there is no
evidence of fiscal dominance in Nigeria. The empirical results show that budget deficit, domestic debt and
money supply have no significant influence on the average price level. However, budget deficit and domestic
debt are shown to have significant influence on money supply, but only in the short-run. The policy implication
is that the government should enforce fiscal discipline through the appropriate institution and the Central Bank
should be given autonomy to perform the primary function of long-term price stability, among other functions.
At an event at its central London Headquarters, chaired by The Times’ Economics Editor Philip Aldrick, Resolution Foundation Chief Economist Matthew Whittaker presented new analysis on the impact of monetary policy during the downturn. Former MPC member Kate Barker and Chief Economics Commentator at the Financial Times Martin Wolf then debated the future role of monetary policy, before taking part in a wider Q&A.
Presentación de la Memoria 2015, presentada por Dra. Carolina Posada, con las actividades realizadas por nuestra Sociedad Científica durante el año 2015.
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Sheena Greer will explore how to move beyond the stale and stodgy into spectacular and stunning storytelling that will touch your donors’ hearts (and not make them fear a metallic simian apocalypse.)
Level up Human Resources Management & Development by using the Japanese Philosophy. This documents had made from the working experienced over 20 years with Japanese International Firms in HR fields.
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Fed Ushers in a New Era of Uncertainty on Rates Investors ar.docxmydrynan
Fed Ushers in a New Era of Uncertainty on Rates
Investors are weighing when Federal Reserve will start raising interest
rates, but where they end up in long run also is a crucial question
By Jon Hilsenrath
Updated March 1, 2015 8:17 p.m. ET , WSJ
It’s clear Fed officials think they’ll be raising short-term interest rates later this year. Of
greater significance – and getting far less attention – is how high rates will go.
Investors these days are obsessing over when the Federal Reserve will start raising short-term interest
rates. Drawing less scrutiny is where rates will end up in the long run and how they’ll get there. But it’s
time to start paying attention.
Fed officials have made clear they expect to begin raising short-term interest rates from near-zero this
year, though not before midyear. After that, there is great uncertainty at the central bank and in the
markets about the future path of interest rates.
The long-run outlook for rates has consequences for everyone. For households, it will determine
payments on mortgages and car loans; for businesses, on corporate bonds; and for the government, on
the $13 trillion in debt held by the public. A disconnect between the Fed and the market over the long-run
rate outlook also could be a source of market turbulence in the months ahead.
Central-bank policy makers on average see rates going nearly twice as high as futures markets indicate
in coming years, for a variety of reasons.
If the Fed is wrong, it might make a mistake on interest rates that jars the economy. If the market is
wrong, it might be setting itself up for a tumble if rates go higher than expected.
The Fed’s latest forecasts show that nine of 17 policy makers see the central bank’s benchmark interest
rate—the federal funds rate—at 1.13% or higher by year-end. The median estimates—meaning half are
above and half below—reach 2.5% for the end of 2016 and 3.63% for the end of 2017. On the other
hand, in fed funds futures markets, where traders buy and sell contracts based on expected rates, the
expected fed funds rate is 0.50% on average in December 2015, 1.35% in December 2016 and 1.84% in
December 2017.
One reason for the disparity: Futures prices reflect investors’ calculations that there is some probability
rates will return to near-zero after a few increases and stay there.
This happened in Sweden after its central bank raised rates in 2010 and in Japan after 2006. In both
cases, the central banks had to reverse course and cut rates after economic shocks and deflation
pressures crippled their economies.
A survey by the New York Fed of Wall Street bond dealers in January showed they attached a 20%
probability to U.S. short-term rates returning to zero within two years after liftoff.
A return to zero isn’t the Fed’s expected outcome, so it doesn’t show up in its rate forecasts.
Fed Ushers in a New Era of Uncertainty on Rates
Investors are weighing when Federal Reserve will ...
Financialization, Rentier Interests, and Central Bank PolicyConor McCabe
Financialization, Rentier Interests, and Central Bank Policy
Gerald Epstein
Department of Economics and Political Economy Research Institute (PERI)
University of Massachusetts, Amherst
December, 2001; this version, June, 2002
What recent and past actions have Canada and the US taken to counter.pdfmeejuhaszjasmynspe52
What recent and past actions have Canada and the US taken to counteract their exchange rates
with the economy in such distress over the past 10 years?
Solution
Since 2007, the world has experienced a period of severe financial stress, not seen since the time
of the Great Depression. This crisis started with the collapse of the subprime residential
mortgage market in the United States and spread to the rest of the world through exposure to
U.S. real estate assets, often in the form of complex financial derivatives, and a collapse in global
trade. Many countries were significantly affected by these adverse shocks, causing systemic
banking crises in a number of countries, despite extraordinary policy interventions. Systemic
banking crises are disruptive events not only to financial systems but to the economy as a whole.
Such crises are not specific to the recent past or specific countries – almost no country has
avoided the experience and some have had multiple banking crises. While the banking crises of
the past have differed in terms of underlying causes, triggers, and economic impact, they share
many commonalities. Banking crises are often preceded by prolonged periods of high credit
growth and are often associated with large imbalances in the balance sheets of the private sector,
such as maturity mismatches or exchange rate risk, that ultimately translate into credit risk for
the banking sector.
Crisis management starts with the containment of liquidity pressures through liquidity support,
guarantees on bank liabilities, deposit freezes, or bank holidays. This containment phase is
followed by a resolution phase during which typically a broad range of measures (such as capital
injections, asset purchases, and guarantees) are taken to restructure banks and reignite economic
growth. It is intrinsically difficult to compare the success of crisis resolution policies given
differences across countries and time in the size of the initial shock to the financial system, the
size of the financial system, the quality of institutions, and the intensity and scope of policy
interventions. With this caveat we now compare policy responses during the recent crisis episode
with those of the past. The policy responses during the 2007-2009 crises episodes were broadly
similar to those used in the past. First, liquidity pressures were contained through liquidity
support and guarantees on bank liabilities. Like the crises of the past, during which bank
holidays and deposit freezes have rarely been used as containment policies, we have no records
of the use of bank holidays during the recent wave of crises, while a deposit freeze was used only
in the case of Latvia for deposits in Parex Bank. On the resolution side, a wide array of
instruments was used this time, including asset purchases, asset guarantees, and equity injections.
All these measures have been used in the past, but this time around they seem to have been put in
place quicker (for detailed informatio.
In a recessionary and deflationary framework, the discretionary monetary policy cannot be optimal when the interest rate is already near zero and cannot decrease anymore. Indeed, when the Zero Lower Bound is binding, a negative demand shock implies a decrease in the current economic activity level and deflationary tensions, which cannot be avoided by monetary policy as the nominal interest rate can no longer decrease. The economic literature has then often recommended to target an inflation rate sufficiently above zero in order to avoid the dangers of this Zero Lower Bound (ZLB) constraint. On the contrary, provided the ZLB is not binding, monetary policy can efficiently contribute to the stabilization of economic activity and inflation in case of demand shocks. The variation in interest rates is then all the more accentuated as interest rate smoothing is a more negligible goal for the central bank. The contribution of our paper is to provide a clear analytical New-Keynesian framework sustaining these results. Besides, our analytical modelling also shows that even if the ZLB is currently not binding, the central bank should take into account the dangers of a potential future binding ZLB. Indeed, the interest rate should be decreased the fastest as a negative demand shock and the possibility to reach the ZLB is anticipated for a nearest future period. Our paper demonstrates the necessity of such a ‘pre-emptive’ active monetary policy even in a discretionary framework, which has the advantage to be time-consistent and to be in conformity with the empirical practices of independent central banks. We don’t have to make the strong hypothesis of a commitment monetary policy intended to affect private agents’ expectations in order to demonstrate the optimality of such a pre-emptive monetary policy.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
Signs of inflation will raise the stakes for the Fed’s policy communications. Favorable conditions for leveraged strategies could reverse quickly. Reasonable valuations and the Fed’s policy goals continue to support risk assets.
Rania Al-Mashat - Minister of Tourism
ERF 24th Annual Conference
The New Normal in the Global Economy: Challenges & Prospects for MENA
July 8-10, 2018
Cairo, Egypt
AnsA) When financial markets stood on the verge of collapse in th.pdfsutharbharat59
Ans:
A) When financial markets stood on the verge of collapse in the summer of 2008, two of the
worlds most important central banks, the US Federal Reserve and the Bank of England, began
considering unorthodox policy measures. They turned to Quantitative Easing, or QE: injecting
money into the economy by purchasing assets from the private sector, in the hope of boosting
spending and staving off the threat of deflation. These were desperate measures for desperate
times.
With signs of a fragile economic recovery gathering enough momentum to reassure
policymakers in the US, the policy was expected to be wound down. But in a move that caught
commentators off guard, the Fed instead committed to continue with its existing level of asset
purchases. For the foreseeable future, at least, QE is here to stay. What began as a short-term
crisis measure has now become a key component of Anglo-American growth strategies. Its
important, then, to take stock of QE and the central role it has played within the Anglo-American
response to the financial crisis.
The way the Fed led the policy response to the financial crisis is important in two ways. First, it
reflects the extent to which the Anglo-American economies have become financialised: credit-
debt relations are pervasive throughout all facets of contemporary economic activity and there
has been a deepening, extension and deregulation of financial markets commensurate with this
development. In that context, with the increased competitiveness, scale and global integration of
financial markets intensifying the risk of financial instability, the crisis management capacities of
central banks have become increasingly important.
Second, central bank leadership of the policy response also reflects a key feature of neoliberal
political economy in practice. Despite all the rhetoric of free markets, competition and
deregulation that has been the mainstay of neoliberalism, there is a central contradiction at its
heart: neoliberalism has been extremely reliant upon the active interventions of central banks
within supposedly free markets.
The crisis has been warehoused on the expanding balance sheets of central banks, demonstrating
just how much scope for policy manoeuvre there is when governing elites want it. Government
debt and private assets, including toxic mortgage-backed securities, have been indefinitely
transferred onto central bank accounts. This strategy highlights the role of arbitrary accounting
processes, shaped by state institutions, at the heart of supposedly free market economies.
Given this room for manoeuvre, there is no doubt that a much more expansionary fiscal policy
and a progressive taxation system could have been implemented in response to the crisis, but that
response is foreclosed by the ideological confines of the prevailing neoliberal orthodoxy. Instead,
we have monetary expansion and fiscal austerity.
Incubated within the crisis conditions of the 1970s, the neoliberal revolution in the West.
Despite hopes that the anti-QE rhetoric would die down, the noise continued last week, and unfortunately, become more political. One of the key aspects of the Fed is its independence. The Fed is answerable to Congress, and ultimately, to the American people. However, it is not controlled by Congress – nor would we want it to be controlled by Congress. Attacks on the Fed and its latest round of asset purchases aren’t helping.
2. In the debate between inflation targeting and monetary targeting
has been going on since the 1980’s. Both sides argue on how a country
should establish credibility and stability for a countries central
bank. However, inflation targeting is the strongest and most credible
of all the possible monetary policy targeting systems.
The idea behind inflation targeting is setting a range of
inflation rates, above zero and usually around 2 with no more than 4
for some counties, and using monetary policy tools to keep inflation
within that range. Much of the reasoning of inflation targeting comes
from former Chairman of the Federal Reserve Ben Bernanke, who
supported the idea of inflation targeting along with what he calls
constrained discretion. During his inauguration in 2006, he ensured
the people of the United States that he will stick to his constrained
discretion, gave confidence in the Federal Reserve’s policies, and
gave promise how he will work diligently to keep the American
financial system working (Bush).
In his paper written with Frederick Mishkin, “Inflation
Targeting: a New Framework for Monetary Policy?”, the discuss how a
central bank can set a policy called ‘Constrained Discretion’. This
idea is a sort of hybrid of rules and discretion, giving the central
bank power to divert from strict rules and set for policy that can
change macroeconomic outcomes. He argued this would give the central
bank credibility because they can change rates without effecting
rational expectations.
3. When Bernanke became Head Chairman of the Federal Reserve in
2006, he implemented his concept of constrained discretion, which
allowed the Fed to use medium-term goals of 4-5 year targets of an
inflation rate, but allowed for policy to deviate if there were some
sort of shock or recession in the economy. The Fed can then make use
of its “escape clause, which permits the inflation target to be
suspended or modified in the face of constant adverse economic
developments” (NBER 5). Doing this gives credibility to the central
bank because they know once the temporary event or shock is over,
policies will return macroeconomic outcomes, primarily inflation, back
to previous levels. Rational expectations do not change in the long
run.
Given that the United States has been an inflation targeting
country since the 1980’s, we have relatively low levels of inflation
since that period of time. Even though we were struck with the second
worst recession in American history, inflation number haven’t risen
above 5% since there was the implementation of the target. Prices have
become relatively stable and growth has stayed at a steady upward
trend.
In Michael Dueker and Andreas M. Fischer’s “Inflation Targeting
in a Small Open Economy: Empirical Results from Switzerland”, they
bring evidence from Switzerland, who for some time had used a monetary
target policy, had issues with price levels when exchange rates
changed. They argue that using an inflation rate will keep a lot of
Switzerland’s inflation issues in check and keep the economy more
stable than otherwise.
4. Empirical evidence comes from the Swiss National back in the
1970’s and 1980’s. When looking at the data, and using predicted
models, the predicted monetary base growth was extremely consistent
with the actual monetary base growth with hardly ever deviating
greater than 0.5%. While this is good, the predicted inflation rate
and the actual inflation rate rarely ever were close to each other.
The model predicted inflation wouldn’t rise more than 3%, while it at
points was upward of 6-7%. This leads to uncertainty in the private
sector because they believe that their central bank is going keep
prices stable when in fact inflation was rising.
This in turn causes people to become uncertain of the central
banks motives, as well as giving people inaccurate information on long
term inflation rates. People cannot accurately plan of their futures
if they do not know what rate their money is depreciating. If a
central bank were to impose an inflation targeting policy (given they
are credible), the people can accurately know how to plan for the
future knowing that if there are any short run shocks, the government
has a plan to return to Optimal Long run Inflation Rate (Dueker).
Simply put, in most cases, holding an inflation target generally
keeps monetary targets in check as well. This comes from the Central
banks tool, monetary policy, to affect the supply of money in the
market. Other countries have shown similar results, such as Germany,
who’s “Central Bank has often chosen to miss money targets to ensure
price stability. Money targets are generally consistent with inflation
targets” (NBER 7). Meeting inflation goals seem to be more important
to central bankers than hitting monetary targets. Why is that?
5. It comes from the fact that people are generally more concerned
over inflation rather than GDP growth or exchange rates or money
supply. Inflation is directly applicable to them, because it affects
their future planning. They have to recognize what period will they
perform more leisure and which periods they will work to gain higher
return. If most of their money is becoming devalued over time, it will
affect their behaviors.
We can see that from the graphs given in Dueker and Fischer’s
paper “Inflation targeting in a Small Open Economy; Empirical Results
from Switzerland”, that back in the first two cycles of inflation (’74
and ’81) there are increases in money growth before and decreases
after. But in 1991 there were decreases in money growth, ’88 shock was
not a period of monetary tightening. More or less their exchange rate
and money supply focus caused two periods of inflation. Changing to a
monetary policy where its focus is to keep inflation and prices
stable, leads to an economy that can ensure prices will stay
relatively unchanged over medium to long periods to time.
Due to Swiss being a small open economy, their currency greatly
depends on exchange rates and how they can trade currencies. It’s no
wonder than because of this they tried to focus on keeping the
exchange rate stable. The problem with that however, is that central
banks cannot control the other side of the exchange rate equation,
what the other currency is worth; They can only control one side,
their own. And when inflation devalues their currency, it won’t matter
what others have done because their own money is worth less. That’s
why keeping an inflation target over an exchange rate policy is more
6. effective. As a result, the monetary base proved not to be a good
indicator for monetary policy during the transition period and the SNG
had to look to other indicators such as broader monetary aggregates,
interest rates and exchange rates
More evidence to support how and inflation target is more
important than a monetary target is by looking at Carl E Walsh’s
“Inflation Targeting; What Have We Learned?”. From a report by Gali
and Gambetti, we see that “during 1984-2005 the standard deviation of
real U. S. GDP growth fell to less than half its 1948-1984 level”,
meaning the change from the mean during those periods shrunk (Walsh
6). This in turn means the US is having less volatility in the change
in GDP growth, and growing at a more constant rate. However, Walsh’s
findings on other countries after transitioning to inflation targeting
show that the mean of Industrial growth rates decreases after the
change, although standard deviation decreases as well. So even though
growth rates aren’t as large, the volatility in the rates tend to stay
more constant.
Overall, inflation targeting is optimal due to its positive
externality of also holding other macroeconomic outcomes, such as
exchange rates and output, at somewhat of a constant level, as well as
decreasing the volatility of the macro economy.
7. Work Cited
Bernanke, Ben S. “Inflation Targeting” Panel Discussion. Federal
Reserve Bank of St. Louis. August 2004. Web.
Bernanke, Ben S., and Frederick S. Mishkin. “Inflation Targeting: a
New Framework for Monetary Policy?”. NBER Working Paper.
National Bureau of Economic Research. January, 1997. Web.
Bush, George W., and Ben S. Bernanke. “President Attends Swearing-In
Ceremony for Federal Reserve Chairman Ben Bernanke”. The Federal
Reserve. Washington, D.C. February 6, 2006. Speech
Dueker, Michael, and Andreas M. Fischer. “Inflation Targeting in a
Small Open Economy: Empirical Results from Switzerland”. Journal
of Monetary Economics. The Federal Reserve Bank of St. Louis.
February, 1996.
Mishkin, Frederic S. “Macroeconomics Policy and Practice”. Pearson
Textbooks. Columbia University. 2015. Print.
Walsh, Carl E. “Inflation Targeting: What Have We Learned?”.
University of California, Santa Cruz. July, 2008. Web