The Effectiveness of Monetary Policy Anchors: Firm-Level Evidence

2010 ◽  
Vol 64 (4) ◽  
pp. 695-717 ◽  
Author(s):  
J. Lawrence Broz ◽  
Michael Plouffe
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Private Sector ◽  
Central Bank ◽  
Inflation Targeting ◽  
Substantial Reduction ◽  
Central Bank Independence ◽  
Inflation Expectations ◽  
Firm Level ◽  
Level Data

AbstractAnalyses of monetary policy posit that exchange-rate pegs, inflation targets, and central bank independence can help anchor private-sector inflation expectations. Yet there are few direct tests of this argument. We offer cross-national, micro-level evidence on the effectiveness of monetary anchors in controlling private-sector inflation concerns. Using firm-level data from eighty-one countries (approximately 10,000 firms), we find evidence that “international” anchors (exchange-rate commitments) correlate significantly with a substantial reduction in private-sector concerns about inflation while “domestic” anchors (inflation targeting and central bank independence) do not. Our conjecture is that private-sector inflation expectations are more responsive to exchange-rate anchors because they are more transparent, more constraining, and more costly than domestic anchoring arrangements.

scholarly journals The Analysis of Monetary Transmission Mechaniscm by Expectation Patterns in Influencing the Inflation

2018 ◽  
Vol 6 (4) ◽  
pp. 412-419
Author(s):  
Ilma Ulfatul
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Transmission Mechanism ◽  
Output Gap ◽  
Inflation Expectations ◽  
Short Term ◽  
Inflation Expectation ◽  
Policy Transmission ◽  
Monetary Policy Transmission Mechanism

Bank Indonesia set inflation targeting framework from 1 July 2005 by publicizing the inflation target or forward inflation to the public. However, the phenomenon show that most of the actual inflation of Indonesia is not in accordance with inflation targeting that have been set by Bank Indonesia. The purpose of this research is to analyze and know the flow of monetary policy transmission mechanism of expectation line in influencing inflation, to analyze and to know the influence of long-term and short-term and the shocks of interest rate, exchange rate, inflation expectations, output gap and GDP on inflation in Indonesia. The variables used in this research are BI Rate, Exchange Rate, Inflation Expectation, Output Gap, GDP and Inflation. The data used in this research is monthly data of time series from January 2006 until June 2016 which come from Bank Indonesia (BI) and Central Statistic Agency (BPS). The method used in this research is Vector Error Correction Model (VECM). The result of research indicates that: The flow of monetary policy transmission mechanism of expectation line in influencing inflation in Indonesia runs continuously with indicated the existence of two-way relationship between exchange rate and inflation variable, in the short term, the BI Rate, Exchange Rate and Output Gap are significant and positively affect inflation, inflation expectation variables are significant and affect inflation and GDP variable is insignificant to inflation in Indonesia, while in long run variable affecting inflation rate are BI Rate and inflation expectations, based on the variance decomposits result shows that the biggest variant contributing to inflation in Indonesia is the BI Rate.

scholarly journals Central Bank Credibility, Independence, and Monetary Policy

2018 ◽  
Vol 7 (3) ◽  
pp. 91-110 ◽  
Author(s):  
Abdelkader Aguir
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Emerging Economies ◽  
Inflation Targeting ◽  
Central Bank Independence ◽  
Inflation Target ◽  
Central Bank Credibility

Abstract The main motives behind the adoption of an inflation targeting regime largely relate to the notion of credibility, transparency of monetary policy and the autonomy of the central bank, which explicitly undertakes to achieve a certain inflation target. This paper examines the effects of inflation targeting in emerging economies in relation to the degree of independence of the central bank and the credibility of monetary policy. We find effects in emerging economies with little central bank independence, so our findings suggest that the central bank’s credibility, transparency and independence is a prerequisite for emerging economies to experience a decline in inflation following the adoption of inflation targeting.

scholarly journals Monetary Policy and Nigeria’s Economy: An Impact Investigation

2017 ◽  
Vol 9 (11) ◽  
pp. 218
Author(s):  
Micheal Chidiebere Ekwe ◽  
Amah Kalu Ogbonnaya ◽  
Cordelia Onyinyechi Omodero
Keyword(s):  
Monetary Policy ◽  
Private Sector ◽  
Central Bank ◽  
Money Supply ◽  
Substantial Reduction ◽  
Bank Lending ◽  
Series Data ◽  
Major Objective ◽  
Lending Rate ◽  
The Impact

The major objective of this study is to empirically analyze the impact of monetary policy on the economy of Nigeria. To achieve this major objective, the study made use of broad money supply (M2) and credit to the private sector (CPS) as the independent variables explaining the dependent variable which is the Gross Domestic Product (GDP). The time series data employed cover the period of 1996 to 2016 and have been collected from the Central Bank of Nigeria Statistical Bulletin. The statistical tool used in this study is the multi regression and student t-test with the aid of statistical package for social sciences (SPSS) to analyze the impact of the individual explanatory variables on the economy. The result indicates that the monetary policy in Nigeria does not have significant impact on the economy. At 5% level of significance, the broad money supply (M2) is 0.36 > 0.05 while the CPS shows 0.22 > 0.05. The result proves that the broad money supply has not been properly regulated and the bank lending rate to the private sectors so high that the economy has been adversely affected. The study therefore, recommends that the Central Bank of Nigeria should put every machinery in place to ensure that the monetary policy is geared towards economic growth through substantial reduction of bank lending rate to the private sector and proper regulation of broad money supply.

scholarly journals Monetary Policy Analysis in Serbia

2015 ◽  
Vol 4 (3) ◽  
pp. 147-180 ◽  
Author(s):  
Vesna Martin
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Central Bank ◽  
Inflation Targeting ◽  
Exchange Rate Regime ◽  
Policy Instruments ◽  
Exchange Rate Policy ◽  
Floating Exchange Rate ◽  
National Bank ◽  
Main Regulator

Abstract The paper focuses on analysing monetary policy in Serbia. The National Bank of Serbia chose inflation targeting, which sets price stability as the main objective of monetary policy. To achieve this goal, the central bank uses different monetary policy instruments which analysis can provide us with the understanding of the main directions of their actions but also of the limitations of its application. Only through improvement of both instruments and monetary policy the central bank will create a better foundation for achieving monetary stability. In addition, the implementation of exchange rate policy is entrusted to the National Bank of Serbia, as the main regulator of the financial system. A mere use of managed floating exchange rate, as the chosen exchange rate regime, is an appropriate solution in the current economic circumstances and in accordance with the desired objective of monetary policy.

Central bank’s perception on inflation and inflation expectations of experts

2015 ◽  
Vol 42 (6) ◽  
pp. 1142-1158 ◽  
Author(s):  
Gabriel Caldas Montes ◽  
Rodolfo Tomás da Fonseca Nicolay
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
Generalized Method Of Moments ◽  
Ordinary Least Squares ◽  
Response Analysis ◽  
Inflation Expectations ◽  
Content Type ◽  
Vector Autoregressive ◽  
Central Bank Communication

Purpose – Due to the fact that studies on central bank communication in emerging countries are still scarce and there are few studies related to the influence that central bank’s perspectives about the state of the economy have on inflation expectations in emerging economies, the purpose of this paper is to contribute to the literature in the following aspects: it proposes an indicator of the central bank’s perception of inflation based on the minutes of the COPOM meetings, and, it analyzes the influence of central bank communication on expert inflation expectations through such indicator. Design/methodology/approach – Due to the fact that the perception of the Central Bank of Brazil is not directly observable, it is measured through the fuzzy set theory by an indicator that captures the informational content of the minutes of the COPOM meetings. The empirical analysis uses ordinary least squares, the generalized method of moments and vector-autoregressive through impulse-response analysis. Findings – The findings suggest that the expectations of financial market experts react according to the content of the information provided by the central bank, i.e., announcements cause deterioration of expectations in times of instability, and reduce inflation expectations when inflation is controlled. The results also support the idea that the credibility of inflation targeting plays a key role in determining inflation expectations. Practical implications – This paper suggests a new approach on studies about central bank communication. The focus here is not on the effect of the announcements in terms of future monetary policy, but on the perception of the central bank in terms of inflation. This central bank’s perception reflects the optimistic or pessimistic view about the economic outlook and risk of inflation and this perception is considered by experts of financial markets. Originality/value – For Brazil, there are no studies about the influence of communication through the minutes of the Brazilian Monetary Policy Committee meetings on inflation expectations. The authors develop an indicator in order to measure central bank’s perception of inflation based on the minutes of COPOM meetings.

scholarly journals Monetary policy under economic transformation in Ukraine

2019 ◽  
pp. 173-184
Author(s):  
Mykola Pasichnyi
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Central Bank ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Economic Transformation ◽  
Policy Formation ◽  
Functional Improvement ◽  
Economic Transformations ◽  
Bank System

The research subject includes the theoretical basis and mechanisms of monetary policy formation and realization as an instrument of macroeconomic regulation. The aim of the study is to determine the features of domestic monetary policy and to systemize the policy’s stages under economic transformations. Methods. In order to achieve the appropriate tasks, we used a set of methods and approaches, that helped to ensure the conceptual unity of our investigation. The dialectical, systemic and structural approaches, methods of analysis and synthesis, comparison, generalization, scientific abstraction are applied. Results. The peculiarities of formation and realization of monetary policy of Ukraine under economic transformations are determined. The main stages of national monetary policy’s development are systemized. The dynamics of monetization, exchange rate and index of consumer price from 1992 to 2018 is investigated. Practical implications. Monetaryl policy and instruments of its implementation. Conclusions. Nowadays, the monetary policy has a formed institutional mechanism in order to reach the main goal and tasks. We identified the main phases of monetary policy of Ukraine. In the initial stage the main elements of monetary architectonics are established, also the powers and tasks of central bank are defined. The stage of functional improvement characterized by the restriction on central bank repayment of bonds on the primary market, decreasing the monetization of national economy, introducing the currency exchange corridor. At the steady development phase, we determined the exchange rate stability and gradual increasing of monetization level. Within the transitional stage of modification, the raising of monetization was continued, moreover, the combined using of methods on the currency market was carried out to stabilize it. Also, National bank defined the priority directions to enhance the bank system. The stage of institutional modernization is characterized by the monetary strategy formation, increasing the central bank institutional and financial independence, the adoption of inflation targeting regime, the improving of basic statements of currency transaction, the developing of macroprudential regulation to ensure financial stability.

Does Monetary Policy Regime Affect Inflation?

2016 ◽  
Vol 2016 (5) ◽  
pp. 39-51
Author(s):  
Filipp Kartaev
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Global Financial Crisis ◽  
Developed Countries ◽  
Emerging Countries ◽  
Public Confidence ◽  
Inflation Expectations ◽  
Exchange Rate Targeting ◽  
Nominal Anchor

The article treats long-term impact of monetary policy nominal anchor choice (inflation targeting, exchange rate targeting, money supply targeting) on inflation level in developed and emerging countries. The research was built on panel data for 188 countries, which includes period after the global financial crisis. The results show, that inflation or exchange rate targeting allows to reduce inflation rate in emerging countries, while in developed countries the use of monetary policy nominal anchor does not give additional benefits in inflation control. This difference can be explained by the fact, that nominal anchor implementation in emerging countries enhances public confidence in monetary authority actions to control inflation. Higher confidence decreases inflation expectations and hence inflation. In contrast, central banks of developed countries can stabilize price level without use of nominal anchor due to good reputation.

scholarly journals Effectiveness of Expectation Channel of Monetary Transmission Mechanism in Inflation Targeting System: An Empirical Study for Turkey

2016 ◽  
Vol 6 (2) ◽  
pp. 222-231
Author(s):  
Aslı Güler
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
Critical Role ◽  
Economic Consequences ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Inflation Expectations ◽  
Transmission Mechanisms ◽  
Main Challenge

Monetary policy can affect economy through out various transmission mechanisms. One of this transmission mechanisms is expectations channel. The monetary policy can get involved in expectation channel of transmission mechanism by affecting the process of expectations formation. Because  the results of policies to be implemented vary according to the expectations, the main challenge in monetary policy is to correctly manage expectations. Because of the fact that only the systematic component of monetary policy (estimated component) can affect forward looking expectations, systematic behavior of the central bank has a critical role in determining the economic consequences of monetary policy. In this study, the effectiveness of expectation channel of transmission mechanism   was analyized by VAR model.  According the results  TCMB cannot affect inflation expectations via both the inflation targets and the policy interest. On the other hand, inflation expectations are affected significantly from actualized inflation rates and exchange rates.   Keywords: Central bank, Expectations, Monetary transmission mechanisms,  Monetary policy

scholarly journals Learning, robust monetary policy and the merit of precaution

2018 ◽  
Vol 18 (2) ◽  
Author(s):  
Marine Charlotte André ◽  
Meixing Dai
Keyword(s):  
Monetary Policy ◽  
Private Sector ◽  
Central Bank ◽  
Dynamic Stability ◽  
Adaptive Learning ◽  
Rational Expectations ◽  
New Keynesian ◽  
Inflation Expectations ◽  
Trade Off ◽  
Optimal Behavior

Abstract We study in a New Keynesian framework the consequences of adaptive learning for the design of robust monetary policy. Compared to rational expectations, the fact that private sector follows adaptive learning gives the central bank an additional intertemporal trade-off between optimal behavior in the present and in later periods thanks to its ability to manipulate future inflation expectations. We show that adaptive learning imposes a more restrictive constraint on monetary policy robustness to ensure the dynamic stability of the equilibrium than under rational expectations but strengthens the argument in favor of a more aggressive monetary policy when the central bank fears for model misspecifications.

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