Liquidity, Monetary Policy, and the Financial Crisis: A New Monetarist Approach

2012 ◽  
Vol 102 (6) ◽  
pp. 2570-2605 ◽  
Author(s):  
Stephen D Williamson
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Financial Frictions ◽  
Open Market ◽  
Public And Private ◽  
Liquidity Trap ◽  
Friedman Rule ◽  
Crisis Phenomenon ◽  
Asset Purchases

A model of public and private liquidity integrates financial intermediation theory with a New Monetarist monetary framework. Non-passive fiscal policy and costs of operating a currency system imply that an optimal policy deviates from the Friedman rule. A liquidity trap can exist in equilibrium away from the Friedman rule, and there exists a permanent nonneutrality of money, driven by an illiquidity effect. Financial frictions can produce a financial-crisis phenomenon that can be mitigated by conventional open market operations working in an unconventional manner. Private asset purchases by the central bank are either irrelevant or they reallocate credit and redistribute income. (JEL E13, E44, E52, E62, G01)

Global Financial Crisis and Its Impact on Russia

2009 ◽  
pp. 9-27 ◽  
Author(s):  
A. Kudrin
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Central Bank ◽  
Global Financial Crisis ◽  
Developed Countries ◽  
Real Economy ◽  
Energy Prices ◽  
Russian Government ◽  
The Real

The article examines the causes of origin and manifestation of the current global financial crisis and the policies adopted in developed countries in 2007—2008 to deal with it. It considers the effects of the financial crisis on Russia’s economy and monetary policy of the Central Bank in the current conditions as well as the main guidelines for the fiscal policy under different energy prices. The measures for fighting the crisis that the Russian government and the Central Bank use to support the real economy are described.

scholarly journals The Effect of FOMC Votes on Financial Markets

2019 ◽  
Vol 101 (5) ◽  
pp. 921-932
Author(s):  
Carlos Madeira ◽  
João Madeira
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Open Market ◽  
Federal Open Market Committee ◽  
2008 Financial Crisis ◽  
Treasury Securities ◽  
Stock Market Reaction

This paper shows that since votes of members of the Federal Open Market Committee have been included in press statements, stock prices increase after the announcement when votes are unanimous but fall when dissent (which typically is due to preference for higher interest rates) occurs. This pattern started prior to the 2007–2008 financial crisis. The differences in stock market reaction between unanimity and dissent remain, even controlling for the stance of monetary policy and consecutive dissent. Statement semantics also do not seem to explain the documented effect. We find no differences between unanimity and dissent with respect to impact on market risk and Treasury securities.

scholarly journals RELATIVE EFFECTIVENESS OF INDONESIAN POLICY CHOICES DURING FINANCIAL CRISIS

2012 ◽  
Vol 14 (2) ◽  
pp. 177-219 ◽  
Author(s):  
Tumpak Silalahi ◽  
Tevy Chawwa
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Global Financial Crisis ◽  
Relative Effectiveness ◽  
Government Expenditure ◽  
Jel Classification ◽  
Exit Strategy ◽  
Economic Output ◽  
The Impact

The objective of this paper is to review the impact of crisis and policy measures taken during the crisis, to evaluate the effectiveness of those measures and to analyze the exit strategy in Indonesia. The econometric model was used to evaluate the impact of monetary and fiscal policy to economic output using quarterly data from 1990 - 2010. The result shows that monetary and fiscal policies have significant impact to economic output. In the short run the changes in real GDP is significantly affected by changes in real monetary supply in the previous three quarter and real fiscal expenditures. The lesson learned from this research among other are that cooperation and coordination among the policy makers and the timely responses are very important in tackling the crisis; an effective conventional monetary policy in normal times may become less effective in a crisis thus unconventional monetary policy indeed necessary as timely policy response and the improvement for more timely disbursement of government expenditure is important to increase the effectiveness of this policy to stimulate economic output. Moreover, several Indonesian exit strategy and policies to face future challenges are very important to reach the ultimate objective of sustainable economic growth while maintaining macroeconomic stability. JEL Classification : E52, E62, E63Keywords: monetary policy, fiscal policy, financial sector policy, global financial crisis.

scholarly journals THE IMPACT OF THE MONETARY - FISCAL POLICY MIX ON INVESTMENTS OF EURO AREA COUNTRIES IN THE CONTEXT OF THE FINANCIAL CRISIS

2012 ◽  
Vol 8 (1) ◽  
pp. 228-236
Author(s):  
Joanna Stawska
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Euro Area ◽  
Debt Crisis ◽  
Policy Mix ◽  
Monetary Authorities ◽  
Recent Financial Crisis ◽  
The Impact

The study presents the impact of monetary-fiscal policy mix on economic growth, mainly for the investments of euro area in financial crisis. Fiscal policy and monetary policy play an important role in the economy, influencing each other and on a number of economic variables as well. In the face of the recent financial crisis, which turned into a debt crisis, fiscal and monetary authorities have been working together to revive economic activity. There was a significant economic impact on the level of government investments. The central bank kept interest rates at very low levels and used nonstandard instruments of monetary policy. Fiscal authorities have increased government spending to stimulate investment and economic recovery. The paper concludes that the management of the fiscal and monetary authorities in a crisis situation has been modified compared to the period before the crisis, when the coordination of these policies was clearly weaker.

scholarly journals THE NEW CONSENSUS UNDER STRESS: THE FINANCIAL CRISIS AND THE FISCAL POLICY COMEBACK

2020 ◽  
Vol 38 (75) ◽  
Author(s):  
Flávio Arantes ◽  
Antonio Carlos Macedo e Silva
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Economic Crisis ◽  
Public Debt ◽  
Window Of Opportunity ◽  
Paper Briefly ◽  
Economic Fundamentals ◽  
Stable Path ◽  
Policy Proposals

From the 1980s, mainstream macroeconomic thinking experienced a strongconvergence in methodological assumptions and policy proposals for more than twodecades. This “New Macroeconomics Consensus” was characterized by the role playedby the monetary policy in macroeconomic adjustment. Fiscal policy was set aside; itshould only be concerned with keeping public debt in a stable path in order to ensurethe “economic fundamentals”. However, the need for active and unconventionalpolicy measures during the 2008 global economic crisis brought fiscal policy back tothe mainstream debate. This paper briefly describes this convergence, discussing therole it assigned for fiscal policy before the crisis, and then examines the issues the postcrisis debate concentrated on, showing how it differs from the previous mainstreamconception of fiscal policy. We suggest that mainstream limitations to deal with fiscalpolicy may have opened a window of opportunity for a broader review of its role as apolicy tool.

scholarly journals New Keynesian Liquidity Trap and Conventional Fiscal Stance: An Estimated DSGE Model

2019 ◽  
Vol 33 (1) ◽  
pp. 152-169
Author(s):  
Olatunji Abdul Shobande ◽  
Oladimeji Tomiwa Shodipe
Keyword(s):  
United States ◽  
Monetary Policy ◽  
Fiscal Policy ◽  
The United States ◽  
New Keynesian ◽  
Transmission Channel ◽  
Dsge Model ◽  
Liquidity Trap ◽  
Exogenous Shock ◽  
Macroeconomic Variables

Abstract The study investigates the effect of New Keynesian liquidity trap on fiscal stance in the United States, United Kingdom and Japan economies. We developed our DSGE model in the context of an optimal and persistent interactive fiscal policy, which allows us to track the transmission channel through which shocks are distributed among real economic variables. The evidence suggests that zero lower bound mitigates the ability of monetary policy to absorb the effect of exogenous shock on the macroeconomic variables while expansionary fiscal policy was able to absorb the shock persistence transmitted from the nominal interest rate.

OVERCOMING FINANCIAL FRICTIONS WITH THE FRIEDMAN RULE

2018 ◽  
Vol 22 (8) ◽  
pp. 2141-2181 ◽  
Author(s):  
Sergio Salas
Keyword(s):  
Monetary Policy ◽  
Closed Form ◽  
Equilibrium Model ◽  
Financial Constraints ◽  
Financial Frictions ◽  
Investment Opportunity ◽  
Closed Form Solutions ◽  
Friedman Rule ◽  
Central Planner ◽  
Investment Opportunities

A general equilibrium model with financial frictions in which individuals may encounter unobservable investment opportunities is developed along the lines of Kiyotaki and Moore (2012). I study efficiency properties induced by money and monetary policy when financial frictions prevent optimal equilibrium allocations. By providing closed-form solutions to all prices, allocations, welfare, and, especially, the distribution of individuals with respect to assets, I show that the Friedman rule achieves maximal social welfare, independent of how tight the financial constraints may be. The same level of welfare would be induced by an omniscient central planner able to verify who has an investment opportunity.

scholarly journals RELATIVE EFFECTIVENESS OF INDONESIAN POLICY CHOICES DURING FINANCIAL CRISIS

2012 ◽  
Vol 14 (2) ◽  
pp. 187-228
Author(s):  
Tumpak Silalahi ◽  
Tevy Chawwa
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Crisis ◽  
Global Financial Crisis ◽  
Relative Effectiveness ◽  
Government Expenditure ◽  
Jel Classification ◽  
Exit Strategy ◽  
Economic Output ◽  
The Impact

The objective of this paper is to review the impact of crisis and policy measures taken during the crisis, to evaluate the effectiveness of those measures and to analyze the exit strategy in Indonesia. The econometric model was used to evaluate the impact of monetary and fiscal policy to economic output using quarterly data from 1990 - 2010. The result shows that monetary and fiscal policies have significant impact to economic output. In the short run the changes in real GDP is significantly affected by changes in real monetary supply in the previous three quarter and real fiscal expenditures. The lesson learned from this research among other are that cooperation and coordination among the policy makers and the timely responses are very important in tackling the crisis; an effective conventional monetary policy in normal times may become less effective in a crisis thus unconventional monetary policy indeed necessary as timely policy response and the improvement for more timely disbursement of government expenditure is important to increase the effectiveness of this policy to stimulate economic output. Moreover, several Indonesian exit strategy and policies to face future challenges are very important to reach the ultimate objective of sustainable economic growth while maintaining macroeconomic stability. JEL Classification : E52, E62, E63Keywords: monetary policy, fiscal policy, financial sector policy, global financial crisis.

scholarly journals Investigating the Effects of Monetary and Fiscal Policy on Economic Growth in ASEAN: A Threshold Modelling Approach

2020 ◽  
pp. 1-6
Author(s):  
Siti Fatimah Ismail ◽  
Siok Kun Sek
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Financial Crisis ◽  
Real Interest Rate ◽  
Threshold Effect ◽  
Asian Financial Crisis ◽  
Significant Drop ◽  
Trade Off

In the economic theory, many arguments from the different school of thoughts have been raised to justify the efficiency of economic policy in the view of stabilization. For instance, the correlation between macroeconomic variables and economic performance is a contentious issue. In this paper, we carefully examine and compare the impacts of fiscal (government expenditure) versus monetary policy (broad money and real interest rate) on economic growth using nonlinear regression. In particular, the main objectives include (1) to model the nonlinear threshold effect of broad money in modelling the economic growth by considering the 1997 Asian financial crisis influences and (2) to compare the impacts of both policies on economic growth. The study is based on a panel of ASEAN5 countries for the period of 1995-2015. Panel threshold regression established by Hansen (1999) was employed. The results reported a single threshold effect of broad money on inflation before and after controlling the crisis on determining economic growth. Here we observed that monetary policy through real interest rate caused to lower GDP growth while broad money led to the trade-off between inflation and growth. When broad money is high (above the threshold value), it led to higher economic growth but was compensated with the trade-off cost of higher inflation. Also, the Asian financial crisis caused to the significant drop in economic growth in ASEAN5. Overall, the study reported inefficient fiscal policy and monetary policy in the case of ASEAN countries. Keywords: economic growth; monetary policy; fiscal policy; threshold effects

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