scholarly journals Investment Hangover and the Great Recession

2018 ◽  
Vol 10 (2) ◽  
pp. 113-153 ◽  
Author(s):  
Matthew Rognlie ◽  
Andrei Shleifer ◽  
Alp Simsek
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Great Recession ◽  
The Great Recession ◽  
Left Behind ◽  
Ex Post ◽  
Ex Ante ◽  
The Interest Rate

We present a model of investment hangover motivated by the Great Recession. Overbuilding of durable capital such as housing requires a reallocation of productive resources to other sectors, which is facilitated by a reduction in the interest rate. When monetary policy is constrained, overbuilding induces a demand-driven recession with limited reallocation and low output. Investment in other capital initially declines due to low demand, but it later booms and induces an asymmetric recovery in which the overbuilt sector is left behind. Welfare can be improved by ex post policies that stimulate investment (including in overbuilt capital) and ex ante policies that restrict investment. (JEL E22, E23, E32, E43, E52, R21, R31)

scholarly journals What to Smooth: Rate of Interest or the Foreign Exchange? Turkish Monetary Policy under Turbulent Times

2014 ◽  
Vol 10 (3) ◽  
Author(s):  
A. Erinc Yeldan ◽  
Gunes Kolsuz ◽  
Burcu Unuvar
Keyword(s):  
Interest Rate ◽  
Foreign Exchange ◽  
Great Recession ◽  
Inflation Targeting ◽  
Policy Option ◽  
The Great Recession ◽  
Turbulent Times ◽  
Exchange Markets ◽  
The Interest Rate ◽  
Republic Of Turkey

AbstractThis paper studies the new monetary stance of the Central Bank of Republic of Turkey (CBRT) during the Great Recession. We note that characteristics of the post-1997 “Great Moderation” revealed interest rate smoothing as a valid policy option for the inflation targeting central banks. Utilizing econometric analysis on a general form of a Taylor Rule, we search for the relative weights of the objective function of the CBRT over Jan 2010–Dec 2013. We find that over the Great Recession, the CBRT’s focus on “interest smoothing” had been maintained; and yet the burden of adjustment fell disproportionately on the foreign exchange markets. Furthermore, weak credibility of the CBRT, lack of a simple policy rule, and noisy policy communications evidence that pre-requisites of the interest rate smoothing are not being fulfilled. Inevitable sharp policy corrections that follow smoothing periods proved insufficient against the voluminous global flows.

On the asymmetries created by the Great Recession in the US real estate market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Achille Dargaud Fofack ◽  
Serge Djoudji Temkeng ◽  
Clement Oppong
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Real Estate ◽  
Great Recession ◽  
Real Estate Market ◽  
The Other ◽  
Quantitative Easing ◽  
Content Type ◽  
The Great Recession ◽  
The Us

PurposeThis paper aims at analyzing the asymmetries created by the Great Recession in the US real estate sector.Design/methodology/approachThis paper uses a Markov-switching dynamic regression model in which parameters change when the housing market moves from one regime to the other.FindingsThe results show that the effect of real estate loans, interest rate, quantitative easing and working age population are asymmetric across bull and bear regimes. It is also found that the estimated parameters are larger in bull regime than bear regime, indicating a tendency to create house price bubbles in bull market.Practical implicationsSince three of those asymmetric variables (real estate loans, interest rate and quantitative easing) are related to monetary policy, the Fed can mitigate their impact on an interest-sensitive sector such as housing by engaging in a countercyclical monetary policy.Originality/valueThe estimated intercept and the variance parameter both vary from one regime to the other, thus justifying the use of a regime-dependent model.

Central Banking after the Great Recession

2018 ◽  
Author(s):  
Francesco Papadia ◽  
Tuomas Vӓlimӓki
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Great Recession ◽  
Financial Stability ◽  
Central Banking ◽  
Global Perspective ◽  
Quantitative Easing ◽  
The Great Recession ◽  
The Interest Rate ◽  
Monetary And Fiscal Policy

The central banking model prevailing before the Great Recession suffered six hits during the crisis. First, new financial stability responsibilities created dilemmas in the use of the interest rate. Second, quantitative easing blurred the borders between monetary and fiscal policy. Third, the action to support banks and, in the euro-area, peripheral sovereigns created moral hazard. Fourth, the ECB had to take on itself the task of preserving the euro. Fifth, the ECB had to participate in the so-called troika. Sixth, both the Fed and the ECB had to adopt a more global perspective. This chapter concludes that these hits have not basically jeopardized the pre-crisis central bank model. Still, four of the six hits to the pre-crisis central bank model identified above have a good probability of requiring changes in the pre-crisis model, thus some incremental adaptations to that model are proposed.

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

scholarly journals Monetary Policy in the Post Keynesian Theoretical Framework

2017 ◽  
Vol 37 (1) ◽  
pp. 45-64
Author(s):  
FÁBIO HENRIQUE BITTES TERRA ◽  
PHILIP ARESTIS
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Inflation Targeting ◽  
Debt Management ◽  
Policy Framework ◽  
Original Writings ◽  
Policy Model ◽  
Original Contribution ◽  
The Interest Rate ◽  
Monetary Policy Framework

ABSTRACT The purpose of this contribution is to develop a Post Keynesian monetary policy model, presenting its goals, tools, and channels. The original contribution this paper develops, following (Keynes’s 1936, 1945) proposals, is the use of debt management as an instrument of monetary policy, along with the interest rate and regulation. Moreover, this paper draws its monetary policy model by broadly and strongly relying on Keynes’s original writings. A monetary policy model erected upon this basis relates itself directly to the Post Keynesian efforts to offer a monetary policy framework substantially different from the Inflation Targeting Regime of the New Macroeconomic Consensus.

scholarly journals The impact of Musharakah financing on the monetary policy in the Islamic economy

2018 ◽  
Vol 3 (3/4) ◽  
pp. 139-152
Author(s):  
Hatem Adela
Keyword(s):  
Economic Theory ◽  
Monetary Policy ◽  
Interest Rate ◽  
Economic Activity ◽  
Methodological Framework ◽  
Mathematical Methods ◽  
Content Type ◽  
Return Rates ◽  
The Interest Rate ◽  
The Impact

Purpose This paper aims to contribute to formulating the methodological framework for a paradigm of Islamic economics, using the development of the conventional economics, theoretical and mathematical methods. Design/methodology/approach The study based on the inductive and mathematical methods to contribute to economic theory within the methodological framework for Islamic Economics, by using the return rate of Musharakah rather than the interest rate in influence the economic activity and monetary policy. Findings Via replacement, the concept of the interest rate by the return rates of Musharakah. It concludes that the central bank can control the monetary policy, economic activity and the efficient allocation of resources by using the return rates of Musharakah through the framework of Islamic economy. Practical/implications The study is a contribution to formulate the methodological framework for a paradigm of Islamic economics, where it investigates the impact of return rates of Musharakah on the money market and monetary policy, by the mathematical methods used in the conventional economy. Also, the study illustrates the importance of further studies that examine the methodological framework for Islamic Economics. Originality/value The study aims to contribute to formulating the Islamic economic theory, through the return rate of Musharakah financing instead of the interest rate, and its effectiveness of the monetary policy. As well as reformulating the concepts of the investment function, the present value and the marginal efficiency rate of investment according to the Islamic economy approach.

scholarly journals Monetary Policy after the Great Recession

2016 ◽  
Vol 64 (5) ◽  
pp. 627-629
Author(s):  
Hana Lipovská
Keyword(s):  
Monetary Policy ◽  
Great Recession ◽  
The Great Recession

Brazil: monetary policy and the neutral interest rate

2016 ◽  
Vol 43 (6) ◽  
pp. 966-979
Author(s):  
Cleomar Gomes da Silva ◽  
Rafael Cavalcanti de Araújo
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Real Interest Rate ◽  
Design Methodology ◽  
Macroeconomic Model ◽  
Natural Rate ◽  
Content Type ◽  
Natural Rate Of Interest ◽  
The Interest Rate ◽  
Definition Of

Purpose The purpose of this paper is to analyze the conduct of monetary policy in Brazil and estimate the country’s neutral real interest rate. Design/methodology/approach The authors make use of a state-space macroeconomic model representation. Findings The period of analysis goes from 2003 up to the end of 2013 and the results show that the country’s natural rate of interest was around 4.2 percent in December 2013. Originality/value One of the main differences of this work is the inclusion of variables such as the real exchange rate and world interest rate. This is important because these variables play an important role in the definition of the interest rate and, consequently, in the definition of the neutral interest rate.

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