scholarly journals Macroeconomic Policy at a Crossroads

2021 ◽  
Vol 65 (7) ◽  
pp. 5-15
Author(s):  
A. Kholopov
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rates ◽  
Public Debt ◽  
Financial Stability ◽  
Macroeconomic Policy ◽  
Bank Lending ◽  
Central Banks ◽  
Fiscal Stimulus ◽  
Negative Interest Rates

The article examines macroeconomic policy options for advanced economies to respond to adverse shocks in the environment of very low interest rates and very high levels of public debt, when the scope for using conventional policy tools is limited. The standard transmission mechanism of monetary policy in the ELB conditions stops working normally, and the economy faces the “liquidity trap” effect. The deployment by central banks of unconventional monetary tools (forward guidance, quantitative easing, and negative interest rates) after global financial crisis was helpful in combatting the downturn, but carries risk of possible side effects. Large-scale purchases of financial assets lead to significant increase in central banks’ balance sheets, and this creates a threat to future financial stability and central bank independence. Negative interest rates can have detrimental effects on bank profitability and be contractionary through bank lending. There is a consensus that today fiscal policy has to play a major role in stabilizing the business cycle. But the effectiveness of conventional tools of discretional fiscal policy is uncertain because of long political lags and small spending multiplier. Existing automatic fiscal stabilizers are focused on social protection goals and not on macroeconomic stabilization. Thus, the newly proposed measures for rules-based fiscal stimulus (asymmetric semiautomatic stabilizers – tax or spending measures triggered by the crossing of some statistical threshold, e.g. a high unemployment rate) and unconventional fiscal policy (the use of consumption taxes to increase inflation expectations) have become the object of active discussion. Here lies the danger in the fusion of monetary and fiscal policy: central banks’ operations are becoming increasingly quasi-fiscal, aimed at financing budget deficit, and functions of monetary policy are proposed to assign to fiscal policy. Besides, the expansion of fiscal stimulus threatens financial stability in the future, as it leads to increase in public debt and narrows a country’s fiscal space.

scholarly journals Regular Econometric Model of Taylor for Albania

2016 ◽  
Vol 5 (1) ◽  
pp. 123
Author(s):  
Ergys Misha
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Stock Exchange ◽  
Central Banks ◽  
Financial Assets

The Taylor’s Rule Central Banks is applying widely today from Central Banks for design the monetary policy and for determination of interest rates. The purpose of this paper is to assess monetary policy rule in Albania, in view of an inflation targeting regime. In the first version of the Model, the Taylor’s Rule assumes that base interest rate of the monetary policy varies depending on the change of (1) the inflation rate and (2) economic growth (Output Gap).Through this paper it is proposed changing the objective of the Bank of Albania by adding a new objective, that of "financial stability", along with the “price stability”. This means that it is necessary to reassess the Taylor’s Rule by modifying it with incorporation of indicators of financial stability. In the case of Albania, we consider that there is no regular market of financial assets in the absence of the Stock Exchange. For this reason, we will rely on the credit developmet - as a way to measure the financial cycle in the economy. In this case, the base rate of monetary policy will be changed throught: (1) Targeting Inflation Rate, (2) Nominal Targeting of Economic Growth, and (3) Targeting the Gap of the Ratio Credit/GDP (mitigating the boom cycle, if the gap is positive, and the contractiocycle if the gap is negative).The research data show that, it is necessary that the Bank of Albania should also include in its objective maintaining the financial stability. In this way, the contribution expected from the inclusion of credit gap indicators in Taylor’s Rule, will be higher and sustainable in time.

scholarly journals Negative Interest Rate Risk. Atavism or Normalization of Central Banks’ Monetary Policy

2019 ◽  
Vol 3 (342) ◽  
pp. 89-116
Author(s):  
Irena Pyka ◽  
Aleksandra Nocoń
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Interest Rate Risk ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
Negative Interest Rate Policy

In the face of the global financial crisis, central banks have used unconventional monetary policy instruments. Firstly, they implemented the interest rate policy, lowering base interest rates to a very low (almost zero) level. However, in the following years they did not undertake normalizing activities. The macroeconomic environment required further initiatives. For the first time in history, central banks have adopted Negative Interest Rate Policy (NIRP). The main aim of the study is to explore the risk accompanying the negative interest rate policy, aiming at identifying channels and consequences of its impact on the economy. The study verifies the research hypothesis stating that the risk of negative interest rates, so far unrecognized in Theory of Interest Rate, is a consequence of low effectiveness of monetary policy normalization and may adopt systemic nature, by influencing – through different channels – the financial stability and growth dynamics of the modern world economy.

scholarly journals Are Central Banks In CEE Countries Concerned About The Burden Of Public Debt?

2017 ◽  
Vol 20 (1) ◽  
pp. 35-51 ◽  
Author(s):  
Joanna Mackiewicz-Łyziak
Keyword(s):  
Monetary Policy ◽  
Czech Republic ◽  
Interest Rates ◽  
Public Debt ◽  
Central Banks ◽  
Output Gap ◽  
Markov Switching Model ◽  
The Czech Republic ◽  
Policy Regimes ◽  
Switching Model

The aim of this study is to analyze the monetary policy rules in the Czech Republic, Hungary and Poland, with public debt as an additional explanatory variable. We estimate linear rules by the GMM estimation and non-linear rules, using the Markov-switching model. Our findings suggest that in the Czech Republic and Poland the monetary authorities respond to growing public debt by lowering interest rates, while in Hungary the opposite may be observed. Moreover, we distinguish between passive and active monetary policy regimes and find that the degree of interest rate smoothing is lower and the response of the central banks to inflation and/or output gap is stronger in an active regime. In the passive regime, the output gap seems to be statistically insignificant.

scholarly journals Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh

2020 ◽  
Author(s):  
Richmond Sam Quarm ◽  
Mohamed Osman Elamin Busharads
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Business Cycle ◽  
Interest Rates ◽  
Money Supply ◽  
Macroeconomic Policy ◽  
Output Growth ◽  
Long Run ◽  
Short Run ◽  
The Business Cycle

In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.

scholarly journals Framework for Preserving Financial Stability in Montenegro

2014 ◽  
Vol 3 (1) ◽  
pp. 27-41 ◽  
Author(s):  
Radoje Žugić ◽  
Nikola Fabris
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Primary Objective ◽  
Policy Framework ◽  
Policy Objective ◽  
The Global Financial Crisis

Abstract The global financial crisis has challenged the traditional monetary policy framework of one instrument (short-term interest rates) - one objective (price stability). More and more central banks nowadays consider financial stability as a monetary policy objective, whereas the Central Bank of Montenegro is the only one that has identified financial stability as its primary objective. As this is a relatively new objective, all central banks endeavouring to attain this objective have been facing numerous difficulties. Therefore, the article analyzes some of these difficulties such as defining financial (in)stability, the selection of indicators, macroeconomic environment for preserving financial stability, and the like. The main objective of the paper is to analyse the framework for preserving financial stability in Montenegro and the challenges that the Central Bank of Montenegro has been facing in accomplishing this objective

Negative rates hold few positives for stock investors

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Business Models ◽  
Banking Sector ◽  
Equity Markets ◽  
Central Banks ◽  
Treasury Bonds ◽  
Content Type ◽  
Negative Interest Rates

Subject Financial markets turmoil and negative interest rates. Significance Global stocks are down 11.7% year-to-date in dollar terms and the yield on benchmark ten-year US Treasury bonds has hit a low of 1.66%. The turmoil in financial markets since the beginning of this year is partly attributable to investors' waning confidence in the effectiveness of central bank policy, and, in particular, that negative interest rate policies are exacerbating weaknesses in the banking sector. This is reducing the scope for a rally in equity markets, which have been overly reliant on the flow of cheap money from central banks. Impacts The strong yen will pose a severe challenge to the Japanese government's reflationary programme. While stock markets will remain sensitive to monetary policy, investors will perceive central banks as sources of volatility. The European financials sell-off stems from concerns about their earnings and business models, as opposed to a full-blown liquidity crisis.

scholarly journals Negative interest rates as a consequence of the transformation of monetary arrangements in modern economy: A literature review

2020 ◽  
Vol 26 (4) ◽  
pp. 856-873
Author(s):  
V.K. Burlachkov
Keyword(s):  
Interest Rates ◽  
Commercial Banks ◽  
Banking Sector ◽  
Bank Lending ◽  
Central Banks ◽  
Payment Systems ◽  
Modern Economy ◽  
Negative Interest Rates ◽  
Effective Instrument ◽  
Business Entities

Subject. The article considers negative interest rates applied by both central and commercial banks on deposits and loans under conditions of significant changes in monetary arrangements of the modern economy. Currently, the number of central and commercial banks using such interest rates tends to increase. Objectives. The aim is to review theoretical and practical scientific studies on identifying the root causes of using the negative interest rates and the implications of this practice in the modern economy. Methods. The study involves methods of induction, deduction, synthesis, and comparative analysis. Results. The application of negative interest rates by central banks is aimed at stimulating the use of money (the banking sector liquidity) in central banks’ payment systems. The application of negative rates by commercial banks is related to the absence of commercial banks’ interest in using the deposits of business entities in conditions when the volumes of bank lending are restricted by Basel standards, i.e. by the Capital to Risk (Weighted) Assets Ratio (CRAR). Conclusions. Using the negative interest rates due to the specifics of the modern monetary arrangements cannot be characterized as an effective instrument of modern monetary policy implementation. Refusal to apply negative interest rates practices should be supported by effective coordination between the central bank money (the banking sector liquidity) and M1 money supply, which is formed as result of commercial banks’ credit transactions.

scholarly journals Conventional Monetary Policy

2021 ◽  
pp. 29-51
Author(s):  
Ulrich Bindseil ◽  
Alessio Fotia
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Financial Stability ◽  
Balance Sheet ◽  
Central Banks ◽  
Control Measures ◽  
Short Term ◽  
Balance Sheets ◽  
Bank Balance Sheets

AbstractThis chapter introduces conventional monetary policy, i.e. monetary policy during periods of economic and financial stability and when short-term interest rates are not constrained by the zero lower bound. We introduce the concept of an operational target of monetary policy and explain why central banks normally give this role to the short-term interbank rate. We briefly touch macroeconomics by outlining how central banks should set interest rates across time to achieve their ultimate target, e.g. price stability, and we acknowledge the complications in doing so. We then zoom further into monetary policy operations and central bank balance sheets by developing the concepts of autonomous factor, monetary policy instruments, and liquidity-absorbing and liquidity providing balance sheet items. Subsequently we explain how these quantities relate to short-term interest rates, and how the central bank can rely on this relation to steer its operational target, and thereby the starting point of monetary policy transmission. Finally, we explain the importance of the collateral framework and related risk control measures (e.g. haircuts) for the liquidity of banks and for the conduct of central bank credit operations.

Monetary policy and market interest rates: literature review using text analysis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Elena Fedorova ◽  
Elena Meshkova
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Text Analysis ◽  
Financial Stability ◽  
Central Banks ◽  
Interest Rate Risk ◽  
Transmission Mechanism ◽  
Content Type

Purpose This paper aims to examine the relationship between monetary policy and market interest rates. This paper examines the efficiency of interest rate channel used in monetary regulation as well as implementation of monetary policy under low interest rates. This paper examines and reviews the scientific literature published over the past 30 years to determine primary research areas, to summarize their results and to identify appropriate measures of monetary policy to be used in practice in changing economic environment. Design/methodology/approach This paper reviews 94 studies focused on the relationship between monetary policy and market interest rates in terms of meeting the goals of macroeconomic regulation. The articles are selected on the basis of Scopus citation and bibliometric analysis. A major feature of this paper is the use of text analysis (data preparation, frequency of terms and collocations use, examination of relationships between terms, use of principal component analysis to determine research thematic areas). Using the method of principal component analysis while studying abstracts this paper reveals thematic areas of the research. Thus, the conducted text analysis provides unbiased results. Findings First, this paper examines the whole complex of relationships between monetary policy of central banks and market interest rates. Second, this research reviews a wide range of literature including recent studies focused on specific features of monetary policy under low and negative rates. Third, this study identifies and summarizes the thematic areas of all the researches using text analysis (transmission mechanism of monetary policy, efficiency of zero interest rate policy, monetary policy and term structure of interest rates, monetary policy and interest rate risk of banks, monetary policy of central banks and financial stability). Finally, this paper presents the most important findings of the studied articles related to the current situation and trends on the financial market as well as further research opportunities. This paper finds the principal results of studies on significant issues of monetary policy in terms of its efficiency under low interest rates, influence of its instruments on term structure of interest rates and role of banking sector in implementation of transmission mechanism of monetary policy. Research limitations/implications The limitation of the review is examining articles for the study period of 30 years. Practical implications Central banks of emerging economies should apply the instruments and results of the countries' monetary policies reviewed in this paper. Using text analysis this paper reveals the main thematic areas and summarizes findings of the articles under study. The analysis allows presenting the main ideas related to current economic situation. Social implications The findings are of great value for adjusting the monetary policy of central banks. Also, these are important for people because these show the significant role of monetary policy for the economic growth. Originality/value Using text analysis this paper reveals the main thematic areas (transmission mechanism of monetary policy, efficiency of zero interest rate policy, monetary policy and term structure of interest rates, monetary policy and interest rate risk of banks, monetary policy of central banks and financial stability) and summarizes findings of the articles under study. The analysis allows defining the current ideas relevant to the monetary policy of developing countries. It is important for central banks because it examines the monetary policy problems and proposes optimal solutions.

scholarly journals UNCONVENTIONAL MONETARY POLICY, COMPETITION AND FINANCIAL STABILITY. EVIDENCE FROM THE EUROZONE BANKS

2020 ◽  
Vol 38 (1) ◽  
Author(s):  
Ane Bakaikoa Pedrosa ◽  
José Manuel Mansilla Fernández
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Unconventional Monetary Policy ◽  
Banking Competition ◽  
Negative Interest Rates ◽  
Core Country ◽  
Policy Competition

This article analyses the effects of the ECB’s negative interest rates (or unconventional) policy on the degree of banking competition, lending and deposit supply, and financial stability. Using a dataset comprising 191 Eurozone banks for the 2002Q1-2016Q4 period, our results suggest that negative interest rates (i) increase banks’ lending and deposit supply, (ii) reduce banking competition, and (iii) weaken financial stability. This phenomenon is economically more significant for periphery country banks than for core country banks.

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