Monetary Policy and the Interest Rate: Reflections on Allan Meltzer's Contributions to Monetary Economics

2018 ◽  
Author(s):  
Joshua R. Hendrickson
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Monetary Economics ◽  
The Interest Rate

scholarly journals Revival of Legacy of Tooke and Gibson: Implications for Monetary Policy

2015 ◽  
Vol 4 (2) ◽  
pp. 37-58 ◽  
Author(s):  
Atiq-ur Rehman
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Monetary Economics ◽  
Mainstream Economic ◽  
Monetary Policy Rules ◽  
Simple Logic ◽  
The Interest Rate ◽  
Economic Thinking ◽  
The Relationship ◽  
Effectiveness Of Monetary Policy

Abstract The monetary policy rules used by central banks these days are based on the assumption that inflation could be reduced by increasing interest rate. On contrary, Tooke (1774-1858), the forefather of monetary economics, was of the view that the relationship between interest rate and inflation should be positive. His view was based on simple logic, ‘interest is a part of cost, and therefore, the increase in interest rate should increase inflation by increasing cost of production (Tooke, 1838)’. Tooke’s view has got support from a number of empirical evidence including Gibson (1923) who found positive correlation between two variables for UK data over a period of 200 years. On the other hand, mainstream economic thinking on which the actual monetary practices are based ignored any possibility of positive relationship between interest rate and inflation throughout the history. The existence of Tooke’s cost side effects of monetary policy is a serious concern because if these effects exist than the use of monetary policy would be counterproductive. Using the data from entire globe, I attempt to explore the nature of relationship between the interest rate and inflation. I found that the data supports the perception of Tooke and Gibson and denies that the effectiveness of monetary policy currently adapted by the correlation between interest rate and inflation is positive. The results are robust to sample size, sample period, and various definitions of interest rate and inflation.

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.

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.

scholarly journals Safe Assets, Liquidity, and Monetary Policy

2017 ◽  
Vol 9 (2) ◽  
pp. 182-227 ◽  
Author(s):  
Pierpaolo Benigno ◽  
Salvatore Nisticò
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Risk Sharing ◽  
Balance Sheet ◽  
Multiple Assets ◽  
Interest Rate Spreads ◽  
The Interest Rate ◽  
Liquidity Shock ◽  
Deep Recession

This paper studies monetary policy in models where multiple assets have different liquidity properties: safe and “pseudo-safe” assets coexist. A shock worsening the liquidity properties of the pseudo-safe assets raises interest rate spreads and can cause a deep recession-cum-deflation. Expanding the central bank’s balance sheet fills the shortage of safe assets and counteracts the recession. Lowering the interest rate on reserves insulates market interest rates from the liquidity shock and improves risk sharing between borrowers and savers. (JEL E31, E32, E43, E44, E52)

Monetary Policy Transmission Mechanism in Romania Over the Period 2001 to 2012

2019 ◽  
pp. 131-145
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Empirical Evidence ◽  
Transmission Mechanism ◽  
Communist Country ◽  
Monetary Policy Transmission ◽  
Policy Transmission ◽  
Emerging Country ◽  
Monetary Policy Transmission Mechanism ◽  
The Interest Rate

This chapter aims to provide additional empirical evidence on monetary policy transmission mechanism in Romania over the period 2001 to 2012 based on a BVAR analysis with a KoKo Minnesota/Litterman prior. The importance of the central bank is rising in Romania considering its main attribution to control the interest rate in accordance with its objectives. The empirical evidence provides a significant contribution to literature taking into account the characteristics of the selected emerging country, i.e. Romania, a former communist country in Central and Eastern Europe.

scholarly journals Impacts of the monetary policy on the exchange rate: case study of Vietnam

2019 ◽  
Vol 26 (2) ◽  
pp. 220-237
Author(s):  
Van Anh Pham
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Real Effective Exchange Rate ◽  
Content Type ◽  
Effective Exchange ◽  
Quantitative Results ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Effective Exchange Rate

Purpose The purpose of this paper is to evaluate and analyze impacts of the monetary policy (MP) – money aggregate and interest rate – on the exchange rate in Vietnam. Design/methodology/approach The study uses data over the period of 2008–2018 and applies the vector autoregression model, namely recursive restriction and sign restriction approaches. Findings The main empirical findings are as follows: a contraction of the money aggregate significantly leads to the real effective exchange rate (REER) depreciating and then appreciating; a tightening of the interest rate immediately causes the REER appreciating and then depreciating; and both the money aggregate and the interest rate strongly determine fluctuations of the REER. Originality/value The quantitative results imply that the MP affects the REER considerably.

scholarly journals Monetary Policy Effects on Energy Sector Bubbles

Energies ◽  
2019 ◽  
Vol 12 (3) ◽  
pp. 472
Author(s):  
Petre Caraiani ◽  
Adrian Călin
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Asset Prices ◽  
The United States ◽  
Energy Sector ◽  
Monetary Policy Shocks ◽  
Policy Shocks ◽  
The Difference ◽  
The Interest Rate ◽  
The Impact

We investigate the effects of monetary policy shocks, including unconventional policy measures, on the bubbles of the energy sector, for the case of the United States. We estimate a time-varying Bayesian VAR model that allows for quantifying the impact of monetary policy shocks on asset prices and bubbles. The energy sector is measured through the S&P Energy Index, while bubbles are measured through the difference between asset prices and the corresponding dividends for the energy sector. We find significant differences in the impact of monetary policy shocks for the aggregate economy and for the energy sector. The findings seem sensitive to the interest rate use, i.e., whether one uses the shadow interest rate or the long-term interest rate.

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