What do we (not) know about the effectiveness of the monetary policy tools in the modern world?

2021 ◽  
pp. 5-34
Author(s):  
E. L. Goryunov ◽  
S. M. Drobyshevsky ◽  
V. A. Mau ◽  
P. V. Trunin
Keyword(s):  
Monetary Policy ◽  
Phillips Curve ◽  
Global Financial Crisis ◽  
Dominant Role ◽  
Modern World ◽  
Policy Tools ◽  
Real Rate ◽  
Advanced Economies ◽  
Monetary Policy Effectiveness ◽  
The Global Financial Crisis

Monetary policy played a dominant role in ensuring macroeconomic stability in the advanced economies for two decades, from the mid-1980s to 2007, and appeared to be a very effective tool for smoothing economic cycles and maintaining price stability. After the global financial crisis of 2007—2009 the effectiveness of monetary policy was put under question, since it did not succeed in ensuring rapid economic recovery in the advanced economies despite massive use of both conventional and unconventional monetary tools. The paper addresses the factors which are responsible for the weakening of the monetary policy effectiveness including global disinflation, the Phillips curve flattening, the effective lower bound problem and the neutral real rate decline. Unconventional monetary policy tools, such as the “helicopter money”, targeted refinancing and other prospective tools, are analyzed. We critically assess recommendations of the Modern Monetary Theory (MMT) as the most consistent heterodox theory. Based on the analysis, we draw conclusions about the possibility of monetary policy weakening in Russia in the foreseeable future and desirability of the implementation of the hybrid fiscal-monetary measures.

Conclusions

2017 ◽  
Author(s):  
Yilmaz Akyüz
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Developing Economies ◽  
Quantitative Easing ◽  
Unconventional Monetary Policy ◽  
Advanced Economies ◽  
The Global Financial Crisis ◽  
Zero Bound

The preceding chapters have examined the deepened integration of emerging and developing economies (EDEs) into the international financial system in the new millennium and their changing vulnerabilities to external financial shocks. They have discussed the role that policies in advanced economies played in this process, including those that culminated in the global financial crisis and the unconventional monetary policy of zero-bound interest rates and quantitative easing adopted in response to the crisis, as well as policies in EDEs themselves....

scholarly journals MONETARY POLICY IN ADVANCED ECONOMIES DURING THE GLOBAL FINANCIAL CRISIS: LESSONS FOR LITHUANIA

Ekonomika ◽  
2014 ◽  
Vol 93 (1) ◽  
pp. 40-56
Author(s):  
Birutė Visokavičienė
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Empirical Studies ◽  
Policy Instruments ◽  
Policy Tools ◽  
Currency Board ◽  
Advanced Economies ◽  
Maastricht Criteria

Abstract. The main goal of the research is to develop monetary policy tools and measures enabling to achieve macroeconomic goals of integration into the euro area in the immediate future. It is noted that until the introduction of the euro Lithuania does not have a monetary policy and applies the currency board regime pegging the litas invariably to the euro (hard peg regime). Therefore, it is not only difficult but also risky to try to achieve financial and economic stability in accordance with the relevant Maastricht criteria through fiscal policy measures alone. Monetary policy instruments are necessary to achieve price stability and the overall financial stability. Currently, Lithuania should address the problem of balancing the currency board regime and the Maastricht criteria as a macroeconomic objective through monetary policy tools and measures.The analysis of monetary policies of advanced economies and, first of all, of the euro area reveals the main features of transmission of the monetary policy to a real economy, which can contribute to the successful integration into the euro area. A systemic analysis of the monetary policy is based on monetary and economic theories, laws and patterns, scientific literature and empirical studies. The method used is the logical analysis and systemising of academic literature and modelling of the monetary policy. Such a methodological position enables the justification of the influence of the euro and monetary policy on the future development of the national economy.Key words: monetary policy, euro, exchange rate, inflation, indicators

scholarly journals Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries

Policy Papers ◽  
2015 ◽  
Vol 15 ◽  
Author(s):  
Keyword(s):  
Monetary Policy ◽  
Low Income ◽  
Global Financial Crisis ◽  
Middle Income ◽  
Global Capital ◽  
Middle Income Countries ◽  
Advanced Economies ◽  
Policy Frameworks ◽  
Modernization Process ◽  
The Global Financial Crisis

Over the past two decades, many low- and lower-middle income countries (LLMICs) have improved control over fiscal policy, liberalized and deepened financial markets, and stabilized inflation at moderate levels. Monetary policy frameworks that have helped achieve these ends are being challenged by continued financial development and increased exposure to global capital markets. Many policymakers aspire to move beyond the basics of stability to implement monetary policy frameworks that better anchor inflation and promote macroeconomic stability and growth. Many of these LLMICs are thus considering and implementing improvements to their monetary policy frameworks. The recent successes of some LLMICs and the experiences of emerging and advanced economies, both early in their policy modernization process and following the global financial crisis, are valuable in identifying desirable features of such frameworks. This paper draws on those lessons to provide guidance on key elements of effective monetary policy frameworks for LLMICs.

Is Globalization Reducing the Ability of Central Banks to Control Inflation? A Literature Review with an Application to the Euro Area

2016 ◽  
Vol 67 (3) ◽  
Author(s):  
Salomon Fiedler ◽  
Nils Jannsen ◽  
Stefan Reitz ◽  
Maik Wolters
Keyword(s):  
Monetary Policy ◽  
Literature Review ◽  
Euro Area ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Price Stability ◽  
Review Of The Literature ◽  
Inflation Target ◽  
Advanced Economies ◽  
The Global Financial Crisis

AbstractGlobalization influences inflation and the transmission channels of monetary policy in various ways. The effects of globalization on the ability of monetary policy to control inflation have been discussed intensively. However, in the light of recent experiences following the global financial crisis with extended periods of disinflation in many advanced economies, the question whether the ability of monetary policy to control inflation has suffered significantly from increasing globalization has received new relevance. Based on a review of the literature, this paper discusses whether globalization is reducing the ability of central banks to control inflation and draws conclusion for the current situation in the euro area. We find that globalization has made it more complicated for central banks to ensure price stability and that it has tended to reduce the ability of monetary policy to control inflation in the short- to medium-run. However, in principle the ECB is still able to control inflation but may have to tolerate deviations from its inflation target for somewhat longer periods.

Financialization and state capitalism in Hungary after the Global Financial Crisis

2021 ◽  
pp. 102452942110032
Author(s):  
David Karas
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Active Role ◽  
The State ◽  
State Capitalism ◽  
Political Risks ◽  
Role Of The State ◽  
Advanced Economies ◽  
The Global Financial Crisis

Whereas the active role of the state in steering financialization is consensual in advanced economies, the financialization of emerging market economies is usually examined through the prism of dependency: this downplays the domestic political functions of financialization and the agency of the state. With the consolidation of state capitalist regimes in the semi-periphery after the Global Financial Crisis, different interpretations emerged – some linking state capitalism with de-financialization, others with coercive projects deepening it. Preferring a more granular and multi-dimensional approach, I analyse how different facets of financialization might represent political risks or opportunities for state capitalist projects: Based on the Hungarian example, I first explain how the constitution of a ‘financial vertical’ after 2010 inaugurated a new mode of statecraft. Second, I show how the financial vertical enabled rentier bargains between state and society after 2015 by deepening the financialization of social policy and housing in response to a looming crisis of competitiveness.

INFLATION TARGETING: IT'S NOT BROKE, IT DOESN'T NEED FIXING, BUT CAN IT SURVIVE?

2010 ◽  
Vol 01 (01) ◽  
pp. 59-80
Author(s):  
PIERRE L. SIKLOS
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Asset Price ◽  
Central Banks ◽  
Economic Downturn ◽  
Price Increases ◽  
The Global Financial Crisis ◽  
Nominal Anchor

Until the end of 2005 there were few outward signs that the inflation targeting (IT) monetary policy strategy was deemed fragile or that the likelihood of abandoning it was high. In light of the severe economic downturn and the global financial crisis that has afflicted most economies around the world since at least 2008, it is worth reconsidering the question of the fragility of the inflation targeting regime. This paper reprises the approach followed in Siklos (2008) but adds important new twists. For example, the present study asks whether the continued survival of IT is due to the fact that some of the central banks in question did take account of changes in financial stress. The answer is no. Indeed, many central banks are seen as enablers of rapid asset price increases. The lesson, however, is not that inflation targeting needs to be repaired. Instead, refinements should be considered to the existing inflation targeting strategy which has evolved considerably since it was first introduced in New Zealand 20 years ago. Most notably, there should be continued emphasis on inflation as the primary nominal anchor of monetary policy, especially in emerging market economies (EME), even if additional duties are assigned to central banks in response to recent events.

Implications for Regional Science of the “Rebuilding Macroeconomic Theory Project”

2021 ◽  
pp. 016001762098659
Author(s):  
Kieran P. Donaghy
Keyword(s):  
Monetary Policy ◽  
Graduate Students ◽  
Global Financial Crisis ◽  
Financial Frictions ◽  
Regional Science ◽  
Macroeconomic Theory ◽  
Income Groups ◽  
Big Picture ◽  
Theory Project ◽  
The Global Financial Crisis

The inability of macroeconomists to anticipate the Global Financial Crisis or reproduce it in their models has led to an important stock-taking of deficiencies in, and necessary modifications to, theories and models used pervasively by researchers and taught to graduate students. This stock-taking—the so-called “Rebuilding Macroeconomic Theory Project,” organized by David Vines and Samuel Wills—has provided an opportunity for economy-wide modelers (who include regional scientists) to consider whether the theories and models they employ are adequate and appropriate to the tasks to which they put them. In this paper I provide a brief report on the project, retrace the development of macroeconomics, and summarize responses by prominent macroeconomists to a set of questions posed by organizers of the project, while drawing implications of these questions and responses for regional science. I then offer original suggestions from a regional scientist’s perspective on what is missing from the “benchmark” macro-model, how financial frictions can be introduced, how behavioral foundations might be modified, how heterogeneity of agents might be captured, and what new stylized facts need to be explained. I proceed to illustrate how several of the suggested changes can be integrated in economy-wide models by drawing on a study of the impacts of monetary policy on consumption by different income groups in Indonesia. I close the paper by posing a number of “big-picture questions” on the implications of the RMTP for economy-wide modelers and regional scientists to ponder and by offering a brief reflection and aspiration.

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