scholarly journals Inflation targeting: From “constrained discretion” to singularity

2020 ◽  
pp. 39-52
Author(s):  
Oleg Buklemishev
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Central Banks ◽  
Political Uncertainty ◽  
Policy Regime ◽  
Dynamic Inconsistency ◽  
Monetary Authorities ◽  
International Monetary Policy

In recent years, inflation targeting has become a staple of international monetary policy. The paper considers different challenges this monetary policy regime faces with regard to suppressed inflation, attaining the zero lower bound on the policy interest rates, and committing central banks to simultaneously pursue additional objectives such as financial stability. Inflation targeting has proved inefficient in raising inflation to the target zone from below, and unorthodox monetary policy tools have not proved their validity in this regard yet. As a result, monetary authorities are more inclined to discretion allowing them to compromise different aspects of “pure” inflation targeting. The value of this discretion is based on asymmetric information and boosted by additional functions assumed by central banks. However, it might bring about serious problems of dynamic inconsistency, compounded political uncertainty, and bureaucratic misconduct. Since none of the alternatives to inflation targeting currently looks fully satisfactory, it is concluded that the inflation targeting regime should be transformed to take into account the current situation, but a necessary precondition for the effectiveness of the new regime is enhanced accountability of central banks.

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 Forward guidance jako instrument polityki pieniężnej – możliwości wykorzystania

2015 ◽  
Vol 1 (3) ◽  
pp. 51-60
Author(s):  
Ilona  Skibińska-Fabrowska
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Central Banks ◽  
Communication Policy ◽  
Market Participants ◽  
Forward Guidance ◽  
Monetary Authorities ◽  
Effective Instrument ◽  
Targeting Strategy

Communication policy of central banks in the framework of direct inflation targeting strategy and related strategies is important. Its tools include forward guidance as a method of influencing the expectations of market participants. Although forward guid a method of influencing the expectations of market participants. Although forward guidance was used before the outbreak of the financial crisis, it was not popular. After 2008, under conditions of zero interest rate, monetary authorities have begun to use the forward guidance as an unconventional and effective instrument allowing monetary policy to have impact on market interest rates. However, the risks when using forward guidance include the possibility of misinterpretation of the conditional nature of the declaration of the monetary authorities. 

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.

Lässt sich die Geldschöpfung der Geschäftsbanken noch kontrollieren? – Geldpolitik seit der jüngsten Finanzkrise 2007/2008

2018 ◽  
Vol 87 (3) ◽  
pp. 47-63
Author(s):  
Mathias Binswanger
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Financial Crises ◽  
Commercial Banks ◽  
Central Banks ◽  
The Past ◽  
Monetary Authorities ◽  
Money Creation ◽  
Recent Financial Crisis

Zusammenfassung: Als Folge der jüngsten Finanzkrise ist der Einfluss der Zentralbanken auf die Geldschöpfung weitgehend verloren gegangen. Denn die Kontrolle über Reserven funktioniert nur solange, wie diese knapp sind und deren Bezug an bestimmte Bedingungen geknüpft werden kann. Seither halten die Geschäftsbanken in den ökonomisch wichtigsten Ländern de facto dermaßen viele Reserven, dass sie nicht mehr auf die jeweilige Zentralbank angewiesen sind. Diese Entwicklung lässt sich sowohl für die FED als auch für die EZB aufzeigen. Dies führt zu geldpolitisch neuen Herausforderungen, die bisher kaum beachtet wurden. Die Einflussmöglichkeit der Zentralbanken auf den Geldschöpfungsprozess der Geschäftsbanken wurde noch nie in so großem Stil ausgehebelt. Deshalb müssen Zentralbanken in Zukunft ihr Repertoire an geldpolitischen Massnahmen erweitern. Nur mit dem Drehen an der Zinsschraube wird man den Geldschöpfungsprozess in Zukunft kaum mehr in gewünschter Weise beeinflussen können. Summary: As a result of the recent financial crisis, the influence of central banks on money creation has largely disappeared. Controlling this process only works as long as money creation of commercial banks also leads to a need for additional reserves from the central bank. However, the large asset purchase programs of monetary authorities after the financial crises resulted in an enormous increase in reserves at commercial banks. Therefore, commercial banks have enough reserves to create additional money at large amounts and do not depend on central banks any more. This development is indicative for both the FED and the ECB. Therefore central banks face the challenge how they can restore their influence on the process of money creation. Just lowering or increasing interest rates, which was the major way of conducting monetary policy in the past, will not work anymore in the future.

scholarly journals Conducting Monetary Policy in South Asian Economies: An Investigation

2016 ◽  
Vol 55 (3) ◽  
pp. 161-190 ◽  
Author(s):  
Muhammad Arshad Khan ◽  
Ather Maqsood Ahmed
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Sri Lanka ◽  
Interest Rates ◽  
South Asian ◽  
Central Banks ◽  
Jel Classification ◽  
Monetary Authorities ◽  
Asian Economies ◽  
Exchange Rate Movements

Monetary policy which until recently aimed at targeting monetary aggregates has quietly given way to adjusting interest rates. Most of the Central Banks now focus on money reaction function that directly targets inflation or price level. This paper examines the way monetary policy is being conducted in the four major South Asian economies, namely, Bangladesh, India, Pakistan and Sri Lanka. The analysis is based on a variant of the Taylor rule framework. Using quarterly data over the period 1990Q1 to 2012Q4, the study finds that the monetary authorities in India, Pakistan and Sri Lanka have accommodated some degree of inflationary pressure, whereas Bangladesh has continuously smoothened interest rate while setting its monetary policy. Besides pursuing a mild monetary policy stance against inflation, India, Pakistan and Sri Lanka are also giving importance to foreign interest rate and real exchange rate movements to justify their relevance in monetary policy setting. However, the same has not been found to be true for Bangladesh. JEL Classification: E52, E58, E60 Keywords: Monetary Policy Rule, Central Banks, SAARC Countries

scholarly journals Ewolucja zmian i zadania banków centralnych w świetle doświadczeń kryzysu finansowego

2015 ◽  
Vol 1 (3) ◽  
pp. 35-50
Author(s):  
Agnieszka Alińska ◽  
Bogusław Pietrzak ◽  
Katarzyna Wasiak
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Central Banks ◽  
Communication Policy ◽  
Market Participants ◽  
Forward Guidance ◽  
Monetary Authorities ◽  
Effective Instrument ◽  
Targeting Strategy

Communication policy of central banks in the framework of direct inflation targeting strategy and related strategies is important. Its tools include forward guidance as a method of influencing the expectations of market participants. Although forward guidance was used before the outbreak of the financial crisis, it was not popular. After 2008, under conditions of zero interest rate, monetary authorities have begun After 2008, under conditions of zero interest rate, monetary authorities have begun to use the forward guidance as an unconventional and effective instrument allowing monetary policy to have impact on market interest rates. However, the riskswhen using forward guidance include the possibility of misinterpretation of the conditional nature of the declaration of the monetary authorities.

scholarly journals Monetary Policy and Financial Stability

2020 ◽  
Vol 2020 (101) ◽  
pp. 1-36
Author(s):  
Isabel Cairó ◽  
◽  
Jae Sim ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Global Financial Crisis ◽  
Price Stability ◽  
Policy Regimes ◽  
Household Sector ◽  
Nominal Interest Rates ◽  
Credit Cycle

The 2008 Global Financial Crisis called into question the narrow focus on price stability of inflation targeting regimes. This paper studies the relationship between price stability and financial stability by analyzing alternative monetary policy regimes for an economy that experiences endogenous financial crises due to excessive household sector leverage. We reach four conclusions. First, a central bank can improve both price stability and financial stability by adopting an aggressive inflation targeting regime, in the absence of the zero lower bound (ZLB) constraint on nominal interest rates. Second, in the presence of the ZLB constraint, an aggressive inflation targeting regime may undermine both price stability and financial stability. Third, an aggressive price-level targeting regime can improve both price stability and financial stability, regardless of the presence of the ZLB constraint. Finally, a leaning against the wind policy can be detrimental to both price stability and financial stability when the credit cycle is driven by countercyclical household sector leverage. In this environment, leaning with credit spreads can be more effective.

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 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

Prospects of the Initiation of Inflation Targeting in RF

2008 ◽  
pp. 46-57 ◽  
Author(s):  
A. Ulyukaev ◽  
S. Drobyshevsky ◽  
P. Trunin
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Economic Performance ◽  
Inflation Targeting ◽  
Policy Regime ◽  
Monetary Authorities ◽  
The Exchange Rate

Bank of Russia officials have recently declared the possibility of switching to the inflation targeting regime in the medium run. The article considers benefits and shortcomings of monetary policy regime as well as the economic performance of the inflation targeting countries. The authors conclude that Russia now starts meeting conditions crucial for the success of inflation targeting. In such circumstances Russian monetary authorities have an opportunity to weaken the exchange rate goal in favor of the inflation goal.

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