scholarly journals Business cycle synchronization and monetary policy in Bosnia and Herzegovina

Bankarstvo ◽  
2021 ◽  
Vol 50 (2) ◽  
pp. 8-20
Author(s):  
Dragan Jović
Keyword(s):  
Monetary Policy ◽  
Business Cycle ◽  
Central Bank ◽  
Bosnia And Herzegovina ◽  
Great Part ◽  
Currency Board ◽  
The Business Cycle ◽  
Further Development ◽  
Discretionary Monetary Policy ◽  
New Instruments

By adopting the currency board at the end of the last century, and by pegging its exchange rate to the Euro, a quarter of a century ago, Bosnia and Herzegovina surrendered a great part of its monetary policy in the hand of European Central Bank in the hope that the synchronization of the business cycle will make foreign monetary policy completely suitable for Bosnia and Herzegovina. At the same time during these two decades, the Central Bank of Bosnia and Herzegovina has been developing and using reserve requirement and remuneration as discretionary instruments of monetary policy. The research shows that the domestic business cycle and the foreign one are relatively weakly synchronized compared to other countries' degree of synchronization, and by this findings current discretionary monetary policy and its further development and enrichment with new instruments is fully justified. Bosnia and Herzegovina must continue with developing its own discretionary monetary policy without relying on foreign monetary policy.

scholarly journals Могући правци развоја монетарне политике БиХ у циљу подстицања економског раста // Possible tendencies of BiH monetary policy in encouraging the economic growth

2014 ◽  
Vol 12 (20) ◽  
pp. 213
Author(s):  
Бранка Топић-Павковић
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Central Bank ◽  
Bosnia And Herzegovina ◽  
Open Economy ◽  
Current Account Balance ◽  
Currency Board ◽  
Policy Model ◽  
Currency Boards ◽  
And Control

Резиме: Осигурати раст националне економије, уз истовремену унутрашњу и спољну стабилност цијена, поставља се као примарни задатак економске политике. Избор валутног одбора као модела управљања монетарном политиком обезбјеђује раст повјерења у домаћу валуту, макроекономску стабилност и јачање кредибилитета централне банке, посебно у земљама транзиционих и реформских процеса. Полазећи од ограничења овог модела монетарне политике, питања домаће конкурентности и контроле биланса текућег рачуна постају све битнија. У условима немогућности интервенције монетарне политике штетне посљедице на извоз и економски раст земље несумњиво показују да класични монетарни одбор представља погодно средство монетарне стабилизације, али не и механизам динамизирања привредног раста. Рад се фокусира на избор облика монетарне политике која би у датим условима могла да обезбиједи највећи допринос расту и привредном опоравку. Циљ рада је указати на могуће модификације постојећег система монетарног одбора у Босни и Херцеговини, анализом савремених валутних одбора и искустава земаља чланица које су примјењивале овај режим прије приступања Европској (монетарној) унији. Резултати истраживања потврђују низ предности које монетарни одбор пружа малим и отвореним економијама, али истичу и недостатке који доводе у питање одрживост овог аранжмана монетарне политике и воде модификацији постојећег модела валутног одбора, што би проширило дјеловање Централне банке Босне и Херцеговине.Summary: To ensure the growth of the national economy with simultaneous internal and external price stability is set as the primary goal of economic policy. Choosing the currency board as a model of monetary policy provides increased confidence in the local currency, macroeconomic stability and strength of the central bank credibility, especially in development countries. Considering the constraints of the currency board, national competitiveness and control of the current account balance are becoming very significant questions. In terms of the inability of monetary policy interventions to effect on exports and economic growth of the country, undoubtedly show that classical monetary board is a convenient measure of monetary stabilization but not the mechanism of intensification of economic growth. This paper focuses on the choice of monetary policy model to the given conditions which could provide the growth and economic recovery. The aim of this paper is to emphasize the possible modification of the existing system of currency board in Bosnia and Herzegovina, by analyzing modern currency boards and experiences of member states that have followed this regime before accession to the European (Monetary) Union. The results confirmed a number of benefits that monetary board provides for a small and open economy, but also point out the shortcomings that stress questions about the sustainability of this arrangement and possible tendencies of modification of existing model of the currency board, primarily with widening the instruments and action of the Central Bank of Bosnia and Herzegovina.

scholarly journals Currency Board Policy and Economic Development of Bosnia and Herzegovina in the Context of European integration

2018 ◽  
Vol 15 (27) ◽  
Author(s):  
Željko Marić
Keyword(s):  
Monetary Policy ◽  
Economic Development ◽  
European Integration ◽  
Bosnia And Herzegovina ◽  
Open Economy ◽  
Domestic Currency ◽  
Currency Board ◽  
Negative Consequences ◽  
Deductive Method ◽  
Discretionary Monetary Policy

Bosnia and Herzegovina is a small and open economy in transition with great distrust in local authorities and institutions. The country applies a currency board as the only acceptable and optimal exchange rate system in order to protect its monetary policy from political influences. The strict rules of the currency board provide monetary stability and confidence in the domestic currency, but disable the pursuit of discretionary monetary policy and limit autonomous fiscal policy for the purpose of stimulating an investment cycle and economic development without coordinated accompanying support of monetary policy.The subject of this paper is an analysis of the short-term and long-term effects of the currency board application in Bosnia and Herzegovina in conditions of increasing liberalization through the process of European integration. Given the negative consequences and limitations of the currency board system, this paper analyses in particular the possibility of introducing a central bank with discretionary monetary policy instruments, as well as other measures that can influence the overvaluation of the domestic currency exchange rate.The scientific methods used in the paper are: inductive-deductive method, descriptive method and statistical method. The conclusion and recommendations areobtained by using inductive-deductive method and descriptions of current economictrends based on numerous secondary statistical data presented in the tables andcharts.

scholarly journals Journal of the History of Economic Thought Preprints - Limits to Arbitrage and Interest Rates: A Debate Between Keynes, Hawtrey and Hicks

2018 ◽  
Author(s):  
Lucy BRILLANT
Keyword(s):  
Business Cycle ◽  
Central Bank ◽  
Interest Rates ◽  
Economic Thought ◽  
History Of Economic Thought ◽  
Short Term ◽  
Limits To Arbitrage ◽  
History Of ◽  
The Business Cycle

This paper deals with a debate between Hawtrey, Hicks and Keynes concerning the capacity of the central bank to influence the short-term and the long-term rates of interest. Both Hawtrey and Keynes considered the central bank’s ability to influence short-term rates of interest. However, they do not put the same emphasis on the study of the long-term rates of interest. According to Keynes, long-term rates are influenced by future expected short-term rates (1930, 1936), whereas for Hawtrey (1932, 1937, 1938), long-term rates are more dependent on the business cycle. Short-term rates do not have much effect on long-term rates according to Hawtrey. In 1939, Hicks enters the controversy, giving credit to both Hawtrey’s and Keynes’s theories, and also introducing limits to the operations of arbitrage. He thus presented a nuanced view.

scholarly journals THE ROLE OF THE CENTRAL BANK IN THE FUNCTION OF IMPROVEMENT OF LIQUIDITY OF BANKING SECTOR IN BOSNIA AND HERZEGOVINA

2019 ◽  
Vol 12 (24) ◽  
Author(s):  
Goran Mitrović ◽  
Živko Erceg
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Bosnia And Herzegovina ◽  
Banking Sector ◽  
Banking System ◽  
Policy Instruments ◽  
Foreign Banks ◽  
Dayton Agreement ◽  
The Impact

The monetary policy of Bosnia andHerzegovina is rather limited because it is basedon the principles of a currency boardcharacterized by the impossibility of implementingthe basic monetary policy instruments incomparison with the monetary policy of theEuropean Union. However, the constant presenceof European integrations should point the need fora more drastic change in the monetary policy ofBosnia and Herzegovina. By entering theEuropean Monetary Union (EMU), the monetaryterritory of Bosnia and Herzegovina will becomeone of the branches of the European Central Bank(ECB). In addition, it is not difficult to concludewhy the Law about the Central Bank of Bosnia andHerzegovina has been adopted with the first lawsof the Dayton Agreement, if it is known that thelargest part of the banking system, and thereforethe financial market, is owned by foreign banks.This work will point out the significance of theCentral Bank of Bosnia and Herzegovina, as oneof the most important factors for maintaining thepermanent liquidity of the banking sector inBosnia and Herzegovina. The possibilities andlimitations of the Central Bank of Bosnia andHerzegovina will be determined, with theassumption of macroeconomic sustainability overa longer period of time. The need of reforming thebanking system in Bosnia and Herzegovina will beanalyzed through the constant implementation ofthe Basel standards with the increasingparticipation of foreign banks in the Bosnia andHerzegovina. It will be determined the impact ofthe implementation of the Basel III in the bankingindustry in Bosnia and Herzegovina and itsconsequences on the banking and economicsystem.models, on the ways of financing theelimination of adverse consequences of naturaldisasters.

Business cycles in Ethiopia under alternative monetary policy rules

2019 ◽  
Vol 10 (3) ◽  
pp. 299-313
Author(s):  
Wondemhunegn Ezezew Melesse
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Business Cycle ◽  
Central Bank ◽  
Capital Mobility ◽  
Developing Economies ◽  
Dsge Models ◽  
Money Growth ◽  
Content Type ◽  
Policy Shocks

Purpose The purpose of this paper is to compare business cycle fluctuations in Ethiopia under interest rate and money growth rules. Design/methodology/approach In order to achieve this objective, the author constructs a medium-scale open economy dynamic stochastic general equilibrium (DSGE) model. The model features several nominal and real distortions including habit formation in consumption, price rigidity, deviation from purchasing power parity and imperfect capital mobility. The paper also distinguishes between liquidity-constrained and Ricardian households. The model parameters are calibrated for the Ethiopian economy based on data covering the period January 2000–April 2015. Findings The main result suggests that: the model economy with money growth rule is substantially less powerful or more muted for the amplification and transmission of exogenous shocks originating from government spending programs, monetary policy, technological progress and exchange rate movements. The responses of output to fiscal policy shocks are relatively stronger under autarky which appears to confirm the findings of Ilzetzki et al. (2013) who suggest bigger multipliers in self-sufficient, closed economies. With regard to positive productivity shock, however, the model with interest rate feedback rule generates a decline in output and an increase in inflation, which are at odds with conventional empirical regularities. Research limitations/implications The major implication is that a central bank regulating some measure of monetary stocks should not expect (fear) as much expansion (contraction) in output following currency devaluation (liquidity withdrawal) as a sister central bank that relies on an interest rate feedback rule. As emphasized by Mishra et al. (2010) the necessary conditions for stronger transmission of interest-rule-based monetary policy shocks are hardly existent in emerging and developing economies targeting monetary aggregates; hence the relatively weaker responses of output and inflation in the model economy with money growth rule. Monetary policy authorities need to be cautious when using DSGE models to analyze business cycle dynamics. Quite often, DSGE models tend to mimic the proverbial “crooked house” built to every man’s advise. Whenever additional modification is made to an existing baseline model, previously established regularities break down. For instance, this paper documented negative response of output to technology shock. Such contradictions are not uncommon. For example, Furlanetto (2006) and Ramayandi (2008) have also found similarly inconsistent responses to fiscal and productivity shocks, respectively. Originality/value Using DSGE models for research and teaching purposes is not common in developing economies. To the best of the author’s knowledge, only one other Ethiopian author did apply DSGE model to study business cycle fluctuation in Ethiopia albeit under the implausible assumption of perfect capital mobility and a central bank following interest rate rule. The contribution of this paper is that it departs from these two unrealistic assumptions by allowing international risk premium as a function of the net foreign asset position of the country and by applying money growth rule which closely mimics the behavior of central banks in low-income economies such as Ethiopia.

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