Strategic deviations in optimal monetary policy

This paper investigates the circumstances under which a central bank is more or less likely to deviate from the optimal monetary policy rule. The research question is addressed in a simple New Keynesian dynamic stochastic general equilibrium (DSGE) model in which monetary policy deviations occur endogenously. The model solution suggests that higher future central bank credibility attenuates the current period policy trade-off between a stable inflation rate and a stable output gap. Together with the loss of credibility after a policy deviation, this provides the central bank with an incentive to implement past policy commitments. The result is valid even if the central bank may recover credibility with some probability after a policy deviation. My main finding is that the central bank is willing to implement past policy commitments if a sufficient fraction of agents is not aware of the exact end date of the policy commitment. The result challenges the time-inconsistency argument against monetary policy commitments and provides a potential explanation for the repeated implementation of monetary policy commitments in reality.

Effectiveness of Monetary Policy Transmission Mechanism in an Implicit Inflation Targeting Regime: The Case of Nigeria.

The study examines the effectiveness of the monetary policy transmission mechanism in Nigeria by estimating a sticky-price DSGE model using the Bayesian estimation approach. This study is important given the implicit inflation targeting framework employed in the implementation of monetary policy in the country. The study employs quarterly data from 2000:1 to 2019:4 to estimate the two main categories of monetary policy frameworks, monetary aggregate and implicit inflation targeting, respectively. Data are sourced from World Development Indicator (online version). Empirical results show that the monetary policy transmission channels are effective in transmitting policy impulses to the economy within this regime. However, the monetary aggregate framework that is made explicit dampens the achievement of this framework. The study, therefore, concludes that inflation targeting should be made explicit in the country in other to reap the benefits embedded in the framework.

FEATURES OF THE IMPLEMENTATION OF MONETARY POLICY IN MODERN CONDITIONS

The article is devoted to the problem of forming an effective monetary policy in modern conditions. The relevance of the chosen topic is explained by the fact that identifying the main directions of improving monetary policy and developing tools to improve its effectiveness is one of the most important 39 tasks today, as insufficient effectiveness of proposed and implemented measures can lead to loss of purchasing power, rising inflation, deterioration activities of the banking sector and the threat of its crisis. The object of research is monetary policy. The purpose of the study is to develop measures to improve the effectiveness of monetary policy of Ukraine in modern conditions through the study of theoretical and practical aspects of the studied issues.

Let's close the gap: Revising teaching materials to reflect how the Federal Reserve implements monetary policy

The topic of the Federal Reserve’s (the Fed’s) implementation of monetary policy has a significant presence in economics textbooks as well as standards and guidelines for economics instruction. This presence likely reflects the fact that it is the implementation framework that helps ensure that the Fed’s desired level of its policy interest rate is transmitted to financial markets, which helps it steer the economy toward the Congressional dual mandate of maximum employment and price stability. Over the past decade or so, the Fed has purposefully shifted the way it implements monetary policy to an environment with ample reserves in the banking system, and it has introduced new policy tools along the way. This paper shows that, unfortunately, many teaching resources are not in sync with the Fed’s current framework. We review six, 2020 or 2021 edition, principles of economics textbooks, and we find they vary greatly in their coverage of the concepts associated with the way the Fed implements policy today and in the longer run. We provide recommendations on how the authors can improve the next editions of their textbooks. We also review standards and guidelines used by secondaryschool educators. All of these are out of date, and we provide proposals for how these materials can be updated.

Negative rates of central banks as a factor in the transformation of the global financial system in crisis anticipation

Subject. We consider the practice of applying negative interest rates by central banks of Switzerland, Sweden, Denmark, Japan and the Eurozone countries as a whole, and assess the effects of such policies. Objectives. The purpose is to review emerging trends in the global financial system regarding the formation of interest rates, and to study preconditions for the emergence prerequisites for emergence of a new financial crisis. Methods. The methodology involves correlation of inflation level, negative interest rates and GDP growth. We apply normative and integrated approaches to the study of interest rate formation by central banks at the present stage, general scientific and special methods of scientific knowledge, i.e. retrospective, systems and functional-structural analysis, observation; instrumental methods of grouping, sampling, comparison and generalization, evolutionary and dynamic analysis. Results. The main problem faced by central banks is the lack of effective tools. This gave rise to the transformation of views on formation and implementation of monetary policy and, as a consequence, the introduction of negative interest rates. We present a logical model for negative interest rates policy implementation. In the short term, such a policy can yield positive results (GDP growth), though by a insignificant amount. Conclusions and Relevance. The use of negative interest rates in the activities of world’s central banks is a serious prerequisite for crisis that can cause a transformation of the entire global financial system.

Measuring monetary policy in emerging economies

Measuring the stance of monetary policy is of importance for the analysis and implementation of monetary policy. The existence of multiple instrument framework as well as the significance of the interest rate and exchange rate channel in emerging economies imply that monetary condition index can play an important role in evaluating whether monetary policy is restrictive or expansive in these economies. In this paper, we use the VAR model to evaluate the role of monetary condition index as an overall measure of monetary policy in emerging economies. The weight of components of monetary condition index is derived from the inflation equation in the VAR estimation. The empirical results suggest that a contraction in monetary policy causes a reduction in inflation. The finding implies that monetary condition index is a useful indicator that can predict the stance of monetary policy and predict the trend of inflation in emerging economies.

A COMPARATIVE STUDY OF INDONESIAN AND MALAYSIAN MONETARY POLICY

The important role of monetary policy lies in its ability to influence price stability, economic growth, employment opportunities and balance of payments. Therefore it is very important for the central bank to establish monetary policy in a country especially for two developing countries such as Indonesia and Malaysia. The purpose of this study is to determine the implementation of monetary policy in Indonesia and Malaysia. The method used is the study of literature by comparing the monetary policies of Indonesia and Malaysia. The results of this study indicate that Indonesian monetary policy is strongly influenced by interest rates while monetary policy in Malaysia is influenced by direct loans without ties through open tenders, repo transactions, auction of Bank Negara Monetary Notes (BNMN), auction of Bank Negara Interbank Bills (BNIBs) and foreign exchange (FX). The implications of this study are expected to be able to add new inclusions regarding the implementation of monetary policy in Indonesia and Malaysia.Keyword. monetary policy, comparative study, indonesia, malaysia.