Browsing by Subject "Monetary Policy"
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Item Essays in monetary policy conduction and its effectiveness: monetary policy rules, probability forecasting, central bank accountability, and the sacrifice ratio(Texas A&M University, 2004-11-15) Gabriel, Casillas Olvera,Monetary policy has been given either too many positive attributes or, in contrast, only economy-disturbing features. Central banks must take into account a wide variety of factors to achieve a proper characterization of modern economies for the optimal implementation of monetary policy. Such is the case of central bank accountability and monetary policy effectiveness. The objective of this dissertation is to examine these two concerns relevant to the current macroeconomic debate. The analyses are carried out using an innovative set of tools to extract presumably important information from historical data of selected macroeconomic indicators. This dissertation consists of three essays. The first essay explores the causality between the elements of the "celebrated" Taylor rule, using a Structural Vector Autoregression approach on US data. Directed acyclical graph techniques and Bayesian search models are used to identify the contemporaneous causal structure in the construction of impulse-response functions. Further analysis is performed by evaluating the implications of performing standard innovation-accounting procedures, derived from a Structural Vector Autoregression on interest rates, inflation, and unemployment. This is examined whenever a causal structure is imposed vs. when it is observed. We find that the interest rate causes inflation and unemployment. This suggests that the Fed has not followed a Taylor rule in any of the two periods under study. This result differs significantly to the case when the causal structure is imposed. The second essay presents an incentive-compatible approach based on proper scoring rules to evaluate density forecasts in order to reduce the central banks' accountability problem. Our results indicate that the surveyed forecasters have done a "better" job than the Monetary Policy Committee (MPC). The third essay analyzes the causal structure of the factors that are presumed to influence the effectiveness of monetary policy, represented by the sacrifice ratio. Directed acyclical graph methods are used to identify the causal flow between such determinants and the sacrifice ratio. We find evidence that, while wage rigidities and central bank independence are the two major determinants of the sacrifice ratio, the degree of openness has no direct effect on the sacrifice ratio.Item Essays on macroeconomics and forecasting(Texas A&M University, 2006-10-30) Liu, DandanThis dissertation consists of three essays. Chapter II uses the method of structural factor analysis to study the effects of monetary policy on key macroeconomic variables in a data rich environment. I propose two structural factor models. One is the structural factor augmented vector autoregressive (SFAVAR) model and the other is the structural factor vector autoregressive (SFVAR) model. Compared to the traditional vector autogression (VAR) model, both models incorporate far more information from hundreds of data series, series that can be and are monitored by the Central Bank. Moreover, the factors used are structurally meaningful, a feature that adds to the understanding of the ??????black box?????? of the monetary transmission mechanism. Both models generate qualitatively reasonable impulse response functions. Using the SFVAR model, both the ??????price puzzle?????? and the ??????liquidity puzzle?????? are eliminated. Chapter III employs the method of structural factor analysis to conduct a forecasting exercise in a data rich environment. I simulate out-of-sample real time forecasting using a structural dynamic factor forecasting model and its variations. I use several structural factors to summarize the information from a large set of candidate explanatory variables. Compared to Stock and Watson (2002)??????s models, the models proposed in this chapter can further allow me to select the factors structurally for each variable to be forecasted. I find advantages to using the structural dynamic factor forecasting models compared to alternatives that include univariate autoregression (AR) model, the VAR model and Stock and Watson??????s (2002) models, especially when forecasting real variables. In chapter IV, we measure U.S. technology shocks by implementing a dual approach, which is based on more reliable price data instead of aggregate quantity data. By doing so, we find the relative volatility of technology shocks and the correlation between output fluctuation and technology shocks to be much smaller than those revealed in most real-business-cycle (RBC) studies. Our results support the findings of Burnside, Eichenbaum and Rebelo (1996), who showed that the correlation between technology shocks and output is exaggerated in the RBC literature. This suggests that one should examine other sources of fluctuations for a better understanding of the business cycle phenomena.Item Essays on Welfare Improving Role of Monetary and Fiscal Policy(2014-08-11) Hazra, DevikaThe dissertation comprises of three essays that analyze the impact of monetary and fiscal policies on various aspects of the economy. Both types of policies affect the welfare of agents by influencing factors that affect the utility of agents. This thesis focusses on three different aspects: the impact of monetary and fiscal policy under limited financial market participation, the impact of monetary and fiscal interactions on the path or real debt of the government, the effectiveness of monetary policy under alternative payment systems. If heterogeneity is considered among individuals in terms of financial market participation, then I find that expansionary monetary and fiscal policy can positively affect the financial market participants, and also increase the amount of labor (both high skilled and low skilled) employed in the economy. In a separate section in this thesis, I analyze the role of monetary and fiscal policy in the face of rising transfer payments to the aging population, and its impact on government debt. In this scenario, it is possible for monetary policy to actively control inflation in the face of rising transfers, before and after the tax limit. This finding is my main contribution to the existing literature. In another section, I analyze if the effectiveness of monetary policy changes when credit is introduced in an economy in which theft of cash exists. If agents have a choice between cash and credit, and theft exists in the economy, then expansionary monetary policy can have a positive effect on that economy by influencing the cash-credit choice and thereby, resulting in lower theft.Item Inflation targeting in emerging countries: the exchange rate issues(Texas A&M University, 2004-09-30) Reyes Altamirano, Javier ArturoThe current discussion of Inflation Targeting (IT) in emerging economies deals with the effects that nominal exchange rate movements have on the overall inflation rate. The literature has focused in the analysis of the advantages and disadvantages that IT has with respect to other monetary policy regimes and the relevancy of the nominal exchange rate pass-through effect into inflation. So far none of them have dealt with the differences arising from the policy instruments used to fight off inflationary pressure under an IT regime. The literature on IT for emerging economies can be separated in two categories. In the first category the monetary authority uses interest rate policy as the instrument variable to implement and control the inflation target. The second category illustrates when the monetary authorities use international reserves as the instrument to influence the nominal exchange rate in such a way that the depreciation rate is consistent with the overall inflation target. This dissertation presents a model in which both policy instruments are available to the monetary authority. This model is used to address two questions: i) Is IT better than a monetary rule regime? and ii) Is it better to intervene directly in the foreign exchange market rather than use interest rate policy to control exchange rate pressure on inflation, or are they equivalent? The results show that there are important differences between these choices and the answers to these questions are shock dependent. These differences arise because the intervention needed under IT is accompanied by important output costs or benefits depending on the direction of the shock being analyzed. Regarding the pass-through effect, some studies have shown that the pass-through effect from currency depreciation into inflation has been decreasing and therefore is becoming less of an issue for these countries. The literature has offered different explanations for these declines but so far they have not been directly linked to the adoption of IT. This dissertation shows that lower pass-through levels can be a natural result of fear of floating observed in emerging countries that adopted IT and therefore exchange rate effects on inflation are still relevant.Item Two essays on monetary policy under the Taylor rule(Texas A&M University, 2005-11-01) Suh, Jeong EuiIn this dissertation, two questions concerning monetary policy under the Taylor rule have been addressed. The first question is on, under the Taylor rule, whether a central bank should be responsible for both bank supervision and monetary policy or whether the two tasks should be exercised by separate institutions. This is the main focus of Chapter I. The second question is on whether the Taylor rule plays an important role in explaining modern business cycles in the United States. The second question has been covered by Chapter II. The implications of the first chapter can be summarized as follows: (i) it is inevitable for the central bank to have a systematic error in conducting monetary policy when the central bank does not have a bank supervisory role; (ii) without a bank supervisory role, the effectiveness of monetary policy cannot be guaranteed; (iii) because of the existence of conflict of interests, giving a bank supervisory role to the central bank does not guarantee the effectiveness of monetary policy, either; (iv) the way of setting up another government agency, bank regulator, and making the central bank and the regulator cooperate each other does not guarantee the effectiveness of monetary policy because, in this way, the systematic error in conducting monetary policy cannot be eliminated; (v) in the view of social welfare, not in the view of the effectiveness of monetary policy, it is better for the central bank to keep the whole responsibility or at least a partial responsibility on bank supervision. In the second chapter, we examined the effect of a technology shock and a money shock in the context of an RBC model incorporating the Taylor rule as the Fed??s monetary policy. One thing significantly different from other researches on this topic is the way the Taylor rule is introduced in the model. In this chapter, the Taylor rule is introduced by considering the relationship among the Fisher equation, Euler equation and the Taylor rule explicitly in the dynamic system of the relevant RBC model. With this approach, it has been shown that, even in a flexible-price environment, the two major failures in RBC models with money can be resolved. Under the Taylor rule, the correlation between output and inflation appears to be positive and the response of our model economy to a shock is persistent. Furthermore, the possibility of an existing liquidity effect is found. These results imply that the Taylor rule does play a key role in explaining business cycles in the United States.