FREE ELECTRONIC LIBRARY - Dissertations, online materials

Pages:     | 1 |   ...   | 2 | 3 || 5 |

«I. Introduction The Institute for Monetary and Economic Studies (IMES) of the Bank of Japan (BOJ) held the 2014 BOJ-IMES Conference, entitled ...»

-- [ Page 4 ] --

Based on the BOJ’s experience, Nakaso posed three challenges with respect to forward guidance, control of short-term interest rates, and asset purchases. In terms of the challenge with respect to forward guidance, he explained that the forward guidance currently adopted by the BOJ reflected its intention to raise inflation expectations and thus could be stronger than the guidance issued by the Fed and the BOE in a situation where inflation expectations seemed to be anchored to a certain level. He added that the forward guidance by the BOJ could be seen as containing a holistic judgment in the sense that it included phrases such as “as long as necessary.” In terms of the challenge with respect to control of short-term interest rates, he explained the BOJ’s experience at the time of exit from QE in 2006, when the BOJ had strived to stabilize short-term market rates by conducting fine-tuning of open market operations including both the provision and draining of liquidity. He argued that the Fed might face similar challenges in the forthcoming normalization phase, when it might rely extensively on reverse repos and a term-deposit facility for liquidity draining, which would not guarantee that it could control the upper end of market rates as well as the lower end. He also mentioned a tradeoff between market rate controllability and improvement of market functioning, noting that a discount-window type of marginal lending facility to cap market rates could be at odds with the intention of reviving market functioning. Finally, in terms of the challenge with respect to asset purchases, he argued that if long-term interest rates remained affected as long as central banks carried large balance sheets, close attention should be paid to the potential buildup of financial imbalances which might be caused by the distortion in a flatter or inverse yield curve when the short-term interest rate was hiked.

Plosser discussed the role of forward guidance and transparency in influencing expectations.11 He first explained that the stance of monetary policy encompassed not just the current level of the short-term policy rate but also its expected future path, and that expectations about future monetary policy could play an important role in determining the economic outcomes of monetary policy. On top of this, he argued that one of the most important ways to support credibility and thus the effectiveness of forward guidance was to practice it as part of a systematic policy framework, and to be more explicit about a central bank’s reaction function. He commented that one

11. For details, see Plosser (2014).

13 way to be more explicit was to indicate the likely behavior of the policy rate based on a few Taylor-like rules that were consistent with the past conduct of monetary policy and robust to uncertainties regarding economic models. He added that the principles of a systemic policy framework applied equally well to balance-sheet policies, arguing that the signals conveyed by such policies should be consistent with forward guidance on future interest rate policies. In this regard, he mentioned that the use of particular economic models, including the FRB/US model, seemed to be a reasonable starting point for providing economic forecasts based on the policy rules. He concluded that steps toward greater transparency and communication would mark significant progress and encourage the Fed to conduct policy in a more systematic manner.

Rajan discussed two concerns about the protracted accommodative monetary policy in advanced countries.12 First, he pointed out that the policy did not seem to create domestic demand so much because of debt overhang, structural problems, or fundamentally weak demand, while it seemed to shift demand away from other countries through cross-border capital flows and currency depreciation. In the meantime, some distortion might occur and leverage risks might build up in the financial sector under the condition that tremendous liquidity prevailed there and the world interest rate was set very low. In such an environment where people flocked into risky assets, transparency in central banks’ policies might create a rather difficult situation in the process of exiting from the accommodative monetary policy. Second, he argued that the spillover effects of accommodative monetary policy might create much stronger demand in other countries than they wanted, inducing them to take additional monetary policy actions and eventually driving the world economy into a situation that was suboptimal. On the other hand, it was difficult for central banks to take account of the spillovers and other countries’ policy reactions over time as long as they focused on their domestic mandates. Against this concern, he pointed out that the Precautionary and Liquidity Line of the IMF could be more helpful in offsetting a reversion to reserve accumulation as a way to build safety nets if it could be converted from a pull line—which could make countries fear the stigma of coming under the supervision of the IMF—to a push line, to which countries were given access without necessarily asking for it. He also stated that stronger international safety nets including multilateral swaps were worth exploring as a starting point for collective monetary policy cooperation.

From the viewpoint of a need for the legitimacy of central bank independence to be underpinned, Tucker discussed macroprudential policy and balance-sheet policy.13 As for macroprudential policy, he argued that it should be used to keep the resilience of the banking system constant even when economic conditions were changing; an equity requirement of, say, 10 percent did not provide the desired degree of system resilience if the world became riskier than when the regulatory regime was calibrated. He added that stress testing conducted by central banks enabled them to engage in debate with the legislature and the public about the degree of resilience they desired in the banking system, thus contributing to ensuring the credibility and legitimacy of central banks.

Second, he pointed out that the financial system was essentially a shape-shifter in the

12. For details, see Rajan (2014).

13. For details, see Tucker (2014).

–  –  –

sense that the financial system adapted to rule-based regulation. There was a distinct possibility that the substance of banking would move outside de jure, regulated banks.

He also observed that some nonbanks such as securities dealers had the economic substance of banks through their prime brokerage business, exposing central banks to risk of having to provide liquidity assistance. As for balance-sheet policy, he argued that when central banks conducted QE policy in government bonds, cooperating with the government was essential in order to avoid government debt managers offsetting the economic effects and to recognize the financial risk entailed. As an example, he mentioned that the BOE and the U.K. government agreed on both: the government would indemnify the BOE for any loss and would keep debt management strategy unchanged.

Bizarrely, in the United States the treasury had extended the maturity of its debt. In this regard, he added that central banks needed to accept that their policy overlapped with fiscal policy, but that that could be harmless as long as there was a clear ‘fiscal carveout,’ so that elected politicians blessed the high-level regime and the public could see what happened when central banks made profits or incurred losses on their balance sheet.

B. General Discussions Following the panelists’ remarks, Obstfeld commented on a few issues relevant for central banks’ policies in a post-crisis era. First, he pointed out that the recent crisis had shown that an optimal monetary policy did not necessarily guarantee that the financial sector would be robust and resilient. On top of this, he stated that monetary policy and macroprudential policy were inherently interrelated, for example, in that protracted accommodative monetary policies might create incentives which impaired financial stability. Second, he pointed out that the crisis had also shown the importance of global policy cooperation, because macroprudential policy on a stand-alone basis might be ineffective in globally integrated financial markets.

In response to Obstfeld’s comments, Mersch discussed the prudential policy in Europe after the crisis. He first emphasized that the ECB was striving to preserve the integrity of the single currency and thus retain a single economic and monetary union. Then he mentioned that one of the policy priorities in Europe was to restore the confidence in the banking system, and that the banking union had been established to achieve this policy priority with a focus on microprudential policy rather than macroprudential policy. As for the macroprudential approaches in Japan, Nakaso explained that the Financial Services Agency (FSA) was the primary regulator in a position to conduct macroprudential policy. He added that because the BOJ had better access to the market, it could provide the FSA with an assessment of systemic conditions in the market, which was one of its key roles in macroprudential policy. Tucker explained that central banks could not help becoming involved in many macroprudential areas such as supervisory policy, regulatory policy, and thus credit policy, as long as the central bank was the monopoly issuer of the final settlement asset, i.e., fiat money, as that made it the final provider of liquidity. Lender-of-last-resort operations were risky interventions in the credit system and so the central bank had to be involved in banking policy and surveillance of its soundness. Goodfriend mentioned the problem of 15 excessively low minimum capital standards due to competitive international subsidization and asked if this problem had been resolved. Anne Le Lorier (Banque de France) raised a question as to whether central banks should embark on regulating nonbank entities and controlling them.

Regarding the mandate and accountability of central banks, Jordan agreed with Tucker’s views on the importance of a cooperative relationship between a government and a central bank, and added that central banks’ mandates should be as clear as possible and that they should remain time-consistent. He also emphasized that central banks’ policy frameworks should be simple allowing them to concentrate on their mandates without too much fine-tuning. Plosser noted that central banks should not be accountable for things they cannot control. He pointed out that central banks would put their independence at risk if they ventured into policies that were not explicitly within their own domain. In addition, he stated that it was important for central banks to conduct policy in a systematic and predictable way by maintaining transparency in their communications, which helped to preserve their independence. Ito commented that he was struck by the contrast between Plosser and Tucker in the distance between the government and the central bank. He wondered whether this contrast derived from the unique fact that a central bank had been abolished twice in U.S. history, whereas it had not been abolished in the United Kingdom, Japan, or elsewhere.

Berk asked the panelists what the future of central bank independence looked like given the confluence between monetary and fiscal policies after the crisis. Jordan replied that it would depend on central banks’ performance over the next few years in terms of financial stability as well as price stability, including a successful exit from unconventional monetary policy. He mentioned that, in order to avoid putting independence at risk, it was important to deliver on price stability by not only avoiding deflation but also avoiding inflation in the exit policy phase. He also stated that it was incorrect to think that monetary policy did not have any distributional effects, and therefore it was important to achieve price stability in the medium and long term. Mersch commented that during the crisis central banks’ mandates had broadened in comparison with the time independence had been given to central banks, and that inevitably the central banks had to adjust their accountability and transparency so that no question occurred concerning their independence. Rajan expressed a concern that monetary policy was relied on too heavily when other policies did not work well. As a result, he argued that the global economy could become sub-optimal when major central banks took an unconventional set of policy actions. In addition to these panelists’ comments, Lipton emphasized the importance of central banks’ belief and credibility in achieving their mandates, and stated that they should not doubt their ability to achieve their mandates. On the other hand, Végh illustrated that central banks tended to allow the market to think that monetary policy was much more powerful than actually it was.

Wynne raised a question as to what compelled central banks to try to conduct so many policies.

Regarding the exit policy from QE and forward guidance, Nakaso claimed that the true test for the effectiveness of forward guidance was still to come, in the sense that it should be tested whether forward guidance compressed the level and volatility of expected short-term rates even when markets expected an exit from the zero interest 16 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2014 Monetary Policy in a Post-Financial Crisis Era rate policy was approaching. On the possibility of overreaction in the financial markets during the exit process, Tucker said that policymakers should not be overly concerned about short bursts of volatility. Smoothing volatility could easily lead to excessive risk-taking, so policy could have perverse effects. Policy should systematically feedback from the outlook for inflation given an unavoidably highly uncertain assessment of the balance of aggregate demand and supply. In that familiar setup, withdrawing some of the extraordinary monetary accommodation would be quite normal. His suggestion was based on his recognition that the financial markets always second-guessed central banks’ actions in the search for profit, but that their behavior might have only short-run effects on volatility because of the lack of attention given to fundamentals.

Pages:     | 1 |   ...   | 2 | 3 || 5 |

Similar works:

«THE GHETTO IN LUBLIN Robert Kuwalek Shortly before the beginning of the Second World War almost 40.000 Jews lived in Lublin. This was one third of the total population of the town, which numbered 120.000 inhabitants. Jewish Lublin was a very important center of religion, education and social life. It is enough to mention that here, in 1930, the most famous yeshiva (rabbinical high school) in the world – Yeshivat Chachmei Lublin (Yeshiva of the Wise Men of Lublin) was established. Before the...»

«Curriculum Vitae Pascale Joassart-Marcelli Department of Geography San Diego State University 5500 Campanile Drive San Diego, CA 92182 Email: pmarcell@mail.sdsu.edu Phone: (619) 594-0906 • Current Position Associate Professor (September 2009-current), Department of Geography, San Diego State University, San Diego, CA Co-Chair and Undergraduate Adviser (September 2010 – current), Urban Studies Program, College of Arts and Letters, San Diego State University, San Diego, CA • Education...»

«Cultural diversity in organizations A study on the view and management on cultural diversity Authors: Dhakshayene Holmgren Anneli Jonsson Supervisor: MajBritt JohanssonLindfors Student Umeå School of Business and Economics Spring semester 2013 Master thesis, two-year, 15 hp ABSTRACT Cultural diversity is a subject that has been getting growing attention not just internationally but also in Sweden in the 21st century. The globalization of economies and the migration has dramatically increased...»

«LIVE: ECONOMIC GEOGRAPHY LESSON DESCRIPTION In this lesson we: ● Work through selected examination questions adapted from 2014 Exemplar Paper covering: o Economic Geography IMPROVE YOUR SKILLS Question 1 (Adapted from Exemplar 2014, Paper 1, Question 3.2) Choose a term from COLUMN B that matches the description in COLUMN A. Write only the letter (A–I) next to the question number (1.1–1.8). You may use each answer only ONCE. (8 x 1) (8) Page 1 Question 2 (Adapted from Exemplar 2014, Paper...»

«PROFITABILITY OF PRODUCTION OF PASTA FROM SPELT FLOUR Original scientific paper Economics of Agriculture 2/2013 UDC: 664.69:631.147 PROFITABILITY OF PRODUCTION OF PASTA FROM SPELT FLOUR1 Veljko Vukoje2, Đorđe Psodorov3, Jasmina Živković2 Summary This paper analyzes the most important parameters for profitability of production of pasta made from spelt flour produced in an organic farming system. Research pertains to plant of medium capacity which is also suitable for construction on family...»

«Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Special Issue/2014Information society and sustainable development THE PSYCHOLOGY OF FINANCE: ONE DECADE, TWO NOBEL’S Dr. ADRIAN MITROI, CFA, MBA ASSOCIATE PROFESSOR BUCHAREST UNIVERSITY OF ECONOMIC STUDIES, ROMÂNIA, CFA ROMÂNIA, AAFBR ROMÂNIA adrian.mitroi@gmail.com ABSTRACT The study of behavioral finance combines the investigation and expertise from research and practice into smart portfolios of...»

«R. Michael Haynes, Ph.D. Curriculum Vitae Office: Personal: Office of Institutional Research and Effectiveness Box T-3594 Tarleton Center, Room 220 Stephenville, Texas 76402 Tarleton State University (254) 965-5020 Box T-0505 Stephenville, Texas 76402 (254) 968-9354 rhaynes@tarleton.edu EDUCATION Doctor of Philosophy: Higher Education major; Educational Research minor University of North Texas, Denton, TX; 2009 Master of Science: Higher Education, Concentration in Student Affairs University of...»

«1 EGYPTIAN NATIONAL COMPETITIVENESS COUNCIL THE EGYPTIAN COMPETITIVENESS REPORT 2004-2005 2 THE EGYPTIAN COMPETITIVENESS REPORT 2004 -2005 THE EGYPTIAN NATIONAL COMPETITIVENESS COUNCIL At the Egyptian National Competitiveness Council, leaders from business, academia, labor and government collaborate to increase awareness of competitiveness and its economic implications for industry. MISSION STATEMENT The mission of the Egyptian National Competitiveness Council is to spur efforts to improve the...»

«Università degli Studi di Salerno Centro di Economia del Lavoro e di Politica Economica Floro Ernesto Caroleo – Gianluigi Coppola CELPE DISES The Impact of the Institutions on Regional Unemployment Disparities Discussion Paper 98 October, 2005 CELPE Centro di Economia del Lavoro e di Politica Economica Università degli Studi di Salerno Via Ponte Don Mellillo, 84084 Fisciano, IItaly Web Page:http://www.celpe.unisa.it/ E-mail: celpe@unisa.it Scientific Commitee: Adalgiso Amendola, Guido...»

«884inmillion people the world do access not have to safe drinking ater More Than a Resource: Water, Business and Human Rights The Institute for Human Rights and Business is dedicated to being a global centre of excellence and expertise on the relationship between business and internationally proclaimed human rights standards. The Institute works to raise corporate standards and strengthen public policy to ensure that the activities of companies do not contribute to human rights abuses, and in...»

«When Rainforest Ice Cream Melts: The Messy Reality of 'Socially Responsible Business' by: Jon Entine Ethical business practices are best measured by a company's character and commitment to transparency, not on its social vision or rhetoric. The most vis ible members of the 'socially responsible business' community such as Ben & Jerry's in the United States and UK-based The Body Shop are not necessarily better exemplars of corporate responsibility than much larger companies, even resource or...»

«Comparative Financial Systems: A Survey Franklin Allen Douglas Gale Wharton School Economics Department University of Pennsylvania New York University Philadelphia, PA 19104 New York, NY 10003 allenf@wharton.upenn.edu Douglas.Gale@nyu.edu April 2001 1 What is a Financial System? The purpose of a financial system is to channel funds from agents with surpluses to agents with deficits. In the traditional literature there have been two approaches to analyzing this process. The first is to...»

<<  HOME   |    CONTACTS
2016 www.dissertation.xlibx.info - Dissertations, online materials

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.