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Book part
Publication date: 20 November 2018

Esteban Pérez Caldentey and Matías Vernengo

Traditionally, monetary policy in Latin America followed the recommendations of the missions of the monetary “doctors” who defended an independent central bank and a pro-cyclical…

Abstract

Traditionally, monetary policy in Latin America followed the recommendations of the missions of the monetary “doctors” who defended an independent central bank and a pro-cyclical monetary policy, adhering to the automatic adjustment of the gold standard. A key function of central banks was to support fiscal stability. The effects of the Great Depression and its aftermath in the periphery countries questioned these recommendations and gave way to a shift in monetary policy. An illustrative example is provided by the creation of the Central Bank of the Argentina Republic (BCRA) under the auspices of Raúl Prebisch, and the technical assistance missions of the United States Federal Reserve to several Latin American countries some of which were led by Robert Triffin. Prebisch actively participated in mission to Paraguay and the Dominican Republic bringing the experience he had acquired as director of the BCRA and the tools devised to adapt monetary policy to a changing external context and circumstances. The use of the discount window and exchange controls, among other instruments, was seen in this new view as necessary to pursue counter-cyclical policies and to provide support for industrialization and full employment in the periphery.

Details

Including a Symposium on Latin American Monetary Thought: Two Centuries in Search of Originality
Type: Book
ISBN: 978-1-78756-431-2

Keywords

Book part
Publication date: 18 October 2011

Lennart Erixon

The new economic-policy regime in Sweden in the 1990s included deregulation, central-bank independence, inflation targets and fiscal rules but also active labour market policy and…

Abstract

The new economic-policy regime in Sweden in the 1990s included deregulation, central-bank independence, inflation targets and fiscal rules but also active labour market policy and voluntary incomes policy. This chapter describes the content, determinants and performance of the new economic policy in Sweden in a comparative, mainly Nordic, perspective. The new economic-policy regime is explained by the deep recession and budget crisis in the early 1990s, new economic ideas and the power of economic experts. In the 1998–2007 period, Sweden displayed relatively low inflation and high productivity growth, but unemployment was high, especially by national standards. The restrictive monetary policy was responsible for the low inflation, and the dynamic (ICT) sector was decisive for the productivity miracle. Furthermore, productivity increases in the ICT sector largely explains why the Central Bank undershot its inflation target in the late 1990s and early 2000s. The new economic-policy regime in Sweden performed well during the global financial crisis. However, as in other OECD countries, the moderate increase in unemployment was largely attributed to labour hoarding. And the rapid recovery of the Baltic countries made it possible for Sweden to avoid a bank crisis.

Details

The Nordic Varieties of Capitalism
Type: Book
ISBN: 978-0-85724-778-0

Article
Publication date: 28 December 2023

Francesco Busato, Maria Ferrara and Monica Varlese

This paper analyzes real and welfare effects of a permanent change in inflation rate, focusing on macroprudential policy’ role and its interaction with monetary policy.

Abstract

Purpose

This paper analyzes real and welfare effects of a permanent change in inflation rate, focusing on macroprudential policy’ role and its interaction with monetary policy.

Design/methodology/approach

While investigating disinflation costs, the authors simulate a medium-scale dynamic general equilibrium model with borrowing constraints, credit frictions and macroprudential authority.

Findings

Providing discussions on different policy scenarios in a context where still it is expected high inflation, there are three key contributions. First, when macroprudential authority actively operates to improve financial stability, losses caused by disinflation are limited. Second, a Taylor rule directly responding to financial variables might entail a trade-off between price and financial stability objectives, by increasing disinflation costs. Third, disinflation is welfare improving for savers, while costly for borrowers and banks. Indeed, while savers benefit from policies reducing price stickiness distortion, borrowers are worried about credit frictions, coming from collateral constraint.

Practical implications

The paper suggests threefold policy implications: the macroprudential authority should actively intervene during a disinflation process to minimize costs and financial instability deriving from it; policymakers should implement a disinflationary policy stabilizing also output; the central bank and the macroprudential regulator should pursue financial and price stability goals, separately.

Originality/value

This paper is the first attempt to study effects of a permanent inflation target reduction in focusing on the macroprudential policy’ role.

Details

Journal of Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 4 November 2014

Simplice A. Asongu

The purpose of this paper is to examine the effects of monetary policy on economic activity using a plethora of hitherto unemployed financial dynamics in inflation-chaotic African…

Abstract

Purpose

The purpose of this paper is to examine the effects of monetary policy on economic activity using a plethora of hitherto unemployed financial dynamics in inflation-chaotic African countries for the period of 1987-2010.Although in developed economies, changes in monetary policy affect real economic activity in the short-run, but only prices in the long-run, the question of whether these tendencies apply to developing countries remains open to debate.

Design/methodology/approach

Vector autoregresion (VARs) within the frameworks of Vector Error Correction Models and simple Granger causality models are used to estimate the long- and short-run effects, respectively. A battery of robustness checks are also used to ensure consistency in the specifications and results.

Findings

The tested hypotheses are valid under monetary policy independence and dependence, except few exceptions. H1: Monetary policy variables affect prices in the long-run but not in the short-run. For the first-half (long-run dimension) of the hypothesis, permanent changes in monetary policy variables (depth, efficiency, activity and size) affect permanent variations in prices in the long-term. But in cases of disequilibriums, only financial dynamic fundamentals of depth and size significantly adjust inflation to the cointegration relations. With respect to the second-half (short-run view) of the hypothesis, monetary policy does not overwhelmingly affect prices in the short-term. Hence, but for a thin exception, H1 is valid. H2: Monetary policy variables influence output in the short-term but not in the long-term. With regard to the short-term dimension of the hypothesis, only financial dynamics of depth and size affect real gross domestic product output in the short-run. As concerns the long-run dimension, the neutrality of monetary policy has been confirmed. Hence, the hypothesis is also broadly valid.

Practical implications

A wide range of policy implications are discussed. Inter alia: the long-run neutrality of money and business cycles, credit expansions and inflationary tendencies, inflation targeting and monetary policy independence implications. Country-/regional-specific implications, the manner in which the findings reconcile the ongoing debate, measures for fighting surplus liquidity and caveats and future research directions are also discussed.

Originality/value

By using a plethora of hitherto unemployed financial dynamics (that broadly reflect monetary policy), we provide significant contributions to the empirics of money. The conclusion of the analysis is a valuable contribution to the scholarly and policy debate on how money matters as an instrument of economic activity in developing countries.

Details

Indian Growth and Development Review, vol. 7 no. 2
Type: Research Article
ISSN: 1753-8254

Keywords

Article
Publication date: 30 April 2021

Achille Dargaud Fofack, Serge Djoudji Temkeng and Clement Oppong

This paper aims at analyzing the asymmetries created by the Great Recession in the US real estate sector.

Abstract

Purpose

This paper aims at analyzing the asymmetries created by the Great Recession in the US real estate sector.

Design/methodology/approach

This paper uses a Markov-switching dynamic regression model in which parameters change when the housing market moves from one regime to the other.

Findings

The results show that the effect of real estate loans, interest rate, quantitative easing and working age population are asymmetric across bull and bear regimes. It is also found that the estimated parameters are larger in bull regime than bear regime, indicating a tendency to create house price bubbles in bull market.

Practical implications

Since three of those asymmetric variables (real estate loans, interest rate and quantitative easing) are related to monetary policy, the Fed can mitigate their impact on an interest-sensitive sector such as housing by engaging in a countercyclical monetary policy.

Originality/value

The estimated intercept and the variance parameter both vary from one regime to the other, thus justifying the use of a regime-dependent model.

Details

Journal of Economic and Administrative Sciences, vol. 39 no. 1
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 13 June 2016

Simplice Asongu

A major lesson of the European Monetary Union crisis is that serious disequilibria in a monetary union result from arrangements not designed to be robust to a variety of shocks…

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Abstract

Purpose

A major lesson of the European Monetary Union crisis is that serious disequilibria in a monetary union result from arrangements not designed to be robust to a variety of shocks. With the specter of this crisis looming substantially and scarring existing monetary zones, the purpose of this paper is to complement existing literature by analyzing the effects of monetary policy on economic activity (output and prices) in the CEMAC and UEMOA CFA franc zones.

Design/methodology/approach

VARs within the frameworks of Vector Error-Correction Models and Granger causality models are used to estimate the long- and short-run effects, respectively. Impulse response functions are further used to assess the tendencies of significant Granger causality findings. A battery of robustness checks are also employed to ensure consistency in the specifications and results.

Findings

H1. monetary policy variables affect prices in the long-run but not in the short-run in the CFA zones (broadly untrue). This invalidity is more pronounced in CEMAC (relative to all monetary policy variables) than in UEMOA (with regard to financial dynamics of activity and size). H2. monetary policy variables influence output in the short-term but not in the long-run in the CFA zones. First, the absence of cointegration among real output and the monetary policy variables in both zones confirm the neutrality of money in the long term. With the exception of overall money supply, the significant effect of money on output in the short-run is more relevant in the UEMOA zone, than in the CEMAC zone in which only financial system efficiency and financial activity are significant.

Practical implications

First, compared to the CEMAC region, the UEMOA zone’s monetary authority has more policy instruments for offsetting output shocks but fewer instruments for the management of short-run inflation. Second, the CEMAC region is more inclined to non-traditional policy regimes while the UEMOA zone dances more to the tune of traditional discretionary monetary policy arrangements. A wide range of policy implications are discussed. Inter alia: implications for the long-run neutrality of money and business cycles; implications for credit expansions and inflationary tendencies; implications of the findings to the ongoing debate; country-specific implications and measures of fighting surplus liquidity.

Originality/value

The paper’s originality is reflected by the use of monetary policy variables, notably money supply, bank and financial credits, which have not been previously used, to investigate their impact on the outputs of economic activities, namely, real GDP output and inflation, in developing country monetary unions.

Details

African Journal of Economic and Management Studies, vol. 7 no. 2
Type: Research Article
ISSN: 2040-0705

Keywords

Abstract

Details

Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

Article
Publication date: 10 July 2020

Manuel M. Dayrit and Ronald Umali Mendoza

The control of particularly virulent communicable diseases such as COVID-19 can be considered a global public good. Unabated contagion, both within and across borders, can result…

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Abstract

Purpose

The control of particularly virulent communicable diseases such as COVID-19 can be considered a global public good. Unabated contagion, both within and across borders, can result in a global public bad. More effective control – such as by flattening the epidemiological curve – could prevent severe social and economic disruption by allowing domestic health and social protection systems to more adequately respond to the health crisis. This article elaborates on some of the main elements of counter COVID-19 responses, drawing on emerging international good practices. While a full evaluation of policy effectiveness is still forthcoming, it is critical to review and synthesize the emerging lessons and evidence even this early.

Design/methodology/approach

This article reviews the international good practices in counter COVID-19 responses across countries.

Findings

Concerted efforts across borders, such as by sharing data and collaborating in research and by coordinating international support for countercyclical economic and health responses at the national level, are some of the options for countering COVID-19 at the international level. Within countries, more inclusive social protection and health systems, combined with countercyclical economic policies, and concerted behavioral changes tend to produce more effective collective action against the spread of the disease.

Research limitations/implications

This study is based on a review of emerging responses to the health crisis.

Practical implications

The policies and practices reviewed in this paper could feed into better-informed crisis responses to COVID-19 and other types of health shocks.

Originality/value

This study is among the first general reviews of policy responses to the COVID-19 health crisis.

Details

International Journal of Health Governance, vol. 25 no. 3
Type: Research Article
ISSN: 2059-4631

Keywords

Book part
Publication date: 19 October 2016

Thomas Marois and Hepzibah Muñoz-Martínez

This paper aims to expose the economic and political relations of power disguised in the concept of financial risk as institutionalized in post-crisis economic policies and…

Abstract

This paper aims to expose the economic and political relations of power disguised in the concept of financial risk as institutionalized in post-crisis economic policies and practices. We do so by examining, from a historical materialist approach, the actors and social struggles implicated in the aftermath of crisis in Mexico and Turkey. We argue that Mexican and Turkish state authorities have targeted workers so that they may disproportionately bear the costs of financial uncertainty and recurrent crises as workers, taxpayers, and debtors in the aftermath of the 2008–2009 crisis. We emphasize, though, that there are important institutional mediations and case study specificities. Mexico’s reforms that target labor as one of the main bearers of financial risk have been locked into legislation and constitutional changes. Turkey’s policies have been implemented in a more ad-hoc manner. In both cases under contemporary capitalism, we see risk as not confined to national borders but as also flowing through the world market. We further argue that the World Bank Report 2014 Risk and Opportunity: Managing Risk for Development emerges out of and reflects such real world responses to crisis that have been predominantly shaped by advocates of neoliberalism, to the benefit of capital. As an expression internal to global capitalism, the World Bank Report functions to legitimize the exploitative content of contemporary financial risk management policy prescriptions. In response, democratized financial alternatives that privilege the needs of workers and the poor are required.

Details

Risking Capitalism
Type: Book
ISBN: 978-1-78635-235-4

Keywords

Article
Publication date: 7 November 2016

Ryan H. Murphy

This paper aims to address a growing empirical literature which measures the size of the fiscal multiplier at the state and local levels. This literature generally fails to…

124

Abstract

Purpose

This paper aims to address a growing empirical literature which measures the size of the fiscal multiplier at the state and local levels. This literature generally fails to consider the reaction function of the central bank, which typically should be expected to offset local increases in spending by reducing it elsewhere in the currency area. This is true under rather orthodox assumptions, such as an inflation targeting central bank meeting its target.

Design/methodology/approach

The author reviews prominent examples of the literature and establishes the extent to which the empirical methodology avoids the issue he raises. Subsequently, the author discusses its importance.

Findings

Certain papers in the literature, especially Nakamura and Steinsson (2014), are careful about the issue. Most papers reviewed, however, are not.

Practical implications

There are severe limitations to papers using these methodologies. They are either contingent on very specific assumptions regarding central banks or lack policy relevance. Earlier methodologies, such as vector autoregression and the “narrative” method, deserve higher relative credence among methodologies applied to studying the size of the fiscal multiplier.

Originality/value

The current literature either entirely ignores the issue raised here or it is very briefly brushed aside. Considering the orthodoxy of the assumptions, at the very least, the issue deserves far greater recognition in the future. It may demand a broader re-evaluation of the family of methods.

Details

Journal of Financial Economic Policy, vol. 8 no. 4
Type: Research Article
ISSN: 1757-6385

Keywords

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