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The purpose of this paper is to investigate the performance of the trade‐weighted US dollar from 1973 to 2011 as a result of monetary policy.
Relevant time series variables – the money supply, the federal funds rate, general financial conditions, national income and interest rate spread are used to investigate the impact of shocks on the US trade‐weighted dollar and to explain the predictive power the variables hold over the weighted dollar. This is accomplished by using the conventional procedures of variance decomposition and Granger causality tests.
The paper finds that unexpected changes in national financial conditions, the federal funds rate and the velocity of money account for more variation in the performance of the trade‐weighted US dollar than do surprises associated with the interest rate spread (the variable that tracks quantitative easing (QE), quantitative contraction (QC) and neutrality).
This article is unique in adding to the literary discourse by incorporating international trade and other national conditions as key indicators of the long‐term value of a trade‐weighted currency and its propensity to increase national income. It provides an opportunity for further analysis of the role of QE in currency valuation when the short‐term interest rate becomes an inadequate monetary policy instrument for economic stabilization and determining the value of a currency.
The paper argues that the velocity of money has strong predictive power over the performance of the trade‐weighted dollar and that monetary policy can help to predict changes in the financial and real sectors, but not the value of the trade‐weighted dollar directly or in isolation. This is partly because the monetary policy transmission mechanism and external prices are also relevant to the weighted value of the currency over an extended period of time.
Financial markets have experienced considerable turbulence over the past two decades. The recent subprime and sovereign debt crises in the United States and Europe…
Financial markets have experienced considerable turbulence over the past two decades. The recent subprime and sovereign debt crises in the United States and Europe, respectively, have resulted in significant new regulatory responses. They also prompted the re-evaluation of how best to manage and measure financial risk. The 20 chapters in this volume provide a number of different perspectives on financial risk in the post-crisis period where monetary easing has become a predominant monetary policy. While asset price volatility has now returned to levels experienced in the mid-2000s many lessons remain. Among the most important is the need to accurately measure and manage the complex risks that exist in financial markets. Our hope is that the chapters presented here provide a better understanding of how best to do this, while also giving insights for next suitable steps and further developments.
All over the world, the role of central banks is being redefined following the outbreak of the global financial crisis and subsequent breakdown of the “great moderation”…
All over the world, the role of central banks is being redefined following the outbreak of the global financial crisis and subsequent breakdown of the “great moderation” consensus. Consequently, most advanced economies adopted non-conventional approaches of monetary policy which resulted in spill-overs to emerging markets and developing countries with implications on their financial system and monetary policy transmission. This, coupled with, internal developments in the financial systems of developing countries necessitated modifications of not only monetary policy frameworks but also responsibilities of most central banks. This chapter acknowledges possible evolutions of the financial structure variables in developing countries and uses data from Kenya to analyze the dynamic linkages between financial sector variables and monetary policy transmission in the light of the financial crisis. The study used structural vector autoregression to examine the relationship between financial structure variables and monetary policy as well as assess the relative importance of various monetary transmission channels in Kenya. The results show that the changing financial structure represented by credit to the private sector and stock market indicators in Kenya only slightly altered relative importance of monetary policy transmission. The insignificance of credit to the private sector suggests that the importance attached to the bank lending channel in previous studies is waning while the marginal significance of the stock market indicator signals the potential for asset price channel. The results also indicate that the interest rate and exchange rate channels are relatively more important in Kenya while the asset prices is only marginally significant and bank lending channel is the weakest in the intermediate stage of monetary policy transmission. However, transmission of monetary policy to the ultimate objectives is somewhat slow and weak to inflation and almost absent to output. The result implies a limited role of monetary policy on growth and questions the wisdom of pursuing multiple objectives.
Getting rid of the contradictions between financial and sustainability reports is not straightforward, owing to their disparate financial-, environmental- and…
Getting rid of the contradictions between financial and sustainability reports is not straightforward, owing to their disparate financial-, environmental- and people-related data. The purpose of this paper is to show how a big step toward integrating the reports can be made by focusing on extracted value and subtracting it from reported profits. Value extraction is defined as value captured from stakeholders by distorting the competitive market process.
Value extracted is identified by looking at three ways in which it is done: manipulating markets to enhance profits, exploiting market distortions to socialize costs and privatizing benefits. These categories are related to one consolidated bottom-line using the data from JPMorgan’s 2012 reports. Application to the Western oil majors shows how one bottom-line can be used to assess the risks posed by value extraction to the economic sustainability of a firm.
Conservatively estimated, JPMorgan’s value extracted in 2012 was 25 per cent of reported profits. From 2007-2009, the average annual value extracted by Exxon and Chevron was 17 and 16 per cent of reported profits, respectively, whereas for BP and Eni, it was 23 and 30 per cent, respectively. Higher value extraction by BP preceded the Deepwater Horizon explosion and, in Eni’s case, the political disruption of its activities.
It is difficult to get precise numbers on the value extracted because sustainability costing and related data are often neither available nor standardized.
Reported profits minus value extracted, defined as competitive profits, provide a proxy for one bottom line that integrates the financial and sustainability reports.
The Fed also released its ‘Beige book’ summary of economic conditions in the twelve Fed districts; all reported growth and higher consumer spending and expressed concerns…