The Value of Intermediate Targets in Implementing Monetary Policy PDF Download
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Author: Benjamin M. Friedman
Publisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 26
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Book Description
This paper reports empirical results indicating that there is no compelling evidence in favor of singling outany one variable as "the intermediate target" of monetary policy. Of the variables considered here - including money (M1), credit, a long-term interest rate, and whichever of either reserves or a short-term interest rate the Federal Reserve System does not set directly by open market operations -- most do contain at least some statistically significant information about the future growth of nominal income, real income, or prices. In most cases, however, this information is significant statistically but not economically. In other words, the reduction in forecasting error gained from using this information is typically too small to be of great moment in a policy context. The papers principal conclusion, therefore, is to cast doubt on the practice of designating specific financial variables as intermediate targets of monetary policy. To the extent that such targets are necessary for independent reasons, however, the strength of this conclusion varies from one potential intermediate target to another. Among the variables considered here, credit growth and the long-term interest rate appear to offer the best prospects of providing information that would be useful in formulating and implementing monetary policy. Although the empirical results reported here rely on an econometric model that is extremely compact and simple, the method of analysis suggested in this paper is more general. Its key contribution is to use a structural model to address questions for which the previous literature has relied on nonstructural methods. The application of this method of analysis to one small, simple model here need be no more than an illustration. Applying it to a larger and more complex model would be a straightforward extension of this research
Author: Benjamin M. Friedman
Publisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 26
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Book Description
This paper reports empirical results indicating that there is no compelling evidence in favor of singling outany one variable as "the intermediate target" of monetary policy. Of the variables considered here - including money (M1), credit, a long-term interest rate, and whichever of either reserves or a short-term interest rate the Federal Reserve System does not set directly by open market operations -- most do contain at least some statistically significant information about the future growth of nominal income, real income, or prices. In most cases, however, this information is significant statistically but not economically. In other words, the reduction in forecasting error gained from using this information is typically too small to be of great moment in a policy context. The papers principal conclusion, therefore, is to cast doubt on the practice of designating specific financial variables as intermediate targets of monetary policy. To the extent that such targets are necessary for independent reasons, however, the strength of this conclusion varies from one potential intermediate target to another. Among the variables considered here, credit growth and the long-term interest rate appear to offer the best prospects of providing information that would be useful in formulating and implementing monetary policy. Although the empirical results reported here rely on an econometric model that is extremely compact and simple, the method of analysis suggested in this paper is more general. Its key contribution is to use a structural model to address questions for which the previous literature has relied on nonstructural methods. The application of this method of analysis to one small, simple model here need be no more than an illustration. Applying it to a larger and more complex model would be a straightforward extension of this research
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498344062
Category : Business & Economics
Languages : en
Pages : 74
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Book Description
Over the past two decades, many low- and lower-middle income countries (LLMICs) have improved control over fiscal policy, liberalized and deepened financial markets, and stabilized inflation at moderate levels. Monetary policy frameworks that have helped achieve these ends are being challenged by continued financial development and increased exposure to global capital markets. Many policymakers aspire to move beyond the basics of stability to implement monetary policy frameworks that better anchor inflation and promote macroeconomic stability and growth. Many of these LLMICs are thus considering and implementing improvements to their monetary policy frameworks. The recent successes of some LLMICs and the experiences of emerging and advanced economies, both early in their policy modernization process and following the global financial crisis, are valuable in identifying desirable features of such frameworks. This paper draws on those lessons to provide guidance on key elements of effective monetary policy frameworks for LLMICs.
Author:
Publisher:
ISBN:
Category : Dollar, American
Languages : en
Pages : 32
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Book Description
Author: Charles Freedman
Publisher: International Monetary Fund
ISBN: 145187233X
Category : Business & Economics
Languages : en
Pages : 27
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Book Description
This is the second chapter of a forthcoming monograph entitled "On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." We begin by discussing the costs of inflation, including their role in generating boom-bust cycles. Following a general discussion of the need for a nominal anchor, we describe a specific type of monetary anchor, the inflation-targeting regime, and its two key intellectual roots-the absence of long-run trade-offs and the time-inconsistency problem. We conclude by providing a brief introduction to the way in which inflation targeting works.
Author: Board of Governors of the Federal Reserve System
Publisher:
ISBN: 9780894991967
Category : Banks and Banking
Languages : en
Pages : 0
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Book Description
Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.
Author: A. Grimes
Publisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 60
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Book Description
Author: Peter Bofinger
Publisher: Oxford University Press
ISBN: 0191664847
Category : Business & Economics
Languages : en
Pages : 477
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Book Description
This book provides an in-depth description and analysis of monetary policy in Europe and the United States. Unusually for a volume in the field, it focuses on actual monetary policy—-targets, institutions, strategies, and instruments—-but traditional and contemporary theoretical approaches to monetary policy form the basis for each chapter. Concentrating specifically on the European Central Bank, Monetary Policy offers one of the first comprehensive guides to understanding the targets, strategy, and instruments of the ECB. In the past, many books have presented mere descriptions of the institutional framework without providing a theoretical framework, while others have dealt mainly with theoretical aspects, thus neglecting the policy implications of their analysis. By combining a theoretical with a policy-oriented approach, Peter Bofinger succeeds in closing this gap in the monetary policy literature. As a result, his book will appeal to a broad readership, including investment bankers and other professional investors, central bankers, and scholars working in the field.
Author: Alexandre Chailloux
Publisher: International Monetary Fund
ISBN: 1451872968
Category : Business & Economics
Languages : en
Pages : 47
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Book Description
This paper discusses the use of interest rates as the operating target for monetary policy in Tunisia and the roadmap for establishing the other building blocks of an inflation targeting framework. It argues that strengthening the effectiveness of the current monetary policy framework will facilitate the adoption of inflation targeting over time.
Author: Nils Mæhle
Publisher: International Monetary Fund
ISBN: 1513526855
Category : Business & Economics
Languages : en
Pages : 57
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Book Description
This paper discusses operational issues for countries that want to reform their monetary policy frameworks. It argues that stabilizing short-term interest rates on a day-to-day basis has significant advantages, and thus that short-term interest rates, not reserve money, in most cases should be the daily operating target, including for countries relying on a money targeting policy strategy. The paper discusses how a policy formulation framework based on monetary aggregates can be combined with an operational framework that ensures more stable and predictable short-term rates to enhance policy transmission. It also discusses how to best configure an interest-rate-based operational framework when markets are underdeveloped and liqudity management capacity is weak.
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498343694
Category : Business & Economics
Languages : en
Pages : 61
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Book Description
With single-digit inflation and substantial financial deepening, developing countries are adopting more flexible and forward-looking monetary policy frameworks and ascribing a greater role to policy interest rates and inflation objectives. While some countries have adopted formal inflation targeting regimes, others have developed frameworks with greater target flexibility to accommodate changing money demand, use of policy rates to signal the monetary policy stance, and implicit inflation targets.
