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The Making of Contemporary Australian Monetary Policy – Forward Or
Advances in Economics, Business and Management Research (AEBMR), volume 37 International Conference on Transformations and Innovations in Management (ICTIM-17) THE MAKING OF CONTEMPORARY AUSTRALIAN MONETARY POLICY – FORWARD OR BACKWARD LOOKING? Ying Chen SHU-UTS SILC Business School, Shanghai University, P.R.China Maoguo Wu SHU-UTS SILC Business School, Shanghai University, P.R.China Abstract: Monetary authorities rarely disclose their true reasons for their policy reactions. Tracing the policy reaction function to see if the monetary authority is using simple rules would offer profound insight into the past behavioral relationship between the monetary authority and economic agencies. A reasonable body of knowledge about the direction of monetary policy would assist economic agencies’ expectations, which would in turn, be useful for the monetary authority in anticipating the likely trends for the general economy. The main objective of this study is to extend de Brouwer and Gilbert (2005) as from the Australian financial deregulation era (from 1983 to 2002) to the present. Empirical findings show that the Reserve Bank of Australia (RBA) is forward looking when formulating monetary policy rather than backward looking, and that inflation targeting plays a significant role in stabilizing the output of the economy. Keywords: backward looking, forward looking, generalized method of moments JEL code: E52 1. Introduction According to RBA charter, monetary policy is the central instrument for maintaining low, stable inflation, stabilizing the home currency, preserving full employment level, maintaining the economic prosperity and welfare of the citizen and maximizing the sustainability of economic growth. Most major central banks use an overnight cash rate1 as the tool of policy. -
To What Extent Did Monetary Policy Contribute Towards the Recent Financial Crisis and Subsequent Recession in the US and UK?
International Research in Economics and Finance; Vol. 3, No. 2; December, 2019 ISSN 2529-8038 E-ISSN 2591-734X Published by July Press To What Extent did Monetary Policy Contribute Towards the Recent Financial Crisis and Subsequent Recession in the US and UK? Tao Hu1 & Ceri Davies1 1 University of Birmingham, UK Correspondence: Tao Hu, 3/77 Albion Road, Box Hill, VIC 3128, Australia. Tel: 61-47-877-6275. Received: October 25, 2019 Accepted: November 14, 2019 Online Published: December 15, 2019 doi:10.20849/iref.v3i2.691 URL: https://doi.org/10.20849/iref.v3i2.691 Abstract This essay researches the question, “To what extent did monetary policy contribute towards the recent financial crisis and subsequent recession in the US and UK?” This article begins by demonstrating monetary policy’s role in guiding the economy’s development under different economic fundamentals. Then the essay puts forward the existence of possibility that monetary policy may cause potential dangers for the economy. In the next chapter, the essay illustrates the guideline for monetary policy namely Taylor rule and economists’ arguments and explanations for the US monetary policy in the past decade. In chapter 3, this article estimates the nominal interest rates for both the US and the UK based on Taylor rule for different periods and illustrates influences of monetary policy actually taken for each country in different periods. In chapter 4, the article tests the relationship between monetary policy’s deviations from Taylor rule and financial imbalances by using the OLS method and explains results. Finally, in chapter 5, the article concludes that in some degree monetary policy’s deviations from Taylor rule prescriptions contribute to a build-up of financial imbalances. -
Central Bank Liquidity Tools and Perspectives on Regulatory Reform ECONOMIC POLICY REVIEW
Federal Reserve Bank of New York August 2010 August Economic Volume 16 Number 1 16 Number Volume Policy Review Special Issue: Central Bank Liquidity Tools and Perspectives on Regulatory Reform ECONOMIC POLICY REVIEW EDITOR Kenneth D. Garbade COEDITORS Meta Brown Marco Del Negro Jan Groen Stavros Peristiani Asani Sarkar EDITORIAL STAF F Valerie LaPorte Mike De Mott Michelle Bailer Karen Carter PRODUCTION STAFF Carol Perlmutter David Rosenberg Jane Urry The Economic Policy Review is published by the Research and Statistics Group of the Federal Reserve Bank of New York. Articles undergo a comprehensive refereeing process prior to their acceptance in the Review. The views expressed are those of the individual authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. www.newyorkfed.org/research EDITOR’S NOTE The papers in this special volume of the Economic Policy Review all focus on the theme of a 2009 conference on central bank liquidity tools organized by the Federal Reserve Bank of New York: the evaluation of central bank programs implemented to address funding shortages in the markets. Indeed, readers interested in detailed summaries of the conference papers and their discussions will find the overview by Matthew Denes and his coauthors very informative. Two of the papers presented at the conference are included in this volume: the studies by Stephen G. Cecchetti and Piti Disyatat and by Erhan Artuç and Selva Demiralp. Both papers examine the past actions of central banks in the financial crisis. Cecchetti and Disyatat consider the implications that recent financial developments may have for the fundamental nature of central banks’ lender-of-last-resort function and whether the traditional tools at policymakers’ disposal remain effective in the face of modern liquidity crises. -
The Response of Short-Term Bank Lending Rates to Policy Rates: a C1rnss-Cmmtry Perspective1
- 106 - The response of short-term bank lending rates to policy rates: a c1rnss-cmmtry perspective1 Claudio E.V. Borio alll.d Wilhelm Fritz Bank for International Settlements I. INTRODUCTION The issue of the size and speed of the response of bank lending rates to changes in policy-controlled interest rates represents an important dimension of the transmission mechanism of monetary policy. Bank lending rates are a key, if not the best, indicator of the marginal cost of short term external funding in an economy. Moreover, they can also provide useful information about developments in the average cost of borrowing, to a degree that depends on agents' reliance on short term or adjustable rate financing at those rates. Such opportunity cost and cash-flow effects are two of the main channels through which monetary policy impulses are transmitted to the rest of the economy. This explains concerns related to the widening of lending spreads in those countries experiencing extensive balance-sheet restructuring in the financial and non-financial sectors during the latest recession, especially in some Anglo-Saxon and Nordic countries as well as in Japan. It is also part of the reason for the short-term difficulties in defending external parities in the face of rapid adjustments oflending rates to policy-controlled rates brought to light by the ERM crisis in the autunrn of 1992. The following study compares the response of key short-term bank lending rates to policy rates in all the countries covered by the project on the transmission mechanism for which appropriate data were available; Austria and Switzerland are excluded. -
Central Bank Tools and Liquidity Shortages
Stephen G. Cecchetti and Piti Disyatat Central Bank Tools and Liquidity Shortages 1.Introduction After providing our definitions, in Section 3 we proceed with a discussion of the tools that central banks have at their he global financial crisis that began in mid-2007 has disposal and how they might be tailored to address each type of Trenewed concerns about financial instability and focused liquidity shortage. Section 4 offers a brief description of how attention on the fundamental role of central banks in recent actions by major central banks can be interpreted from preventing and managing systemic crises. In response to the this perspective; Section 5 concludes. We note at the outset that turmoil, central banks have made extensive use of both new and our focus is on central bank liquidity operations and not on existing tools for supplying central bank money to financial policymakers’ interest rate responses. institutions and markets. Against this backdrop, there has been intense interest in the implications that recent financial developments may have for the fundamental nature of central banks’ lender-of-last-resort (LOLR) function and whether the 2. Liquidity Shortages and traditional tools that have been at policymakers’ disposal the Lender of Last Resort remain adequate in the face of modern liquidity crises. This paper addresses these issues, and in doing so provides a view of Apart from the conduct of monetary policy, a vital recent central bank liquidity operations that is tied more closely responsibility of central banks in most countries is to perform to their underlying purpose from the LOLR perspective. -
Central Bank Communication: a Quantitative Assessment
RESEARCH DEPARTMENT WORKING PAPER NO. 33 Central bank communication: A quantitative assessment EKKEHARD ERNST ROSSANA MEROLA ISSN 2306-0875 AUGUST 2018 Research Department Working Paper No. 33 Central bank communication: A quantitative assessment Ekkehard Ernst Rossana Merola* August 2018 International Labour Office * Research Department, International Labour Organization. E-mail: [email protected]; [email protected]. Acknowledgements We are grateful to Boris Cournède for having shared with us the OECD quarterly data for the output gap, and to Davide Furceri, André Gama, Frédéric Martenet, Stefano Nardelli, Aurelio Parisotto and Rebecca Stuart for valuable comments and discussion. We also thank participants at the 10th International Conference on Computational and Financial Econometrics (CFE 2016), the Annual Congress 2017 of the Swiss Society of Economics and Statistics and the International Conference on Economic Modelling (EcoMod 2018), as well as seminar attendees at the IMF and the University of Nürnberg. Martina Hengge and Patrick Kellenberger provided excellent research assistance. The views expressed in this paper are ours own and are not necessarily reflective of views at the ILO. Abstract In this paper we propose a new set of indicators of central bank’s communication to estimate speech intensity in five different fields: monetary conditions, financial stability, external competitiveness, labour and social conditions and economic activity. We develop an automated text-mining routine using the Bank of International Settlements (BIS) collection of speeches given by central bank senior executives. We use this set of indicators to compare goals and strategies across several central banks (the Federal Reserve, the European Central Bank, the Bank of England and the Reserve Bank of Australia) from the late 1990s up to 2016. -
ECB Quantitative Easing (QE): Lessons Drawn from QE Experiences Carried out by Other Major Central Banks
DIRECTORATE GENERAL FOR INTERNAL POLICIES POLICY DEPARTMENT A: ECONOMIC AND SCIENTIFIC POLICY ECB Quantitative Easing (QE): Lessons drawn from QE experiences carried out by other major central banks Monetary Dialogue 23 March 2015 COMPILATION OF NOTES Abstract The notes in this compilation prepared by key monetary experts review the asset purchase programmes (Quantitative Easing or QE) undertaken by major central banks of developed countries in recent years, discuss their macroeconomic and financial effects and elaborate on the policy messages relevant for the euro area that can be drawn from these experiences. The notes have been requested by the Committee on Economic and Monetary Affairs (ECON) of the European Parliament as an input for the March 2015 session of the Monetary Dialogue between the Members of the ECON Committee and the President of the ECB. IP/A/ECON/NT/2015-01 March 2015 PE 587.289 EN This document was requested by the European Parliament's Committee on Economic and Monetary Affairs. AUTHORS Daniel GROS, Cinzia ALCIDI, Willem Pieter De GROEN (CEPS, Centre for European Policy Studies) Andrew HUGHES HALLETT (School of Economics and Finance, University of St Andrews) Klaus-Jürgen GERN, Nils JANNSEN, Stefan KOOTHS, Maik WOLTERS (Kiel Institute for the World Economy) Christophe BLOT, Jérôme CREEL, Paul HUBERT, Fabien LABONDANCE (OFCE, Observatoire Français des Conjonctures Économiques) RESPONSIBLE ADMINISTRATOR Dario PATERNOSTER EDITORIAL ASSISTANT Irene VERNACOTOLA LINGUISTIC VERSIONS Original: EN ABOUT THE EDITOR Policy -
A Note on Monetary Policy
A Note on Monetary Policy John Whittaker In the UK and other countries with developed financial markets, central banks set the short-term nominal interest rate for the currency they issue: the short-term interest rate is the monetary instrument. The first part of this note describes how the central bank interacts with financial markets and how its choices of interest rate are transmitted to the wider economy. The second part discusses the financial crisis and assesses how it has changed the nature of monetary policy and its application, in particular the use of quantitative easing and the large expansion of bank regulation. 1. Interest rate policy 1.1 The functions of commercial banks 1 1.2 The Bank of England’s operations 2 1.3 Interest rate application: the corridor system 3 1.4 The banks’ retail rates 5 1.5 The effects of changes in the interest rate: the transmission mechanism of monetary policy 6 1.6 Long-term rates and real rates of interest 7 1.7 The central bank’s choice of interest rate and central bank independence 9 2. The financial crisis and consequences 2.1 The financial crisis 11 2.2 Quantitative easing 12 2.3 Bank regulation 14 2.4 The Covid crisis 16 Appendix: Monetary base control 17 Economics Department Lancaster University January 2021 monpol25 http://www.lancaster.ac.uk/staff/whittaj1/ 1. Interest rate policy 1.1 The functions of banks holder makes a payment (see the simplified balance sheet below). But loans are the largest The business of banks (commercial banks) is to component of banks’ assets and they are illiquid: take deposits and to lend, and they make profits they may, for instance, be mortgage finance to from the interest margin between the rate they householders or loans to businesses, and they charge for loans and the rate they pay to cannot easily be sold if the bank needs to repay its depositors. -
An Empirical Analysis of the Taylor Rule and Its Application to Monetary Policy: a Case for the United Kingdom and Euro Area
Asian Journal of Economics and Empirical Research Vol. 5, No. 2, 173-182, 2018 ISSN(E) 2409-2622/ ISSN(P) 2518-010X DOI: 10.20448/journal.501.2018.52.173.182 An Empirical Analysis of the Taylor Rule and Its Application to Monetary Policy: A Case for the United Kingdom and Euro Area Keshab Bhattarai1 Matthew Carter2 1,2The Business School, University of Hull, Cottingham Road, Hull, HU6 7RX, United Kingdom ( Corresponding Author) Abstract This paper analyses the Taylor rule and its application to monetary policy in the United Kingdom and Euro area. The analysis uses a linear regression on quarterly economic data from 1993Q1 to 2017Q4 for the United Kingdom and 2000Q1 to 2016Q4 for the Euro area. The results show that the Taylor rule does not fully describe the monetary policy actions made by the Bank of England and European Central Bank over the period analysed; and, that both central banks engage in a significant level of interest rate smoothing. The results also suggest that the Taylor rule does not provide the rationale for quantitative easing within the two regions and that interest rates should be higher than they currently are. Keywords: Interest rate rule, Taylor rule, Monetary policy, United Kingdom, Euro area. JEL Classification: E43; E47. Citation | Keshab Bhattarai; Matthew Carter (2018). An Empirical Contribution/Acknowledgement: Both authors contributed to the Analysis of the Taylor Rule and Its Application to Monetary Policy: conception and design of the study. A Case for the United Kingdom and Euro Area. Asian Journal of Funding: This study received no specific financial support. -
INVESTMENT PERFORMANCE ANALYSIS Melissa Terry Town of Palm Beach Health Insurance Trust CLIENT SERVICE CONTACT [email protected]
CONSULTING TEAM Sean Higman Jon Prime George Hauptfuhrer INVESTMENT ANALYST Michelle Tarr First Quarter 2016 PERFORMANCE ANALYST INVESTMENT PERFORMANCE ANALYSIS Melissa Terry Town of Palm Beach Health Insurance Trust CLIENT SERVICE CONTACT [email protected] GENERAL CONTACT 273 Corporate Drive, Suite 250 Portsmouth, NH 03801 P: 603.433.1143 F: 603.433.8661 www.primebuchholz.com ©Prime, Buchholz & Associates, Inc. Index • Market Environment • Total Fund Review – Total Fund Highlights – Segment Performance – Executive Summary – Asset Allocation – Plan Sponsor Peer Group Analysis – Schedule of Investable Assets – Liquidity Schedule – Operational Detail – Fee Schedule – Peer Performance Comparison • Exposures and Characteristics • Investment Detail – Performance Highlights – Manager Profiles – Historical Performance Town of Palm Beach Health Insurance Trust 2 0DUNHW(QYLURQPHQW 3 Global Economic Highlights First Quarter 2016 Sequential economic data, annualized, released in the first quarter of 2016 Unemployment across OECD countries was 6.5% at the end of February showed the U.S. economy grew 1.4% during the fourth quarter of 2015, a 2016. The euro area remained elevated at 10.3%, with Spain (20.4%), slowdown from the previously reported 2.0%. Compared to the prior Portugal (12.3%), and Italy (11.7%) showing improvements, but remaining period’s growth rate, China decelerated to 6.6% while Japan’s growth rate fell elevated. The lowest unemployment rates were generally outside of the to −1.1%. Europe (+1.3%) was fairly steady, with similar gains experienced euro area and included the U.S. (4.9%), Korea (4.1%), Mexico (4.2%), across France (+1.3%), Belgium (+1.3%), Austria (+1.2%), and Germany Japan (3.3%), and Iceland (3.1%). -
Strategic Quantitative Easing
Strategic quantitative easing: Stimulating investment to rebalance the economy nef is an independent think-and-do tank that inspires and demonstrates real economic well-being. We aim to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environmental and social issues. We work in partnership and put people and the planet first. nef (the new economics foundation) is a registered charity founded in 1986 by the leaders of The Other Economic Summit (TOES), which forced issues such as international debt onto the agenda of the G8 summit meetings. It has taken a lead in helping establish new coalitions and organisations such as the Jubilee 2000 debt campaign; the Ethical Trading Initiative; the UK Social Investment Forum; and new ways to measure social and economic well-being. Contents Executive summary 1 The impact of QE: theory and evidence 1 If it is broke, don’t use it: the problem with trying to get banks to lend 1 Strategic QE: public money for public benefit 1 Getting the governance right 2 1. Introduction: public money for public good 3 1.1 What this report is about 3 1.2 Structure of the report 4 2. Money, credit, and economic policy 5 2.1 Who creates money? 5 2.2 UK economic policy and performance 6 2.3 Monetary policy and central bank operations 9 3. Understanding QE in theory 13 3.1 How QE works 13 3.2 Who runs the Asset Purchase Facility? 13 3.3 Theoretical impact of QE 14 3.4 Funding for Lending 17 4. -
Ben Broadbent: the History and Future of QE
The history and future of QE Speech given by Ben Broadbent, Deputy Governor Monetary Policy Society of Professional Economists, London 23 July 2018 I have benefitted from helpful comments from my colleagues at the Bank of England. I would particularly like to thank Mette E. Nielsen for valuable research assistance. The views expressed are my own and do not necessarily reflect those of the Bank of England or other members of the Monetary Policy Committee. 1 All speeches are available online at www.bankofengland.co.uk/speeches Hello, and thank you for inviting me today. In 2002, the University of Chicago held a 90th birthday party for the great American economist Milton Friedman. One important guest was Anna Schwartz, who four decades earlier had co-written with Friedman the landmark book A Monetary History of the United States. It’s possible that, even among those of you prepared to give up a pleasant July evening to come to a talk by a central bank official, an 800-page tome entitled “A monetary history of [anywhere]” won’t have found its way to the very top of your holiday reading list. But it’s actually a gripping read, especially the chapter about the Great Depression. It also has a claim as the most influential piece of economic history ever written. The book pioneered a new “narrative” approach to identifying independent changes in monetary policy – the idea being that, to separate these from the more automatic (“endogenous”) reactions of policymakers to the economy you needed to scour the historic record and understand how their decisions were actually taken.1 It changed economists’ perceptions of the role of monetary forces, including monetary policy, in economic fluctuations.