Social and Behavioral Sciences Commons^™

House Bubbles, Global Imbalances And Monetary Policy In The Us, Anastasios Evgenidis, A. (Tassos) G. Malliaris

School of Business: Faculty Publications and Other Works

This paper examines the factors driving housing price exuberance in the United States, specifically the influence of expansionary monetary policies and the global saving glut. We employ medium scale Bayesian VAR and time-varying VAR models to estimate the effects of monetary policy and global saving glut shocks on US housing bubbles. We find that, prior to the Global Financial Crisis, the impact of the saving glut shock is more enduring, powerful, and rapid in generating housing bubbles compared to monetary policy shocks. However, the recent housing boom that commenced in 2019 demonstrates a different pattern. Our results suggest that both …

Skbi Big 5 Survey 2022 August, Singapore Management University

Sim Kee Boon Institute for Financial Economics

The latest survey results on the largest five economies (Big5) were revised markedly relative to the prior release (pre-Russia-Ukraine conflict), generally indicating weaker growth and higher inflation coupled with incremental ambiguity on the policy front.

Essays On The Economic Effects Of Income Inequality, Adir Dos Santos Mancebo Junior

FIU Electronic Theses and Dissertations

Income inequality has been rising throughout the world. In the United States, for example, the income share of the population at the top 10% of the income distribution rose 34% from 1980 to 2019 according to data from the World Inequality Database. This dissertation studies how increasing levels of income inequality might affect the economy.

In the first chapter, I show that changes in the level of income inequality may affect consumption volatility through changes in household aggregate marginal propensity to consume (MPC). I propose a simple theoretical framework to explain this dynamic and evaluate it empirically, combining data from …

Prudential Policy With Distorted Beliefs, Eduardo Dávila, Ansgar Walther

Cowles Foundation Discussion Papers

This paper studies leverage regulation when equity investors and/or creditors have distorted beliefs relative to a planner. We characterize how the optimal regulation responds to arbitrary changes in investors’/creditors’ beliefs, relating our results to practical scenarios. We show that the optimal regulation depends on the type and magnitude of such changes. Optimism by investors calls for looser leverage regulation, while optimism by creditors, or jointly by both investors/creditors, calls for tighter leverage regulation. Our results apply to environments with i) planners with imperfect knowledge of investors’/creditors’ beliefs, ii) monetary policy, iii) bailouts and pecuniary externalities, and iv) endogenous beliefs.

Sandwiched Between A Rock And A Hard Place?, Thomas Lam, David Fernandez

Sim Kee Boon Institute for Financial Economics

The policy gap between US and China is likely to be widening further, potentially raising and unevenly distributing the risks of negative spillovers for Asia and the rest of the world.

Skbi Big 5 Survey 2022 February, Singapore Management University

Sim Kee Boon Institute for Financial Economics

The latest survey results on the largest five economies (Big5), based on submissions prior to the ongoing Russia-Ukraine conflict, imply a more intricate growth, inflation and policy dynamic.

Introduction To Macroeconomics, Kenny Christianson

Economics Faculty Scholarship

The textbook begins by looking at basic economic concepts and models, such as scarcity, choice, model-building, opportunity cost, production possibilities curves, comparative advantage, and supply and demand analysis. After a chapter exploring the relationships between markets and government, the text then delves into a rigorous analysis of the theory and practice of macroeconomics. Topics include the measurement of macroeconomic variables, macroeconomic models, and fiscal and monetary policy. The text emphasizes the connections between theory and policy in exploring the field of macroeconomics.

The Case Of Singapore, Hwee Kwan Chow, Kong Weng Ho

Research Collection School of Economics

The economic impact of the Covid-19 pandemic on Singapore was more severe and protracted than the global financial crisis. Singapore responded with easing of the monetary policy stance, reinforcing financial stability, helping individuals to reduce debt obligations, easing business cashflow constraints, adjusting financial regulatory and supervisory protocols to cope with immediate challenges, and enabling the financial sectors to build long-term capabilities. Fiscal responses were unprecedented with four consecutive budgets and two ministerial statements, initially focusing on immediate assistance in respect of jobs, businesses, households, and later refined to providing more sector-specific assistance as the pandemic evolved with more detailed information …

Achieving Price Stability, Hwee Kwan Chow, Taojun Xie

Research Collection School Of Economics

The aim of delivering medium-term price stability is the stated objective of the Monetary Authority of Singapore. To this end, the central bank adopted an unusual exchange rate–based monetary policy framework that has served the economy well over the past decades. However, the shift from the phase of catch-up growth to a mature economy raises the question of whether the current monetary policy framework needs reformulation. Moreover, as global financial integration deepens, surges in cross-border capital flows impact Singapore’s exchange rate and asset prices, which has implications for economic dynamism and inclusion. Since a large and persistent deviation of the …

Skbi Big 5 Survey 2021 August, Singapore Management University

Sim Kee Boon Institute for Financial Economics

The latest survey results convey an upshift in growth projections of the five largest economies in aggregate accompanied by higher inflation, especially this year and to a lesser extent next year. The aggregate “Big5” median real GDP growth projections for 2021 and 2022 were raised to 6.7% (up in US, CN and EA but down in IN and JP) and 4.9% (all except US), respectively. The overall “Big5” median CPI inflation forecasts were nudged up to 2.6% (higher in US, IN and EA but lower in CN) and 2.4% (in US, IN and EA some), respectively, for this year and …

Monetary Policy Surprises, Stock Returns, And Financial And Liquidity Constraints, In An Exchange Rate Monetary Policy System, John M. Sequeira

Research Collection Lee Kong Chian School Of Business

This study examines the impact of monetary policy surprises on the stock price behaviour of a small developed economy, whose monetary policy is based on the exchange rate. We find that monetary policy surprises associated with all contractionary policy levers and a neutral policy lever, have a consistently significant and negative impact on stock returns. In comparison, only monetary policy surprises associated with a downward re-centering policy lever, has a significantly positive effect on stock returns. Using a recalibrated classification system, we also find that monetary policy surprises differ across sectors of the economy. Our results show how monetary policy …

Skbi Big 5 Survey 2021 February, Singapore Management University

Sim Kee Boon Institute for Financial Economics

The latest survey results suggest that the five largest economies collectively is projected to snapback to almost 6% in 2021, a modest upgrade from the August median, following an unprecedented preliminary contraction of roughly 4% last year (in real GDP terms). The 2022 median growth forecast of slightly above 4.5%, while slower, is still respectable, outstripping its pre-COVID 10-year average pace by more than half a percentage point. The aggregate upgrade in 2021, however, obscures the lopsided nature and highly uneven contour of the ongoing recovery. The bulk of the upward revision to growth was mainly due to IN (to …

Monetary Policy And Systemic Risk-Taking In The Euro Area Banking Sector, Alain Kabundi, Francisco Nadal-De Simone

WCBT Faculty Publications

Available empirical evidence on the significance of the (micro) risk-taking channel of monetary policy is not enough to indicate a threat to financial stability. Evidence of risk-taking with systemic risk implications is necessary. Statistical measures that capture systemic risk in all its forms within a structural factor-augmented vector autoregressive model suggest that conventional and unconventional monetary policies have resulted in systemic risk-taking in the euro area banking sector. Systemic risk has taken the form of an increase in the banking sector’s vulnerability via contagion and interconnectedness. Banks’ balance sheets, however, do not account for the full transmission from (micro) risk …

The Influence Of Learning And Price-Level Targeting On Central Bank Forward Guidance, Stephen J. Cole

Economics Faculty Research and Publications

This paper examines how the effectiveness of central bank forward guidance depends on two key channels: the expectations formation process and the monetary policy regime. The results show that rational expectations relative to an adaptive learning rule amplifies the positive benefits a price-level targeting central bank creates for forward guidance. Specifically, forward guidance generates greater amounts of output and inflation under a price-level than inflation targeting monetary policy regime, but rational expectations overstates these positive benefits compared to adaptive learning. The different responses of expectations between rational expectations and adaptive learning to forward guidance are driving this performance gap. Thus, …

Skbi Big 5 Survey 2020 August, Singapore Management University

Sim Kee Boon Institute for Financial Economics

The COVID-19 pandemic led to whopping downward revisions to 2020 real GDP growth among the Big5 economies, on average greater than 7%-points (ranging from roughly 3.5%-points for China to more than 10%-points for India). The forecast revisions to headline inflation were less sizable and more uneven, perhaps because of the confluence of supply and demand influences. The 2021 median GDP forecast is expected to turn positive overall, with a balanced risk assessment for most of the Big5 (but a coin toss in IN and US), but the growth reversal is likely to be highly uneven. While China regains its prior …

Skbi Big 5 Survey 2020 February, Singapore Management University

Sim Kee Boon Institute for Financial Economics

On balance, our overall read of the latest multiyear Big5 survey results implies the following economy-at-risk scale (least to most): India, US, Euro Area, Japan and China (i.e., India’s economy might be least at-risk, while China is deemed to be most at-risk). Broadly, survey participants expect the risk assessment to GDP growth to be skewed to the downside in 2020 followed by a more balanced backdrop in 2021. But participants seem to be more divided, with most responses favoring “downside” or/and “balanced” risks, on the 2022 growth environment. The risks to headline inflation in 2020, however, appear to be more …

Effectiveness Of Interest Rate Policy On The Management Of Macroeconomic Stability: Evidence From The United Kingdom, Mostafa Aboelsoud

Economics

This study examines the dynamic relationship between the London Interbank Offered Rate (LIBOR), the inflation rate, the unemployment rate and economic growth in the context of the UK, for the period 1992: Q1 to 2016: Q4. The study aims to evaluate the impact of the LIBOR on the management of macroeconomic stability in the UK during the period under review. The study employs a vector autoregressive (VAR) model to examine the dynamic relationship between interest rates, unemployment and GDP. A co-integration test evaluates the long-run relationship between these variables, and the VAR Granger-causality tests the direction of causation among the …

Skbi Big 5 Survey 2019 August, Singapore Management University

Sim Kee Boon Institute for Financial Economics

On balance, our overall interpretation of the multiyear Big5 survey results implies the following economy-at-risk scale (least to most): India, China, US, Japan and Euro Area (i.e., India’s economy appears to be the least at-risk, while the Euro Area might be the most at-risk). Broadly, survey participants expect the risks to GDP growth to be tilted to the downside in 2019 and 2020 followed by a more balanced growth environment in 2021. But participants seem to lean toward a more balanced risk assessment on headline inflation from 2019 through 2021, with the exception of the Euro Area, where a modest …

Long-Term Rates, Capital Shares, And Income Inequality, Edmond Berisha, John Meszaros

Department of Economics Faculty Scholarship and Creative Works

Using Piketty and Zucman’s (Q J Econ 129(3):1255-1310, 2014) recently published capital share data, this paper uses structural VARs to understand the relationship between long-term interest rates, capital shares, and the distribution of income in the United States. The results indicate that increases in capital shares increase income inequality. Moreover, the relationship between the interest rate and capital shares is found to be negative and statistically significant. The results suggest that low long-term rates, through an equity and business investment channel, further increase the unequal distribution of income in the U.S. The results further illuminate the channels through which monetary …

Teaching Courses In Macroeconomics And Monetary Policy With Bloomberg Analytics, Dean D. Croushore, Hossein S. Kazemi

Economics Faculty Publications

In this article, the authors illustrate the use of Bloomberg for analyzing topics in macroeconomics and monetary policy in economics and finance courses. The hands-on experience that students gain from such a course has many benefits, including deeper learning and clearer understanding of data. The authors describe goals and learning objectives, then compare Bloomberg with Federal Reserve Economic Data (FRED). In addition, they provide examples of how to use Bloomberg in the classroom, describe how to have students perform sector analysis, show how Bloomberg tools are useful for analyzing monetary policy, discuss how to use Bloomberg to analyze the financial …

The Effectiveness Of Central Bank Forward Guidance Under Inflation And Price-Level Targeting, Stephen J. Cole

Economics Faculty Research and Publications

This paper examines the effectiveness of central bank forward guidance under inflation and price-level targeting monetary policies. The results show that the beneficial effects of forward guidance increase if a central bank pursues price-level targeting instead of inflation targeting. Output and inflation respond more favorably to forward guidance with price-level targeting than inflation targeting. A monetary policy rule that aggressively reacts to inflation and includes interest rate inertia narrows the performance gap between the two policy regimes. However, forward guidance with price-level targeting is still preferred to forward guidance with inflation targeting after performing multiple robustness checks.

Nonlinear Taylor Rules: Evidence From A Large Dataset, Jun Ma, Eric Olson, Mark E. Wohar

Economics Faculty Publications

In this paper we estimate nonlinear Taylor rules over the 1986–2008 sample time period and augment the traditional Taylor rule by including principal components to better model Federal Reserve policy. Including principal components is useful in that they extract information about the overall economy from multiple economic indicators in a statistically optimal way. Additionally, given that uncertainty may influence Federal Reserve decisions, we incorporate an uncertainty index in the reaction function of the Federal Reserve. We find substantial evidence that the Federal Reserve responded to increases in macroeconomic uncertainty by cutting the Federal Funds rate over the sample period. We …

The Dynamic Interrelationship Between Interest Rate And Macroeconomic Policy Objectives: Case Of The United Kingdom, Mostafa Aboelsoud, Dimitrios Paparas, Azzouz Zouaoui, Mustafa Kasim

Economics

The objective of this study is to provide empirical evidence on the short- and long-run relationships between the short-term interest rate, London interbank offered rate (LIBOR) and macroeconomic policy objectives, such as price stability, economic growth, and stability of the exchange rate market. For this purpose, we deploy quarterly frequency data from the United Kingdom between 2000 and 2015 and adopt a multiple regression model.

Furthermore, this study uses the Johansen, Stock-Watson cointegration test and the Granger Causality test in order to examine the dynamic short- and long-run relationships among LIBOR, the consumer price index as a proxy of price …

Monetary Policy And Energy Price Shocks, Bao Tan Huynh

Research Collection School Of Economics

A New Keynesian framework with endogenous energy production is proposed to investigate the role of monetary policy in addressing disturbances in energy markets. The novelty of the model lies in the endogenous production of energy with convex costs, explicit modeling of goods with different degrees of energy-dependency and sectoral price rigidities. Our analyses prescribe the desirable monetary responses to four types of energy price shocks, highlighting the distinct characteristics of each shock and affirming the need for diverse policy considerations. We also found several points of divergence in relation to previous studies on addressing energy supply shocks. In addition, we …

International Reserves And Global Interest Rates, Gonçalo Pina

Economics

In this paper we study the relationship between foreign currency international reserve holdings and global interest rates. To guide empirical work we solve a simple, small open-economy model with money, where the central bank manages international reserves to smooth inflation over time. This model shows that changes in interest rates are positively related to the target level of reserves. As a consequence interest rate hikes increase reserve transfers, defined as the change in international reserves net of the interest earned on reserves. Using quarterly data for 75 countries between 2000 and 2013, we document a positive relationship between interest-rate changes …

Evaluation Of Monetary, Fiscal And External Inflationary Sources In Nigeria, Samson A. Aladejare

Journal for the Advancement of Developing Economies

This study focuses on evaluating the monetary, fiscal and external inflationary sources in Nigeria. The Auto-Regressive Distributive Lag estimation technique was adapted to capture these effects. Empirical findings of the study showed that overall, the main determining cause of inflation in both short run and long run periods in Nigeria, are more of monetary and external factors and less of fiscal sources. Specifically, the problem of inflation in Nigeria appears to be more of structural phenomenon than monetary in the short run. However, in the long run, combinations of monetary and external factors tend to be the major cause of …

Stock Returns And Interest Rates Around The World: A Panel Data Approach, Tibebe A. Assefa, Omar A. Esqueda, Andre V. Mollick

Economics and Finance Faculty Publications and Presentations

We examine quarterly stock returns of 21 developed and 19 developing economies from 1999 to 2013. Over this period, mean quarterly stock returns of 1.188% in developed economies contrast to 4.220% in developing economies. Economic growth has been substantially lower and interest rates have fallen (risen) in developed (developing) economies. Using dynamic panels, we find statistically significant negative effects of interest rates on stock returns in the developed countries, consistent with the expected cash flow hypothesis. In the developing markets, however, the world market portfolio is the sole determinant of stock returns. The contrasting effect of interest rates change on …

Emerging Market Currency Composition Of Reserves, Denomination Of Trade And Currency Movements, Robert N. Mccauley, Hiro Ito, Tracy Chan

Economics Faculty Publications and Presentations

This article analyses the relationships among the unit of account and means of exchange functions of an international currency, on the one hand, and its store of value in official use, on the other hand. Historical evidence links the currency composition of reserves to currency movements. The currency composition of reserves is strongly related in the cross-section to both currency movements and the currency denomination of trade. Data limitations make it hard to distinguish these two factors. A panel analysis of 5 countries from central and eastern Europe shows that both trade invoicing and currency movements drive changing official reserve …

The Recent Growth Of International Reserves In Developing Economies: A Monetary Perspective, Gonçalo Pina

Economics

The massive accumulation of international reserves in developing economies is a puzzling recent development in the world economy. This paper studies reserve accumulation as the outcome of a simple model in which the central bank smooths inflation. I explore the view that central banks accumulate reserves to face large fiscal shocks that need monetary financing. Central bank revenues are obtained through inflation, but inflation is distortionary. As a result, the central bank optimally accumulates international reserves in order to spread the costs associated with inflation over time. A simple numerical exercise for an average developing economy using data between 1970 …

2015-1 The Interactive Evolution Of Economic Ideas And Experience - The Case Of Canadian Inflation Targeting, David Laidler

Economic Policy Research Institute. EPRI Working Papers

No abstract provided.