International transmission of monetary and global commodity price shocks to Turkey

This paper explores the international transmission mechanisms on the macroeconomic and monetary variables of Turkey and hence proposes some particular policy implications. The effects of monetary shocks stemming from the U.S. and the European area, and global commodity price shocks are investigated using a structural vector auto-regression (SVAR) approach. For the analysis, we use monthly data from 2002M01 to 2016M06 and we analyze the transmission mechanism in Turkey using two different SVAR model specifications. Our results reveal that shocks coming from the U.S. and the Euro area lead to significantly different responses on industrial production, consumer prices, real effective exchange rates, and the domestic interest rate, with the Euro area monetary expansion having more explicit and positive effects on the real economy. The global commodity price shocks affect the Turkish macroeconomic variables in a similar but much less powerful fashion than that of the U.S. monetary expansion. As our empirical findings point out that the Turkish economy is vulnerable to global monetary and commodity price shocks. This vulnerability necessitates moving to a sustainable growth path consistent with a sustainable current account balance and a sustainable private and government debt coupled with a strengthened macroprudential regime and comprehensive structural reforms.     

Macroeconomic stabilization of primary commodities price cycles in developing economies

This paper proposes a strategy for stabilizing macroeconomic policy to address jointly the effects of changes in the prices of food, minerals and energy (oil). Our approach differs from the general literature, which analyzes the effects of a commodity boom or bust and therefore the solutions in terms of economic policy separately, that is, by type of commodity. The stabilization strategy that we propose considers a key fact affecting many open economies, namely, that they not only are affected by increases or decreases in commodity prices, but also benefit from them. Consequently, we use a structural model for an open economy with restricted households to show that welfare could be improved with a fiscal rule incorporating transfers to stabilize household consumption. This strategy noticeably dominates an aggressive monetary policy focused only on stabilizing inflation and a fiscal policy that has an excessive bias toward saving income from exports.     

Central bank credibility and monetary policy in Indonesia

This paper examines the role of central bank credibility in achieving an inflation target and proposes monetary policy rules for Indonesia. Towards that end, we construct and estimate a forward-looking small scale macroeconomic model (SSMM) of the Indonesian economy by adapting the theoretical underpinnings of the well-known Batini–Haldane model, along with the Taylor policy rule. Our results indicate that it is crucial for the Indonesian central bank to bolster its credibility in order to achieve a lower inflation rate. The inflation–output volatility trade-off frontier we derived from the SSMM shows that a monetary policy rule that targets both inflation and output gaps will result in less macroeconomic volatility. We also found that the inclusion of the exchange rate into the rule as an additional feedback variable warrants consideration in the future course of monetary policy management.     

Commodity price shocks and the distribution of income in commodity-dependent least-developed countries

Many least developed countries (LDCs) face commodity dependence on the export and import side. This paper develops a structuralist computable general equilibrium model for commodity-dependent LDCs and simulates global commodity price shocks for Burkina Faso, Ethiopia and Mozambique. Results show important macroeconomic and distributional effects. Although increasing export commodity prices are beneficial, the high correlation with import commodity prices causes low or even negative combined effects. The magnitude of effects depends on the degree of import and export dependence, the production structure of the key commodity sectors and policies that determine the distribution of windfall profits.     

Alternative specifications of the demand for money and their implications for forecasting and policy analysis with large macroeconomic models

The demand for money is an important function in large macroeconomic models because of its central role in monetary policy. The interest rate responsiveness of money demand determines the interest rate changes consistent with the initial change in monetary policy and the subsequent changes on aggregate demand and the price level. This paper uses the DRI macroeconometric model to investigate these issues, finding that the model's predictive power and its estimates of the relative potency of monetary and fiscal policy are dependent upon the specification of the money demand function.     

关于人民币汇率管理政策的思考

目前我国宏观经济运行呈现出有效需求不足导致的通货紧缩迹象.采取的扩张性财政与货币政策对这一通货紧缩态势效果不明显,因而应进一步考虑汇率管理方面的改革,尝试利用汇率管理政策的调整来促进中国经济的增长.汇率管理政策与经济增长的各种关系的实施对人民币汇率调整的各种效应及传导机制的影响更有益于目标的实现.加快人民币汇率管理体制改革,对人民币汇率向下进行合理幅度的调整.     

A model of price and quantity adjustments in primary commodity markets

This paper presents a dynamic, simultaneous model of price and quantity adjustments in world primary commodity markets. The model is formulated in a disequilibrium framework, emphasizing particularly the role of price adjustment. In addition to the price equation, commodity consumption and production equations are also specified. The empirical analysis of the model is carried out with the annual data of six primary commodities: coffee, cocoa, rubber, copper, tin, and sugar. This includes the estimation of price, consumption, production equations, the simulation tests of complete structural models for these six commodities, and the derivation of dynamic responses (measured by elasticities) of commodity prices to changes in world income, world inflation, and commodity outputs. Dynamic simulations strongly confirm the commonly observed self-generating and recurring boom-and-bust cycles of primary commodity prices. This finding lends credibility to the models constructed.     

Commodities and monetary policy: Implications for inflation and price level targeting

We examine the relative ability of inflation targeting and price level targeting monetary policy rules to minimize inflation variability and business cycle fluctuations in a commodity-exporting country for supply and demand shocks to global commodity markets. The macroeconomic consequences of oil and non-oil primary commodities differ and affect the relative merits of the alternative monetary policy frameworks. Particularly, the consumption of refined oil products and demand-driven commodity price movements induce highly persistent inflation pressures resulting in a significant deterioration of the inflation-output gap trade-off available to central banks. When such terms-of-trade shocks are prevalent, price level targeting is inferior to inflation targeting.     

Do broad money, output, and prices stand for a stable relationship in India?

This study investigates the stability of the relationship among M3 money, output, and prices. The empirical results derived from conventional stability tests, cointegration and error correction models and a test for structural break in a cointegrating vector provide evidence for the existence of a fairly stable relationship among these variables during 1951–1952 to 2000–2001. The evidence suggests that the growth of M3 money can be used as one of the potential indicators of future movement in prices within the multiple indicators framework of the Reserve Bank of India (RBI). However, evidence regarding the short run dynamic adjustment among these variables indicates that active monetary policy to stabilize short run fluctuation in prices must be handled with caution, as it would amplify rather than moderate price fluctuations in the long run.     

Portfolio stock adjustment and the real exchange rate: The Dollar-Mark (DM) and Mark-Sterling

The advent of “freely floating” exchange rates in the 1970's coincided with the emergence of what is known as “monetary” or “asset” models of exchange rate behavior where exchange ratesmove to equilibrate demand for stocks of monies. The fundamental monetary model assumes purchasing power parity holds in the long-run, and therefore exchange rates are determined by the same factors that determine relative prices, to wit, money stocks, real incomes, and nominal interest rates. Though early proponents of the monetary view clearly emphasized its long-run nature, empirical testing has by and large neglected this caveat. Thus a model developed for long-run equilibrium exchange rates has instead been tested many times over on short-run equilibrium rates. The latter require a distinct model of their own. This paper develops a short-run equilibrium exchange rate model based on deviations of the short-run exchange rate from its long-run equilibrium. The model differs in that all variables are cast in real terms. It also differs in that the monetary and current account exchange rate versions are shown to be subsets of the more general wealth/portfolio framework used here. The present model considers, in addition to stocks of monies, stocks of foreign assets, and stocks of domestic wealth.     

Capital mobility among advanced countries

Mobility of capital has been studied by examining savings–investment correlations, real interest rates differentials, covered and uncovered interest parity, and equity home bias. All these examine the capital mobility question indirectly. This paper directly tests the return/total flow specification of the Mundell–Fleming model. It finds that while portfolio equity and debt flows are, direct investment is not; and in every case, the inclusion of direct investment makes the aggregative-capital variable unresponsive to interest rates. Asset-based exchange rate models may benefit by looking at the composition of cross-border assets, countries can have independent monetary policies with full capital mobility, and macroeconomic policy trilemma for open economies disappears.     

Stabilization policies in the Greek economy: Will they work?

This paper develops and estimates a short-run model for the interaction between money, output, prices, international reserves, and the exchange rate in a managed floating system in Greece. The framework presented, which is in the spirit of the monetary approach modified to allow for adjustment lags in output and prices incorporates a policy reaction function for domestic credit. The role of inflationary expectations is taken into account. The policy question addressed in the paper by means of the model is whether current economic policies are sustainable and whether stabilization measures leading to lower inflation and smaller fiscal deficits should be pursued.     

New technology and unemployment: A simulation of macroeconomic impacts and responses in Canada

This paper addresses macroeconomic issues of the debate over high technology and unemployment. A macroeconometric simulation model with a number of special features is used to examine alternative scenarios of enhanced productivity performance in Canada over the next decade. Responses of wages, prices, and the monetary authorities are shown to be quantitatively important in determining the impact on employment. The type of productivity change and aggregate fiscal-policy response are shown to be less importance.     

Macroeconomic adjustment in Thailand: Demand management and supply conditions

Within the framework of a four-sector macroeconomic model for Thailand, comparative statics are used to assess alternative ways of macroeconomic adjustment. Fiscal policy interventions, manipulations of the exchange rate, and productivity improvements are discussed. Their implications in terms of income generation, external deficit, and inflation are derived. It is shown that only productivity improvements have positive effects on all indicators. Fiscal interventions lead to an improvement in the external deficit, but at the cost of income generation. The outcome of a devaluation is largely dependent on the behavior of factor prices.     

What accounts for China''s trade balance dynamics?

This paper proposes a structural VAR model which extends the frameworks of Hoffmaister and Roldós [Hoffmaister, A. W., & Roldós, J. E. (2001). The sources of macroeconomic fluctuations in developing countries: Brazil and Korea. Journal of Macroeconomics, 23, 213–239] and Prasad [Prasad, E. S. (1999). International trade and the business cycle. Economic Journal, 109, 588–606]. The model is then used to analyse the sources of China's trade balance fluctuations in the period of 1985–2000. Efforts are made to distinguish the forces which underlie the long-run trend in trade balance from those with transitory impacts. The effects of four types of shock are examined—the foreign supply shock, the domestic supply shock, the relative demand shock and the nominal shock. Among other findings, two emerge as important. First, the movements in China's trade balance are largely the result of real shocks. Second, the Renminbi is undervalued, yet changes in the exchange rate bear little on the trade balance. Therefore, monetary measures would not suffice to redress China's trade ‘imbalance’.     

A model of the Canadian global exchange rate: A test of the 1970s

A review of the literature indicates that no single exchange rate model has been able to track successfully the movements of the Canadian dollar for both the 1970–1976 period and the period thereafter. The purchasing power parity model, irrespective of whether based on relative wholesale prices, unit labor costs, GNP deflators, or export prices performs very poorly; the monetarist models collapse because of their strict adherence to the purchasing power parity and interest rate parity assumptions; the portfolio demand models require a significant adjustment for the post-1976 period. This paper presents a medium-term eclectic model of the global exchange rate of the Canadian dollar and examines a spectrum of broad issues that reflect on the efficiency of the foreign exchange market of Canada. These issues are basically related to the interest parity assumption, the role of speculation, and the test of rational expectations. The global exchange rate is defined as the value of the Canadian dollar measured in terms of a unit of basket of currencies comprising currencies of France, West Germany, Japan, the U.K., and the USA. The model belongs to the same genre of balance of payments structural models that explain the exchange rates by balancing demand and supply of foreign currencies. The model simultaneously explains both spot and forward rates, and it has been estimated and tested by using the quarterly data for 1971–1981.     

Productivity growth,external shocks,and capital inflows in Chile: A general equilibrium analysis

This paper uses a computable general equilibrium model to analyze the growth path of the Chilean economy during 1977–1981. During that period a comprehensive package of reforms liberalized international trade and removed restrictive labor legislation. As a result of the reforms, there were large changes in relative prices and in the structure of production and demand, and the economy enjoyed unprecedented growth with declining inflation. But large macroeconomic imbalance become evident toward the end of the period and in 1982 Chile experienced an abrupt and severe recession. Taking the real exchange rate as an exogenous policy variable, and using the observed levels of employment growth and foreign capital inflows, this paper compares model-generated growth paths with those of the economy. First, the benchmark simulation path is used to estimate the magnitude and pattern of growth and productivity change during the 1971–1981 period. Next, counter-factual simulations are used to assess how Chile's economic performance would have differed if (a) external events had been different; and (b) foreign capital inflows had been different. The analysis suggests that the macroeconomic imbalances that led to the crisis in 1982 were exacerbated by the large capital inflows and real exchange rate appreciation that resulted from the use of the exchange rate as a stabilization device.     

Monetary policy in the New-Keynesian model: An application to the Euro Area

This paper analyzes monetary policy in a stylized New-Keynesian model. A number of issues are focused upon: (i) optimal monetary policy under commitment or discretion versus ad-hoc monetary policy based on simple rules, (ii) the effects of fiscal policies and foreign variables on monetary policy, (iii) the effects of fiscal deficit and interest rate smoothing objectives and the role of forward-backward linkages in the model. The model is estimated for the Euro Area. Using simulations of the estimated model, it is analyzed how these aspects might affect monetary policy of the ECB and macroeconomic fluctuations in the Euro Area.     

Regional asymmetries in monetary transmission: The case of South Africa

PPP is unlikely to hold instantaneously for all commodities across the different regions of a monetary area. It is therefore possible that monetary expansions or contractions will have different effects in different regions, if there are regional asymmetries in the monetary transmission mechanism. We estimate the size of such asymmetries across the nine provinces of South Africa over the period 1997–2005. There are large and statistically significant differences in the response of prices to monetary expansions and contractions. The problems arising from transmission mechanism asymmetries are not restricted to international monetary unions.     

Must high commodity prices depress the world economy? An application of a world model system

The impact of higher primary commodity prices on the world economy is central to the North-South dialogue. The less developed countries are seeking a way to obtain a larger share of world income. In the context of current discussions of commodity price stabilization, UNCTAD's “integrated programme” for example, this is likely to mean higher commodity prices. A critical question is then, “Must higher prices for primary commodities depress the industrial economies?”The cyclical swing of 1973–1975 would seem to support the thesis that high primary commodity prices lead to recession in the industrial countries. Yet this experience is not conclusive evidence. Many complex forces, some natural and others policy induced, accounted for the recession. The impact of primary commodity prices must be considered in a full system, recognizing not only the direct costs, but also the resulting demand feedback. Under different circumstances, higher payments to the commodity producing LDCs may well increase demand for manufactures and stimulate exports and industrial activity in the developed countries.This paper uses a version of the LINK world model system to examine the linkages between commodity prices and world economic activity. In the first part we examine the demand feedback in a simple theoretical model of the interrelationships between commodity consumer countries and the commodity producers. In the second part we use an empirical system, COMLINK, the version of the LINK system that incorporates commodity models and commodity price linkages, to simulate various types of commodity price impacts.