Channels of monetary policy transmission in Vietnam

Since the economic reforms launched in 1986, the Vietnamese economy has registered impressive economic growth. While foreign investment is providing much needed capital, through the conduct of monetary policy, the State Bank of Vietnam (SBV), which is an integral part of the government of Vietnam, is also playing an important role in nurturing the economic growth. The aim of this paper is to evaluate the success of the SBV policies. Monetary policy actions affect all sectors of real economies with a significant lag. Without a good understanding of the transmission mechanism, monetary policy actions may not achieve the desired outcomes. Using quarterly data from 1995 to 2010, this paper focuses on monetary policy transmission mechanisms in Vietnam. Specifically, we consider the dynamic response of the Vietnamese economy to interest rate, exchange rate and foreign shocks. The estimated results based on structural vector autoregressive (SVAR) methodology suggest that monetary shocks tend to have a strong influence on Vietnam’s output. We find that Vietnam’s monetary policy is relatively more susceptible to foreign shocks.     

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.     

The effectiveness of monetary policy in small open economies

This paper examines the relative effectiveness of the use of direct and indirect monetary policy instruments in Barbados, Jamaica and Trinidad and Tobago, by estimating a restricted Vector Autoregressive model with Exogenous Variables (VARX). The model captures the dynamic interaction of the key sectors in the economy and it accounts for the fact that the banking system in those countries is characterized by high levels of excess reserves. Also, the study assumes that the central bank conducts monetary policy using a Taylor-type rule, and it evaluates the effects of a reserve requirement policy. The results show that although a positive shock to the policy interest rate has a direct effect on commercial banks’ interest rates, there is a weak transmission to the real variables. Furthermore, an increase in the required reserve ratio is successful in reducing private sector credit and excess reserves, while at the same time alleviating pressures on the exchange rate. The findings therefore indicate that central banks in small open economies should consider using reserve requirements as a complement to interest rate policy, to achieve their macroeconomic objectives.     

Macro stress testing and resilience assessment of Indian banking

This study conducts policy-based macro stress testing of the Indian banking sector and also assesses its resilience towards compliance with BASEL norms with the aid of an empirical macro-financial model. It uses scenario analysis and quantitative techniques to capture the impact of macroeconomic stress on the stability of the Indian banks by evaluating financial soundness indicators (credit quality, quantity and quality of capital adequacy). The scenarios are generated through policy-based shocks vis-à-vis other external shocks. The results from the estimation of the model indicate a cointegrating relationship between credit quality and key macroeconomic variables including output growth rate, interest rate, money growth rate and exchange rate. The results of the scenario analysis reveal that the Indian banking sector remains largely sound in terms of total regulatory capital adequacy ratio as per current BASEL II and even BASEL III requirement. The results also show that expansionary monetary policy impacts credit quality and capital adequacy in a positive and significant manner via its effect on the economy’s growth rate.     

我国货币政策非对称性效应——基于本轮经济衰退的政策效果研究

货币政策的非对称性效应这个经过大量实证研究得到检验的结论,却在我国本轮经济衰退中被打破了.本轮自2008年底开始的经济衰退,在“适度宽松的货币政策”及积极财政政策的配合作用下,效果明显.文章主要就我国货币政策传导的主要渠道——信贷渠道进行了阐述,认为在体制转轨时期地方政府强烈的促进经济增长的冲动、商业银行的积极配合,使...     

Transmission of monetary policy in the US and EU in times of expansion and crisis

In this work, the effectiveness of monetary policy and its transmission channels are analyzed before and after the 2007 economic crisis in the United States and the Eurozone by using a VAR model. We find that, in the United States, monetary policy before and after the crisis have been effective, with special emphasis on the “risk channel”. In the Eurozone, monetary policy was also effective before the crisis, being transmitted through the “credit channel”. Once the crisis erupted, unconventional monetary policy remained effective only at the start of the crisis; the risk channel then became the effective transmission mechanism.     

Expectations and the inertia of inflation: The case of Indonesia

It has long been recognised that the balance between backward-looking and forward-looking expectations has critical policy implications. This is because backward-looking expectations impart a substantial degree of inertia to the inflation rate whereas forward-looking expectations lead to rapid adjustment in response to shocks. In this paper we examine the policy implications for the Indonesian economy of the form taken by the price adjustment equation. We allow for both backward-looking and forward-looking effects of inflation expectations, proxying forward expectations with the realised rate and using a GMM estimator to allow for the resulting endogeneity. Using monthly data from 1980:1 to 2008:12, our estimates show that CPI inflation in Indonesia is significantly determined by backward-looking inflation expectations, forward-looking inflation expectations, the output gap, exchange rate depreciation, and money growth. However, the backward expectation attracts a significantly higher weight than the forward rate leading to the conclusion that inflation in Indonesia has considerable inertia. The implication of this is that a gradualist monetary policy is likely to be more effective as a means of smoothing fluctuations in inflation and real output.     

Pre- versus post-crisis central banking in Qatar

In the years before the global financial crisis of 2008–2010, Qatar experienced a huge build-up of liquidity surplus in the banking system, mainly driven by surging net capital inflows. This paper identifies various sources of interbank liquidity in Qatar and discusses the various implications of structural primary liquidity surplus for the money market in particular and the economy at large. The paper attempts to evaluate the Qatar Central Bank policy making and conduct during the pre- and post-crisis periods within a framework of the Austrian monetary overinvestment theories, and concludes that the central bank had forcibly committed several forced monetary policy mistakes, which resulted in a breakdown in the interest rate channel of the monetary policy transmission mechanism. This led to the inability of the central bank to control the interbank interest rate and to an accelerating inflation rate during the pre-crisis years. In contrast, a dramatic change in the central bank's monetary policy framework and a deliberate monetary policy mistake on behalf of the central bank resulted in a restoration of the interest rate channel of the monetary policy transmission mechanism, stabilization of the interbank interest rate close to the central bank's policy rate and a sharp deceleration in the inflation rate in the post-crisis period. The paper concludes by offering brief policy recommendations.     

Inflation targeting and the exchange rate: Does it matter in Turkey?

This paper investigates the monetary policy reaction functions of the Central Bank of Republic of Turkey (CBRT) over the periods 1987:01–2001:12 and 2002:01–2009:05. We specifically attempt to shed light on question to what extent exchange rate developments still continue to influence monetary policy, even under inflation targeting. This study seeks to investigate how the monetary policy responded to the exchange rate shocks before and after adoption of inflation targeting regime. How large the effect of exchange rate shocks is accounted for in forecast error variances decompositions for monetary policy as compared to other shocks? Using the VAR model, this study shows that there has been strong pass-through during whole period. Moreover, in the postcrisis period, exchange rate has been the main reaction variable for the CBRT.     

Asymmetric price rigidity and the optimal interest rate defense of the exchange rate: Some evidence for the US

This paper analyses the optimal monetary policy under incomplete exchange rate pass-through and asymmetric price rigidity. In a general equilibrium sticky price model of an open economy we find that the optimal interest rate rule is to respond to all types of shocks in an economy: real exchange rate shocks, supply shocks and demand shocks. We concentrate our analysis on the interest rate defense of the currency. We claim that the extent of the optimal response of the interest rate to exchange rate shocks depends positively on the degree of pass-through and negatively on price rigidity. Therefore, in the presence of asymmetric price rigidity, the optimal monetary policy should be non-linear, and the interest rate should be adjusted more in case of depreciation of the domestic currency than in case of its appreciation by the same magnitude due to higher downward price rigidity and lower downward pass-through, which are observed empirically. We test this prediction for the US economy and find that the US monetary policy is asymmetric indeed with higher reaction of the interest rate to depreciations of US dollar than to appreciations of the same size.     

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.     

Zero Lower Bound and negative interest rates: Choices for monetary policy in the UK

There have been relatively few analyses of the policy context and consequences of a Zero Lower Bound (ZLB) for nominal interest rates. This paper sets out monetary policy alternatives, including negative interest rates, a revision of the inflation target, and rendering unconventional policy instruments such as QE conventional (permanent). Following extensive discussion of policy options, we set out a model that explores the impacts of the real policy rate on economic growth, employment and inflation, with particular attention to the British economy. We use a Time-Varying Structural Vector Auto-regressive (TVSVAR) Model where the sources of time variation are both the coefficients and variance–covariance matrix of the innovations. It was found that real rates have significant implications for real growth, the labour market and price stability even when monetary policy was constrained at the ZLB in nominal terms. The study additionally applies a discrete break in the data to focus on the Post-Global Financial Crisis and ZLB period. This indicates that the effectiveness of real rates did not diminish and this has important implications in terms of a policy approach which seeks to exploit real negative rates.     

Exploring the implications of different loan-to-value macroprudential policy designs

We evaluate the macroeconomic effects of changes in loan-to-value ratios in a multi-country model with financial frictions and a banking sector. Main findings suggest that a permanent LTV tightening in a small euro area economy leads to a long-run decline in lending to the private sector. The short-run impact depends crucially on the policy design, being less pronounced when the measure is phased-in. This is consistent with policy goals of curbing credit growth but avoiding an abrupt immediate contraction. A euro area wide measure implies larger long-run effects but the short-run recessionary impact is attenuated by the monetary policy response.     

浅析我国货币政策独立性与通货膨胀的关系——兼论2011年通胀

本轮自2008年底开始的经济衰退,在"适度宽松的货币政策"及积极财政政策的配合作用下,经济增长很快走出了低谷,效果明显。但自2010年下半年尤其是2011年却出现了较高的通货膨胀。本文从货币政策独立性的角度分析了通胀形成的原因。认为中央银行缺乏足够的独立性、财政政策货币化、缺乏弹性的汇率制度导致货币政策缺乏独立性,使得货币供应量失控并导致了通货膨胀。     

Macroprudential policy and the probability of a banking crisis

The ultimate purpose of macroprudential policy is to avoid financial instability, such as banking crises, which have a long-lasting and devastating effect on the economy. Although a growing number of studies have examined the effects of macroprudential policy on credit growth, few empirical studies have analyzed its effect on the probability of a banking crisis. Does macroprudential policy actually affect the probability of a banking crisis? Do other macroeconomic policies matter for the effectiveness of macroprudential policy? To answer these questions, this paper empirically investigates the effect of macroprudential policy on the probability of a banking crisis and its relationship with other macroeconomic policies. Specifically, using data on 65 countries from 2000 to 2016, we employ a probit model to analyze the effect of changes in the loan-to-value (LTV) ratio on crisis probability. Our results show that macroprudential policy is effective in changing the probability of a banking crisis via a credit channel and that its effectiveness depends on other macroeconomic policies. Changes in the LTV ratio are found to be effective in influencing the probability of a banking crisis in countries that have inflation targeting frameworks, floating exchange rate regimes, and/or no capital controls. Our results underscore the importance of policy coordination among different government bodies to design an appropriate macroprudential policy, especially in the current context of the Covid-19 crisis.     

Money demand stability: A case study of Nigeria

Monetary policy in Nigeria aims is to achieve price and monetary stability. During the 1980s and 1990s, monetary targeting was the dominant monetary policy framework in Nigeria. However, in 2006 the Central Bank of Nigeria (CBN) adopted the new monetary policy framework through which short-term interest rates are adjusted to achieve stability in the value of the domestic currency. This paper has presented an empirical investigation into the demand for Nigerian real narrow money (M1) over the period 1960–2008 in an attempt to identify whether the CBN were right to adopt the new monetary policy framework. In doing so, we estimate alternative (canonical and extended) specifications of M1 demand using structural change methods. Our results suggest that the canonical specification is well-determined. Although the money demand relationship went through a regime shift in 1986, it is largely stable. These findings favour the use of supply of money as an instrument of monetary policy, thus lending limited support for the new monetary policy framework.     

Financial liberalization and long-run stability of money demand in Nigeria

A stable money demand function is essential when using monetary aggregate as a monetary policy. Thus, there is need to examine the stability of the money demand function in Nigeria after the deregulation of the financial sector. To achieve this, the study employed CUSUM (cumulative sum) and CUSUMSQ (CUSUM of square) tests after using autoregressive distributive lag bounds test to determine the existence of a long run relationship between monetary aggregates and their determinants. Results of the study show that a long-run relationship holds and that the demand for money is stable in Nigeria. In addition, the inflation rate is found to be a better proxy for an opportunity variable when compared to interest rate. The main implication of the study is that interest rate is ineffective as a monetary policy instrument in Nigeria.     

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.     

我国货币政策失效的原因分析及对策

1997年以来,我国的货币政策在经济增长中起到了一定的作用,但也存在一些失效,主要表现在利率机制、准备金政策、公开市场业务等方面存在缺陷。因此,必须不断完善我国的货币政策,以便更好地为经济增长提供政策指导。     

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.