The Role Of Monetary Policy Uncertainty In Transmitting Monetary Policy Shocks
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Author | : Shan Ying |
Publisher | : |
Total Pages | : 0 |
Release | : 2022 |
Genre | : |
ISBN | : |
This paper investigates the role of policy uncertainty associated with Federal Open Market Committee (FOMC) communications plays in transmitting policy shocks. Our measure of monetary policy uncertainty is based on short-term option prices but is orthogonal to the scale of policy shocks. We find evidence to suggest this measure is positively related to the uncertain sentiment in FOMC announcements, to the disagreement on future policy paths among FOMC members and has a lower reading when calendar-based forward guidance is communicated. We find policy uncertainty primarily moderates the impact of forward guidance shocks (Swanson, 2021) on long-term government bond yields. Our results suggest this moderation process is delivered through changes in the term premium component rather than the expected component of yields.
Author | : Mr.Lars E. O. Svensson |
Publisher | : International Monetary Fund |
Total Pages | : 76 |
Release | : 1994-09-01 |
Genre | : Business & Economics |
ISBN | : 1451853750 |
The use of forward interest rates as a monetary policy indicator is demonstrated, using Sweden 1992-1994 as an example. The forward rates are interpreted as indicating market expectations of the time-path of future interest rates, future inflation rates, and future currency depreciation rates. They separate market expectations for the short-, medium-, and long-term more easily than the standard yield curve. Forward rates are estimated with an extended and more flexible version of Nelson and Siegel’s functional form.
Author | : Kyunghun Kim |
Publisher | : |
Total Pages | : |
Release | : 2016 |
Genre | : |
ISBN | : 9788932240268 |
Author | : Mr.Luis Brandao-Marques |
Publisher | : International Monetary Fund |
Total Pages | : 54 |
Release | : 2020-02-21 |
Genre | : Business & Economics |
ISBN | : 1513529730 |
Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.
Author | : Drew Creal |
Publisher | : |
Total Pages | : 61 |
Release | : 2016 |
Genre | : |
ISBN | : |
We investigate the relationship between uncertainty about monetary policy and its transmission mechanism, and economic fluctuations. We propose a new term structure model where the second moments of macroeconomic variables and yields can have a first-order effect on their dynamics. The data favors a model with two unspanned volatility factors that capture uncertainty about monetary policy and the term premium. Uncertainty contributes negatively to economic activity. Two dimensions of uncertainty react in opposite directions to a shock to the real economy, and the response of inflation to uncertainty shocks vary across different historical episodes.
Author | : D. Bundesbank |
Publisher | : Springer |
Total Pages | : 329 |
Release | : 2001-01-29 |
Genre | : Business & Economics |
ISBN | : 0230595995 |
The start of the European monetary union gave additional impetus to the lively debate on the effects of monetary policy and the appropriate strategy for central banks. This book collects papers and comments by leading academics and central bankers such as O.Issing, M.King, B.McCallum, A.Meltzer, L.Svensson and H.Tietmeyer. The volume examines methodological questions, the actual role played by the financial sectors and labour markets in implementing monetary policy in Europe, and the likely future developments in these areas.
Author | : Helmut Herwartz |
Publisher | : |
Total Pages | : 49 |
Release | : 2018 |
Genre | : |
ISBN | : |
We investigate the relationship between inflation uncertainty and monetary policy transmission in the U.S. economy. Monetary policy shocks are identified within the framework of nonlinear structural factor-augmented VARs which allow us to analyze several complementary hypotheses connecting IU with reduced monetary policy effectiveness. We find that the real effects of monetary policy shocks are markedly dampened conditional on high IU. This can be traced back to, inter alia, real-option and precautionary savings effects which distort the traditional interest rate channel. Moreover, policy transmission through the external finance premium and the term structure of interest rates appears strongly dependent on inflation uncertainty and contributes to the reduced policy effectiveness.
Author | : Eliphas Ndou |
Publisher | : Springer |
Total Pages | : 507 |
Release | : 2019-08-13 |
Genre | : Business & Economics |
ISBN | : 3030198030 |
This book focuses on income inequality, output-inflation trade-off and economic policy uncertainty in South Africa. Tight monetary and macroprudential policies raise income inequality. Income inequality transmits monetary policy and macroprudential policy shocks to real economic activity. Economic policy uncertainty influences the dynamics in the lending rate margins, inflation expectations, credit, pass-through of the repo rate to bank lending rates and companies’ cash holdings. The trade-off between output and inflation and output growth persistence vary with inflation regimes. Stimulatory demand policy shocks are less effective in high inflation regime. High income inequality raises consumption inequality, which raises demand for credit, but price stability matters in this link. Increased bank concentration raises income inequality, lowers economic growth and employment rate. Elevated economic policy uncertainty lowers output growth, lowers capital formation, reduces credit and raises companies’ cash holdings. Increased companies’ cash holdings reduce capital formation and impact the transmission of expansionary monetary policy shocks to real economic activity. This book shows there is an inflation level within the target band below it which lowers income inequality, while raising GDP growth and employment. Thus price stability, economic policy uncertainty and income inequality matter for the efficient transmission of policy shocks.
Author | : Charles Albert Eric Goodhart |
Publisher | : |
Total Pages | : 520 |
Release | : 1989 |
Genre | : Business & Economics |
ISBN | : |
This is a completely revised edition of the well-known monetary textbook. The book discusses the latest analytical developments in monetary economic theory in a comprehensible and practical policy- orientated form for graduates and undergraduates specialising in monetary economics. The book provides a comprehensive survey of monetary economics, with the first nine chapters primarily concerned with micro issues, such as the role of, and demand for, money, the role and functions of banks and of the Central Bank; and the final nine chapters covering macro-economic issues, such as the transmission mechanism of monetary policy and international monetary problems.
Author | : Yeonggyu Yun |
Publisher | : |
Total Pages | : 0 |
Release | : 2022 |
Genre | : |
ISBN | : |
We study spillover of monetary policy uncertainty shock from the US to other economies with different exchange rate regimes. A surge of monetary policy uncertainty in the US incurs contractionary consequences in other economies and decreases output, consumption, and stock market prices. Such effect is prevalent in fixed exchange rate regimes while flexible exchange rate regimes do not undergo the economic downturn. This is coupled with elevated uncertainty in fixed exchange rate regimes, while floating exchange rate regimes do not exhibit any change in uncertainty. We attribute this to the nature of flexible exchange rate regime and interpret that monetary autonomy in flexible regimes prevents direct spillover of foreign uncertainty shocks, especially those associated with interest rates. Unlike previous studies which point out the shock-absorbing role of flexible exchange rates via exchange rate depreciation, which we call the “exchange rate channel,” we focus on how monetary autonomy of flexible rate regime shuts down the transmission of monetary policy uncertainty from the US to local economy, the “uncertainty channel.” We show that shutting down the “uncertainty channel” dominates the “exchange rate channel” in flexible exchange rate regimes in terms of mitigating the spillover effects of foreign uncertainty shock.