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Purpose: This paper aims to contribute to the analysis concerning how inflation forecasts from different economic agents (professional forecasters and consumers) lead to varying levels of central bank credibility and how it affects the monetary policy interest rate and its expectations. Design/methodology/approach: Based on the Brazilian economy data from June 2007 to May 2022, the authors provide evidence that is useful for search mechanisms that improve the conduct of monetary policy through the management of inflation expectations. The authors perform several ordinary least squares and generalized method of moments regressions inspired by the Taylor rule principle. In brief, the benchmark model considers that the monetary policy interest rate and its expectations respond to departures of inflation expectations to the target (a proxy for central bank credibility) and the level of economic activity. Findings: The main result of the analysis is that inflation expectations from professional forecasters and consumers imply different perceptions of central bank credibility that affect the monetary policy interest rate and expectations for horizons until one year ahead. Originality/value: The novelty that the authors bring from the analysis is that the authors calculate central bank credibility by taking into account the "public beliefs" of different economic agents. Furthermore, the authors analyze the effect of central bank credibility from professional forecasters and consumers on the monetary policy interest rate and its expectations. [ABSTRACT FROM AUTHOR]

Central banks and finance ministries have been faced with growing calls for better monetary-fiscal coordination in recent years as the solution to an array of macroeconomic policy problems, promoted by an ever-wider range of stakeholders. Yet, how can the silver-bullet solution of coordination be expected to play out across very different political-economic contexts? This paper sheds light on this question by introducing a novel typology of monetary-fiscal coordination that can help us make sense of formal and informal coordination efforts in the post-2008 era. It zooms in on a peculiar but key aspect which monetary and fiscal authorities have sought to achieve coordination on: The fiscal backing of central banks' balance sheets to insure monetary policy against losses and 'insolvency'. To understand central bankers' aversion towards loss-making despite their ability to create currency, the paper develops a political economy account which emphasizes policy-makers' interpretations of their own independence and their desire for fiscal protection, in contrast to traditional accounts of delegation that treat independent agents as discretion-seekers and power-maximizers. The typology is illustrated with case studies of the European Central Bank, Bank of England, and Bank of Japan between 2008 and 2023, each representing a different type of monetary-fiscal coordination post-crisis. [ABSTRACT FROM AUTHOR]

Monetary policy has long relied on the 'natural rate hypothesis', suggesting that after an economic shock the unemployment rate will automatically return to its supply-side 'natural' rate or NAIRU. Macroeconomic developments since the 2008 financial crisis have challenged this hypothesis, forcing the US Federal Reserve to conduct a strategic review of its monetary policy framework, published in 2020. We conducted an in-depth case study of the Fed through a content analysis of 120 speeches given by the Fed's top-level body (FOMC) from 2012 to 2022. We show that policy learning has occurred in that FOMC members have problematised the NAIRU either on (1) epistemological grounds, acknowledging the risk of relying on NAIRU estimates, or on (2) ontological grounds, highlighting the endogeneity of the NAIRU to monetary policy. While both interpretations lead to a more expansionary monetary policy stance, the differing motivations matter for future policymaking. In the case of (1) the rationale is mainly to a avoid downward de-anchoring of inflation expectations, whereas with (2) it is to deliberately chase hot labour markets and a high-pressure-economy. Our speech analysis shows that (1) has been far more dominant in the FOMC, indicating incremental rather than fundamental ideational change. [ABSTRACT FROM AUTHOR]

In this paper, we present a hybrid Agent-Based Stock-Flow-Consistent (AB-SFC) model about the macroeconomic and distributional implications of central bank's decision to leave a "Low(-for-long) Interest Rate Environment" (LIRE). Our goal is to study the non-linear effects of monetary tightening when implemented under LIRE than in an alternative "Higher Interest Rate" setting (HIRE). This way, we shed light over the interaction between monetary policy, inequality, and macro-financial fragility in a financialized economy characterized by the presence of securitization and the production of complex financial products, i.e., Asset-Backed Securities (ABSs). We obtain three main findings. First, consistent with existing empirical literature, LIRE may be sources of vulnerabilities in the financial industry (i.e., lower banks' profitability and capital adequacy ratio). However, it may reduce systemic macro-financial risk by stimulating faster growth, lower unemployment and inequality records alongside with lower public and private indebtedness and lower-scale securitization. Second, central bank's decision to raise interest rates improves financial sector's performance indicators at the costs of harsh real-side consequences, i.e., permanently higher unemployment and inequality, when implemented under LIRE. Third, financialization structurally changes the functioning of the economy by feeding the creation of a debt-led economy in which monetary policy becomes less effective in its attempt of controlling inflation. Central bank's reaction in the form of a permanently tighter monetary policy stance eventually prompts a more unequal and unstable rentier-friendly economy. • We study central bank's decision to leave a Low Interest Rate Environment (LIRE). • We show how leaving LIRE causes permanent employment losses and higher inequality. • We show how securitization reduces the effectiveness of monetary policy. • We show how securitization may give rise to a rentier-friendly economy. [ABSTRACT FROM AUTHOR]

• We study the effectiveness of helicopter money in the form of a central bank digital currency (CBDC) • We compare traditional fiscal and monetary stimulus, quantitative easing, and the issuance of a CBDC credited to households or firms, by means of a stock-flow consistent model of a growing open economy. • Issuing a CBDC by expanding the central bank's balance sheet can have a durable impact on GDP and it allows for the activation of a new transmission channel. • A CBDC might reduce the demand for bank deposits and, even more crucially, for bank loans, thus creating challenges for financial stability. We study the effectiveness of helicopter money, once a thought experiment that is now a feasible option given new digital technologies. We consider the effects of central bank digital currencies (CBDC) from a theoretical point of view, by means of a stock-flow consistent model of a growing open economy. We compare the effectiveness of this tool with that of traditional fiscal and monetary policies. We find that issuing a CBDC by expanding the central bank's balance sheet can have a durable impact on GDP and crucially, it allows for the activation of a new transmission channel, which depends on the sensitivity of investment and of the interest rate to firms' leverage. But it might reduce the demand for bank deposits, and even more crucially for bank loans, thus creating challenges for financial stability. [ABSTRACT FROM AUTHOR]

In this paper, we challenge the claim that a conservative central bank strengthens the likelihood of a conservative government. In contrast, if an election is based on the comparative advantages of the candidates, an inflation-averse central banker can deter the chances of a conservative candidate because once inflation is removed, its comparative advantage in the fight against inflation disappears. We develop a theory based on a policy-mix game with electoral competition, predicting that a tighter monetary policy reduces the chances of a conservative (i.e., inflation-adverse) party while enhancing the chances for a liberal party. To test these predictions, we examine monthly data of British political history between 1987 and 2015, and show that an increase in the interest rate in the 10 months preceding a national election decreases the popularity of a Tory government. Our analysis on a panel of six OECD countries reveals that a pre-election increase of 1 percentage point in the main targeted interest rate rises the popularity of liberal parties by around 3.43 percentage points relative to its trend. [ABSTRACT FROM AUTHOR]

Restrictive monetary policy can not only fail to achieve the conventional macroeconomic goal of controlling inflation but also be seen as responsible for the increasing income inequality that has occurred in recent decades. This result is not clear, however, if one remains bounded to the traditional monetary policy transmission mechanisms and conventional models. In this article, we create an agent-based, stock-flow consistent, heterodox disequilibrium model to analyse and evaluate the effects of different basic interest rate levels, especially its distributive effects. Using computer simulations, we show that the basic interest rate plays a key role when firms compete in oligopolistic markets and face financial constraints and costs. In such circumstances, increases in the interest rate can be responsible for price increases, creating the price puzzle problem. In addition, it forces redistribution of income in favour of the financial system and pressures the profit rate of industrial firms, which will raise prices and lower the wage share. The final distributive effect of an interest rate policy will ultimately depend on the power of these agents: the bargaining power of the workers to claim higher wages and the market power of the firms to raise prices. [ABSTRACT FROM AUTHOR]

AbstractThis article considers the role of central bank interventions in credit and financial markets in support of decarbonization. Drawing on the critical macrofinance literature, we argue that central banks are constrained in greening financial flows by their continued adherence to monetary dominance – prioritizing short-term price stability – and the structural demands of global market-based finance. This has led to a narrow focus on 'market-fixing' and 'de-risking' policy interventions, implicitly outsourcing the green transition to private finance whilst asserting that central banks cannot be seen as 'climate policymakers'. Moving beyond the constraints of this macrofinancial regime remains challenging, as we illustrate with the European Central Bank's (ECB) tilting of its corporate asset purchase program. We explore the lessons from the Post-World War II credit guidance regimes employed in many countries and consider how these could be updated to meet the challenges posed by market-based finance. Such a shift would require an evolution in the role of the central bank as a public agency, challenging current norms around independence and market neutrality. [ABSTRACT FROM AUTHOR]

A disordered energy transition might impact borrowers' ability to repay and service debt; this calls for methods for integrating climate into credit risk modelling. This integration is required not only for risk management, but also for adjusting credit ratings for collateral pledged in Eurosystem monetary policy operations. This study introduces an innovative methodology to evaluate Italian non-financial firms' exposure to climate policy risks, gauging the impact of climate policies on firm-level default probability (PD). By simulating a shock to energy expenditure originating from different levels of a carbon tax, we analyze the potential impact on firms' PD. Our method offers a comprehensive understanding of the channels through which energy shocks propagate and their implications on firms' vulnerability. Our findings show that the impact of carbon taxation on credit risk would be contained, raising the average PD by a range of 0.6–4.1 basis points according to the different levels of carbon tax. The effect is slightly larger for the Agriculture and Services sector, while there is no clear pattern relating to firm size. [ABSTRACT FROM AUTHOR]

Should the South African Reserve Bank (SARB) lower the inflation target (IT) band? Does lowering the IT band impact the relationship between GDP growth and inflation? This paper explores these questions considering the SARB Governor, Lesetja Kganyago statements that there is a need to lower the IT band from 3–6% to a point target of 3%. We estimate the VAR model to determine whether the passthrough of positive GDP growth shocks to inflation is nonlinear in South Africa. The inflation effects are delineated into bands (i) above 6% (ii) between 4.5% and 6% (iii) between 3% and 4.5% (iv) between 0% and 3% and (v) when there are no IT bands. Evidence reveals that the passthrough is elevated when inflation exceeds 6% and is lower when inflation is within the (i) 3 to 4.5% and (ii) 0 to 3% IT bands. The passthrough from positive GDP growth shocks is more than halved when inflation is less than 3%. The policy implication is that lowering the IT band from 3 to 6% to 0 to 3% will reduce the passthrough of GDP growth shocks to inflation. It allows expansionary monetary to have more real effects as prices are more rigid in the low inflation environment. [ABSTRACT FROM AUTHOR]

We investigate the response of aggregate demand (AD) components and inflation to monetary policy (MP) shocks in the Tunisian context where studies on this issue are rare. By estimating SVAR models on historical data ending in 2021, we found that: i) The Tunisian Central Bank's (TCB) efforts to control inflation through interest rate tightening end up significantly slowing down private investment and consumption, while inflation response is not enough to mitigate the recently exacerbated inflationary trend; ii) Such efforts are hampered, if not outweighed, by the "pass-through" effect associated with exchange-rate continued depreciation; iii) The interest rate is Granger-caused by the exchange rate rather than the inflation rate, suggesting that de jure and de facto objectives of the TCB are divergent; and iv) The continued exchange rate depreciation alone is not enough to address the structural trade deficit. In light of these findings, we suggest that i) The transition from a discretionary MP to a rule-based inflation-targeting MP and with a well-defined role for the exchange rate, would help TCB gain credibility and improve efficiency of its MP; and ii) Tunisian policymakers should also consider consolidating MP in achieving its price stabilization objective particularly through implementing "supply-side policy" actions aiming at promoting economic growth and addressing unsustainable fiscal and external imbalances. [ABSTRACT FROM AUTHOR]

The structural effects of monetary policy and these effects impact on credit allocation are crucial facets of monetary policy research. This study initially estimates China's monetary policy based on the GDP growth target and CPI target found in the Chinese Government's Annual Work Report. Subsequently, it quantifies the extent of credit misallocation among Chinese firms using data from listed companies from the years 2013 to 2022. Finally, we empirically investigate the repercussions of expansionary monetary policy shocks on credit misallocation, focusing on micro-firms. Empirical findings reveal that expansionary monetary policy significantly exacerbates credit misallocation, particularly in underfinanced firms. Mechanistic analysis suggests that a preference for loan size in lending behavior constitutes a major factor contributing to credit misallocation among firms. [ABSTRACT FROM AUTHOR]

This paper looks into the crucial macroeconomic feedback mechanisms emerging from the interplay among the goods market, the labor market, the financial sector, and monetary policy, particularly in the context of transitioning towards a climate-neutral economy. The investment decisions of firms, pivotal in this interaction, can trigger feedback loops with potentially destabilizing effects, underscoring the critical role of investment within the complex interplay of market and sector dynamics in the macroeconomy. Governmental intervention is highlighted as a key factor in steering the green transition while preserving economic stability. A carbon tax on fossil fuel consumption is proposed as a primary tool for facilitating this green transition. Our investigation employs a disequilibrium model of monetary growth, a la Keynes-Metzler-Goodwin (KMG), incorporating a portfolio perspective across three asset markets - money, bonds, and stocks. This framework allows for an in-depth analysis of how a carbon tax influences real production, inflation, and inequality during the transition. Our findings indicate that imposing a carbon tax on production does not markedly disrupt economic stability, as long as the carbon pricing and its growth rate remain within low bounds. [ABSTRACT FROM AUTHOR]

Monetary aggregates now play no role in the Bank of Canada's monetary policy analysis or in its communication to the public. This article shows that ignoring monetary aggregates is justifiable when the central bank is on average hitting its target, when inflation is stable, and when inflation expectations are well anchored. In this case, the inflation target itself is the only reliable predictor of inflation at a suitable horizon. However, in periods of high inflation such as we have experienced since 2021, money contains information about the evolution of inflation that is dangerous to ignore. Nevertheless, care needs to be exercised in interpreting this information, because the velocity of circulation of money is endogenous to expectations about the permanence of monetary shocks. Note from the editors: The first volume of Canadian Public Policy/Analyse de politiques was published in 1975, making this the 50th volume. To commemorate, we have organized a series of lectures which are published in this special issue. Professor Ambler gave this lecture at the meetings of the Canadian Economics Association in Winnipeg in June 2023. [ABSTRACT FROM AUTHOR]

In order to compare the effectiveness of China's price- and quantity-based monetary policy tools over time, we develop a structural vector autoregressive model with time-varying parameter and factor augmentation (TVP-FA-S-VAR model) to analyze the response of output gap to monetary policy shocks. We find that price-based regulation becomes increasingly effective as China's interest rate liberalization proceeds, while the effects of broad money supply on output have been diminishing. Additionally, as it becomes harder to measure the effectiveness of quantity-based regulation, China's central bank has been more prudent to rely on quantitative intermediaries. Moreover, as much as 40% residual information of the Taylor rule will be omitted using price-based intermediaries, while factor augmentation fails to increase the explanatory power of quantitative intermediaries significantly. The correlation between quantitative intermediaries and the real economy has been weakening, so that the quantity-based monetary policy tools are no longer suitable for government intervention in China. We develop a structural vector autoregressive model with time-varying parameter and factor augmentation (TVP-FA-S-VAR model) to analyze the response of output gap to monetary policy shocks. We find that price-based regulation becomes increasingly effective as China's interest rate liberalization proceeds, while the effects of broad money supply on output have been diminishing. China's central bank has been more prudent to rely on quantitative intermediaries. As much as 40% residual information of the Taylor rule will be omitted using price-based intermediaries, while factor augmentation fails to increase the explanatory power of quantitative intermediaries significantly. The correlation between quantitative intermediaries and the real economy has been weakening, so that the quantity-based monetary policy tools are no longer suitable for government intervention in China. [ABSTRACT FROM AUTHOR]

The role of central banks in perpetuating and tackling the economic patterns associated with climate change has increasingly been subject to academic and political attention. The Bank of England is no exception, having received a new mandate to 'facilitate the transition to net zero' in March 2021. This follows the Bank's utilisation of its monetary tools to repeatedly stabilise the economic status quo since 2008, despite its ecological consequences. This article reveals the perceptions within the British state of the new mandate and the forms of institutional change demanded by it, based on a series of elite interviews with Treasury officials and other UK monetary policy experts, as well as a discourse analysis of Bank publications and speeches. We find that Bank actors lobbied for the new mandate to legitimise its development of climate risk assessments and licence internal dialogue on the implications of its monetary policy. But the mandate is perceived to be in immediate conflict with, and subservient to, the Bank's primary structural objective of maintaining price and financial stability, due to the potentially destabilising effects of private capital realignment during a net zero transition. Institutional change within the Bank is thus limited to extending its pre-existing function of mitigating risks to financial stability rather than facilitating decarbonisation through market-shaping governance of the financial sector. [ABSTRACT FROM AUTHOR]

This paper investigates the relationship between monetary policy and bank risk-taking by introducing a model wherein banks expend a level of costly monitoring effort to select low-risk projects, thereby reducing the risk associated with the loans they grant. The impact of monetary policy on bank risk-taking is examined through both theoretical models and empirical analysis. The paper compares theoretical models with different assumptions, revealing an unambiguous negative effect without the assumption of limited liability for banks, and an ambiguous effect with the assumption of limited liability for banks, influenced by the equity ratio. The empirical model employs unique quarterly data comprising balance sheet information for top-listed banks in the U.S. banking system from 2000 to 2017. The findings indicate that low-interest rates contribute to an increase in bank risk-taking. Moreover, this effect is more pronounced after the financial crisis and weaker before the crisis. Additionally, the impact is evident for undercapitalized banks and more substantial for those financed with a higher proportion of equity. [ABSTRACT FROM AUTHOR]

The aim of this study is twofold: on the one hand, to provide evidence of the positive association between the inflation rate and the labor share in the US; on the other, to show that monetary policy slows inflation by depressing the labor share. With the help of Bayesian econometrics, the paper shows evidence of a conflict Phillips curve. Furthermore, a structural vector autoregressive model reveals the detrimental effects of interest rate hikes on the labor share. Together, these results mean the monetary policy of administered interest rates resolves the class conflict in favor of capital to control inflation. Scrutiny of the US monetary policy development and a model of a controlled predator-prey system prepare the way for the empirical sections. Finally, the paper concludes that controlling the distributive conflict matters for impinging on inflation and that the Fed might follow alternative monetary rules to cease being the third party participating in the distributive conflict. [ABSTRACT FROM AUTHOR]

Purpose: For close to two decades, the West African Monetary Zone (WAMZ) has been preparing to launch a second monetary union within the ECOWAS region. This study aims to determine the impact such a unionised monetary regime will have on financial stability as represented by the nonperforming loan ratios of Ghana in a counterfactual framework. Design/methodology/approach: This study models nonperforming loan ratios as dependent on the monetary policy rate and the business cycle. The study then used historical data to estimate the parameters of the nonperforming loan ratio response function using an Autoregressive Distributed Lag (ARDL) approach. The estimated parameters are further used to estimate the impact of several counterfactual unionised monetary policy rates on the nonperforming loan ratios and its volatility of Ghana. As robustness check, the Least Absolute Shrinkage Selection Operator (LASSO) regression is also used to estimate the nonperforming loan ratios response function and to predict nonperforming loans under the counterfactual unionised monetary policy rates. Findings: The results of the counterfactual study reveals that the apparent cost of monetary unification is much less than supposed with a monetary union likely to dampen volatility in non-performing loans in Ghana. As such, the WAMZ members should increase the pace towards monetary unification. Originality/value: The paper contributes to the existing literature by explicitly modelling nonperforming loan ratios as dependent on monetary policy and the business cycle. The study also settles the debate on the financial stability cost of a monetary union due to the nonalignment of business cycles and economic structures. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this paper is to fill the momentous gap by explicitly investigating the asymmetric effects of monetary policy (MP) on non-bank financial intermediation (NBFI) assets. Design/methodology/approach: The authors utilized panel data from 29 countries for the period of 2012–2020 and used the quantile regression estimation. In addition to simultaneous quantile regression (SQR), the authors also employ quantile regression with clustered data (Parente and Silva, 2016) and the generalized quantile regression (GQR) method (Powell, 2020). Findings: The empirical results show a significant heterogeneous impact of MP. While there is a positive relationship between MP and NBFI assets ("waterbed effect") at lower quantiles of NBFI assets, at middle and higher quantiles, MP has a negative impact on NBFI assets ("search for yield" effect). The authors further find that negative impact strengthens as the quantile levels of NBFI assets rise from mid to high. Findings also reveal that "procyclicality" (except higher quantile) and "institutional demand" hypotheses hold. However, regarding "regulatory arbitrage," mixed results are observed indicating the impact of Basel III requirements. Originality/value: Previous empirical studies have concentrated on either the Dynamic Stochastic General Equilibrium (DSGE) framework or conditional mean regression approaches and delivered mixed findings of the MP effects on NBFI. The current paper takes a step toward dealing with this issue by deploying quantile regression methodology, which shows the impact of MP on NBFI at different conditional distributions (quantiles) of NBFI assets instead of just NBFI's conditional mean distribution. [ABSTRACT FROM AUTHOR]

This paper builds an open country theoretical model to analyse the spillover impact of the US monetary policy tightening shock on China's economy. GVAR empirical model is employed combined with 22 countries and obtain three main results. First, the US monetary tightening shock causes the rise of the international risk index and the bilateral real exchange rate (the appreciation of the US dollar and the depreciation of the RMB). Second, both China's current account and China's capital outflow show the increased trends combined with the weighted role of foreign economies. Third, as the negative effect of China's capital outflow is higher than the positive effect of China's current account, China's real output declines caused by the US monetary tightening shock. [ABSTRACT FROM AUTHOR]

The interest rate is viewed in this note as a monetary phenomenon, subject to a wide range of policy objectives and constraints, which contributes to determine activity levels principally through its effects on income distribution. The impact of interest-rate policy on inflation is also analysed, both in the light of the fact that the rate of interest constitutes a component of normal production costs and of the repercussions of its changes on employment. The note finally discusses the implications of the arguments put forward for the status of the central bank and capital control. [ABSTRACT FROM AUTHOR]

The aim of this paper is to assess to what extent the Taylor rule can be considered an appropriate representation of the tendency of central banks to react to inflation. After an overview of the origin and use of the Taylor rule, the paper stresses some difficulties in its implementation and the limits of its interpretation by the New Consensus models. Specifically, the inherent difficulties stemming from the notion and estimates of a benchmark interest rate determined by 'productivity and thrift' are pointed out. We then move on to advance an alternative interpretation of the Taylor rule along Classical-Keynesian lines. In this context, inflation is fuelled by conflicting claims on income distribution and the rule will be interpreted, as it is in actual fact, as a flexible and non-mechanical benchmark for monetary policies which will be seen to affect the division of product between wages and profits. [ABSTRACT FROM AUTHOR]

The notion of an 'independent' central bank has dominated monetary policy debates for the past three decades. The arguments for the political independence of central banks are closely related to the adoption of 'inflation targeting'. The arguments for an independent central bank are based on the 'credibility' of the 'conservative' central bank in comparison to government decision making. The independence of a central bank has been a matter of independence from government but not independence from the grip of the 'new consensus in macroeconomics' nor from the interests of the banking and financial sector. That independence has also supported a lack of co-ordination between monetary and fiscal policies, diminishing the effectiveness of macroeconomic policies. In addition, there remain doubts about the effectiveness of 'inflation targeting' on the achievement of low inflation. The policy mandates of central banks have begun to shift towards financial stability and paying attention to issues of inequality and the climate emergency. [ABSTRACT FROM AUTHOR]

In times of economic crisis, academics, policy-makers, and pundits often debate the correct level and best use of government debt. This paper argues structural political and economic factors grant core economies more fiscal space than peripheral economies. While the federal governments of the US, Germany, and other core economies may easily issue and sell debt in private markets, smaller economies, both municipalities within countries, and countries in the global periphery, are more vulnerable to demand fluctuations. All economies may benefit from explicit commitments by monetary authorities to resume their historic roles as governments' banks, especially during crises. By highlighting present political constraints, monetary structures, and market factors that may inhibit governments' successful placement of bonds, this paper deepens present debate about the potential feasibility of functional finance to facilitate fiscal activity, even in unprecedented times. [ABSTRACT FROM AUTHOR]

Since the global financial crisis burst in 2008, central bankers have been at centre stage in addressing its negative consequences across the economic systems of many countries. This has been further noticed in the aftermath of the pandemic crisis that erupted at the beginning of 2020 at global level, when a number of governments did intervene also in a rather 'unconventional' way to support economic activity through public spending. In both circumstances, central bankers have been in a position to satisfy private interests of the relevant stakeholders even though this has been affecting both income and wealth distribution against the common good. This paper investigates the political benefits that these 'unconventional' policy interventions have elicited in advanced economies to point out the political and distributional consequences of them, suggesting an alternative monetary policy stance that considers climate-related issues. [ABSTRACT FROM AUTHOR]

Several authors, especially those who share a Classical–Keynesian point of view, argue that the interest rate determines the rate of profit in the long run. Considering the eleven founding economies of the euro area, I find that, adjusted for the rate of growth of gross national income, there is a positive long-term relationship between the real interest rate and the net rate of profit. The results are confirmed even when I estimate a model with nominal interest rates, inflation, and a yield curve. These results imply that the European Central Bank (ECB), when deciding monetary policy, is not neutral in determining income distribution. [ABSTRACT FROM AUTHOR]

Low productivity growth in a low interest rate environment is a perennial problem for both UK monetary policy and the UK economy more generally. Through a comparative case study of eight firms across two economic sectors during 2012–6 we identify two shortcomings in the current productivity literature. The first is the importance of the order in which firms make investment and funding decisions. Investment decisions tend to predate questions of firm financing, implying loose monetary policy does not drive investment, but rather facilitates it. Secondly, we emphasise the importance of investment quality for funding choices. External financing such as credit or stock issues is predominantly used to fund expansionary but not productivity focussed investments. This implies monetary policy may have worsened the UK's productivity problem by facilitating expansionary over productivity enhancing investment strategies. Our findings are broadly consistent with the political economy literature on the UK economy, but we argue that research framed by the 'growth model' concept has not successfully illuminated firm-level dynamics, and relies on mainstream macroeconomics to explain low productivity. We therefore argue for a research agenda that moves beyond aggregate measures and incorporates questions about the quality of economic activity. [ABSTRACT FROM AUTHOR]

Monetary financing – the issuance of public money to support public expenditure – remains a widespread policy taboo. In this article, we analyze the operational practices of the Bank of England, the Federal Reserve and the European Central Bank (ECB) from the 20th onwards to argue that monetary finance should be understood as a conventional and legitimate part of central banks' core functions. We argue that monetary financing serves a crucial macro-financial role in the face of large fluctuations in the demand for and supply of government debt, where the central bank acts to stabilize sovereign debt markets. We show that monetary financing has been a stable and pervasive feature of the Bank of England's and the Federal Reserve's operations. Turning to the ECB, we show that by the mid-2000s the view came to dominate the institution that the central bank should allow markets to punish governments for excessive deficits. This view informed the ECB's catastrophic reluctance to act on the 2008 and 2009 Financial Crisis deficits. By 2020 that attitude had once again largely been abandoned. [ABSTRACT FROM AUTHOR]

Summary: We compare predictive performance of a multitude of alternative Bayesian vector autoregression (VAR) models allowing for cointegration and time‐varying conditional covariances, described by different multivariate stochastic volatility (MSV) models, including their hybrids with multivariate GARCH processes (MSV‐MGARCH), as well as t‐GARCH and Markov‐switching structures. The forecast accuracy is evaluated mainly through predictive Bayes factors, but energy scores and the probability integral transform are also used. Two empirical studies, for the US and Polish economies, are based on a small model of monetary policy comprising inflation, unemployment and interest rate. The results indicate that capturing conditional heteroskedasticity by some MSV‐MGARCH specifications contributes the most to the forecasting power of the VAR/VEC model. [ABSTRACT FROM AUTHOR]

This article is based on the Homer Jones Memorial Lecture delivered at the Federal Reserve Bank of St. Louis, November 2, 2023. Headline inflation in the euro area declined rapidly to 2.9% in October 2023 from its peak of 10.6% one year earlier. The bulk of this large drop reflected the substantial decline in the contributions from energy and food inflation. Once these base effects reverse, continued disinflation relies critically on monetary policy succeeding in reducing underlying inflation in a steady and timely manner. The last mile is about this change in the disinflation process. Large uncertainty around the appropriate calibration and effective transmission of monetary policy, together with the risk of new supply-side shocks pulling inflation away from our target once again, makes this part of the disinflation process the most difficult. In particular, monetary policy transmission may be weaker, or less direct, than in the past, given the share of less-interest-rate-sensitive services industries in total activity has increased steadily in the euro area and globally over the past few decades. In addition, persistent worker shortages have muted the transmission through the labor market, with unemployment at record low levels despite the sharp increase in interest rates. So, although progress on inflation so far is encouraging, the disinflation process during the last mile will be more uncertain, slower, and bumpier. Continued vigilance is therefore needed. [ABSTRACT FROM AUTHOR]

The article analyzes the relationship between macroeconomics and (labor) poverty between 2005 and 2022. Three scenarios were considered: 1) income, inflation, interest rate and labor poverty, while scenarios 2) and 3) considered labor income and inflation of lines of poverty and extreme poverty in relation to income, respectively. An impulse response function and its cointegrating relationship are estimated for each scenario. The results suggest that the interest rate does indeed have an impact on poverty: a monetary policy that prioritizes low and stable inflation corresponds to a lower poverty rate, as well as higher income. Finally, it is concluded that inflation is detrimental to poverty. [ABSTRACT FROM AUTHOR]

The Central Bank, acting on behalf of the government, uses monetary policy to influence economic and financial activities in order to achieve price stability while also considering economic growth. The circulation of money supply in an economy is affected by monetary policy, which is reflected in the development of various economic and financial variables such as money supply, credit, exchange rates, and interest rates. This study analyzes the impact of inflation, interest rates, and e-money on money demand in Indonesia using a quantitative approach. The data used in this research are inflation, interest rates, e-money, and money demand from 2017 to 2022, sourced from the Central Bureau of Statistics and Bank Indonesia. The Error Correction Model (ECM) model is used for data analysis. The long-term ECM test results show that inflation has a significant negative effect on money demand, while interest rates do not have a significant effect on money demand. In the long term, the e-money variable has a significant positive effect on the demand for money. In the short term, however, inflation and interest rates do not affect the demand for money in Indonesia, while the e-money variable has a significant effect on the demand for money. [ABSTRACT FROM AUTHOR]

This paper investigates the long-run and short-run relationship between money supply and inflation in Pakistan, utilizing annual data spanning from 1981 to 2021. The key objective is to assess the impact of monetary policy, specifically money supply, on inflation dynamics in the country. To achieve this, the Autoregressive Distributed Lag (ARDL) bounds testing approach is employed, which is suitable for analyzing cointegration among variables with mixed integration orders. The results reveal both short and long-run cointegration between inflation, money supply, unemployment, and interest rates. Notably, unemployment demonstrates a negative correlation with inflation, while money supply and interest rates exhibit a positive relationship. These findings underscore the importance of dedicated policy measures to manage inflation effectively. The paper concludes by recommending the establishment of a policy implementation body and collaboration between the government and the central bank to ensure financial stability and control inflation through well-calibrated monetary and fiscal policies. [ABSTRACT FROM AUTHOR]

This article integrates monetary policy into a very simple dynamic supermultiplier model with an accommodating supply side. Results show that monetary policy guided by a mainstream Taylor rule may stabilize an economy around the steady-state path of demand-led growth following temporary demand shocks. However, monetary policy is ineffective in offsetting permanent negative demand shocks even if the lower bound for interest rates is not binding. This outcome contrasts with the prevailing view among policymakers that monetary policy can usually assure full utilization of an economy’s resources in the long run. The ineffectiveness of monetary policy is particularly acute if autonomous demand grows more slowly than necessary to generate full employment. In this case, if policymakers recognize the under-utilization of resources, monetary policy leads to interest rates trending necessarily to their lower bound. The analysis also shows how monetary policy may lead to counter-productive responses to supply shocks. The article concludes with observations about how the theoretical results correspond with the history of US monetary policy in recent decades. [ABSTRACT FROM AUTHOR]

In 2021, the European Central Bank (ECB) decided to adjust its monetary policy strategy. Three major changes were initiated: the main objective was reformulated, but also the structure of the institution’s analyses of the economic situation and how it will communicate in the future was adjusted. Can these changes be considered as being based on a Post-Keynesian view or do they still follow the ‘New Consensus’ model largely based on standard neo-classical theory? Our main conclusion will be that the adjustments made by the ECB are not necessarily based on Post-Keynesian analysis. To justify this statement, we have developed what we consider the basic elements of a Post-Keynesian monetary policy, then we analysed what a Post-Keynesian monetary rule could be as well as the monetary policy instruments used by the ECB. Subsequently we looked at the strategy changes made by the ECB from a Post-Keynesian point of view and concluded that some of these changes can be considered as being close to Post-Keynesian theory, but other facts explain why the ECB’s monetary policy is still close to the ‘New Consensus’ model. [ABSTRACT FROM AUTHOR]

Recently, considerable research effort has been devoted to studying the impact of monetary policy on inequality. This paper summarizes the literature on the causes of rising inequality and looks at the empirical work on interest rates and inequality. It argues that growing empirical evidence concerning the impact of monetary policy on inequality is mixed and that the conflicting results concerning monetary policy and inequality involve, to a large extent, how one measures inequality. Overall, it seems that loose monetary policy increases incomes of those at the bottom of the distribution but reduces their income relative to those at the top of the distribution. The paper also examines some post-Keynesian monetary policy rules to deal with inequality and finds them wanting in many respects. Going further, the paper argues that monetary policy is too a blunt instrument for reducing inequality and that reducing inequality needs to be the job fiscal policy, which is better suited to dealing with this problem and which has the political authority to deal with distributional problems. [ABSTRACT FROM AUTHOR]

The COVID-19 pandemic has profoundly impacted global economies, underscoring the urgency of deriving lessons to enhance future crisis preparedness. This study explores the effects of monetary recovery policies on supply chain dynamics across key global cities during the pandemic's initial phase, emphasising policy interactions, industry engagement, and economic resilience. Utilising principal component analysis (PCA), data envelopment analysis (DEA), and tobit regression, we present a pioneering method to unravel the complex relationship between economic policies and urban supply chains. PCA simplifies data complexity and reveals complex policy-resilience relationships, while DEA facilitates a comparative efficiency analysis. Our findings underscore the critical importance of supply chain resilience in fostering early economic recovery, indicating that cities implementing diverse, sector-specific policies achieved more notable improvements in gross domestic product (GDP). This research not only advances methodological approaches for policy evaluation but also provides valuable insights for optimising urban economic recovery strategies amidst global challenges. [ABSTRACT FROM AUTHOR]

Following the financial crises in the late 1990s, governments in Japan and South Korea embraced institutional change that corresponded with Western neoliberal norms. These changes prompted some observers to expect a similar adjustment of monetary and financial policy to Western standards. Others anticipated that historical legacies would preserve developmental policy continuity. Curiously, neither of the two perspectives can fully explain the ensuing monetary and financial policy paths in both countries, which have exhibited differences in both conduct and objectives. To explain the puzzling policy paths, this article focuses on the role of government objectives in shaping institutional change and policy paths. It finds that in the 1990s, governments in Japan and South Korea sought to expand their control over monetary and financial policy vis-à-vis the bureaucracy. They used international pressure and expert commissions to bring about institutional change when the financial crises hit. This enabled them to instigate new monetarist (Japan) and financial stability-directed (South Korea) policy paths they preferred. The findings indicate that accounts by institutionalist and state capacity scholars should pay more attention to government objectives when explaining the timing of institutional change and the emergence of subsequent policy paths. [ABSTRACT FROM AUTHOR]

The hongbao is a monetary gift given during Chinese New Year and other occasions. In 2015, WeChat introduced its electronic version in China. This has altered its original and ritualistic meaning, which is linked to a conception of the world characterised by filial piety, benevolence, and social harmony. Here the red packet is seen as a connector linking the generations, and also the individual to the community. The money inserted in the red packet symbolises these relationships, as well as the debt of life that can never be reimbursed. Hence, the amount is symbolic. The time-space compression that allowed for the introduction of the e-hongbao has changed this meaning, and the WeChat app can be analysed as a mediator that links the sender and the receiver. This blurs the meaning of the hongbao, linking it to economic practices and highlighting the individualisation of Chinese society. [ABSTRACT FROM AUTHOR]

Policy design approaches currently pay insufficient attention to feedback that occurs during the design process. Addressing this endogenous policy design feedback gap is pressing as policymakers can adopt 'low-fidelity' design approaches featuring compressed and iterative feedback-rich design cycles. We argue that within-design feedback can be oriented to the components of policy designs (instruments and objectives) and serve to reinforce or undermine them during the design process. We develop four types of low-fidelity design contingent upon the quality of feedback available to designers and their ability to integrate it into policy design processes: confident iteration and stress testing, advocacy and hacking, tinkering and shots in the dark, or coping. We illustrate the utility of the approach and variation in the types, use, and impacts of within-design feedback and low-fidelity policy design through an examination of the UK's Universal Credit policy. [ABSTRACT FROM AUTHOR]

This study empirically investigates the international transmission of China’s uncertainty shocks. It estimates a time-varying parameter Bayesian global structural vector autoregressive model (TVP-BGVAR) using time series data for 33 countries to evaluate heterogeneous international linkage across countries and time. Uncertainty shocks are identified via sign restrictions. The empirical results reveal that an increase in uncertainty in China negatively affects the global economy, but those effects significantly vary over time. The effects of China’s uncertainty shocks on the global economy have been significantly altered by China’s WTO accession, the global financial crisis, and the recent US–China trade conflict. Furthermore, the effects of China’s uncertainty shocks, typically on inflation, differ significantly across countries. Moreover, Trade openness appears crucial in explaining heterogeneous GDP responses across countries, whereas the international dimension of monetary policy appears to be important in explaining heterogeneous inflation responses across countries. [ABSTRACT FROM AUTHOR]

Shadow banks, such as investment funds, hedge funds, and mortgage finance companies, have grown rapidly in recent years. We analyze the link between monetary policy and the growth of shadow banks and, by extension, financial stability in Canada. Using monthly financial market data from 1991 to 2015, we first find that contractionary monetary policy does not cause the expected reduction in shadow bank business loans and mortgage loans as it does in chartered bank credit. This suggests that as shadow banks have grown in importance, the effectiveness of monetary policy in reducing inflation has been impaired. We find evidence to support that hypothesis using a two-stage time-varying coefficient Bayesian vector autoregression approach. [ABSTRACT FROM AUTHOR]

This paper examines how the public's expectations for the chair of the monetary policy committee influence policy outcomes. We show that the expectation that the chair will propose their ideal policy at the meeting can lead a majority of the committee to reject the policy change. The result suggests that the expectation of the chair's agenda setting is a determinant of interest rate persistence. • We examine an agenda-setting model of the monetary policy committee. • Assume that the committee members are relatively hawkish. • Consider expectations that the chair will propose their ideal policy at the meeting. • We show that such expectations can be a cause of persistent interest rates. [ABSTRACT FROM AUTHOR]

We consider a New Keynesian model with nominal rigidities and fractional cash in-advance constraint on consumption expenditures. We study the stability properties of the model when Taylor rules react either to current inflation or to expected one. We account for different public sector budget identities and different fiscal policies ensuring Government solvency. Under an independent Central Bank, forward-looking Taylor rules promote sunspot fluctuations more easily than contemporaneous ones because they set in motion a mechanism of self-fulfilling prophecies. Conversely, the introduction of capital as an asset alongside public securities facilitates smoothing behavior and reduces the region of indeterminacy but brings out multiple steady states. When public sector budget identities are consolidated, the stabilization of total public liabilities reduces the likelihood of sunspot fluctuations and even rules them out in the presence of capital accumulation. Finally, we perform a complete welfare analysis allowing to rank equilibria and to identify the best policy mix to implement Pareto-superior outcomes. • Monetary New Keynesian models may display endogenous fluctuations. • Central Bank implements Taylor rules and Government fiscal ones guarantying solvency. • Economy stability features depend upon assumptions on Central Bank independency. • An opportune monetary and fiscal policy mix can reduce endogenous fluctuations. • In case of multiple equilibria, one can Pareto-rank them and target the second-best. [ABSTRACT FROM AUTHOR]

This work aims to investigate the behavior of financial agents in a complex setting where they interact and learn about the environment. Using the bottom-up approach of agent-based models, we simulate a situation where banks, depositors, a central bank, firms, and a clearing house compose an artificial financial system under different scenarios regarding monetary and macroprudential policy instances and emerging and developed countries realities. Banks are able to learn from the outcomes and endogenously set the market interest rate. The main conclusions are: with regard to the credit market, (i) policies reinforce each other's effects on credit supply when they are both restrictive. Regarding banks' risk-taking behavior, (ii) expansive monetary policy increases banks' loans and portfolio risk. Finally, (iii) restrictive instances in both policies, while promoting more capital and less risk in the balance sheet, are able to reduce risk to some extent. If combined in the right way, these policies may improve overall system stability. [ABSTRACT FROM AUTHOR]