Essays on monetary policy
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- Tez No: 402671
- Danışmanlar: PROF. FRANCESCO FARINA
- Tez Türü: Doktora
- Konular: Ekonometri, Ekonomi, İstatistik, Econometrics, Economics, Statistics
- Anahtar Kelimeler: Belirtilmemiş.
- Yıl: 2016
- Dil: İngilizce
- Üniversite: Università degli studi di Siena (University of Siena)
- Enstitü: Yurtdışı Enstitü
- Ana Bilim Dalı: Belirtilmemiş.
- Bilim Dalı: Belirtilmemiş.
- Sayfa Sayısı: 104
Özet
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Özet (Çeviri)
The thesis consists of four interrelated chapters. The first chapter, entitled“Monetary Policy and the 2007-8 Global Financial Crisis: An Overview”analyzes the run-up of the global financial crisis from monetary policy point of view. The main argument of the chapter is that, starting from the early 2000s the Federal Reserve System (Fed) started following loose monetary policies and provided the market with superfluous liquidity. Loose monetary policies, accompanied with easy access to home loans conduced to inflate housing bubble and expansion of subprime mortgages in the US. In the second stage, securitization of mortgages and regulators' failure to keep pace with the financial innovation left the global financial system vulnerable to shocks. In such an environment bust of the housing bubble triggered the global financial crisis. On the empirical side, we utilized Taylor rule due to its success in representing the Fed's as well as other major central banks' interest rate setting practices. We observed significant deviation of the Fed's policy interest rates from the Taylor rule starting from early 2000. From 2002 to 2006 the Fed's policy interest rates persistently remained below what the Taylor rule suggests. To be more concrete, we utilized cumulative sum (cusum) and Chow forecast tests and identified gradual structural break in the Fed's policy interest rates in the run-up of the global financial crisis. On the back of this finding, we conclude that the 2007-8 global financial crisis is another instance where prolonged loose monetary policy jeopardizes financial stability. Unconventional monetary policies during the crisis period and the Fed's inclination to return to normal time policies as the economic situation improves are also discussed in this chapter. The second chapter is entitled“Monetary Policy Response to Exchange Rates: An Empirical Investigation”. This chapter argues that while exchange rate stability concerns and its management play a significant role in practice, exchange rate arguments are often omitted out from monetary policy analysis even in open economy set ups. The omission is often justified by isomorphism between closed and open economies under certain conditions or by focusing on effects of exchange rate movements on inflation, which already entails a monetary policy response. In return, exchange rate does not enter the loss function of central banks as a separate argument; and simple interest rules, such as the Taylor rule, do not comprise exchange rate arguments even for small open economies.In order to identify the role of exchange rate for monetary policy makers in open economies, we append exchange rate into a Taylor type of rule; and examine its effect on interest rate setting decisions of policy makers in the US, the UK, Canada, and Norway by utilizing General Method of Moments (GMM). The results suggest that for a relatively closed economy, such as the US, exchange rate movements do not lead to a significant response in the policy interest rates. Nevertheless, for open economies, both exchange rate variability and exchange rate levels are significant in the conduct of monetary policy. Chapter three,“Why Monetary Policy Makers Should be Concerned about Exchange Rate Stability: An Alternative Explanation”is a sequel of the preceding chapter. The chapter argues that in spite of the policy makers' tendency to mitigate exchange rate fluctuations, the present literature does not suggest a convincing argument in favor of exchange rate stability. Specifically, exchange rate stability is assumed to stimulate international trade, provide a more favorable environment for investment, and maximize household welfare. However, there is no strong theoretical or empirical finding that supports these arguments. The chapter aims at contributing to the literature by suggesting an alternative explanation about the cost of exchange rate volatility based on the recent empirical findings that exchange rate volatility generates significant variability in trade flow (not in trade level, as there is no significant finding about it). We develop a two sector (producers and retailers) open economy model in order to explain how exchange rate volatility would generate some considerable cost on the real sector. For profit maximization, retailers need to adjust composition of their sales between domestic and imported goods as exchange rate fluctuates. In order to meet retailers' demand, producers need to adjust their production or work with extra inventory, which incurs cost on producers. The role of monetary policy makers in this environment is akin to optimal monetary policy in a New Keynesian model, where central banks respond to productivity shocks to stabilize firm markups in order to maintain price stability. In our model, by mitigating exchange rate variability, monetary policy makers eliminate the need for production and sales adjustments and let the economy to operate at natural level of employment. Hence, we conclude that an exchange rate variability concern should be inserted into central bank loss function together with inflation and output.The last chapter of the thesis is entitled“Macroeconomic Performance Index: A New Approach to Calculation of Economic Wellbeing”. Since the rise of the global financial crisis there has been a revival of interest in performance indexes that measure the overall stance of the economy and the wellbeing of households. Such indexes typically consist of inflation rates, growth rates, employment rates and long term interest rates. We developed such an index by incorporating exchange rate and weighting each variable by the inverse of its variance in order to prevent the more volatile variable to dominate the index. We refer this index macroeconomic performance index (MPI) and argue that it better explains economic stance, particularly of emerging market economies. We have calculated the index for Turkey, Poland and Brazil for the period 2001-2014. Our analysis of the index implies a non-linear structure and we analyze the behavior of the index by threshold autoregression (TAR) model. It is observed that MPI captures the economic situation, developments and responses to shocks quite successfully in each country. We have also examined the relationship of the MPI with consumer confidence index by Enders and Siklos methodology which analyzes the long term equilibrium relations between the nonlinear variables. The results indicate a long term relationship between the MPI and consumer confidence indexes in all three countries.
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