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Europe > Ireland

You are looking at 1 - 4 of 4 items for :

  • Type: Journal Issue x
  • Demand for Money x
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Cover IMF Working Papers
On Price Stability and Welfare
Mr. Etienne B Yehoue
The financial crisis in the advanced countries that began in 2007 has led central bankers to adopt unconventional policy measures as policy interest rates neared the zero bound. One suggestion (Blanchard, Dell’Ariccia, and Mauro, 2010) has been to raise inflation targets to provide more room for policy rate easing during crises. This paper addresses a different issue: the relationship between inflation and welfare. The literature is surveyed and a model is developed. A key conclusion is that an increase in inflation targets gives rise to additional welfare costs, even after the extra room to maneuver above the zero lower bound for nominal policy rates is taken into account. Based on parameter values that fit U.S. data, the additional welfare costs of raising inflation targets from 2 to 4 percent are estimated at about 0.3 percent of annual real income. A rise to 10 percent would yield additional welfare costs of about 1 percent of real income. Other parameter values yield welfare costs as high as 7 (respectively 30) percent of real income for raising inflation targets from 2 to 4 (respectively from 2 to 10) percent. The full costs of raising inflation targets are likely to be higher because the model used to generate these estimates does not account for higher inflation-induced volatility.
Keywords:
WP; inflation target; money demand; welfare cost; real interest rate; Inflation; welfare; interest rates; monetary policy; inflation-growth relationship; inflation expectation; inflation dynamics; Inflation targeting; Demand for money; Personal income; Real interest rates
Cover IMF Working Papers
Money As Indicator for the Natural Rate of Interest
Mr. Helge Berger
and
Mr. Henning Weber
The natural interest rate is of great relevance to central banks, but it is difficult to measure. We show that in a standard microfounded monetary model, the natural interest rate co-moves with a transformation of the money demand that can be computed from actual data. The co-movement is of a considerable magnitude and independent of monetary policy. An optimizing central bank that does not observe the natural interest rate can take advantage of this co-movement by incorporating the transformed money demand, in addition to the observed output gap and inflation, into a simple but optimal interest rate rule. Combining the transformed money demand and the observed output gap provides the best information about the natural interest rate.
Keywords:
WP; money gap; monetary policy; Natural interest rate; money demand; optimal monetary rule; gap coefficient; observed output gap; interest rate rule; policy rule; Demand for money; Output gap; Consumption; Monetary policy frameworks; Productivity
Cover IMF Working Papers
Does Money Matter for U.S. Inflation? Evidence from Bayesian VARs
Pär Österholm
and
Mr. Helge Berger
We use Bayesian estimation techniques to investigate whether money growth Granger-causes inflation in the United States. We test for Granger-causality out-of-sample and find, perhaps surprisingly given recent theoretical arguments, that including money growth in simple VAR models of inflation does systematically improve out-of-sample forecasting accuracy. This holds for a long forecasting sample 1960-2005, as well for more recent subperiods, including the Volcker and Greenspan eras. However, the contribution of money to inflation forecasting accuracy is quantitatively limited and tends to be smaller in recent subperiods, in particular in models that also include information on real GDP growth and interest rates.
Keywords:
WP; money; money growth; interest rate
Cover IMF Working Papers
Endogenous Money Supply and Money Demand
Woon Gyu Choi
and
Seonghwan Oh
This paper explores the behavior of money demand by explicitly accounting for the money supply endogeneity arising from endogenous monetary policy and financial innovations. Our theoretical analysis indicates that money supply factors matter in the money demand function when the money supply partially responds to money demand. Our empirical results with U.S. data provide strong evidence for the relevance of the policy stance to the demand for MI under a regime in which monetary policy is substantially endogenous. Specifically, we find that tighter monetary policy has substantial positive impacts on money demand under the recent Federal funds rate targeting.
Keywords:
WP; funds rate; monetary policy; money stock; financial service; Money Demand; Money Supply Endogeneity; Financial Innovation; Monetary Policy Stance; money holding; first-half-period money demand; money demand function; money supply factor; Demand for money; Monetary base; Monetary tightening; Vector autoregression