2012 BSP International Research Conference
Theme: Contemporary Challenges to Monetary Policy
Venue: Manila, Philippines
            Metro Manila, PHILIPPINES
Date   : 28-29 February 2011 (Tuesday and Wednesday)
Website: http://www.bsp.gov.ph/events/2010/cbmmw/index.htm

2012 CCMP Conference Papers


[ Home | Conference Program ]

NoAuthor / Title / Abstract
1.Author(s): Don Nakornthab
Affiliation(s): Bank of Thailand

Title: Marrying Monetary Policy with Macroprudential Regulation: Countercyclical Capital Buffer and Optimal Monetary Policy

Abstract:

Since the eruption of the global financial crisis in 2008, macroprudential regulation has become a mantra in the regulatory world. The soon-to-be widespread adoption of macroprudential tools will inevitably affect the dynamics of the economy and consequently have a direct bearing on the conduct of monetary policy. This paper explores theoretically several issues surrounding the interplay between Basel-III-type countercyclical capital regulatory rule and monetary policy. Among the key issues examined are the implications of the former on the monetary transmission mechanism, optimal monetary policy conduct, and the optimal policy combination.

Discussant: Iskandar Simorangkir, Bank Indonesia

Download: [ Paper | Presentation | Discussion ]

2.Author(s): Benjamin Born, Michael Ehrmann and Marcel Fratzscher
Affiliation(s): Ifo Institute, Munich and European Central Bank

Title: Central Bank Communication on Financial Stability

Abstract:

Central banks regularly communicate about financial stability issues, by publishing Financial Stability Reports (FSRs) and through speeches and interviews. The paper asks how such communications affect financial markets. Building a unique dataset, it provides an empirical assessment of the reactions of stock markets to more than 1000 releases of FSRs and speeches by 37 central banks over the past 14 years. The findings suggest that FSRs have a significant and potentially long-lasting effect on stock market returns, and also tend to reduce market volatility. Speeches and interviews, in contrast, have little effect on market returns and do not generate a volatility reduction during tranquil times, but have had a substantial effect during the 2007-10 financial crisis. The findings suggest that financial stability communication by central banks are perceived by markets to contain relevant information, and they underline the importance of differentiating between communication tools, their content and the environment in which they are employed.

Discussant: Anja Baum, University of Cambridge

Download: [ Paper | Presentation | Discussion ]

3.Author(s): Iskandar Simorangkir and Justina Adamanti
Affiliation(s): Bank Indonesia

Title: Financial Computable General Equilibrium (FCGE) Model: Exploring Real-Financial Linkage on Indonesian Economy during Financial Crisis

Abstract:

This paper tries to explore real-financial linkage on Indonesian Economy during financial crisis by examining the impacts of fiscal stimulus and interest rate cut on Indonesian economy using financial computable general equilibrium (FCGE) approach. The estimation results show a number of findings. First, the combination of fiscal expansion and monetary expansion boosts economic growth of Indonesia effectively. Relative to the effectiveness of fiscal expansion without monetary policy expansion or monetary expansion without fiscal expansion, the combination of those two policies is more effective. Second, looking into the components of GDP, the combination of fiscal and monetary expansion has a large multiplier effect, boosting aggregate demand through increasing consumption, investment, government expenditure, exports and imports. Meanwhile, from production side, the combination of fiscal and monetary expansion has positive effects on increasing production of all economic sectors. This effect comes from fiscal incentive (lower tax, lower import duties, etc) in increasing investment. Moreover, the increase in aggregate demand also encourages enterprises to increase their production. Third, institutionally fiscal stimulus and monetary easing has increased income and purchasing power of the poor and rich households in rural and urban area. This increase in turn results in higher all household consumption.

Discussant: Paul McNelis, Fordham University

Download: [ Paper | Presentation | Discussion ]

4.Author(s): Anja Baum, Cristina Checherita-Westphal and Philipp Rother
Affiliation(s): University of Cambridge and European Central Bank

Title: Debt and Growth: New Evidence for the Euro Area

Abstract:

Against the background of the euro area sovereign debt crisis, our paper investigates the relationship between public debt and economic growth and adds to the existing literature in the following ways. First, we extend the threshold panel methodology by Hansen (1999) to a dynamic setting in order to analyse the nonlinear impact of public debt on GDP growth. Second, we focus on 12 euro area countries for the period 1990-2010, therefore adding to the current discussion on debt sustainability in the euro area. Our empirical results suggest that the short-run impact of debt on GDP growth is positive and highly statistically significant, but decreases to around zero and loses significance beyond public debt-to-GDP ratios of around 67%. This result is robust throughout most of our specifications, in the dynamic and non-dynamic threshold models alike. For high debt-to-GDP ratios (above 95%), additional debt has a negative impact on economic activity. Furthermore, we can show that the long-term interest rate is subject to increased pressure when the public debt-to-GDP ratio is above 70%, broadly supporting the above findings.

Discussant: Benjamin Born, Ifo Institute, Munich

Download: [ Paper | Presentation | Discussion ]

5.Author(s): Paul McNelis and Yu-Ning Hwang
Affiliation(s): Fordham University and National Chengchi University

Title: Monetary Growth Targeting, the Taylor Rule and Share-Market Stability: The Taiwanese Experience

Abstract:

This paper applies counterfactual simulation experiments based on Bayesian estimates of an open-economy DSGE model of Taiwan. We assess the monetary targeting framework of the Central Bank of the Republic of China relative to a pure inflation targeting Taylor rule. We find that welfare changes may be positive or negative, but very small, at most less than 0.6 percent of consumption. However, switching to a Taylor rule leads to significantly greater volatility in Tobinís Q. Given the importance of share-price stability for overall financial market performance, monetary targeting emerges as the more prudential framework for monetary policy.

Discussant: Joselito Basilio, Bangko Sentral ng Pilipinas

Download: [ Paper | Presentation | Discussion ]

6.Author(s): Honglin Wang and Dong He
Affiliation(s): Hong Kong Monetary Authority

Title: Dual-Track Interest Rates and the Conduct of Monetary Policy in China

Abstract:

China has a dual-track interest-rate system: bank deposit and lending rates are regulated while money and bond rates are market-determined. The central bank also imposes an indicative target, which may not be binding at all times, for total credit in the banking system. We develop and calibrate a theoretical model to illustrate the conduct of monetary policy within the framework of dual-track interest rates and a juxtaposition of price- and quantity-based policy instruments. We model the transmission of monetary policy instruments to market interest rates, which, together with the quantitative credit target in the banking system, ultimately are the means by which monetary policy affects the real economy. The model shows that market interest rates are most sensitive to changes in the benchmark deposit interest rates, significantly responsive to changes in the reserve requirements, but not particularly reactive to open market operations. These theoretical results are verified and supported by both linear and GARCH models using daily money and bond market data. Overall, the findings of this study help us to understand why the central bank conducts monetary policy in China the way it does, using a combination of price and quantitative instruments with differing degrees of potency in terms of their influence on the cost of credit.

Discussant: Sang Chul Ryoo, Bank of Korea

Download: [ Paper | Presentation | Discussion ]

7.Author(s): Joselito Basilio
Affiliation(s): Bangko Sentral ng Pilipinas

Title: Cross-country Comparison of Taylor-type Rules, Their Patterns and Performances

Abstract:

The observation that monetary policy rules applied in a practical policymaking environment needs to be tested in different countries and retested in light of recent monetary challenges. These tests reveal the tendency of future monetary policy to deviate from rules in order to accommodate goals other than growth and price stability. In some countries, authorities announce the rules they follow in implementing monetary policy. In other countries, there are no explicit rules although their policy actions can be observed whether these follow any pattern. In both cases, an examination on the different countriesí interest rates (as policy instruments) can be made to answer the following: 1) whether or not a countryís monetary policy behaves according to a rule; and 2) how much does a countryís monetary policy adhere to a certain interest rate rule even in the face of challenges. In answering the first question, this study compares across countries the patterns of monetary policy reactions to growth and inflation. By addressing the second question, this study attempts to evaluate the performance of monetary policy in terms of consistency to interest rate rules particularly during the recent crisis. The evaluation of policy rules in this paper involve cross-country comparison of the following: 1) Taylor rule parameters including and excluding policy actions during the recent crisis; and 2) deviation of actual policy actions from what observed monetary rules imply

Discussant: Paul McNelis, Fordham University

Download: [ Paper | Presentation | Discussion ]

8.Author(s): Seung Hwan Lee
Affiliation(s): Bank of Korea

Title: Systemic Liquidity Shortages and Interbank Network Structures

Abstract:

This paper aims to shed light on the systemic nature of liquidity risk and to propose a method for calculating the systemic liquidity shortages that a banking system faces when it is hit by liquidity shocks. Our method incorporates not only direct liquidity shortages but also indirect liquidity shortages due to the knock-on effects through inter-bank linkages. We perform a simulation with a simple banking system model and find that a deficit bank can prevent a liquidity shortage by holding more claims on a surplus bank. Whereas a greater imbalance in liquidity positions across banks tends to aggravate the liquidity shortage of a deficit bank. According to the comparison analysis between different types of network structures, a core-periphery network with a deficit money center bank gives rise to the highest level of systemic liquidity shortages and a banking system becomes more vulnerable to liquidity shocks as its inter-bank network is more ill-matched.

Discussant: Honglin Wang, Hong Kong Monetary Authority

Download: [ Paper | Presentation | Discussion ]

9.Author(s): James Yetman and David Cook
Affiliation(s): Bank for International Settlements and Hong Kong University of Science & Technology

Title: Monetary policy and financial stability in emerging-market economies: An operational framework

Abstract:

Foreign exchange reserves have grown dramatically in emerging Asia over the past decade. Many of these reserves have been sterilised, via the issuance of non-monetary liabilities by central banks, with the sterilisation instruments held largely by domestic banks. We investigate the effects of this process on emerging Asian economies. We find evidence that long run economic performance may suffer, due to resource mis-allocation and reduced investment. We also find that while reserves appear to have helped to protect banks during periods of crisis, they have had little effect during more normal times. Finally, we examine the effect of reserves on central banks and monetary policy. We find that sterilisation appears to be incomplete in some cases, with reserves accumulation leading to higher levels of broad money, inflation and credit. Further, sterilisation costs, and losses due to currency appreciation, are a potential threat to central bank independence and may bias policy away from raising interest rates or allowing currency appreciation.

Discussant: Seung Hwan Less, Bank of Korea

Download: [ Paper | Presentation | Discussion ]

10.Author(s): Sang Chul Ryoo and Baeho Kim
Affiliation(s): Bank of Korea and Korea University

Title: Systemic Leverage as a Macroprudential Indicator

Abstract:

We propose systemic leverage as a macroprudential indicator, which we construct by incorporating into aggregate leverage two systemic risk factors, procyclicality and interconnectedness. We conjecture that these factors are well captured by wholesale funding, off-balance sheet transactions, mark-to-market accounting, and cross-border activities. We determine each factorís weight for the indicator based upon its contribution to the business cycle. We calculate the indicator using the balance sheet data of domestic banks in Korea, and find that it issues warning signals at least one year in advance of financial crises and works better as an early warning indicator than the credit-to-GDP gap.

Discussant: Don Nakornthab, Bank of Thailand

Download: [ Paper | Presentation | Discussion ]

[ Home | Conference Program | Back to top ]