Central banking in the twenty-first century

Dow, Sheila C.

doi:10.1093/cje/bex051

Cited by 34 publications

(20 citation statements)

References 28 publications

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“…The just described interpretation suggests an idea of monetary policy in many ways discretionary and in any case quite complex, which could hardly be reduced to a mere mathematical "rule" ( Dow, 2017 ). Nonetheless, some basic aspects that can be traced back to this vision have recently been summarized in a formalization which goes under the name of "Solvency rule" ( Brancaccio and Fontana, 2013;Brancaccio and Suppa, 2018 ).…”

Section: Current Debates On Financial Stability In the Taylor Rule Anmentioning

confidence: 99%

Nonperforming loans and competing rules of monetary policy: A statistical identification approach

Brancaccio

Califano

Lopreite

et al. 2020

Structural Change and Economic Dynamics

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We assess to what extent decisions taken by the Federal Reserve in setting interest rates can be interpreted in the light of monetary policy rules that are either built on standard objectives of output and price stabilization or based on alternative objectives of financial stability and regulation of the solvency conditions in the economic system. This goal is pursued through a comparison between the "Taylor rule" in its "original" and "augmented" versions, and an alternative "Solvency rule". We use nonperforming loans as a proxy for the conditions of financial stability and solvency in the system. The empirical investigation is carried out following a structural vector autoregressive approach that exploits a statistical identification procedure. In this way, we are able to identify the causal structure among variables without imposing theoretical restrictions on the model. Our empirical findings provide very limited and incomplete support for the Taylor rule in its various forms while give comprehensive evidence in favor of the alternative Solvency rule.

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Section: Current Debates On Financial Stability In the Taylor Rule Anmentioning

confidence: 99%

Nonperforming loans and competing rules of monetary policy: A statistical identification approach

Brancaccio

Califano

Lopreite

et al. 2020

Structural Change and Economic Dynamics

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“…Modern mandates of central banking largely reflect maintaining price stability as having a greater co-dependence on financial system stability (Dow, 2017). Global paradigm shifts highlighting the importance of preserving foreign reserves buffers have added ancillary responsibilities to a central bank's traditional economic stability role.…”

Section: Introductionmentioning

confidence: 99%

The Nexus Of Foreign Reserves, Exchange Rate And Inflation: Recent Empirical Evidence From Sri Lanka

Ariyasinghe¹,

Cooray

2021

South Asia Economic Journal

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The conventional mandates of the central banks on meeting stability objectives and maintaining a growth-maximizing inflation rate have come under some criticism since the global financial crises. Maintaining adequate foreign reserves is seen as a viable solution to foreign exchange liquidity needs during crisis periods. Since the end of 2011, many Asian economies, including China and Japan, led from the forefront in central bank-led reserves build-up. However, reserves build-up remains challenging and sensitive for small open economies. Such policies help create ‘risk-neutral’ buffers for monetary and fiscal authorities to absorb transitory current account shocks and foreign exchange stress to smoothen the balance of payments. This study is motivated by the importance of identifying the inflation–foreign reserves nexus that may affect inflation in a manner counterproductive to the central bank mandate of maintaining price stability. It probes the debate of the sustainability of reserves build-up in the long and the short term. The outcome of the study poses several vital questions for fiscal and monetary policymakers concerning their respective mandates. The reserves–inflation nexus and its magnitude is determined using monthly data spanning two decades, through engaging an autoregressive distributed lag (ARDL) model and relevant bounds-testing techniques proposed by Pesaran et al. The vector autoregression (VAR), error correction and Johansen cointegration methods supplement the robustness checks. Exchange rate is introduced to enrich the discussion on the reserves–inflation nexus and shows a cointegration relationship in the long run. The study provides an insight into the influence of exchange rate on reserves and inflation. The variance decomposition shows the presence of a lukewarm response from foreign reserves and exchange rate on inflation. Policymakers concerned with inflationary expectations in the medium-to-long term need to consider these signals, as reserves build-up is one of the important policy-driven objectives for a number of economies.

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“…For example, in case of developed economies, such political power might not be visible, but whereas the influence of government on the bank in determining monetary and fiscal policies might be observed more in underdeveloped or developing economies. The political pressure can be due to several reasons, such as to boost output for a short duration due to electoral reasons, to finance the spending of the government, or time inconsistency issue of formulating monetary policy [2,18] . The policymakers are usually not credible due to which there is a need to delegate fiscal and monetary policies to independent central banks, which can not only keep the inflation low but also ensure economic development.…”

Section: Discussionmentioning

confidence: 99%

Political Power in Central Banks Is Essential to Avert Future Economic Crises

Liu¹

2020

MEMF

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In the era of globalization, Central banks have posed important impacts in the global economy. The central bank plays an important role in managing financial stability and capital flow, and avoiding economic crisis. Every central bank plays an important role in the country or region where it is located. The role of central banks in the global economy is examined below. As a functional department of a country or a region, the central bank inevitably embraces political power. In the process of argument, this paper takes the European central banks as an example to determine that the central bank should exercise its political power when facing the problem of avoiding the possible economic crisis in the future.

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Central banking in the twenty-first century

Cited by 34 publications

References 28 publications

Nonperforming loans and competing rules of monetary policy: A statistical identification approach

Nonperforming loans and competing rules of monetary policy: A statistical identification approach

The Nexus Of Foreign Reserves, Exchange Rate And Inflation: Recent Empirical Evidence From Sri Lanka

Political Power in Central Banks Is Essential to Avert Future Economic Crises

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