Monetary Policy Strategy in a Global Environment

Abstract

Since the mid-1980s the world economy has gone through profound transformations of which the sources and effects are probably not yet completely understood. The process of continuous integration in trade, production and financial markets across countries and economic regions -which is what is generally defined as "globalisation" -affects directly the conduct of monetary policy in a variety of respects. The aim of this paper is to present an overview of the structural implications of globalisation for the domestic economies of developed countries and to deduct from these implications lessons for the conduct of monetary policy, and in particular the assessment of risks to price stability. JEL codes: E5, F4

New Zealand's risk premium

“…Changes in the RBNZ's OCR (and quasi-differences with persistence parameters greater than 0.84) are negatively correlated with fluctuations in the expected rate of appreciation generated from the forecasting model outlined in Section 5 (specifically, regression model (15)). This is not what we would expect if the world were as described in Moutot and Vitale (2009) or Plantin and Shin (2011). There, positive innovations in the OCR would lead to a gradual upward adjustment in the value of the NZD, one that would be anticipated by investors.…”

“…An alternative view of small open economies is that the central bank's policy decisions play an important role in determining capital flows because of frictions in goods markets, labor markets and financial markets. Such views are articulated, informally, by Moutot and Vitale (2009), and more formally by Plantin and Shin (2011). Section 4 of Burnside (2011) discusses this alternative view in more detail, but the basic idea is that if interest rates are high initially, this attracts capital inflows, which fuel inflationary pressure, which causes the central bank to raise rates further, appreciating the local currency, and leading to more inflows.…”

State of the Union: The Financial Crisis and the ECB's Response between 2007 and 2009

“…7 7 See also Stark, 2008; Papademos, 2009; Trichet, 2009c. For more information on the new areas of research that we are pursuing in this regard, see Alessi and Detken, 2009; De Santis et al ., 2008; Gerdesmeier et al ., 2009; Moutot and Vitale, 2009. …”