Money in Monetary Policy Design: Monetary Cross-Checking in the New-Keynesian Model

Beck, Guenter W.; Wieland, Volker

doi:10.1007/978-3-642-02953-0_5

Cited by 3 publications

(6 citation statements)

References 26 publications

(34 reference statements)

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“…By 'optimal policy'we here mean minimizing a speci…c loss function using all information embedded in the model. 1 'Simple instrument rules', on the other hand, specify how the monetary policy instrument -the key interest rate -should respond to a subset of the information available to the policy maker. The original Taylor (1993) rule is an example of a simple rule where the central bank responds to a subset of the information set, i.e., the rate of in ‡ation and the output gap.…”

Section: Introductionmentioning

confidence: 99%

“…Orphanides and Williams (2008) show that a loss function with reduced weight on the unemployment gap and on interest rate stability is more robust to wrong assumptions about private agents'expectations formation (i.e., rational expectations vs. learning). Our approach of using cross-checks in the modi…ed loss function is also related to Beck and Wieland (2009). They consider a policy where the central bank conducts optimal policy in "normal" times, but extends the loss function with a money growth term when money growth is outside a critical range.…”

Section: Introductionmentioning

confidence: 99%

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Robustifying Optimal Monetary Policy Using Simple Rules as Cross-Checks

2012

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Robustifying Optimal Monetary Policy Using Simple Rules as Cross-Checks

2012

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“…The first one proposes to introduce money directly to the central bank reaction function, as an additional information variable (rejection of the assumption of full information, e.g. Beck and Wieland, 2010) or to supplement the new Keynesian model with the money-demand function. The second approach focuses on using money in explaining low-frequency components of price changes, leaving the standard new Keynesian model for components with higher frequencies (e.g.…”

Section: Money-inflation Relationshipmentioning

confidence: 99%

“…The importance of money as an information variable seems to be relatively more important in economies with low levels of development where the data on real economy are generally of poor quality and available with a long delay. A similar concept of extending the standard central bank reaction function with a monetary cross-check is presented by Beck and Wieland (2010). We refer to these works in the empirical part of this paper.…”

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confidence: 97%

Money in Monetary Policy: Information Variable? Channel of Monetary Transmission? What is its Role in Poland?

et al. 2012

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The paper provides an overview of the literature on the role of monetary aggregates for conducting monetary policy and attempts to assess the role of these aggregates in the Polish monetary policy.We compare theoretical and empirical arguments which justify or undermine the need for usage of monetary aggregates by central banks, as well as arguments indicating related problems. We describe the most important areas of the discussion on the role of money in monetary policy. We present studies on the information content of money and the use of that information in the Polish central bank's monetary policy between 1998 and 2011.Keynesian economics (new neoclassical synthesis), which dominates economic theory for about 20 years, largely disregards money in macroeconomic models and in recommendations for the monetary policy. This is also reflected in the practice of modern central banking.The current financial crisis has caused a return to discussions on the role of money in monetary policy. It is worth emphasizing that, contrary to the debate during the monetarist revolution, the present one concerns not only monetary aggregates, classified according to the degree of liquidity of their components on the liability side as M1, M2 or M3, but is also, if not primarily, focused on the asset side. In particular, it emphasizes the role of credit, and even liquidity in general because of the confidence crisis after the collapse of Lehman Brothers in 2008 and the application of nonstandard monetary policy measures by some central banks, e.g. purchase of public and private sector assets (the so-called quantitative easing).It is theoretically justified to concentrate on credit aggregates and not on monetary aggregates. The definition of money in categories of M1, M2 and M3 aggregates causes a number of problems. Firstly, money in the theoretical sense, in accordance with quantity theory of money, is directly connected with nominal income and production, therefore a statistical measure of this category should refer not to the volume of (specified) deposits, but to their part, which translates into demand in real terms. Secondly, the definition of money in categories of private sector assets leads to classification problems, such as which assets

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“…However, money supply and its growth rate is not the aim of monetary policy and not used for the assessment of its effects on production and level of prices and thus builds on the determination of monetary policy as a policy without money (Beck and Wieland, 2010). The concept of money supply should be positioned so that it is optimized for the national economy to function normally.…”

Section: Introduction -Theoretical Backgroundmentioning

confidence: 99%

Macroeconomic Determinants of Economic Growth in Serbia

2017

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Abstract. Monetary policy is an important segment of the economic policy of each country where inflation and monetary aggregates represent its significant components. Their movement reflects the trends in the volume of money and the price level which is of great relevance for the economic situation in the country. The aim of the paper is to manifest the impact of macroeconomic indicators on the real gross domestic product. In this paper, inflation (INF), monetary aggregate (M3), public expenditures (PE) and foreign direct investment (FDI) are used as independent variables, while the gross domestic product is determined as a dependent variable. The results showed that there is a positive relationship between GDP and INF, PE and FDI, but

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Money in Monetary Policy Design: Monetary Cross-Checking in the New-Keynesian Model

Abstract: 4Non-technical summary 5

Cited by 3 publications

References 26 publications

Robustifying Optimal Monetary Policy Using Simple Rules as Cross-Checks

Robustifying Optimal Monetary Policy Using Simple Rules as Cross-Checks

Money in Monetary Policy: Information Variable? Channel of Monetary Transmission? What is its Role in Poland?

Macroeconomic Determinants of Economic Growth in Serbia

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