Since the 1997-8 Asian financial crisis, the level of foreign bank penetration has increased steadily in Asian banking markets. This paper examines the impact of foreign banks on the monetary policy transmission mechanism in emerging Asian economies during the period from 2000 to 2009, with a specific focus on the global financial crisis of 2008-9. We present consistent evidence that, on the whole, an increase in foreign bank penetration weakened the effectiveness of the monetary policy transmission mechanism in the host emerging Asian countries during crisis periods. We also investigate various conditions and environments, including the type of monetary policy shocks, the severity of shocks upon parent banks in global crisis, the dependence of parent banks on the wholesale funding market, the country of origin of foreign banks, and entry modes, under which the effectiveness of monetary policy transmission is reduced more severely due to the increasing presence of foreign banks in the emerging Asian banking markets.
{"title":"The Role of Foreign Banks in Monetary Policy Transmission: Evidence from Asia During the Crisis of 2008-9","authors":"B. Jeon, Ji (George) Wu","doi":"10.2139/ssrn.2386408","DOIUrl":"https://doi.org/10.2139/ssrn.2386408","url":null,"abstract":"Since the 1997-8 Asian financial crisis, the level of foreign bank penetration has increased steadily in Asian banking markets. This paper examines the impact of foreign banks on the monetary policy transmission mechanism in emerging Asian economies during the period from 2000 to 2009, with a specific focus on the global financial crisis of 2008-9. We present consistent evidence that, on the whole, an increase in foreign bank penetration weakened the effectiveness of the monetary policy transmission mechanism in the host emerging Asian countries during crisis periods. We also investigate various conditions and environments, including the type of monetary policy shocks, the severity of shocks upon parent banks in global crisis, the dependence of parent banks on the wholesale funding market, the country of origin of foreign banks, and entry modes, under which the effectiveness of monetary policy transmission is reduced more severely due to the increasing presence of foreign banks in the emerging Asian banking markets.","PeriodicalId":178626,"journal":{"name":"ERN: Monetary & Fiscal Policies in Emerging Markets (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-01-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131379980","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I examine the transmission of expansionary U.S. monetary policy in case where developing countries-including China-peg their currencies to the dollar. I evaluate the value of the dollar peg as a fraction of consumption that households would be willing to pay for the dollar peg to remain as well off under the dollar peg as under a flexible exchange rate. The value of the dollar peg is positive for the dollar bloc because the U.S. can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. If the expenditure switching effect is weak, the peg is harmful to the U.S., providing a rationale for criticism of China's exchange rate policy.
{"title":"China, the Dollar Peg and U.S. Monetary Policy","authors":"J. Tervala","doi":"10.2139/ssrn.2384402","DOIUrl":"https://doi.org/10.2139/ssrn.2384402","url":null,"abstract":"I examine the transmission of expansionary U.S. monetary policy in case where developing countries-including China-peg their currencies to the dollar. I evaluate the value of the dollar peg as a fraction of consumption that households would be willing to pay for the dollar peg to remain as well off under the dollar peg as under a flexible exchange rate. The value of the dollar peg is positive for the dollar bloc because the U.S. can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. If the expenditure switching effect is weak, the peg is harmful to the U.S., providing a rationale for criticism of China's exchange rate policy.","PeriodicalId":178626,"journal":{"name":"ERN: Monetary & Fiscal Policies in Emerging Markets (Topic)","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115112173","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the effect of monetary policy announcements in Thailand, which is one of emerging market countries in Asia, on stock prices at the firm level. We find that the expected change, rather than the unexpected change, in interest rates affects stock prices. The stock price response to the interest rate announcement is asymmetric. For instance, the relation between interest rate surprises and stock prices is conditional on the direction of the interest rate change. In general, macroeconomic conditions and firm characteristics cannot explain the stock price reaction to the announcement. In addition, stock prices of firms in different industries appear to react heterogeneously to the interest rate announcement.
{"title":"Do Monetary Policy Announcements Affect Stock Prices in Emerging Market Countries? The Case of Thailand","authors":"Chaiporn Vithessonthi, Yaowaluk Techarongrojwong","doi":"10.2139/ssrn.2294385","DOIUrl":"https://doi.org/10.2139/ssrn.2294385","url":null,"abstract":"We examine the effect of monetary policy announcements in Thailand, which is one of emerging market countries in Asia, on stock prices at the firm level. We find that the expected change, rather than the unexpected change, in interest rates affects stock prices. The stock price response to the interest rate announcement is asymmetric. For instance, the relation between interest rate surprises and stock prices is conditional on the direction of the interest rate change. In general, macroeconomic conditions and firm characteristics cannot explain the stock price reaction to the announcement. In addition, stock prices of firms in different industries appear to react heterogeneously to the interest rate announcement.","PeriodicalId":178626,"journal":{"name":"ERN: Monetary & Fiscal Policies in Emerging Markets (Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121148579","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study investigates the impact of monetary policy shocks on the exchange rates of Brazil, Mexico and Chile. We find that even a focus on 1 day exchange rate changes following policy events – which reduces the potential for reverse causality considerably – fails to lend support for the view that associates unexpected interest rate hikes with immediate appreciations. This lack of empirical backing for the predictions of standard open economy models persists irrespective of whether we use the US Dollar or effective exchange rates, whether changes in the policy rate that were followed by exchange rate interventions are excluded, whether “contaminated” events are dropped from the analysis or whether we allow for non-linearities. We argue that it is difficult to attribute this stronger version of the exchange rate puzzle to fiscal dominance, as unexpected rate increases are not associated with increases in risk premia, and similar results are obtained in the case of Chile – a country that has had the highest possible short-term credit rating since 1995 and a debt/GDP ratio below 10%.
{"title":"The Impact of Monetary Policy on the Exchange Rate: A High Frequency Exchange Rate Puzzle in Emerging Economies","authors":"E. Kohlscheen","doi":"10.2139/ssrn.2305319","DOIUrl":"https://doi.org/10.2139/ssrn.2305319","url":null,"abstract":"This study investigates the impact of monetary policy shocks on the exchange rates of Brazil, Mexico and Chile. We find that even a focus on 1 day exchange rate changes following policy events – which reduces the potential for reverse causality considerably – fails to lend support for the view that associates unexpected interest rate hikes with immediate appreciations. This lack of empirical backing for the predictions of standard open economy models persists irrespective of whether we use the US Dollar or effective exchange rates, whether changes in the policy rate that were followed by exchange rate interventions are excluded, whether “contaminated” events are dropped from the analysis or whether we allow for non-linearities. We argue that it is difficult to attribute this stronger version of the exchange rate puzzle to fiscal dominance, as unexpected rate increases are not associated with increases in risk premia, and similar results are obtained in the case of Chile – a country that has had the highest possible short-term credit rating since 1995 and a debt/GDP ratio below 10%.","PeriodicalId":178626,"journal":{"name":"ERN: Monetary & Fiscal Policies in Emerging Markets (Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-08-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123463525","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The consumer price index stood at 0.7% in May 2013 (0.5% in May 2012), showing an increase of 0.2 p.p. vs. April 2013. In June, prices were growing too: the consumer price index reached 0.3% within 20 days of the month, thereby boosting inflation by 7.4% on a year-on-year basis. A downtrend in the ruble exchange rate which was observed in May thru June didn’t result in any substantial growth in Central Bank’s currency interventions.
{"title":"Inflation and Monetary Policy in May 2014","authors":"A. Bozhechkova","doi":"10.2139/SSRN.2472856","DOIUrl":"https://doi.org/10.2139/SSRN.2472856","url":null,"abstract":"The consumer price index stood at 0.7% in May 2013 (0.5% in May 2012), showing an increase of 0.2 p.p. vs. April 2013. In June, prices were growing too: the consumer price index reached 0.3% within 20 days of the month, thereby boosting inflation by 7.4% on a year-on-year basis. A downtrend in the ruble exchange rate which was observed in May thru June didn’t result in any substantial growth in Central Bank’s currency interventions.","PeriodicalId":178626,"journal":{"name":"ERN: Monetary & Fiscal Policies in Emerging Markets (Topic)","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121981692","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2013-05-01DOI: 10.5089/9781484382257.001.A001
S. Tapsoba
The paper uses a multi-region DSGE model to quantify the macroeconomic implications of three adjustment scenarios for India: growth-friendly, social-friendly, and a benchmark case centered on bringing down unproductive spending and strengthening the consumption tax.Simulations indicate that fiscal consolidation yields considerable long-term benefits but also entails output costs in the near term. The scenarios in which deficit reduction is accompanied by greater investment and social spending lead to better results than the benchmark case. The consolidation package alone is not enough to maximize net gains. Other factors, such as the pace and the credibility of consolidation, the concomitant implementation of structural reforms, and global economic conditions, play a critical role in the success of fiscal consolidation.
{"title":"Options and Strategies for Fiscal Consolidation in India","authors":"S. Tapsoba","doi":"10.5089/9781484382257.001.A001","DOIUrl":"https://doi.org/10.5089/9781484382257.001.A001","url":null,"abstract":"The paper uses a multi-region DSGE model to quantify the macroeconomic implications of three adjustment scenarios for India: growth-friendly, social-friendly, and a benchmark case centered on bringing down unproductive spending and strengthening the consumption tax.Simulations indicate that fiscal consolidation yields considerable long-term benefits but also entails output costs in the near term. The scenarios in which deficit reduction is accompanied by greater investment and social spending lead to better results than the benchmark case. The consolidation package alone is not enough to maximize net gains. Other factors, such as the pace and the credibility of consolidation, the concomitant implementation of structural reforms, and global economic conditions, play a critical role in the success of fiscal consolidation.","PeriodicalId":178626,"journal":{"name":"ERN: Monetary & Fiscal Policies in Emerging Markets (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115644540","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2013-03-01DOI: 10.5089/9781484355886.001.A001
Bin Wang, T. Sun
This paper investigates macroprudential policies and their role in containing systemic risk in China. It shows that China faces systemic risk in both the time (procyclicality) and cross-sectional (contagion) dimensions. The former is reflected as credit and asset price risks, while the latter is reflected as the links between the banking sector and informal financing and local government financing platforms. Empirical analysis based on 171 banks shows that some macroprudential policy tools (e.g., the reserve requirement ratio and house-related policies) are useful, but they cannot guarantee protection against systemic risk in the current economic and financial environment. Nevertheless, better-targeted macroprudential policies have greater potential to contain systemic risk pertaining to the different sizes of the banks and their location in regions with different levels of economic development. Complementing macroprudential policies with further reforms, including further commercialization of large banks, would help improve the effectiveness of those policies in containing systemic risk in China.
{"title":"How Effective are Macroprudential Policies in China?","authors":"Bin Wang, T. Sun","doi":"10.5089/9781484355886.001.A001","DOIUrl":"https://doi.org/10.5089/9781484355886.001.A001","url":null,"abstract":"This paper investigates macroprudential policies and their role in containing systemic risk in China. It shows that China faces systemic risk in both the time (procyclicality) and cross-sectional (contagion) dimensions. The former is reflected as credit and asset price risks, while the latter is reflected as the links between the banking sector and informal financing and local government financing platforms. Empirical analysis based on 171 banks shows that some macroprudential policy tools (e.g., the reserve requirement ratio and house-related policies) are useful, but they cannot guarantee protection against systemic risk in the current economic and financial environment. Nevertheless, better-targeted macroprudential policies have greater potential to contain systemic risk pertaining to the different sizes of the banks and their location in regions with different levels of economic development. Complementing macroprudential policies with further reforms, including further commercialization of large banks, would help improve the effectiveness of those policies in containing systemic risk in China.","PeriodicalId":178626,"journal":{"name":"ERN: Monetary & Fiscal Policies in Emerging Markets (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131527831","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2012-11-01DOI: 10.5089/9781475542851.001.A001
Harun Alp, Selim Elekdağ
Thailand had to endure three major shocks during 2008-2011: the global financial crisis, the Japanese earthquake, and the Thai floods of 2011. Over this period, consistent with its inflation targeting framework, the Bank of Thailand (BOT) let the exchange rate depreciate and cut interest rates (to, for example, a historically low level of 1 percent by mid-2009). This paper seeks to uncover the role of monetary policy in softening the impact of these shocks. Specifically, it seeks to address the following question: if an inflation targeting framework underpinned by a flexible exchange rate regime had not been in place, how would the economic contractions associated with these shocks have differed? Counterfactual simulations based on an estimated structural model indicate that countercyclical monetary policy and exchange rate flexibility added up to a total of 4 percentage points to real GDP growth during periods when Thailand had to weather these three major shocks.
{"title":"Shock Therapy! What Role for Thai Monetary Policy?","authors":"Harun Alp, Selim Elekdağ","doi":"10.5089/9781475542851.001.A001","DOIUrl":"https://doi.org/10.5089/9781475542851.001.A001","url":null,"abstract":"Thailand had to endure three major shocks during 2008-2011: the global financial crisis, the Japanese earthquake, and the Thai floods of 2011. Over this period, consistent with its inflation targeting framework, the Bank of Thailand (BOT) let the exchange rate depreciate and cut interest rates (to, for example, a historically low level of 1 percent by mid-2009). This paper seeks to uncover the role of monetary policy in softening the impact of these shocks. Specifically, it seeks to address the following question: if an inflation targeting framework underpinned by a flexible exchange rate regime had not been in place, how would the economic contractions associated with these shocks have differed? Counterfactual simulations based on an estimated structural model indicate that countercyclical monetary policy and exchange rate flexibility added up to a total of 4 percentage points to real GDP growth during periods when Thailand had to weather these three major shocks.","PeriodicalId":178626,"journal":{"name":"ERN: Monetary & Fiscal Policies in Emerging Markets (Topic)","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130950256","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Sulaiman D. Muhammad, A. Hussain, M. Ahsanuddin, Shazia Kazmi, Irfan Lal
Aftermath the globalization and financial liberalization the purpose of monetary policy deviates from economic growth to economic stabilization. Therefore monetary authority adjusts its policy rate in response to systematic changes in macroeconomic activities and business fluctuations. The rule which is followed to stable an economy at development path is called Taylor’s rule. This study empirically investigates monetary policy reaction function in case of Pakistan by applying Taylor’s rule (1993) nevertheless Johansan co integration test is employed for its open economy version. The monthly data from the period of January 2003 to December 2008 has been collected for the analysis. It is found that the coefficient of output gap and exchange rate gap are significant while coefficient of inflation gap is insignificant. The results depicted that inflation does not play significant role due to the monetary policy as such in the frame work of Pakistan’s economy. Therefore inflation targeted monetary policy does not suggest for Pakistan. To analyze the stability of coefficient ROLLING WINDOW technique was employed as it is found that monetary authority adopted inflation targeted monetary policy after 2002 which was not suitable as this study has shown.
{"title":"Monetary Policy Reaction Function in Open Economy Version: Empirical Evidence in Case of Pakistan","authors":"Sulaiman D. Muhammad, A. Hussain, M. Ahsanuddin, Shazia Kazmi, Irfan Lal","doi":"10.5539/ASS.V8N8P89","DOIUrl":"https://doi.org/10.5539/ASS.V8N8P89","url":null,"abstract":"Aftermath the globalization and financial liberalization the purpose of monetary policy deviates from economic growth to economic stabilization. Therefore monetary authority adjusts its policy rate in response to systematic changes in macroeconomic activities and business fluctuations. The rule which is followed to stable an economy at development path is called Taylor’s rule. This study empirically investigates monetary policy reaction function in case of Pakistan by applying Taylor’s rule (1993) nevertheless Johansan co integration test is employed for its open economy version. The monthly data from the period of January 2003 to December 2008 has been collected for the analysis. It is found that the coefficient of output gap and exchange rate gap are significant while coefficient of inflation gap is insignificant. The results depicted that inflation does not play significant role due to the monetary policy as such in the frame work of Pakistan’s economy. Therefore inflation targeted monetary policy does not suggest for Pakistan. To analyze the stability of coefficient ROLLING WINDOW technique was employed as it is found that monetary authority adopted inflation targeted monetary policy after 2002 which was not suitable as this study has shown.","PeriodicalId":178626,"journal":{"name":"ERN: Monetary & Fiscal Policies in Emerging Markets (Topic)","volume":"772 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133004272","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2012-07-01DOI: 10.5089/9781475505412.001
S. Barnett, Julia Bersch, Yasuhisa Ojima
Inflation in Mongolia resembles a roller coaster ride with sharp rises and steep drops. Understanding why is critical for formulating and assessing monetary policy. Food prices are found to be a key driver of inflation, and, not surprising given Mongolia’s geography, are determined primarily by local supply conditions, highly seasonal, and subject to large but short-lived shocks (usually weather related). Nonetheless, demand factors are also found to be significant in explaining price movements and empirical evidence suggests that a 10 percent increase in government wages, for example, would push up underlying inflation by 1 percentage point. So, while inflation will remain volatile due to agricultural shocks, there is space for macroeconomic stabilization policy to help reduce inflation volatility.
{"title":"Inflation Dynamics in Mongolia: Understanding the Roller Coaster","authors":"S. Barnett, Julia Bersch, Yasuhisa Ojima","doi":"10.5089/9781475505412.001","DOIUrl":"https://doi.org/10.5089/9781475505412.001","url":null,"abstract":"Inflation in Mongolia resembles a roller coaster ride with sharp rises and steep drops. Understanding why is critical for formulating and assessing monetary policy. Food prices are found to be a key driver of inflation, and, not surprising given Mongolia’s geography, are determined primarily by local supply conditions, highly seasonal, and subject to large but short-lived shocks (usually weather related). Nonetheless, demand factors are also found to be significant in explaining price movements and empirical evidence suggests that a 10 percent increase in government wages, for example, would push up underlying inflation by 1 percentage point. So, while inflation will remain volatile due to agricultural shocks, there is space for macroeconomic stabilization policy to help reduce inflation volatility.","PeriodicalId":178626,"journal":{"name":"ERN: Monetary & Fiscal Policies in Emerging Markets (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130369678","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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