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Can Switching Between Inflationary Regimes Explain Fluctuations in Real Interest Rates?
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ISBN: 1462321658 1452722978 128210747X 1451900511 9786613800824 Year: 1997 Publisher: Washington, D.C. : International Monetary Fund,

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Abstract

It has recently been suggested that allowing for switches between different inflationary regimes produces a much better fit for the Fisher relationship between interest rates and inflation, at least for U.S. data. The paper assesses the merits of the regime-switching theory as an explanation for the apparent fluctuations in real interest rates in Australia, Canada, Germany, the United Kingdom, and the United States.


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Changes in the Relationship Between the Long-Term Interest Rate and its Determinants
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ISBN: 1462383203 1452700788 1282041088 1451995199 9786613797063 Year: 1994 Publisher: Washington, D.C. : International Monetary Fund,

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This paper assesses the relative importance of alternative explanations for the rise in long-term interest rates in the United States from October 1993 to April 1994. Standard econometric models of the term structure are shown to have a structural break in the early 1980s. An important reason for this change in the traditional term structure relationship appears to be an increase in the responsiveness of long-term rates to changes in the stance of monetary policy. Augmented term structure models that explicitly incorporate the role of monetary policy in determining the level of long-term rates are then constructed. These models track variations in the long-term rate better than traditional term structure models, but still leave a significant fraction of the recent increase in long-term rates unexplained.


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A Robust and Efficient Method for Solving Nonlinear Rational Expectations Models
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ISBN: 1462372139 1452730059 Year: 1996 Publisher: Washington, D.C. : International Monetary Fund,

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The development and use of forward-looking macro models in policymaking institutions has proceeded at a pace much slower than predicted in the early 1980s. An important reason is that researchers have not had access to robust and efficient solution techniques for solving nonlinear forward-looking models. This paper discusses the properties of a new algorithm that is used for solving MULTIMOD, the IMF’s multicountry model of the world economy. This algorithm is considerably faster and much less prone to simulation failures than to traditional algorithms and can also be used to solve individual country models of the same size.


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Monetary Policy Credibility and the Unemployment-Inflation Tradeoff : Some Evidence From 17 Industrial Countries
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ISBN: 1462391028 1452779295 1283512815 1451919816 9786613825261 Year: 2002 Publisher: Washington, D.C. : International Monetary Fund,

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Using data on long-term interest rates for 17 industrial countries, this paper develops some simple measures of monetary policy credibility and then tests if such measures improve the out-of-sample forecasts of conventional models of the inflation-unemployment process. The results provide some evidence in favor of the Lucas critique by showing that the short-run unemployment-inflation trade-off tends to improve in countries that are successful in providing low and stable inflation.


Book
Euro Area Money Demand : Measuring the Opportunity Costs Appropriately
Authors: --- ---
ISBN: 1462383157 1452706808 1282109804 1451904398 9786613802699 Year: 2001 Publisher: Washington, D.C. : International Monetary Fund,

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The existence of a well-specified and stable relationship between money and prices has long been perceived as a prerequisite for the use of monetary aggregates in the conduct of monetary policy. This paper contributes to the ongoing discussion about the stability of euro area money demand by constructing an own rate of return on euro area M3 and by analyzing its implications in a standard money demand system. Over the sample period, one cointegrating vector relating real M3, real GDP and the spread between the short-term interest rate and the own rate of M3 can be identified and interpreted as a long-run euro area money demand equation. A dynamic money demand system is subsequently estimated. Standard diagnostics stability tests and out-of-sample forecasts confirm the good statistical performance of the model.


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Co-Movements in Long-Term Interest Rates and the Role of PPP-Based Exchange Rate Expectations
Authors: ---
ISBN: 1462330800 1452735123 1281603023 1451896530 9786613783714 Year: 1999 Publisher: Washington, D.C. : International Monetary Fund,

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This paper investigates international co-movement in bond yields by testing for uncovered interest parity (UIP). Existing work is supplemented by focusing on long instead of short-term interest rates and by employing exchange rate expectations derived from purchasing power parity (PPP) instead of actual outcomes. Among the major currencies during 1975-97, the paper does not find a further increase in co-movement beyond that associated with the wave of financial market liberalization in the early 1980s. Given the similarity between PPP-based UIP tests and those employing actual exchange rate outcomes, the value added of the former lies mainly with data availability.


Book
The United Kingdom's Experience with Inflation Targeting.
Authors: ---
ISBN: 1462314651 1455277754 1281602701 1455251410 9786613783394 Year: 1998 Publisher: Washington, D.C. : International Monetary Fund,

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This paper reviews the first five years’ experience with inflation targeting in the United Kingdom. It concludes that inflation performance was not significantly different under inflation targeting than predicted by a VAR model estimated in the period prior to participation in the exchange rate mechanism (ERM). Both short- and long-term interest rates were lower than predicted, however, which is consistent with the interpretation that some gains in credibility were achieved under the inflation targeting regime.


Book
The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials : A Panel Study
Authors: ---
ISBN: 1462301622 1452743223 1281600989 9786613781673 1451892993 Year: 1999 Publisher: Washington, D.C. : International Monetary Fund,

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This paper empirically examines the long-run relationship between real exchange rates and real interest rate differentials over the recent floating exchange rate period, using a panel cointegration method, with data for a set of industrialized countries. The paper finds evidence of statistically significant long-run relationships and plausible point estimates, which contrasts with much existing evidence. The failure of others to establish such relationships may reflect the estimation method they use rather than any inherent deficiency of the fundamentals-based models.


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Where Have the Monetary Surprises Gone? The Effects of FOMC Statements
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ISBN: 1462334636 1452796521 1283515296 1451912021 9786613827746 Year: 2007 Publisher: Washington, D.C. : International Monetary Fund,

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This paper examines the impact of central bank communication on market expectations of monetary policy and long-term interest rates by comparing Federal Open Market Committee (FOMC) action dates when a policy statement was made to dates before statements were issued. Increased communication has been associated with a reduction in the magnitude of short-term monetary surprises; a greater flow of information about the long-term path of policy that is distinct from the short-term surprise; and a larger role for these long-term surprises in the determination of long-term interest rates.


Book
The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period
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ISBN: 146239809X 1452708665 128351639X 9786613828842 1451919301 Year: 2003 Publisher: Washington, D.C. : International Monetary Fund,

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This paper empirically evaluates the validity of the term structure of interest rates in a low-interest-rate environment. Applying a time-series method to high-frequency Japanese data, the term-structure model is found to be useful for economic analysis only when interest rates are high. When interest rates are low, the usefulness of the model declines, since the interest spread contains little information that can be used for predicting future economic activity. The term-structure relationship is also weakened by the Bank of Japan's use of interest rate smoothing.

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