Stability Analysis ofDifferent Monetary Policy Rules for a Macroeconomic Model withEndogenous Money and Credit Channel (original) (raw)

A Model of a Monetary Economy: Principles and Study of Stability

Metroeconomica, 1989

  1. In a full-fetched model of a monetary economy, it would be necessary to take into account the payment of interest to the Bank and, more significantly, to make the criteria of Bank's agreement more explicit. These criteria should be dependent on the past results of the differents agents as well as on conventional banking wisdom.

Monetary Disequilibrium, Endogenous Money, Stability and the Determinacy of Inflation

Economic Notes, 2001

This paper examines the stability of the disequilibrium money model, with endogenous money and transitory interest rate control by the Central Bank. In the tradition of the post-Keynesian literature, the money supply is determined by bank lending and disequilibrium between money demand and supply determines the business cycle. The rate of interest is assumed to react to an inflation target and inflation responds to the business cycle. The paper examines the stability of the model under three inflation response systems -the accelerationist model, adaptive expectations and rational expectations.

Monetary policy and the credit channel in an open economy

International Review of Economics & Finance, 2004

This paper extends Bernanke and Blinder's [Am. Econ. Rev. 78 (1988) 435] ''credit-channel'' model to the open economy. In particular, it examines whether the monetary policy results predicted by the popular textbook Mundell-Fleming model [e.g., Can. J. Econ. Polit. Sci. 29 (1963) 475; IMF Staff Pap. 9 (1962) 369] change with the open-economy version of the Bernanke and Blinder credit-channel model. This examination is important to consider in light of the popularity of the Mundell-Fleming model at the policymaking level and in light of recent empirical findings giving strong support to the credit channel as a monetary policy transmission mechanism. The main conclusion is that monetary policy is much more potent under the open-economy version of the Bernanke and Blinder model than under the standard Mundell-Fleming model.

MONETARY POLICY RULES AND MACROECONOMIC STABILITY: EVIDENCE AND SOME THEORY

1997

We estimate a forward-looking monetary policy reaction function for the postwar United States economy, before and after Volcker's appointment as Fed Chairman in 1979. Our results point to substantial differences in the estimated rule across periods. In particular, interest rate policy in the Volcker-Greenspan period appears to have been much more sensitive to changes in expected in ation than in the pre-Volcker period. We then compare some of the implications of the estimated rules for the equilibrium properties of in ation and output, using a simple macroeconomic model, and show that the Volcker-Greenspan rule is stabilizing.

Financial Constraints, Aggregate Supply, and the Monetary Transmission Mechanism

Manchester School, 1997

We derive two propositions identifying the conditions for monetary policy e¡ectiveness due to the interaction of real and ¢nancial markets. The ¢rst proposition shows that, in a regime of endogenous money, monetary policy is e¡ective even if policy moves are anticipated because changes in the interest rate impinge upon long-run output.

Macroeconomic Models for Monetary Policy: A Critical Review from a Finance Perspective

SSRN Electronic Journal, 2017

We provide a critical review of macroeconomic models used for monetary policy at central banks from a finance perspective. We review the history of monetary policy modeling, survey the core monetary models used by major central banks, and construct an illustrative model for those readers who are unfamiliar with the literature. Within this framework, we highlight several important limitations of current models and methods, including the fact that local-linearization approximations omit important nonlinear dynamics, yielding biased impulse-response analysis and parameter estimates. We also propose new features for the next generation of macrofinancial policy models, including: a substantial role for a financial sector, the government balance sheet and unconventional monetary policies; heterogeneity, reallocation, and redistribution effects; the macroeconomic impact of large nonlinear risk-premium dynamics; timevarying uncertainty; financial sector and systemic risks; imperfect product market and markups; and further advances in solution, estimation, and evaluation methods for dynamic quantitative structural models.

Monetary Policy, Financial Stability and Interest Rate Rules

2007

This paper investigates the empirical properties of simple interest rate rules that embed either "backward" or "forward" interest rate smoothing. Such interest rate rules can be rationalized as the operative reaction functions used by central banks pursuing monetary policy and financial stability targets. We explicitly consider the implications of banks' risk management practices for monetary policy and we derive interest rate rules by modeling the desire of the central bank to stabilize different definitions of the "basis" risk as a contribution to financial stability.