Monetary Economics

This study investigated the impact of inflation on economic growth and established the existence of inflation growth relationship in the context of South Asian countries. In order to examine the impact of inflation on economic growth, the study has used the time series data for the period 1980-2012. The study found that there is high positive correlation exist between inflation and economic growth for all the countries. The cointegration result suggest that there is long run relationship exist for Malaysia. However, the rest of the countries have no long run relationship between inflation and economic growth. In order to know the short run dynamics and direction of causality the study used Error Correction and Granger causality test. The study also employed unidirectional VAR analysis to know the short run dynamics between inflation and economic growth. JEL Classification: E 00 and E 39

In 538, at the peak of his imperial achievement, Justinian introduced an impressive
coinage of unusual size and weight. Based on the evidence of hoards and single finds from the Balkans, Asia Minor and the Near East, the economic implications of Justinian’s heavy series (538-542) appear in a new light. Its prolonged circulation and important percentage among finds from the Balkans, in particular, changes our understanding of the role played by this coinage during the sixth century and adds new dimensions to the fiduciary nature of the early Byzantine bronze coinage.

Historians have long regarded Maurice Tiberius as the last Roman emperor who struggled to restore the stability of the Balkan provinces. This essay argues that a major financial crisis is responsible for the downfall of Maurice and the collapse of the Danube frontier after 602. Maurice inherited a depleted treasury and a war conducted on two fronts, in the Balkans and the East. A careful analysis of the emperor’s monetary policy during his long reign reveals a chronic shortage of cash, which the emperor tried to solve through a series of unsuccessful reforms. The body of coin finds from the Northern Balkans shows an abrupt decline in the coin supply during the second decade of Maurice’s reign, when Roman armies were once again active in the Danube region. The state’s inability to provide adequate supplies and regular payments to the soldiers led to the mutiny of 602. The emperor’s decision to force his army to spend the winter in enemy territory was simply the last straw that broke the soldiers’ loyalty to the emperor.

12th Annual Green Economics Institute Conference  10-12th June 2017
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This paper examined the demand for broad money and its long run stability in Ghana. Multivariate time series approach was used. Since all the variables are integrated of order one, Johansen's cointegration approach is used to establish that the variables are cointegrated. Hence, vector error correction model was used to find the determinants of broad money. Also, CUMSUM and CUMSUMSQ plots are used to check the long run stability of the demand function. It was established that nominal foreign interest rate and expected inflation were long run determinants of demand for money while real income and nominal exchange rate were short run determinants. Also, it was found that the long run broad money demand function was stable over the period under consideration. It was recommended that monetary policy authorities should continue to implement policies that will enhance macroeconomic stability (price stability) and facilitate economic growth. Introduction This study aims at investigatin...

Continuous growth in Islamic finance calls for an in-depth study of the framework in which the monetary policy maker (i.e., the central bank) performs its functions. Central banks in Muslim countries are using various instruments for monetary policy purpose including interest rate. As a result, Islamic Financial Institutions (IFIs) are facing issues in benchmarking the price of financial instruments. Acceptable solution to benchmarking lies in the presence of a real economic activity in the base of any proposal and its feasibility for business performance when put against conventional banking. This paper presents empirical evidence of statistical equivalence of nominal GDP growth rate and official interest rate for ‘advanced,’ ‘all,’ and some Muslim countries. We propose nominal GDP growth rate as benchmark for pricing domestic financial transactions of IFIs as well as for pricing external bilateral/multilateral loans. The paper also suggests nominal income targeting as monetary policy regime and provides a liquidity management mechanism for banking system in Islamic financial environment.

To say that financial institutions play a significant role in the financial system and the economy is a huge understatement. They evolved over centuries to perform functions desired by the general public, the corporate sector, and government. At the very centre of the financial system are the private sector banks, which have the responsibility of, making loans and taking deposits, and the creation of new money (ie bank deposits, because the general public regards deposits as the means of payments), which arises as the outcome of new bank loans extended. The central bank has the responsibility of influencing the growth rate in bank credit extension / money creation via interest rate control. The investment vehicles, such as the retirement funds, collective investment schemes, long-term insures, and so on, are the custodians of the public’s savings, and the drivers of investments in the economy. In addition to these mainstream financial institutions we have quasi-financial institutions, such as development finance institutions, finance companies, investment trust companies, credit unions, and so on. There are also the ancillary financial entities, without which the financial system will not function well: regulators, financial exchanges, fund managers and securities broker-dealers.

The main purpose of this study is to examine the effects of the exchange rates, international prices, and the demand shocks on inflation in Fiji Island. The study covered the annual data from 1975 to 2010.The variables are found to be following unit root process at the level form and stationary at the difference form, and the multi variate cointegration tests showed that there is one cointegratng vector between the Fiji consumer price index, Australian consumer price index, domestic demand shocks, Exchange rate Australian dollars /unit Fiji dollar, and devaluation years dummies. Further, Vector Error Correction (VEC)model shows that the changes in Fiji consumer price index is Granger caused by the long term trends in all other variables afore mentioned, especially when the Consumer Price Index in Australia , and devaluation dummy years are ,put as exogenous variables in the VEC model, with the with the changes in exchange rate, and changes in demand shocks as independent variables but endogenous in the VEC model. The impulse response function also shows that due to the exchange rate depreciation, inflation increases for many years in Fiji. Due to one standard deviation shock in demand shocks, though Fiji inflation declines initially, it subsequently increases for many years. One standard deviation shock in inflation also increases demand shocks in Fiji for many years. Impulse response function appears to show that the devaluation is contractionary in the long run for Fiji. The Variance Decomposition results also that a major part of the variations in inflation is explained by the Fiji dollar exchange rate movements. The Policy implication of our study is that as a monetary policy instrument the flexibility of the exchange rate policy is indispensable for Fiji to absorb appropriately the international supply and price shocks

We propose a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model where a risk aversion shock enters a separable utility function. We analyze five periods from 1971 through 2011, each lasting for twenty years, to follow over time the dynamics of several parameters such as the risk aversion parameter; the Taylor rule coefficients; and the role of the risk aversion shock in output, inflation, interest rate, and real money balances in the Eurozone. Our analysis suggests that risk aversion was a more important component of output and real money balance dynamics between 2006 and 2011 than it was between 1971 and 2006, at least in the short run.

Breve repaso acerca del funcionamiento general actual de los gobiernos en relación con la  política económica, concretamente de política monetaria, estableciendo los grandes errores de dicha práctica. (origen de la crisis).

Pondré en cuestión la existencia, objetivos y funcionamiento de los actuales bancos centrales.
Se lleva a cabo una reflexión sobre las medidas, en términos generales, de la reforma del sistema bancario en España, haciendo una comparativa tanto con la situación y modelos de otros países del entorno como en términos temporales (antes y después de la reforma).
Finalmente se hace referencia a las reformas que no se están acometiendo y se plantea cual es el camino adecuado para que no vuelva España a caer en una crisis como la actual, planteando conclusiones tanto en términos macro como en términos de funcionamiento del sector financiero español.

The roles of central banks in the advanced economies have expanded and multiplied since the beginning of the crisis. The conventional monetary policy roles - setting interest rates in the pursuit of macroeconomic stability and acting as lender of last resort and market maker of last resort to provide funding liquidity and market liquidity to illiquid but insolvent counterparties -
have both been transformed. With official policy rates near or at the effective lower bound, the size of the central bank's balance sheet and the composition of its assets and liabilities have become the new, 'poor man's', monetary policy instruments. The LLR and MMLR roles have expanded to include solvency support for SIFIs and, in the euro area, the provision of liquidity support and solvency support for sovereigns also.

Concentrating too many financial stability responsibilities, including macroprudential and micro-prudential regulation, in the central bank risks undermining the independence of the central bank where it is likely to be useful -- the conventional monetary policy roles.

The non-inflationary loss-absorption capacity (NILAC) of the leading central banks is vast. For the ECB/Eurosystem we estimate it at no less than EUR3.2 trillion, for the Fed at over $7 trillion. This is tax payers' money that is not under the effective control of the fiscal authorities. The central banks have used their balance sheets and their NILACs to engage in quasi-fiscal actions
that have been essential to prevent even greater financial turmoil and possible disaster, but that also have important distributional impacts between sectors, financial institutions, individuals and nations. The ECB was forced into this illegitimate role by the fiscal vacuum at the heart of the euro area; the Fed by the fiscal paralysis of the US Federal government institutions.

JEL Classification: E41, E52, E58, E63, G01 and H63

Keywords: accountability, central banks, financial stability and non-inflationary loss absorption capacity

Inflation means a persistent change in the price level of goods and services in an economy. It is generally measured in the consumer price index (CPI) or retail price index (RPI). Inflation reduces the purchasing power of a country's currency, as we need more units of currency over time to buy the same goods and services. The current empirical paper entitled “relationship between inflation and stock market evidence from selected global stock markets” have been undertaken with an intention to investigate the relationship between inflation and stock returns of the chosen economies. In order to realize the stated objectives, the researchers have collected the monthly data 2000 to 2017 for selected indices. In the first phase, log returns were computed and it has been tested for the existence of unit root in the distribution. In the second phase, we ran Pearson correlation coefficient for the collected data to find out the association between the inflation and stock returns. Majorit...

The South African Reserve Bank (SARB) is the central bank of South Africa and is privately owned. This private ownership was the secret ingredient for the dismantling of the political regime known as Apartheid. Many years later, it seems that today there has been a reversal of roles because it appears that the current political regime in South Africa is succeeding in dismantling the SARB’s independence and the way it operates. This paper examines interest rate announcements as an indirect measure of the political independence of the SARB. The test constructed in this paper consists of two interest rate models; of actual and projected interest rates. These models are then compared with one another because the difference in the movement of actual interest rates, as measured against the movement of projected interest rates, could provide evidence that the SARB is not performing its duties independently. The results of the study indicate that the SARB is to a great extent independent, but still has some room for improvement.

Information technology has the potential to decrease substantially, if not completely, the demand for base money. This poses a problem for central banks as it seemingly eliminates a role for monetary policy, at least in the traditional sense. Recently, it has become commonplace to consider the role of monetary policy and the determination of the price level without any reference to money. The two predominant methods of analysis in this regard are the New Keynesian framework articulated by Woodford (2003) and the scal theory of the price level as described in Cochrane (2005). Lost in the literature on " cashless" economies is the work of Jürg Niehans (1982) who, driven by the perplexities of the Eurodollar market, considered the role of monetary policy and price level determination in the context of a neoclassical macroeconomic model. This paper contrasts the framework and conclusions of Niehans with the contemporary approaches. It is argued that Niehans successfully anticipated the conclusions of the scal theory of the price level.

Resumen: ​ A lo largo de este trabajo, se ha buscará responder al interrogante de qué factores debería tener en cuenta un inversor a la hora de decidir entre las distintas estrategias alternativas de inversión en el mercado de las Lebacs. Para ello se analizará cómo se instrumenta operativamente cada una de estas alternativas y se definirán cuales son los puntos que determinan la máxima rentabilidad. Como resultado, se concluirá que en este mercado es de particular importancia la política monetaria que lleva a cabo el Banco Central de la República Argentina en respuesta a las condiciones macroeconómicas imperantes, y que será necesario tener un buen conocimiento de la misma para emprender una eficiente toma de decisiones.

The definition, evolution, forms, functions and measurement of money are best understood when mapped to the circular flow of goods and services, as seen in this 3rd part of the 1st unit of the UNISA Monetary Finance (ECS3701) course.
[Mishkin, S.F. The Economics of Money, Banking and Financial Markets, 2012 10th ed]

This booklet is designed to give the reader an overview of general bookkeeping practices
and accounting terminology in respect of the crypto-coin „Bitcoin”. It brings together
financial cryptography innovations such as the Signed Receipt with the standard accountancy
techniques of double entry bookkeeping

Rapid price increase in food/agricultural commodities has gained attention after the “Price Spike” in 2007-2008. Again the same trend was observed in 2010 due to which it increases concern about the volatility in commodity prices. This study aims to investigate the factor affecting volatility of selected food and agricultural commodities. Monthly data from April 1983 to April 2013 is taken for analysis. GARCH (1, 1), GJR (1, 1) and EGARCH (1, 1) models are estimated for all the variables using normal and Student-t distribution. The results conclude that the mean and the volatility effect of exchange rate and interest rate are transmitted across all the selected commodities. Volatility in the price of fertilizer is only transmitted on the volatility of sunflower oil. Later, analysis shows that past price has significant impact on current prices for all the commodities except for soybean oil, sunflower oil and cotton.

The volume edited by Leland Yeager more than 50 years ago and published in 1962 under the title In Search of a Monetary Constitution has turned out to be remarkably prescient since the Great Inflation was then about to begin.  One might expect that in the wake of the Global Financial Crisis and Great Recession interest in monetary-constitutional matters would be revived and this has indeed been the case. In this paper an attempt is made to assess whether and to what extent scientific progress has been made in defining the nature and characteristics of a monetary constitution for the post-Crisis world. To that end some recent contributions to the literature are reviewed critically.

We turn our attention to the role of money for determining nominal magnitudes. Using US data, we find that the aggregate “nominal output plus and stock market capitalisation” is closely related to the money stock, lending support to one of Milton Friedman’s key monetarist propositions. This finding should be particularly important for ECB monetary policy: an inflation-free euro plays a

In consideration of the adverse effect of currency substitution on the effectiveness of monetary policy, the determinants of currency substitution in Nigeria are investigated using a single linear regression model estimated with the fully modified ordinary least squares (FMOLS) and the robust least squares (RLS) estimators which correct for the pernicious effects of endogeneity and outliers respectively, in regression models. Data on relevant variables spanning the period from 1994 to 2015 are employed. Evidence indicates that exchange rate, capital expenditure, inflation and real GDP are positively and significantly related to currency substitution while FDI is negatively related to it. The implication of these results is that currency depreciation, inflation, increase in capital expenditure and increase in real income engender increase in the rate of currency substitution in the country, while increased inflow of FDI to the country reduces the rate of currency substitution therein in the long run. The paper proffers as recommendation for policy considerations, efforts by the government to curtail depreciation of the domestic currency; control of inflation; reduction of, or complete stoppage of award of contracts for capital projects in foreign currencies; enhancing the attractiveness of the economy to FDI; and, reduction in demand for, and dependence on imports which may arise from increase in real income, as measures to reduce the rate of currency substitution in the country.

This paper examines the impact of monetary policy on the economic development by using annual time series data from 1989-2016. The unit root testing result suggests that all variables are stationary at first difference; therefore, the Johansen Cointegration and Error Correction Model has been employed to analyze the association between variables. The finding shows that money supply, interest rate and inflation rate negatively effect on the real GDP per capita in the long run and only the real exchange rate has a positive sign. The error correction model result indicates the existence of short run causality between money supply, real exchange rate and real GDP per capita.

Using objective measures of investor protections in 170 countries, I establish that the level of investor protection matters for cross-country differences in GDP growth: countries with stronger protections tend to grow faster than those with poor investor protections.

Monetary policies in advanced economies and emerging markets face quite different challenges at the current juncture. In the advanced countries, current dilemmas derive from the normalisation of unconventional monetary policies. The short-term dilemma is to determine when to start exiting extraordinary policies and selecting appropriate tools, as conventional tools may not be very relevant during this phase. The medium- to long-term challenges relate to the sequencing, pace and mechanics of normalisation. Monetary policy in emerging markets needs to cope with the familiar dilemmas of fiscal dominance, the growth-inflation trade-off and the "impossible trinity." With fiscal parameters in control, and food and commodity prices subdued, the chief dilemma currently confronting emerging markets involves a trade-off between targeting divergent domestic and external cycles. Although they are now better placed to absorb a sudden stop, the impact is likely to be differential, with those with weaker macroeconomic parameters suffering greater pain.

The study examined the technical efficiency of 66 Credit Unions (CUs) in Ghana using a Cobb-Douglas Stochastic frontier model for the period 2009 to 2012. Factors influencing the technical inefficiency of the CUs were also investigated. We applied the production and intermediation approaches to efficiency modelling to select the input and output variables to generate the technical efficiencies of the CUs. The results show average technical efficiency of 53.40% and 57.96% across the sampled CUs over the period for the production and intermediation models respectively. Thus CUs can improve inputs use by about 47% and 42% on the average to increase outputs through its production and intermediation channels respectively. We also found staff numbers and productivity as critical inputs that influence technical efficiency of the CUs. Finally, CUs can take advantage of increasing returns in financial intermediation to restructure and engage in mergers to strengthen their capital base and competitiveness in Ghana.

Define and explain the Policy Ineffectiveness Proposition. Discuss how the length and the staggering of wage contract can make monetary policy effective even if expectations are rational. Can you find real world evidence that wage setting matters for the effectiveness of monetary policy?