Optimal Monetary Policy with a Flexible Price-setting Rule
Rosner, Peter and Tinter, Gerhard and WÃ¶rgotter, Andreas and WÃ¶rgÃ¶tter, Gabriele
LohnzurÃ¼ckhaltung bei fixen und flexiblen Wechselkursen
Wechselkursbindung in EntwicklungslÃ¤ndern: Eine empirische Anpassungsstrategie an flexible Wechselkurse?
Andersen, Torben M.
Recent Developments in the Theory of Efficient Markets
Wertpapieremission, Wertpapiererwerb und Zinsbildung am Rentenmarkt
Kundenstruktureffekte von GebÃ¼hren im Privatgiroverkehr der Kreditinstitute
Anmerkungen zur gegenwÃ¤rtigen Feinsteuerungsstrategie der Deutschen Bundesbank
Technische Ursachen kurzfristiger Wechselkursbewegungen
Emerson, Michael (Hrsg.)
Der Internationale WÃ¤hrungsfonds und seine Bedeutung fÃ¼r die osteuropÃ¤ischen LÃ¤nder â RumÃ¤nien, Ungarn und fÃ¼r alle RGW-LÃ¤nder
(Georg J. Dobrovolny)
RentabilitÃ¤tsrisiken aus dem HypothekargeschÃ¤ft von Kreditinstituten in Zeiten der Geldentwertung
(Horst H. MittermÃ¼ller)
âOptimal Monetary Policy with a Flexible Price-setting Ruleâ
The neutrality of systematic monetary policy is examined in a representative Ix economic model featuring a flexible price-setting rule that encompasses be equilibrium price, as found in Sargent and Wallace (1975) and twoâperiod rigidity, as found in Fischer (1977), Phelps and Taylor (1977) and others, as special cases. Systematic monetary policy is shown to influence real output for a continuum of non-equilibrium prices arbitrarily dose to the equilibrium price, indicating that monetary policy may have a stabilizing role in an economy with almost complete price flexibility. An optimal monetary policy which minimizes both output and price variance is derived and shown to have an impact on output that is linearly decreasing in a measure of price flexibility. The parameters of this policy are independent of the measure of price flexibility, implying a potentially significant saving in information costs to the monetary authority.
Rosner, Peter and Tinter, Gerhard and WÃ¶rgotter, Andreas and WÃ¶rgÃ¶tter, Gabriele
âWage Restraint under Fixed and Variable Exchange Ratesâ
On the basis of the model of R. Dornbusch (1983) it is examined how distribution-neutral, income policy measures (i. e. simultaneous diminution of wage and price increases of the same extent) have short and medium term effects on the real activity level of a small, open economy. In the case of fixed exchange rates it can be shown unequivocally that wage restraint in the above-described sense results in a medium-term output increase, but in the run further aggravates the underutilization of capacity. Under flexible exchange rates, there is no change in the medium-term effects of wage restraint compared to a system of fixed exchange rates, but the short-term reactions may very well change. A divergence of short and medium term output reactions need not necessarily occur. In conclusion it is discussed how far wage restraint is a suitable means of combatting a real increase in foreign interest rates. It is found that under fixed exchange medium-term output stabilization is any case at the expense of short-term real act. The same must also be expected for flexible exchange rates, though this cannot be demonstrated definitively.
âBasket Pegging in Developing Countriesâ
Most underdeveloped countries adapted to floating exchange rates by pegging to a single currency or to a basket of currencies. Basket pegging is a relatively new form of exchange rate policy used by an increasing number of LDCs. This essay analyzes the effects of pegging to currency baskets on the economy of an LDC producing priÂmary goods and whose main trading partners are industrialized countries with freely floating exchange rates. Exchange rate movements following purchasing power parity (constant real exchange rates among industrialized countries) and exchange rates moving away from PPP (real exchange rate changes) have to be distinguished when the question is raised if basket pegging offers an optimal exchange rate regime. An optimal exchange rate regime is defined as an arrangement protecting LDCs most efficiently against detrimental impacts of floating currencies. It is shown that single currency pegging is superior to basket pegging only if real exchange rates of the induÂstrialized trading partners remain constant and if the least inflationary currency is chosen as a standard. In the normal case of fluctuating real exchange rates basket pegging is superior to single currency pegs in stabilizing selected target variables. But conflicts with other targets arise and there exists no currency basket construction which could be able to dissolve these conflicts.
Andersen, Torben M.
âRecent Developments in the Theory of Efficient Capital Marketsâ
The hypothesis that prices reflect all available information in financial markets is predominant in the financial literature. Despite the popularity of the efficient capital market hypothesis it has not been based on a rigorous theoretical foundation. Recently a highly technical literature has developed in which problems of information in competitive markets are rigourously analysed, and where the issue of informational efficiency of financial markets is explicitly addressed. The purpose of this paper is to give a non-technical introduction and review of this theoretical literature as it specifically relates to the efficient capital market hypothesis. Since the literature relies heavily on the rational expectations equilibrium concept market hypothesis we shall start out by discussing this methodology in some details. Subsequent to this illustrative model is developed which allows us to address the following issues of information in financial markets: information dissemination by prices, information costs, information and wealth dynamics, information dissemination by quantity signals, existence of market and sequential trading.
âSecurity Issuing, Security Purchasing and Interest Rate Formation on the Bond Marketâ
All important sectors of the economy play a part in operations on the bond market. Market participants encounter each other whose mode of behaviour is determined by very widely differing motives. In order to arrive at a better understanding of the proÂcess of interest rate setting, behaviour equations are set up for the most important and demand groups and estimates are made for the latter for the period from 1974 to 1983. In contrast to the portfolio theory analyses, special allowance is made significance of the liquidity situation for the investment decisions. In particular, the estimate results permit the following conclusions to be drawn:
1. The fixed-interest securities in the portfolios of the banks have the function of a liquidity buffer. The banks give preference to the granting of direct loans over the acquisition of bonds.
2. Private households acquire fixedâinterest bonds largely in the light of the oft interest level. Expectations as to price changes play a subsidiary role.
3. For insurers, bond are a preferred form of investment for their premium receipts. Securities are purchased practically continuously.
4. The commercial banks issue increasing amounts of fixed-interest securities when their liquidity position deteriorates. Increasing grants of direct loans increases the debts of the banks on the bond market.
5. The security issues of the government can be explained econometrically only inadequately; the government tends to reduce its sales of securities when the in level is too high.
The findings of the study confirm the dose interdependence of the money and capital markets. In the attempt to interpret interest rate movements in the past, it proves that, aside from the price increase rate, the liquidity position of the banking sector is the most important determinant of the interest rate trend. The estimated results of the interest function offer an explanation of the rise in interest in 1983, with respect to which it was frequently presumed that it could not be interpreted basis of the conventional explanation patterns. With the estimated modes of behaviour in the period under review, the interest rate movements in 1983 can be largely reconstructed. According to the calculations, the rise in interest rates in spring 1983 was attributable not only to the rising interest level in the United States, but also to the restriction of bank liquidity by the Bundesbank.
âClientele Structure Effects of Charges in the Private Giro Business of the Banksâ
The article deals with customer reactions to bank charge policy decisions in the private giro business of the banks, that is only the reaction of switching banks. In private giro business, an explanation is sought for the bank selections behaviour of customers who demand an array of services. The author proceeds from the realistic assumption that customers judge the cheapness of banks on the basis of the total price burden for the array of services which they will presumably call for. In the literature the thesis is supported that âsmall customersâ may be deterred by basic charges and to that extent a clientele structure effect can be achieved. Item-for-item charges do not have this impact. This article examines whether for both types of charge in general specific clientele structure effects can be proved, if explicit preferences of customers are taken into account - which has not be done hitherto. To this end, sales functions are den the preference intensities of âsmall customersâ and âbig customersâ. It proves that the views on clientele structure effects of charges hitherto supported in the banking literature can be upheld only under not very realistic assumptions con c e preference intensities of the two clientele segments. It is shown that under special conditions clientele structure-neutral pricing is optimal when the preference-weighted contribution margins of the clientele groups are in conformity with each other.
âObservations on the Current Fine-Control Strategy of the German Bundesbankâ
Since the turn of the year 1984/85 the German Bundesbank has endeavoured to effectively dissuade the banks from resorting excessively to Lombard loans in order to regain lost flexibility in money market control. To this end, however, the Bundesbank has not changed its actual monetary control strategy that it has pursued since 1979, but has only made a shift in priorities in applying its instruments, namely from one fine-control instrument (Lombard policy) to another fine-control instrument (security sale and repurchase transactions). Despite the regaining of a certain degree of flexibility in money market control, however, there still remain weak points in current monetary control, which have their cause in the dominant position generally assigned by the Bundesbank to fine-control measures. For instance, the marked preference for fine-control involves the risk of encouraging among the banks the view that refinancing possibilities are practically unlimited. Over and above this, the instrument of minimum reserve policy runs the risk of being pushed into the background. Lastly, considerable losses in efficiency must be recorded in the general interpretation of the interest rate policy of the Bundesbank. For this reason, a plea is made in this connection for a revival of the role of free liquidity reserves, by which means the indicated difficulties could be avoided substantially more effectively.
âTechnical Causes of Short-term Exchange Rate Movementsâ
Extreme fluctuations of exchange rates like those again observed recently are ascribed in the more recent literature primarily to changes in the expectations of the market participants. The circumstance is disregarded, however, that the foreign exchange market transactions undertaken on the basis of changed expectations will give rise at a later date to counterreactions as soon as open speculative commitments have been settled. The extent to which such counterreactions influence the exchange rate trend is dependent on the one hand on whether they were preceded by spot or forward speculations: In view of the small degree of flexibility of market participants in the case of forward speculations, it can be expected that counterreactions to them will generally cause more distinct exchange rate effects than spot speculations. On the other hand, this phenomenon is likely to be decisive for the exchange rate trend whenever the volume of speculative transactions which fall due at a specific time is very large and, in addition, the counterreaction occurs in an otherwise quiet market on which the resulting supply of or demand for spot exchange cannot be met, or only inadequately, at the prevailing exchange rate. The selected empirical example gives initial indications that at least from time to time the counterreactions to speculative transactions have no inconsiderable influence on the exchange rate trend and at that not just from day to day, but over relatively long periods. This is linked up with various implications: For example, the observaÂbility of this phenomenon contradicts those hypotheses of rational expectation formation which assume that the available quantity of information also contains the decisions of all market participants in the past. Under incomplete information, however, the monetary authoritiesâ possibilities of exerting influence are greater than often assumed, especially in times in which the described counterreactions dominate market events. If only for this reason, the latter should be given greater attention.