Money in monetary policy design: monetary cross-checking in the New-Keynesian model

In the New-Keynesian model, optimal interest rate policy under uncertainty is formulated without reference to monetary aggregates as long as certain standard assumptions on the distributions of unobservables are satisfied. The model has been criticized for failing to explain common trends in money growth and inflation, and that therefore money should be used as a cross-check in policy formulation (see Lucas (2007)). We show that the New-Keynesian model can explain such trends if one allows for the possibility of persistent central bank misperceptions. Such misperceptions motivate the search for policies that include additional robustness checks. In earlier work, we proposed an interest rate rule that is near-optimal in normal times but includes a cross-check with monetary information. In case of unusual monetary trends, interest rates are adjusted. In this paper, we show in detail how to derive the appropriate magnitude of the interest rate adjustment following a significant cross-check with monetary information, when the New-Keynesian model is the central bank’s preferred model. The cross-check is shown to be effective in offsetting persistent deviations of inflation due to central bank misperceptions. Keywords: Monetary Policy, New-Keynesian Model, Money, Quantity Theory, European Central Bank, Policy Under Uncertaint

Using spectral continuity to extract breathing rate from heart rate and its applications in sleep physiology

Introduction: ECG Derived Respiration (EDR) are a set of methods used for extracting the breathing rate from the Electrocardiogram (ECG). Recent studies revealed a tight connection between breathing rate and more specifically the breathing patterns during sleep and several related pathologies. Yet, while breathing rate and more specifically the breathing pattern is recognised as a vital sign it is less employed than Electroencephalography (EEG) and heart rate in sleep and polysomnography studies.Methods: This study utilised open-access data from the ISRUC sleep database to test a novel spectral-based EDR technique (scEDR). In contrast to previous approaches, the novel method emphasizes spectral continuity and not only the power of the different spectral peaks. scEDR is then compared against a more widely used spectral EDR method that selects the frequency with the highest power as the respiratory frequency (Max Power EDR).Results: scEDR yielded improved performance against the more widely used Max Power EDR in terms of accuracy across all sleep stages and the whole sleep. This study further explores the breathing rate across sleep stages, providing evidence in support of a putative sleep stage "REM0" which was previously proposed based on analysis of the Heart Rate Variability (HRV) but not yet widely discussed. Most importantly, this study observes that the frequency distribution of the heart rate during REM0 is closer to REM than other NREM periods even though most of REM0 was previously classified as NREM sleep by sleep experts following either the original or revised sleep staging criteria.Discussion: Based on the results of the analysis, this study proposes scEDR as a potential low-cost and non-invasive method for extracting the breathing rate using the heart rate during sleep with further studies required to validate its accuracy in awake subjects. In this study, the autonomic balance across different sleep stages, including REM0, was examined using HRV as a metric. The results suggest that sympathetic activity decreases as sleep progresses to NREM3 until it reaches a level similar to the awake state in REM through a transition from REM0

First activity and interactions in thalamus and cortex using raw single-trial EEG and MEG elicited by somatosensory stimulation

Introduction: One of the primary motivations for studying the human brain is to comprehend how external sensory input is processed and ultimately perceived by the brain. A good understanding of these processes can promote the identification of biomarkers for the diagnosis of various neurological disorders; it can also provide ways of evaluating therapeutic techniques. In this work, we seek the minimal requirements for identifying key stages of activity in the brain elicited by median nerve stimulation.Methods: We have used a priori knowledge and applied a simple, linear, spatial filter on the electroencephalography and magnetoencephalography signals to identify the early responses in the thalamus and cortex evoked by short electrical stimulation of the median nerve at the wrist. The spatial filter is defined first from the average EEG and MEG signals and then refined using consistency selection rules across ST. The refined spatial filter is then applied to extract the timecourses of each ST in each targeted generator. These ST timecourses are studied through clustering to quantify the ST variability. The nature of ST connectivity between thalamic and cortical generators is then studied within each identified cluster using linear and non-linear algorithms with time delays to extract linked and directional activities. A novel combination of linear and non-linear methods provides in addition discrimination of influences as excitatory or inhibitory.Results: Our method identifies two key aspects of the evoked response. Firstly, the early onset of activity in the thalamus and the somatosensory cortex, known as the P14 and P20 in EEG and the second M20 for MEG. Secondly, good estimates are obtained for the early timecourse of activity from these two areas. The results confirm the existence of variability in ST brain activations and reveal distinct and novel patterns of connectivity in different clusters.Discussion: It has been demonstrated that we can extract new insights into stimulus processing without the use of computationally costly source reconstruction techniques which require assumptions and detailed modeling of the brain. Our methodology, thanks to its simplicity and minimal computational requirements, has the potential for real-time applications such as in neurofeedback systems and brain-computer interfaces

Insight Report: Online public involvement session on proposed cardiovascular research programmes

A group of researchers across Imperial College London (some of whom are also part of the Imperial Biomedical Research Centre (BRC)) are applying for £5 million funding over 5 years from the British Heart Foundation (BHF) to fund a BHF Centre for Research Excellence at Imperial to support research on various aspects of cardiovascular medicine. The four research themes the funding proposal will cover are as follows: 1. Societal and Environmental Factors 2. Learning from Heart Patients 3. Vascular Ageing (Blood vessels) 4. Remote (at home) personal monitorin

Central Bank Transparency under Model Uncertainty

This paper explores the effects of central bank transparency on the performance of optimal inflation targeting rules. I assume that both the central bank and the private sector face uncertainty about the correct model of the economy and have to learn. A transparent central bank can reduce one source of uncertainty for private agents by communicating its policy rule to the public. The paper shows that central bank transparency plays a crucial role in stabilizing the agents' learning process and expectations. By contrast, lack of transparency can lead to expectations-driven fluctuations that have destabilizing effects on the economy, even when the central bank has adopted optimal policie

Anchoring of Consumers’ Inflation Expectations: Evidence from Microdata

In this paper we explore the degree of anchoring of consumers' long-run inflation expectations. If expectations are firmly anchored, short- and long-run expectations should show no comovement in response to transitory shocks. Utilizing the University of Michigan Survey of Consumer's rotating panel microstructure, we can identify changes in inflation expectations of individual consumers over time. Our results indicate that long-run inflation expectations became more anchored over the last decades. While the degree of comovement fell significantly after 1996, the probability of a joint adjustment stayed constant. Regarding the possible determinants, we find that consumers' rising interest rate expectations and perceived news on the monetary policy stance have a detrimental effect on the anchoring of long-run expectations. This effect is no longer present in the post-1996 period. Notably, a positive effect of perceived news on government debt on the degree of comovement emerges after 1996, alluding to a potentially problematic link between fiscal and monetary policy

Investigating the Monetary Policy of Central Banks with Assessment Indicators

This paper outlines a new method for using qualitative information to analyze the monetary policy strategy of central banks. Quantitative assessment indicators that are extracted from a central bank's public statements via the balance statistic approach are employed to estimate a Taylor-type rule. This procedure allows to directly capture a policymaker's assessments of macroeconomic variables that are relevant for its decision making process. As an application of the proposed method the monetary policy of the Bundesbank is re-investigated with a new dataset. One distinctive feature of the Bundesbank's strategy consisted of targeting growth in monetary aggregates. The analysis using the proposed method provides evidence that the Bundesbank indeed took into consideration monetary aggregates but also real economic activity and inflation developments in its monetary policy strategy since 1975

Uncertainty About the Persistence of Inflation

This paper offers several contributions to actual research and discussion on monetary policy. It clarifies the relationship between uncertainty of inflation persistence and optimal monetary policy and discusses the consequences of the recent Blanchard proposal to implement a higher inflation target in the light of parameter uncertainty. Furthermore, it provides insights of general interest on the methodological level by analyzing the interrelations between normalization of variables and their independence properties and by extending standard solution methods of dynamic programming problems to non-orthogonal parameter uncertainty

Monetary Policy Regimes and the Volatility of Long-Term Interest Rates

This paper addresses two important questions that have, so far, been studied separately in the literature. First, the paper aims at explaining the high volatility of long-term interest rates observed in the data, which is hard to replicate using standard macro models. Building a small-scale macroeconomic model and estimating it on U.S. and U.K. data, I show that the policy responses of a central bank that is uncertain about the natural rate of unemployment can explain this volatility puzzle. Second, the paper aims at shedding new light on the distinction between rules and discretion in monetary policy. My empirical results show that using yield curve data may facilitate the empirical discrimination between different monetary policy regimes and that U.S. monetary policy is best understood as originating from a discretionary regime since 1960