Monetary Policy Rules and Macroeconomic Stability

This paper attempts to characterize the monetary policy regimes in the United States and analyze their effects on macroeconomic stability. It does so by estimating Taylor-type forward-looking monetary policy reaction functions for the pre- and post-1979 periods, and simulating the resultant coefficients in a basic New Keynesian business cycle model. The feedback coefficient on inflation in the estimated policy reaction function is found to be less than unity for the 1960-1979 period, suggesting an accommodative monetary policy stance of the Federal Reserve. However, for the 1979-2017 period, the feedback coefficient on inflation is estimated to be substantially greater than unity, implying that the Federal Reserve adopted a proactive policy stance towards controlling inflation. It is also found that in recent times, the Federal reserve has shifted its focus from short one period ahead inflation targets to longer target horizons such as one year ahead inflation targets. Meanwhile, the model simulations show that the economy exhibits greater stability under a model with post-1979 calibration than a model with a combination of pre-1979 parameters and `sunspot' shocks

Monetary Policy Rules and Macroeconomic Stability

This paper attempts to characterize the monetary policy regimes in the United States and analyze their effects on macroeconomic stability. It does so by estimating Taylor-type forward-looking monetary policy reaction functions for the pre- and post-1979 periods, and simulating the resultant coefficients in a basic New Keynesian business cycle model. The feedback coefficient on inflation in the estimated policy reaction function is found to be less than unity for the 1960-1979 period, suggesting an accommodative monetary policy stance of the Federal Reserve. However, for the 1979-2017 period, the feedback coefficient on inflation is estimated to be substantially greater than unity, implying that the Federal Reserve adopted a proactive policy stance towards controlling inflation. It is also found that in recent times, the Federal reserve has shifted its focus from short one period ahead inflation targets to longer target horizons such as one year ahead inflation targets. Meanwhile, the model simulations show that the economy exhibits greater stability under a model with post-1979 calibration than a model with a combination of pre-1979 parameters and `sunspot' shocks

The Impact of Federal Reserve's Conventional and Unconventional Monetary Policies on Equity Prices

I estimate the effects of the Federal Reserve's forward guidance and large-scale asset purchases, along with the effects of interest rate changes under conventional policy, on the U.S. equity market, and assess the reasons for stock price responses. Although the overall stock market respond meaningfully to a surprise change in the federal funds rate with a high level of statistical significance, a heterogeneity in responses is observed among different sectors in the stock market. In contrast, forward guidance is found to have relatively homogeneous effects on sector-wise stock market performance. Such effects are large in magnitude and highly statistically significant. However, large-scale asset purchases exhibit minimal effects on equity price movements. The present value of future excess returns emerged as the most important channel through which the surprise changes in the federal funds rate as well as forward guidance and large-scale asset purchases affect current equity prices. The present value of future dividends and the real interest rates are found to make minor contributions the propagation of policy shocks. However, the relative contribution of future dividends, real interest rates and excess returns vary across sectors

Monetary policy rules in practice: Evidence for Sri Lanka

The paper seeks to characterise the monetary policy decision making process for Sri Lanka using standard Taylor-type monetary policy rules. Alternative monetary policy reaction functions are estimated for Sri Lanka over the period 1996Q1 to 2013Q2. An open economy reaction function is used in the analysis where the central bank is assumed to respond to changes in inflation, the output gap and the exchange rate. A forward looking specification of the reaction function is found to provide the most appropriate characterisation of policy making at the Central Bank of Sri Lanka. The results indicate that the size of the coefficient on the inflation gap has increased over time reflecting a greater focus on price stability. However, the response of monetary policy to fluctuations in output has been greater than the response to deviations in inflation reflecting the central bank’s preference and the lower sensitivity of output to interest rate changes

Monetary policy rules in practice: Evidence for Sri Lanka

The paper seeks to characterise the monetary policy decision making process for Sri Lanka using standard Taylor-type monetary policy rules. Alternative monetary policy reaction functions are estimated for Sri Lanka over the period 1996Q1 to 2013Q2. An open economy reaction function is used in the analysis where the central bank is assumed to respond to changes in inflation, the output gap and the exchange rate. A forward looking specification of the reaction function is found to provide the most appropriate characterisation of policy making at the Central Bank of Sri Lanka. The results indicate that the size of the coefficient on the inflation gap has increased over time reflecting a greater focus on price stability. However, the response of monetary policy to fluctuations in output has been greater than the response to deviations in inflation reflecting the central bank’s preference and the lower sensitivity of output to interest rate changes

IMPORTANCE OF IMPROVING BIOLOGICAL ACTIVITY OF TEA SOILS IN SOUTHERN PROVINCE OF SRI LANKA.

The detrimental effects of soil pesticides on soil micro biota and biodiversity of the teaecosystem are poorly understood. In the current study, microbial activity in southern teasoils of Sri Lanka as affected by application of commonly used soil pesticides and certaincultural practices was evaluated by m-:asuring the soil respiration in vitro and in vivo.CO2 evolution rates in Southern tea soils were generally low as compared to soils in otherareas. Herbicide and formalin applications significantly (p=O.005) suppressed thebiological activity of Southern tea soils; the nematicide tested was less effective.Incorporation of compost and tea waste significantly (p=O.005) elevated CO2 evolution ratein tea soils than that of in undisturbed, virgin forest soils. Forking strengthened microbialbiomass through improved soil physical conditions. Soil biomass was positively correlatedwith growth of the test plants viz tea and tomatoSouthern tea soils with low organic matter contents arc exposed to repeated application ofherbicides and negligence of important agronomic practices due to labour shortage. Suchmalpractices could aggravate potential build up of pesticide residues in the soil. Thus,improvement of soil organic matter status by incorporation of various organic amendments,establishment of green manure crops, rehabilitation of old tea soils and more importantly,restricted usage of agro-chemicals etc. is essential. These practices will assure long-termsustainable productivity and quality of soils as well as help degrade accumulated chemicalresidues and elevate densities of soil microbial communities. As a consequence, increasedefficacy of bio control of nematodes and soil borne pathogens and proper administration ofnatural nutrient cycles could be envisaged.

Fiction Fix 16

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A reconstruction of the ecological history of Longneck Lagoon New South Wales, Australia

The environmental history of Longneck Lagoon was reconstructed by analysing 15 sediment cores collected between 22 April, 1992 and 29 August, 1995. Longneck Lagoon is a shallow, man-modified lake situated in the north-western part of Sydney in New South Wales, Australia, in the Hawkesbury River floodplain. It has undergone a considerable change over recent years and at the end of the study was reported to have turbid water and no floating leaved plants or submerged aquatic plants. The hypothesis of this study was that vertical patterns in sediment characteristics can be related to biological, physical or chemical changes that have taken place within Longneck Lagoon and its catchment area. Assessment of inter-core variation within one area of the lagoon and between different areas was carried out and is highly recommended to others who may wish to conduct similar studies elsewhere. Restoration/regeneration of the previous diverse aquatic plant flora, associated with variable water depth in the pre-weir condition, would require the removal/modification of the weir, possibly reduction in the nutrient income to the lake, and, potentially, addressing mobilisation and internal cycling of accumulated nutrients which have accreted within the system

The Impact of Federal Reserve's Conventional and Unconventional Monetary Policies on Equity Prices

I estimate the effects of the Federal Reserve's forward guidance and large-scale asset purchases, along with the effects of interest rate changes under conventional policy, on the U.S. equity market, and assess the reasons for stock price responses. Although the overall stock market respond meaningfully to a surprise change in the federal funds rate with a high level of statistical significance, a heterogeneity in responses is observed among different sectors in the stock market. In contrast, forward guidance is found to have relatively homogeneous effects on sector-wise stock market performance. Such effects are large in magnitude and highly statistically significant. However, large-scale asset purchases exhibit minimal effects on equity price movements. The present value of future excess returns emerged as the most important channel through which the surprise changes in the federal funds rate as well as forward guidance and large-scale asset purchases affect current equity prices. The present value of future dividends and the real interest rates are found to make minor contributions the propagation of policy shocks. However, the relative contribution of future dividends, real interest rates and excess returns vary across sectors