The Interaction of Monetary and Macroprudential Policies in Dynamic Macro Models

This thesis contributes to the debate on the interaction of monetary and macroprudentialpolicies in dynamic macro models, specifically using New Keynesian dynamic stochastic general equilibrium (DSGE) models.First, we propose a general equilibrium framework that highlights the interaction of reserve requirements and a conventional monetary policy in a model that combines endogenous housing loan defaults and financial intermediation frictions due to the costs of enforcing contracts. Weuse the model to examine how the interaction of these policies affect (i) the credit and business cycle; (ii) the distribution of welfare between savers and borrowers; and (iii) the overall welfare objectives when monetary and macroprudential policies are optimised together or separately. We find that models with an optimised reserve ratio rule are effective in reducing the sudden boom and bust of credit and the business cycle. We also find that there are distributive implications of the introduction of reserve ratio where borrowers gain at the expense of savers. However,there is no difference in the overall welfare results whether monetary and macroprudential policies are optimised together or separately. This chapter is co-authored with Professor Joseph Pearlman and Professor Michael Ben-Gad (both from City, University of London) and has been accepted for publication by the Economic Modelling Journal.Second, we use a DSGE framework to assess the macroeconomic effects of the output floor, anew regulatory constraint recently introduced in the Basel III framework. The main purpose of the output floor is to reduce the excessive variability of banks’ risk-weighted assets and ensure a robust level of capital requirements. Our assessment concludes that the output floor counters the downward pressures generated by modelled risk weights on risk-weighted assets and, in turn,reduces the cyclicality of capital to risks-weighted assets ratio. This contributes to mitigate the excessive expansions of credit. Our model also predicts that the output floor might trigger behavioural reactions by banks. More specifically, banks may have the incentive to shift theirportfolio from assets with a large gap between internally modelled and standardised risk weights (mortgages) to non-financial corporation loans which display a smaller gap. This chapter is co-authored with Dr. Jonathan Acosta-Smith and Dr. Marzio Bassanin (both from Bank of England). This chapter also beneffited from my PhD research internship at the Prudential Policy Directorate of the Bank of England and is due to appear as a Bank of England Staff Working Paper.Finally, the current low interest environment prompted many questions on how financial stability and the conduct of macroprudential policy should be implemented. On the onehand, low interest rate environment leads to a decrease in banks’ profitability, bank capital,and eventually bank lending, calling for a lower capital regulation. On the other hand, this environment encourages more indebtedness by borrowers and banks excessive risk taking, calling for a higher capital regulation. We study the consequences of capital regulation when the interest rate is at zero lower bound (ZLB) using a DSGE framework. We use the UK data to calibrate the parameters of the model. Our assessment concludes that the benefits of high capital regulation when the monetary policy is constrained at ZLB is greater than the model with low capital regulation. This chapter is also co-authored with Professor Joseph Pearlmanand Professor Michael Ben-Ga

An Analysis of Monetary and Macroprudential Policies in a DSGE Model with Reserve Requirements and Mortgage Lending

We propose a general equilibrium framework that highlights the interaction of reserve requirements and a conventional monetary policy in a model that combines endogenous housing loan defaults and financial intermediation frictions due to the costs of enforcing contracts. We use the model to examine how the interaction of these policies affect (i) the credit and business cycle; (ii) the distribution of welfare between savers and borrowers; (iii) the overall welfare objectives when monetary and macroprudential policies are optimised together or separately. We find that models with an optimised reserve ratio rule are effective in reducing the sudden boom and bust of credit and the business cycle. We also find that there are a distributive implications of the introduction of reserve ratio where borrowers gain at the expense of savers. However, there is no difference in the overall welfare results whether monetary and macroprudential policies are optimised together or separately

Computation of the effective area and associated uncertainties of non-rotating piston gauges FPG and FRS

The effective areas of three force-balanced piston gauges (FPGs) and two Furness Rosenberg standards (FRS) in the operating pressure range of each device varying for 1 Pa–15 kPa have been accurately computed both in the gauge and absolute modes. Geometrical data for the non-rotating piston-cylinder assemblies (PCAs) have been provided by the National Metrology Institutes (NMIs) of PTB, RISE, INRiM and CMI. Since the flow is in a wide range of the Knudsen number, simulations have been based on the Batnagar–Gross–Krook (BGK) kinetic model equation, while the typical Dadson and CFD approaches have been complimentary applied only in the viscous regime. Furthermore, an uncertainty analysis has been performed. The effective area is strongly affected by the PCA geometry and the flow conditions, while its dependency on pressure may be different even for devices of the same type. The main source of uncertainty is the dimensional measurements of the piston and the cylinder, followed by the accommodation coefficient characterizing the gas-surface interaction, while the effect of other flow and modeling parameters is negligible. The total relative standard uncertainty of the effective area has been always found to be less than 1 · 10−5 indicating that pressure measurements of high accuracy can be ensured. Since the effective area is estimated based solely on computations the FPG and the FRS assemblies may be characterized as primary pressure standards

Computer simulation of a 1.0 CPa piston-cylinder assembly using finite element analysis (FEA)

The paper reports a preliminary study of the behavior of a high performance controlledclearance piston gauge (CCPG) in the pressure range up to 1 GPa through finite elemental analysis (FEA). The details of the experimental haracterization of this CCPG has already been published (Yadav et al., 2007 [1]). We have already pointed out that the use of Heydemann–Welch (HW) model for the characterization of any CCPG, has some limitation due to the fact that the linear extrapolation of the cube root of the fall rate versus jacket pressure (v1/3–pj) curve is assumed to be independent of the rheological properties of the pressure transmitting fluids. The FEA technique addresses this problem through simulation and optimization with a standard ANSYS program where the material properties of the piston and cylinder, pressure dependent density and viscosity of the pressure transmitting fluid etc. are to be used as the input parameters. Thus it provides characterization of a pressure balance in terms of effective area and distortion coefficient of the piston and cylinder.The present paper describes the results obtained on systematic studies carried out on the effect of gap profile between piston and cylinder of this controlled-clearance piston gauge, under the influence of applied pressure (p) from 100 MPa to 1000 MPa, on the pressure distortion coefficient (k) of the assembly. The gap profile is also studied at different applied jacket pressure (pj) such that pj/p varied from 0.3, 0.4 and 0.5

Caractérisation métrologique d’une nouvelle référence de pression relative dans le domaine 1,5 à 50 MPa

La nouvelle référence de pression relative dans le domaine de 1,5 à 50 MPa est définie à partir de trois ensembles piston-cylindres (EPC). Ces ensembles de 50 kPa/kg (15,8 mm de diamètre) peuvent être utilisés en jeu contrôlé et sont adaptés pour être montés sur les balances de référence haute pression d’huile, équipées chacune d'un ensemble de masses de 1000 kg. La section effective du premier EPC a été déterminée par des mesures dimensionnelles avec une incertitude relative élargie (k=2) estimée à 1,0 x 10−5, puis comparée aux autres ensembles. Par ailleurs, les résultats dimensionnels ont été confirmés à basse pression par comparaison directe avec la référence de 1 MPa. Les coefficients de déformation des ensembles piston-cylindre ont été déterminés expérimentalement avec un ensemble 200 MPa, et comparés aux valeurs théoriques calculées par la méthode des éléments finis (MEF). Le bilan d’incertitude sur la mesure de pression pour cette référence est présentée. L’incertitude élargie est estimée à 15 Pa + 1,2 x 10−5 x p

An Analysis of Monetary and Macroprudential Policies in a DSGE Model with Reserve Requirements and Mortgage Lending

We propose a general equilibrium framework that highlights the interaction of reserve requirements and a conventional monetary policy in a model that combines endogenous housing loan defaults and financial intermediation frictions due to the costs of enforcing contracts. We use the model to examine how the interaction of these policies affect (i) the credit and business cycle; (ii) the distribution of welfare between savers and borrowers; (iii) the overall welfare objectives when monetary and macroprudential policies are optimised together or individually. We find that models with an optimised reserve ratio rule are effective in reducing the sudden boom and bust of credit and the business cycle. We also find that there are distributive implications of the introduction of reserve ratio where borrowers gain at the expense of savers

Recent progress in high pressure metrology in Europe

Five European national metrology institutes in collaboration with a university, a research institute and five industrial companies are working on a joint research project within a framework of the European Metrology Research Programme aimed at development of 1.6 GPa primary and 1.5 GPa transfer pressure standards. Two primary pressure standards were realised as pressure-measuring multipliers, each consisting of a low pressure and a high pressure (HP) piston-cylinder assembly (PCA). A special design of the HP PCAs was developed in which a tungsten carbide cylinder is supported by two thermally shrunk steel sleeves and, additionally, by jacket pressure applied to the outside of the outer sleeve. Stress-strain finite element analysis (FEA) was performed to predict behaviour of the multipliers and a pressure generation system. With FEA, the pressure distortion coefficient was determined, taking into account irregularities of the piston-cylinder gap. Transfer pressure standards up to 1.5 GPa are developed on the basis of modern 1.5 GPa pressure transducers. This project shall solve a discrepancy between the growing needs of the industry demanding precise traceable calibrations of the high pressure transducers and the absence of adequate primary standards for pressures higher than 1 GPa in the European Union today