The Accumulation of Foreign Exchange by Central Banks: Fear of Capital Mobility?

Foreign exchange holdings by central banks have increased significantly in the recent past. This article explains this development as a result of the liberalization of international capital markets. First, central banks accumulate reserves in order to protect the economy from potentially detrimental effects of sudden stops of capital flows and flow reversals. Second, central banks use the accumulation of reserves as a substitute for capital controls. Changes in the level of reserves are a form to manage net capital inflows. They permit the central bank to preserve some leeway for an independent monetary and financial policy despite the classic policy trilemma. The empirical analysis of a large panel data set supports the hypothesis that the accumulation of reserves is the consequence of a “fear of capital mobility” suffered by central banks.International Reserves, Capital Mobility, Macroeconomic Trilemma

Monotonic regression based on Bayesian P-splines: an application to estimating price response functions from store-level scanner data

Generalized additive models have become a widely used instrument for flexible regression analysis. In many practical situations, however, it is desirable to restrict the flexibility of nonparametric estimation in order to accommodate a presumed monotonic relationship between a covariate and the response variable. For example, consumers usually will buy less of a brand if its price increases, and therefore one expects a brand's unit sales to be a decreasing function in own price. We follow a Bayesian approach using penalized B-splines and incorporate the assumption of monotonicity in a natural way by an appropriate specification of the respective prior distributions. We illustrate the methodology in an empirical application modeling demand for a brand of orange juice and show that imposing monotonicity constraints for own- and cross-item price effects improves the predictive validity of the estimated sales response function considerably

International Reserves and the Composition of Equity Capital Inflows

We study the effect of central banks’ international reserve hoardings on the composition of equity capital inflows, namely the ratio of portfolio equity investment (PEI) to foreign direct investment (FDI). Foreign investors’ decisions regarding the location and the type of equity capital investment might be influenced by a country’s level of international reserves. In a simple theoretical model, we show that higher reserves, thanks to their ability to lower exchange rate risk, reduce the risk premium of portfolio equity inflows. Hence, higher reserves are expected to increase the inflow of portfolio equity investment relative to FDI. We test this hypothesis for a sample of emerging markets during the period 1980-2007 using static and dynamic panel data methods. The results suggest that higher levels of reserves are associated with a larger ratio of PEI inflows relative to FDI. This result points to a collateral benefit of reserves that has been neglected so far: Reserves contribute to deeper domestic financial markets and facilitate domestic firms’ access to foreign financing.International Reserves, Capital Inflows, Equity Capital

Monetary Policy When the Zero Lower Bound Is Within Reach:A Smooth Transition Regression Approach

The period of low interest rates since the global financial crisis provides a unique opportunity to examine monetary policy reaction functions near the zero lower bound (ZLB). Using smooth transition regressions for the Euro area and a panel of industrialized countries we show that central banks anticipate the ZLB by less aggressive policies in its vicinity while we do not find a significant difference between both regimes for the US

Contagious Policies: An Analysis of Spatial Interactions Among Countries' Capital Account Policies

Countries' capital account policies might be contagious in the sense that domestic policies are driven by other countries' policies. A model of strategic interactions is developed to show that countries' best response to policy changes elsewhere consists in imitating this policy. Using a spatial econometric model, the hypothesis of policy interactions is tested in a large panel data set. The evidence shows that capital account policies are contemporaneously correlated across countries. Concerning fundamentals, the move to a fixed exchange rate regime and an increase in real world interest rates are correlated with the imposition of capital account restrictions. --Capital Controls,Strategic Interaction,Panel Data Analysis

Method to Control Multiple Segmented LLSM without Position Encoder

In recent years long stator linear synchronous motors (LLSM) started to replace the typical rotating to linear converters like belts, chains, screw systems, pulleys, disks and so on. With LLSM a lot of drawbacks in the machine concepts and design can be prevented. For long tracks, reducing reactive power and individual control of numerous moveable units, the track is segmented in several fed stator units. Because of the LLSM construction an operation with a physical position encoder is not desirable. For that reason position observers should be used instead. In this paper a method to control the multiple segmented LLSM without position encoder is proposed. The special behaviour during entrance and exit of one moveable unit in an active stator segment is described and the control concept via a master slave relationship is proposed. Experimental results are presented to demonstrate the performance and feasibility of the proposed method

Beyond group-level explanations for the failure of groups to solve hidden profiles: The individual preference effect revisited

The individual preference effect supplements the predominant group-level explanations for the failure of groups to solve hidden profiles. Even in the absence of dysfunctional group-level processes, group members tend to stick to their suboptimal initial decision preferences due to preference-consistent evaluation of information. However, previous experiments demonstrating this effect retained two group-level processes, namely (a) social validation of information supporting the group members’ initial preferences and (b) presentation of the additional information in a discussion format. Therefore, it was unclear whether the individual preference effect depends on the co-occurrence of these group-level processes. Here, we report two experiments demonstrating that the individual preference effect is indeed an individual-level phenomenon. Moreover, by a comparison to real interacting groups, we can show that even when all relevant information is exchanged and when no coordination losses occur, almost half of all groups would fail to solve hidden profiles due to the individual preference effect