Monetary policy rules and inflation process in open emerging economies: evidence for 12 new EU members

This paper has three objectives. First, it aims at revealing the logic of interest rate setting pursued by monetary authorities of 12 new EU members. Using estimation of an augmented Taylor rule, we find that this setting was not always consistent with the official monetary policy. Second, we seek to shed light on the inflation process of these countries. To this end, we carry out an estimation of an open economy Philips curve (PC). Our main finding is that inflation rates were not only driven by backward persistency but also held a forward-looking component. Finally, we assess the viability of existing monetary arrangements for price stability. The analysis of the conditional inflation variance obtained from GARCH estimation of PC is used for this purpose. We conclude that inflation targeting is preferable to an exchange rate peg because it allowed decreasing the inflation rate and anchored its volatility.http://deepblue.lib.umich.edu/bitstream/2027.42/64365/1/wp968.pd

Inflation dynamics and the New Keynesian Phillips curve in EU-4

The paper seeks to shed light on inflation dynamics of four new EU member states (the Czech Republic, Hungary, Poland and Slovakia). To this end, the New Keynesian Phillips curve augmented for open economies is estimated and additional statistical tests applied. We find the following. (1) The claim of New Keynesians that the real marginal cost is the main inflation-forcing variable is fragile. (2) Inflation seems to be driven by external factors. (3) Although inflation holds forward-looking component, the backward-looking one is substantial. An intuitive explanation for higher inflation persistence may be rather adaptive than rational price setting of local firms.Inflation dynamics, New Keynesian Phillips curve, CEE countries, GMM estimation

Is Monetary Policy in New Members States Asymmetric?

Estimated Taylor rules became popular as a description of monetary policy conduct. There are numerous reasons why real monetary policy can be asymmetric and estimated Taylor rule nonlinear. This paper tests whether monetary policy can be described as asymmetric in three new European Union (EU) members (the Czech Republic, Hungary and Poland), which apply an inflation targeting regime. Two different empirical frameworks are used: (i) a Generalized Method of Moments (GMM) estimation of models that allow discrimination between the sources of potential policy asymmetry but are conditioned by specific underlying relations (Dolado et al., 2004, 2005; Surico, 2007a,b); and (ii) a flexible framework of sample splitting where nonlinearity enters via a threshold variable and monetary policy is allowed to switch between regimes (Hansen, 2000; Caner and Hansen, 2004). We find generally little evidence for asymmetric policy driven by nonlinearities in economic systems, some evidence for asymmetric preferences and some interesting evidence on policy switches driven by the intensity of financial distress in the economy.monetary policy, inflation targeting, nonlinear Taylor rules, threshold estimation

Monetary policy rules and inflation process in open emerging economies: evidence for 12 new EU members

This paper has three objectives. First, it aims at revealing the logic of interest rate setting pursued by monetary authorities of 12 new EU members. Using estimation of an augmented Taylor rule, we find that this setting was not always consistent with the official monetary policy. Second, we seek to shed light on the inflation process of these countries. To this end, we carry out an estimation of an open economy Philips curve (PC). Our main finding is that inflation rates were not only driven by backward persistency but also held a forward-looking component. Finally, we assess the viability of existing monetary arrangements for price stability. The analysis of the conditional inflation variance obtained from GARCH estimation of PC is used for this purpose. We conclude that inflation targeting is preferable to an exchange rate peg because it allowed decreasing the inflation rate and anchored its volatility.open emerging economies, CEE countries, monetary policy rules, open economy Phillips curve, conditional inflation variance

Generalizing Merton's approach of pricing risky debt: some closed form results

In this work, I generalize Merton's approach of pricing risky debt to the case where the interest rate risk is modeled by the CIR term structure. Closed form result for pricing the debt is given for the case where the firm value has non-zero correlation with the interest rate. This extends previous closed form pricing formular of zero-correlation case to the generic one of non-zero correlation between the firm value and the interest rate.Comment: 7 pages, Revtex styl

Automated Circuit Approximation Method Driven by Data Distribution

We propose an application-tailored data-driven fully automated method for functional approximation of combinational circuits. We demonstrate how an application-level error metric such as the classification accuracy can be translated to a component-level error metric needed for an efficient and fast search in the space of approximate low-level components that are used in the application. This is possible by employing a weighted mean error distance (WMED) metric for steering the circuit approximation process which is conducted by means of genetic programming. WMED introduces a set of weights (calculated from the data distribution measured on a selected signal in a given application) determining the importance of each input vector for the approximation process. The method is evaluated using synthetic benchmarks and application-specific approximate MAC (multiply-and-accumulate) units that are designed to provide the best trade-offs between the classification accuracy and power consumption of two image classifiers based on neural networks.Comment: Accepted for publication at Design, Automation and Test in Europe (DATE 2019). Florence, Ital

How Does Monetary Policy Change? Evidence on Inflation Targeting Countries

We examine the evolution of monetary policy rules in a group of inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom) applying moment-based estimator at time-varying parameter model with endogenous regressors. Using this novel flexible framework, our main findings are threefold. First, monetary policy rules change gradually pointing to the importance of applying time-varying estimation framework. Second, the interest rate smoothing parameter is much lower that what previous time-invariant estimates of policy rules typically report. External factors matter for all countries, albeit the importance of exchange rate diminishes after the adoption of inflation targeting. Third, the response of interest rates on inflation is particularly strong during the periods, when central bankers want to break the record of high inflation such as in the U.K. or in Australia at the beginning of 1980s. Contrary to common wisdom, the response becomes less aggressive after the adoption of inflation targeting suggesting the positive effect of this regime on anchoring inflation expectations. This result is supported by our finding that inflation persistence as well as policy neutral rate typically decreased after the adoption of inflation targeting.Endogenous regressors, inflation targeting, monetary policy, Taylor rule, time-varying parameter model.

Monetary Policy Implications of Financial Frictions in the Czech Republic

As the global economy seems to be recovering from the 2009 financial crisis, we find it desirable to look back and analyze the Czech economy ex post. We work with a Swedish New Keynesian model of a small open economy which embeds financial frictions in light of the financial accelerator literature. Without explicitly modeling the banking sector, this model serves as a tool for understanding how a negative financial shock may spread to the real economy and how monetary policy may react. We use Bayesian techniques to estimate the model parameters to adjust the model structure closer to the evidence stemming from Czech data. Our attention focuses on a set of experiments in which we generate ex post forecasts of the economy prior to the 2009 crisis and illustrate that the monetary policy response to an upcoming crisis implied by the model with financial frictions is stronger on account of an increasing interest rate spread.Bayesian methods, financial frictions.

Is Monetary Policy in New Members States Asymmetric?

Estimated Taylor rules became popular as a description of monetary policy conduct. There are numerous reasons why real monetary policy can be asymmetric and estimated Taylor rule nonlinear. This paper tests whether monetary policy can be described as asymmetric in three new European Union (EU) members (the Czech Republic, Hungary and Poland), which apply an inflation targeting regime. Two different empirical frameworks are used: (i) a Generalized Method of Moments (GMM) estimation of models that allow discrimination between the sources of potential policy asymmetry but are conditioned by specific underlying relations (Dolado et al., 2004, 2005; Surico, 2007a,b); and (ii) a flexible framework of sample splitting where nonlinearity enters via a threshold variable and monetary policy is allowed to switch between regimes (Hansen, 2000; Caner and Hansen, 2004). We find generally little evidence for asymmetric policy driven by nonlinearities in economic systems, some evidence for asymmetric preferences and some interesting evidence on policy switches driven by the intensity of financial distress in the economy.http://deepblue.lib.umich.edu/bitstream/2027.42/133019/1/wp1005.pd

Exploring Thermoresponsive Affinity Agents to Enhance Microdialysis Sampling Efficiency of Proteins

Affinity agents increase microdialysis protein relative recovery, yet they have not seen widespread use within the microdialysis community due to their additional instrumentation requirements and prohibitive cost. This dissertation describes new affinity agents for microdialysis that require no additional instrumentation to use, have nearly 100% particle recovery, are 7 times more cost efficient than alternatives, and have low specificity enabling their use for a wide variety of proteins. Initially gold nanoparticles were chosen as an affinity ligand support due to their high surface area/volume ratio and colloidal stability. Poly (N-isopropylacrylamide) was immobilized to the gold nanoparticles, which served to sterically stabilize the particles and to act as a generic, reversible protein capture agent. A method was developed to reproducibly vary and quantify poly (N-isopropylacrylamide) graft density from 0.09 to 0.40 ligands/nm2 on gold nanoparticles. During characterization of the polymer coated gold nanoparticles, irreversible particle agglomeration was observed at low polymer graft density in ionic solutions, which prevented further development as a protein capture agent. Poly (N-isopropylacrylamide) nanogels, which have low nonspecific adsorption, low interparticle attractive forces owing to the low curvature of the particle, and a low Hamaker constant, were synthesized to overcome the agglomeration problem. A generic protein affinity ligand cibacron blue, was immobilized to the nanogels, which enabled rapid determination of particle recovery. The perfusion of the nanogels through a microdialysis probe was optimized yielding ~ 100% particle recovery using a combination of a syringe and peristaltic pump. The microdialysis collection efficiency of CCL2, a physiologically relevant cytokine, was increased 3-fold with addition of the nanogel to the microdialysis perfusion fluid. The reduction in instrumentation requirements, low cost, and low specificity obtained with the new affinity agents will lead to increased affinity agent use for microdiaylsis protein sampling