Money in monetary policy design under uncertainty: a formal characterization of ECB-style cross-checking

The European Central Bank has assigned a special role to money in its two pillar strategy and has received much criticism for this decision. The case against including money in the central bank’s interest rate rule is based on a standard model of the monetary transmission process that underlies many contributions to research on monetary policy in the last two decades. In this paper, we develop a justification for including money in the interest rate rule by allowing for imperfect knowledge regarding unobservables such as potential output and equilibrium interest rates. We formulate a novel characterization of ECB-style monetary cross-checking and show that it can generate substantial stabilization benefits in the event of persistent policy misperceptions regarding potential output. JEL Classification: E32, E41, E43, E52, E5

Money in monetary policy design under uncertainty : the two-pillar Phillips curve versus ECB-style cross-checking

The European Central Bank has assigned a special role to money in its two pillar strategy and has received much criticism for this decision. In this paper, we explore possible justifications. The case against including money in the central bank’s interest rate rule is based on a standard model of the monetary transmission process that underlies many contributions to research on monetary policy in the last two decades. Of course, if one allows for a direct effect of money on output or inflation as in the empirical “two-pillar” Phillips curves estimated in some recent contributions, it would be optimal to include a measure of (long-run) money growth in the rule. In this paper, we develop a justification for including money in the interest rate rule by allowing for imperfect knowledge regarding unobservables such as potential output and equilibrium interest rates. We formulate a novel characterization of ECB-style monetary cross-checking and show that it can generate substantial stabilization benefits in the event of persistent policy misperceptions regarding potential output. Such misperceptions cause a bias in policy setting. We find that cross-checking and changing interest rates in response to sustained deviations of long-run money growth helps the central bank to overcome this bias. Our argument in favor of ECB-style cross-checking does not require direct effects of money on output or inflation. JEL Classification: E32, E41, E43, E52, E5

Central bank misperceptions and the role of money in interest rate rules

Research with Keynesian-style models has emphasized the importance of the output gap for policies aimed at controlling inflation while declaring monetary aggregates largely irrelevant. Critics, however, have argued that these models need to be modified to account for observed money growth and inflation trends, and that monetary trends may serve as a useful cross-check for monetary policy. We identify an important source of monetary trends in form of persistent central bank misperceptions regarding potential output. Simulations with historical output gap estimates indicate that such misperceptions may induce persistent errors in monetary policy and sustained trends in money growth and inflation. If interest rate prescriptions derived from Keynesian-style models are augmented with a cross-check against money-based estimates of trend inflation, inflation control is improved substantially

Money in Monetary Policy Design under Uncertainty: The Two-Pillar Phillips Curve versus ECB-Style Cross-Checking

The European Central Bank has assigned a special role to money in its two pillar strategy and has received much criticism for this decision. In this paper, we explore possible justifications. The case against including money in the central bank’s interest rate rule is based on a standard model of the monetary transmission process that underlies many contributions to research on monetary policy in the last two decades. Of course, if one allows for a direct effect of money on output or inflation as in the empirical “two-pillar” Phillips curves estimated in some recent contributions, it would be optimal to include a measure of (long-run) money growth in the rule. In this paper, we develop a justification for including money in the interest rate rule by allowing for imperfect knowledge regarding unobservables such as potential output and equilibrium interest rates. We formulate a novel characterization of ECB-style monetary cross-checking and show that it can generate substantial stabilization benefits in the event of persistent policy misperceptions regarding potential output. Such misperceptions cause a bias in policy setting. We find that cross-checking and changing interest rates in response to sustained deviations of long-run money growth helps the central bank to overcome this bias. Our argument in favor of ECB-style cross-checking does not require direct effects of money on output or inflation.Monetary Policy, Quantity Theory, Phillips Curve, European Central Bank Policy Under Uncertainty

Money in Monetary Policy Design under Uncertainty: A Formal Characterization of ECB-Style Cross-Checking

The European Central Bank has assigned a special role to money in its two pillar strategy and has received much criticism for this decision. The case against including money in the central bank’s interest rate rule is based on a standard model of the monetary transmission process that underlies many contributions to research on monetary policy in the last two decades. In this paper, we develop a justification for including money in the interest rate rule by allowing for imperfect knowledge regarding unobservables such as potential output and equilibrium interest rates. We formulate a novel characterization of ECB-style monetary cross-checking and show that it can generate substantial stabilization benefits in the event of persistent policy misperceptions regarding potential output.Monetary Policy, Money, Quantity Theory, Phillips Curve, European Central Bank, Policy Under Uncertainty

Money in monetary policy design under uncertainty: the Two-Pillar Phillips Curve versus ECB-style cross-checking

The European Central Bank has assigned a special role to money in its two pillar strategy and has received much criticism for this decision. In this paper, we explore possible justifications. The case against including money in the central bank's interest rate rule is based on a standard model of the monetary transmission process that underlies many contributions to research on monetary policy in the last two decades. Of course, if one allows for a direct effect of money on output or inflation as in the empirical "two-pillar" Phillips curves estimated in some recent contributions, it would be optimal to include a measure of (long-run) money growth in the rule. In this paper, we develop a justification for including money in the interest rate rule by allowing for imperfect knowledge regarding unobservables such as potential output and equilibrium interest rates. We formulate a novel characterization of ECB-style monetary cross-checking and show that it can generate substantial stabilization benefits in the event of persistent policy misperceptions regarding potential output. Such misperceptions cause a bias in policy setting. We find that cross-checking and changing interest rates in response to sustained deviations of long-run money growth helps the central bank to overcome this bias. Our argument in favor of ECB-style cross-checking does not require direct effects of money on output or inflation. --monetary policy,quantity theory,Phillips curve,European Central Bank,policy under uncertainty

AC electric trapping of neutral atoms

We study the dynamic behavior of ultracold neutral atoms in a macroscopic ac electric trap. Confinement in such a trap is achieved by switching between two saddle-point configurations of the electric field. The gradual formation of a stably trapped cloud is observed and the trap performance is studied versus the switching frequency and the symmetry of the switching cycle. Additionally, the electric field in the trap is mapped out by imaging the atom cloud while the fields are still on. Finally, the phase-space acceptance of the trap is probed by introducing a modified switching cycle. The experimental results are reproduced using full three-dimensional trajectory calculations.Comment: 10 pages, 13 figures, updated version, added journal referenc

Making the grade: Motivating factor or outmoded barrier to academic achievement?

Education is fast approaching the stage where students are crossing a line between a desire to succeed and the fear of failure. Although UMO tends to shrug off the pressure of grades, many students them of great concern. They gulp their meals and rush to the dorms to study, they toss in bed, losing sleep before tests--if they go to bed at all--and many sweat out every test and grading period as if waiting for the Judgetment. The fear of failure is well hidden in most cases, but there it is

Spatial multi-criteria decision analysis to predict suitability for African swine fever endemicity in Africa

Background African swine fever (ASF) is endemic in several countries of Africa and may pose a risk to all pig producing areas on the continent. Official ASF reporting is often rare and there remains limited awareness of the continent-wide distribution of the disease. In the absence of accurate ASF outbreak data and few quantitative studies on the epidemiology of the disease in Africa, we used spatial multi-criteria decision analysis (MCDA) to derive predictions of the continental distribution of suitability for ASF persistence in domestic pig populations as part of sylvatic or domestic transmission cycles. In order to incorporate the uncertainty in the relative importance of different criteria in defining suitability, we modelled decisions within the MCDA framework using a stochastic approach. The predictive performance of suitability estimates was assessed via a partial ROC analysis using ASF outbreak data reported to the OIE since 2005. Results Outputs from the spatial MCDA indicate that large areas of sub-Saharan Africa may be suitable for ASF persistence as part of either domestic or sylvatic transmission cycles. Areas with high suitability for pig to pig transmission (‘domestic cycles’) were estimated to occur throughout sub-Saharan Africa, whilst areas with high suitability for introduction from wildlife reservoirs (‘sylvatic cycles’) were found predominantly in East, Central and Southern Africa. Based on average AUC ratios from the partial ROC analysis, the predictive ability of suitability estimates for domestic cycles alone was considerably higher than suitability estimates for sylvatic cycles alone, or domestic and sylvatic cycles in combination. Conclusions This study provides the first standardised estimates of the distribution of suitability for ASF transmission associated with domestic and sylvatic cycles in Africa. We provide further evidence for the utility of knowledge-driven risk mapping in animal health, particularly in data-sparse environments.</p