Technological change and the demand for currency: An analysis with household data

Advances in transaction technology allow agents to economize on the cost of cash management. We argue that accounting for the impact of new transaction technologies on currency holding behaviour is important to obtain theoretically consistent estimates of the demand for money. We modify a standard inventory model to study the effect of withdrawal technology on the demand for currency. An empirical specification for households’ demand schedule is suggested, in which both the level of currency holdings and the interest rate elasticity of demand depend on the withdrawal technology available to agents (e.g. ATM card ownership or a high/low density of bank branches, ATMs). The theoretical implications are tested using a unique panel of Italian household data (on currency holdings, deposit interest rates, consumption, development of banking services, etc.) for the period 1989-2004.money demand, inventory models, technological change

The Demand for Currency at Low Interest Rates

currency, search theory, inflation

Is there a cost channel of monetary policy transmission? An investigation into the pricing behavior of 2,000 firms

The paper exploits a unique panel, covering some 2,000 Italian manufacturing firms and 14 years of data on individual prices and individual interest rates paid on several types of debt, to address the question of the existence of a channel of transmission of monetary policy operating through the effect of interest expenses on the marginal cost of production. It has been argued that this mechanism may explain the dimension of the real effects of monetary policy, give a rationale for the positive short-run response of prices to rate increases(the “price puzzle”) and call for a more gradual monetary policy response to shocks. We find robust evidence in favour of the presence of a cost channel of monetary policy transmission, proportional to the amount of working capital held by each firm. The channel is large enough to have non-trivial monetary policy implications.monetary transmission, cost channel, working capital

Is there a cost channel of monetary policy transmission? An investigation into the pricing behaviour of 2,000 firms

The paper exploits a unique panel, covering some 2,000 Italian manufacturing firms and 14 years of data on individual prices and individual interest rates paid on several types of debt, to address the question of the existence of a channel of transmission of monetary policy operating through the effect of interest expenses on the marginal cost of production. It has been argued that this mechanism may explain the dimension of the real effects of monetary policy, give a rationale for the positive short-run response of prices to rate increases (the “price puzzle”) and call for a more gradual monetary policy response to shocks. We find robust evidence in favour of the presence of a cost channel of monetary policy transmission, proportional to the amount of working capital held by each firm. The channel is large enough to have non-trivial monetary policy implications.monetary transmission, cost channel, working capital

Central bank’s macroeconomic projections and learning

We study the impact of the publication of central bank’s macroeconomic projections on the dynamic properties of an economy where: (i) private agents have incomplete information and form their expectations using recursive learning algorithms, (ii) the short-term nominal interest rate is set as a linear function of the deviations of inflation and real output from their target level and (iii) the central bank, ignoring the exact mechanism used by private agents to form expectations, assumes that it can be reasonably approximated by perfect rationality and releases macroeconomic projections consistent with this assumption. Results in terms of stability of the equilibrium and speed of convergence of the learning process crucially depend on the set of macroeconomic projections released by the central bank. In particular, while the publication of inflation and output gap projections enlarges the set of interest rate rules associated with stable equilibria under learning and helps agents to learn faster, the announcement of the interest rate path exerts the opposite effect. In the latter case, in order to stabilize expectations and to speed up the learning process the response of the policy instrument to inflation should be stronger than under no announcement.Monetary policy, Communication, Interest rates, Learning, Speed of Convergence

Central banks' macroeconomic projections and learning

We study the impact of the publication of central banks’ macroeconomic projections on the dynamic properties of an economy where (i) private agents have incomplete information and form their expectations using recursive learning algorithms; (ii) the short-term nominal interest rate is set as a linear function of the deviations of inflation and real output from their target level; and (iii) the central bank, ignoring the exact mechanism used by private agents to form expectations, assumes that it can be reasonably approximated by perfect rationality and releases macroeconomic projections consistent with this assumption. The set of macroeconomic projections released by the central bank crucially affects the results in terms of stability of the equilibrium and speed of convergence of the learning process. In particular, while the publication of inflation and output gap projections enlarges the set of interest rate rules associated with stable equilibria and helps agents to learn faster, the announcement of the interest rate path exerts the opposite effect. In the latter case, in order to stabilize expectations and to speed up the learning process the response of the policy instrument to inflation should be stronger than when there is no announcement.Monetary policy, Transparency, Interest rates, Learning, Speed of convergence

Characteristic boundary value problems: estimates from H1 to L2

Motivated by the study of certain non linear free-boundary value problems for hyperbolic systems of partial differential equations arising in Magneto-Hydrodynamics, in this paper we show that an a priori estimate of the solution to certain boundary value problems, in the conormal Sobolev space H1_tan, can be transformed into an L2 a priori estimate of the same problem

Existence of approximate current-vortex sheets near the onset of instability

The paper is concerned with the free boundary problem for 2D current-vortex sheets in ideal incompressible magneto-hydrodynamics near the transition point between the linearized stability and instability. In order to study the dynamics of the discontinuity near the onset of the instability, Hunter and Thoo have introduced an asymptotic quadratically nonlinear integro-differential equation for the amplitude of small perturbations of the planar discontinuity. The local-in-time existence of smooth solutions to the Cauchy problem for such amplitude equation was already proven, under a suitable stability condition. However, the solution found there has a loss of regularity (of order two) from the initial data. In the present paper, we are able to obtain an existence result of solutions with optimal regularity, in the sense that the regularity of the initial data is preserved in the motion for positive times

Unconventional Monetary Policy in Theory and in Practice

In this paper, after discussing the theoretical underpinnings of unconventional monetary policy measures, we review the existing empirical evidence on their effectiveness, focusing on those adopted by the European Central Bank and by the Federal Reserve. These measures operate in two ways: through the signalling channel and through the portfolio-balance channel. In the former, the central bank can use communication to steer interest rates and to restore confidence in the financial markets; the latter hinges on the hypothesis of imperfect substitutability of assets and liabilities in the balance sheet of the private sector and postulates that the central bank’s asset purchases and liquidity provision lower financial yields and improve funding conditions. The review of the empirical literature suggests that the unconventional measures were effective and that their impact on the economy was sizeable. However, a very large degree of uncertainty surrounds the precise quantification of these effects.Central bank, unconventional monetary policy, financial crisis, signalling channel, portfolio balance channel

Regularity of weakly well posed hyperbolic mixed problems with characteristic boundary

We study the mixed initial-boundary value problem for a linear hyperbolic system with characteristic boundary of constant multiplicity. We assume the problem to be “weakly” well posed, in the sense that a unique L^2-solution exists, for sufficiently smooth data, and obeys an a priori energy estimate with a finite loss of conormal regularity. This is the case of problems that do not satisfy the uniform Kreiss–Lopatinskiı̆ condition in the hyperbolic region of the frequency domain. Under the assumption of the loss of one conormal derivative we obtain the regularity of solutions, in the natural framework of weighted anisotropic Sobolev spaces, provided the data are sufficiently smooth