Norway's approach to monetary policy

The goal of monetary policy as conducted by Norges Bank is to maintain low and stable inflation. The operational target of monetary policy is explicitly defined in a consumer price inflation rate of approximately 2.5 percent over time. Norges Bank sets its interest rate instrument with a view to achieving the inflation target over a two-year horizon, and it will normally tolerate deviations of actual inflation from target that are not in excess of plus or minus 1 percentage point. In general, the direct effects on consumer prices resulting from changes in interest rates, taxes, excise duties, and extraordinary temporary circumstances shall not be taken into account.Monetary policy - Norway ; Banks and banking, Central - Norway ; Norges Bank

Japan's approach to monetary policy

The goal of monetary policy as conducted by the Bank of Japan is to contribute to the sound development of the national economy through the pursuit of price stability. The objective of price stability, however, is not precisely defined as it has been for other central banks. Following the implementation of the new Bank of Japan Law in 1998, the monetary policy framework is characterized by central bank independence, the primacy of the price stability objective, instrument independence, and policy decisions made by a monetary policy committee with regular meetings and published minutes. At its meetings, the monetary policy committee discusses the economic and financial situation and then decides matters relating to monetary policy, including the following: the guideline for money market operations; the official discount rate; reserve requirements ratios; the Bank's view of economic and financial developments; and the types, terms, and conditions of bills and bonds used in money market operations.Monetary policy - Japan ; Bank of Japan ; Banks and banking, Central - Japan

Switzerland's approach to monetary policy

Monetary policy as conducted by the Swiss National Bank is aimed at maintaining price stability in the medium term. Between 1980 and 1999, the Bank used the seasonally adjusted monetary base as monetary target and as indicator. Given the continually distorted indicator value of the monetary base after 1996, the Bank fundamentally reviewed its modus operandi. As of the beginning of 2000, the Swiss National Bank (SNB) considers price stability to be achieved with an annual inflation (CPI) rate of less than 2 percent. The Bank bases its monetary policy decisions on a medium-term (three-year) inflation forecast. Despite similarities to inflation targeting, the new framework differs from it in one important respect, namely, it does not contain an institutional commitment to an inflation target as the overriding objective of monetary policy.Monetary policy - Switzerland ; Banks and banking, Central - Switzerland ; Swiss National Bank

The timing of monetary policy shocks

A vast empirical literature has documented delayed and persistent effects of monetary policy shocks on output. We show that this finding results from the aggregation of output impulse responses that differ sharply depending on the timing of the shock: When the monetary policy shock takes place in the first two quarters of the year, the response of output is quick, sizable, and dies out at a relatively fast pace. In contrast, output responds very little when the shock takes place in the third or fourth quarter. We propose a potential explanation for the differential responses based on uneven staggering of wage contracts across quarters. Using a stylized dynamic general equilibrium model, we show that a very modest amount of uneven staggering can generate differences in output responses similar to those found in the data.Monetary policy

Wage Setting Patterns and Monetary Policy: International Evidence

Systematic differences in the timing of wage setting decisions among industrialized countries provide an ideal framework to study the importance of wage rigidity in the transmission of monetary policy. The Japanese Shunto presents the most well-known case of bunching in wage setting decisions: From February to May, most firms set wages that remain in place until the following year; wage rigidity, thus, is relatively higher immediately after the Shunto. Similarly, in the United States, a large fraction of firms adjust wages in the last quarter of the calendar year. In contrast, wage agreements in Germany are well-spread within the year, implying a relatively uniform degree of rigidity. We exploit variation in the timing of wagesetting decisions within the year in Japan, the United States, Germany, the United Kingdom, and France to investigate the effects of monetary policy under different degrees of effective wage rigidity. Our findings lend support to the long-held, though scarcely tested, view that wage-rigidity plays a key role in the transmission of monetary policy.monetary policy, wage rigidity, seasonality

Rethinking the International Monetary System: an overview

Monetary policy ; International finance

Capital Account Liberalization, Financial Depth and Economic Growth

We show a statistically significant and economically relevant effect of open capital accounts on financial deepness and economic growth in a cross-section of countries over the period 1986 to 1995. Countries with open capital accounts over some or all of this period had a significantly greater increase in financial depth than countries with continuing capital account restrictions, and they also enjoyed greater economic growth. There results, however, are largely driven by the developed countries in the sample. The observed failure of capital account liberalization to promote financial deepness among developing countries suggests potentially important policy implications concerning the desirability of liberalizing the capital account.

Why the interest in reform?

Monetary policy

Inside and Outside Bounds: Threshold Estimates of the Phillips Curve

There have been several instances over the past 40 years when large movements in the unemployment rate have elicited little response in the inflation rate. Such instances, while casting doubt on the tradeoff implied by the linear Phillips curve, are also associated with large inflation forecasting errors. In principle, these movements are consistent with a Phillips curve relationship; they just require the curve to shift in the same direction as the unemployment rate. Econometric representations of the Phillips relationship usually incorporate factors that can cause the Phillips curve to shift over time. However, the literature has not yet provided a test of whether such factors are sufficient to explain the episodes of horizontal movement. In this paper, the authors test the explanatory power of a double threshold specification of the Phillips relationship against a simple linear specification, and compare dynamic and static out of sample forecasts of inflation across linear and double threshold specifications of the Phillips curve. The authors find that traditional shifters in the relationships are insufficient for characterizing the periods of horizontal movement, and that a double threshold specification makes significant improvements in the static and dynamic out of sample inflation forecasting performance of the Phillips curvPhillips Curve; Threshold Models; Inflation Forecasting

A Response to Cogley and Sbordone's Comment on "Closed-Form Estimates of the New Keynesian Phillips Curve with Time-Varying Trend Inflation"

In their 2010 comment (which we refer to as CS10), Cogley and Sbordone argue that: (i) our estimates are not entirely closed form, and hence are arbitrary; (ii) we cannot guarantee that our estimates are valid, while their estimates (Cogley and Sbordone 2008, henceforth CS08) always are; and (iii) the estimates in CS08, in terms of goodness of fit, are just as good as other, much different estimates in our paper. We show in this reply that the exact closed-form estimates are virtually the same as the "quasi" closed-form estimates. Our estimates are consistent with the implicit assumptions underlying the first-stage VAR used to form expectations, while the estimates in CS08 are not. As a result, the estimates in CS08 point towards model misspecification. We also rebut the goodness of fit comparisons in CS10, and provide a more credible exercise that illustrates that our estimates outperform CS08's estimates.closed form; model-consistent expectations; New Keynesian Phillips curve; forward-looking Euler equation; time-varying trend inflation