Money and the natural rate of interest: Structural estimates for the United States and the euro area

Andrés, Javier; López‐Salido, J. David; Nelson, Edward

doi:10.1016/j.jedc.2008.01.011

Cited by 68 publications

(62 citation statements)

References 51 publications

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“…However, while these values must thus be compared with the values presented by previous authors that show that money's role on output is limited and negligible (Ireland, 2004;Andrés et al, 2006Andrés et al, , 2009, the impact of money on in ‡ation variability is very small (see all the variance decompositions in the online appendix).…”

Section: Discussionmentioning

confidence: 99%

Money and monetary policy in Israel during the last decade

Benchimol¹

2016

Journal of Policy Modeling

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This study examines how money and monetary policy have in‡uenced output and in ‡ation during the past decade in Israel by comparing two New Keynesian DSGE models. One is a baseline separable model (Galí, 2008) and the other assumes non-separable household preferences between consumption and money (Benchimol and Fourçans, 2012). We test both models by using rolling window Bayesian estimations over the last decade (2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013). The results of the presented dynamic analysis show that the sensitivity of output with respect to money shocks increased during the Dot-com, Intifada, and Subprime crises. The role of monetary policy increased during these crises, especially with regard to in ‡ation, even though the effectiveness of conventional monetary policy decreased during the Subprime crisis. In addition, the non-separable model including money provides lower forecast errors than the baseline separable model without money, while the in ‡uence of money on output ‡uctuations can be seen as a good predictive indicator of bank and debt risks. By impacting and monitoring households'money holdings, policy makers could improve their forecasts and crisis management through models considering monetary aggregates.

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Section: Discussionmentioning

confidence: 99%

Money and monetary policy in Israel during the last decade

Benchimol¹

2016

Journal of Policy Modeling

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“…There are also indications that around a third of British commercial real estate loans have been subject to forbearance (Bank of England, 2012b). Albertazzi and Marchetti (2010) provide some evidence of evergreening practices by small and less-capitalised banks in Italy during the initial phase of the financial crisis (September 2008-March 2009). According to Bank of England (2012), forbearance by banks on existing loans coupled with low policy rates may have contributed to the recent rise in the number of zombie companies in the United Kingdom downturns prevents the needed purging of past malinvestments, resulting in a growing stock of unproductive investment and expanding debt accumulation, which reduce potential growth over time and the effectiveness of monetary policy when a balance-sheet recession hits the economy (White, 2012).…”

Section: Unintended Consequences Of Ultra-stimulative Monetary Policiesmentioning

confidence: 99%

“…Andrés et al (2009), Tristiani (2009), De Fiore and Tristani (2011 are examples of recent theoretical works where the NRI concept plays a major role.…”

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confidence: 99%

The Effectiveness of Monetary Policy since the Onset of the Financial Crisis

Bouis

Rawdanowicz

Renne

et al. 2013

OECD Economics Department Working Papers

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JT03343552Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. ECO/WKP(2013)73 Unclassified English -Or. English ECO/WKP(2013)73 2 ABSTRACT/RÉSUMÉThe effectiveness of monetary policy since the onset of the financial crisisIn the wake of the Great Recession, a massive monetary policy stimulus was provided in the main OECD economies. It helped to stabilise financial markets and avoid deflation. Nonetheless, GDP growth has been sluggish and in some countries lower than expected given the measures taken, and estimated economic slack remains large. In this context, this paper assesses the effectiveness of monetary policy in recent years. It finds that notwithstanding an almost full transmission of policy interest rate cuts and unconventional policy measures to higher asset prices and lower cost of credit in and outside the banking sector in most countries, with the exception of vulnerable euro area economies, monetary policy stimulus did not show up in stronger growth due to a combination of three factors. First, lower policy interest rates may not have provided as much stimulus as expected given the evidence of a decrease in natural interest rates, resulting from the estimated decline in potential GDP growth in the wake of the crisis. Second, balance sheet adjustments of non-financial companies and households, large uncertainty as well as simultaneous and considerable fiscal consolidation in many OECD countries constituted important headwinds. Third, the bank lending channel of monetary policy transmission appears to have been impaired, mainly due to considerable balance sheet adjustments and prevailing uncertainty, which together limited banks' capacity and willingness to supply credit. The paper also stresses that the monetary accommodation risks having unintended negative consequences which are likely to increase with its duration. JEL classification codes: E32; E43; E44; E5; G01; H12; G28 Keywords: Monetary policy, natural interest rates, credit, financial markets, financial crisis ****************************** L'efficacité de la politique monétaire depuis le début de la crise financière Dans le sillage de la Grande Récession, un important stimulus monétaire a été fourni dans les principales économies de l'OCDE. Il a permis de stabiliser les marchés financiers et d'éviter la déflation. Toutefois, la croissance du PIB a été lente et dans certains pays plus faible qu'attendue compte tenu des mesures prises, et le ralentissement économique estimé demeure important. Dans ce contexte, ce papier évalue l'efficacité de la politique monétaire au cours des années récentes. Il trouve qu'en dépit d'une transmission presque complète des baisses de taux d'intérêt et des mesures non conventionnelles de politique monétaire à des prix d'actifs plus élevés et un coût du crédit plus faible à l'intérie...

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“…In a complementary work Hafer and Jones (2008) present international evidence of the predictive power of money growth on GDP gap; thus, they suggest that money, independently of real interest rate, generally exerts a significant impact on the output-gap. Andres, Lopez-Salido and Nelson (2009) show that money demand has a forward-looking nature and that it is a key element in anticipating future variations of natural interest rate. Finally, Favara and Giordani (2009) find that money directly influences the triplet output, prices and interest rate, therefore recommending to reconsider money's role in macroeconomic models: specifically, they argue that shocks to broad monetary aggregates have substantial and persistent effects on output, prices and interest rates, which is completely at odds with the theoretical prediction of flat impulse response functions implied by NEK model.…”

Section: Extended Abstractmentioning

confidence: 99%

Liquidity Matters: Money Non-Redundancy in the Euro Area Business Cycle

Conti

2011

SSRN Journal

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While New Keynesian models label money redundant in shaping business cycle, monetary aggregates are found relevant in predicting output, prices and interest rates or correctly identifying monetary policy shocks. This paper provides new evidence of money non redundancy in Euro area business cycle, contrary to most of recent literature. We study the dynamic effects of liquidity shocks under different traditional identifying methods, assessing their relevance compared to other sources of fluctuations. To shed some lights on money's role we propose to adopt an agnostic approach on the effects of liquidity shocks, thus letting data answer. Results show that shocks to monetary aggregates raise output, prices and policy rate, having a permanent effect on the latter. Hence, (i) money can not be omitted in modeling economic structure; (ii) liquidity is a powerful transmission in the short run, even more effective than interest rate channel. Our findings point to a reexamination of theoretical models and seem to support the emphasis given by European Central Bank (ECB) to the monetary pillar.JEL classification E52; E58; C32.

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Money and the natural rate of interest: Structural estimates for the United States and the euro area

Cited by 68 publications

References 51 publications

Money and monetary policy in Israel during the last decade

Money and monetary policy in Israel during the last decade

The Effectiveness of Monetary Policy since the Onset of the Financial Crisis

Liquidity Matters: Money Non-Redundancy in the Euro Area Business Cycle

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