Table of Contents

On the Sensitivity of Banking Activity Shocks: Evidence from CEMAC Sub-Region

Christian Lambert Nguena, Association of African Young Economists (AAYE), Research in Applied Micro and Macroeconomy (REMA)
Roger Tsafack-Nanfosso, University of Yaounde II

The Long Run Relationship between Budget Deficit and Other Macroeconomic Variables in Vietnam, VECM - Cointegration Approach

Binh Thanh Dao, Hanoi University, FMT, Finance Department
Hong Hai Doan, Hanoi University

Real and Nominal Equilibrium Yield Curves with Endogenous Inflation: A Quantitative Assessment

Alex C. Hsu, Georgia Institute of Technology
Erica X. N. Li, Cheung Kong Graduate School of Business
Francisco Palomino, University of Michigan, Stephen M. Ross School of Business

Hot Money and Quantitative Easing: The Spillover Effects of U.S. Monetary Policy on the Chinese Housing, Equity and Loan Markets

Steven Wei Ho, Tsinghua University
Ji Zhang, Tsinghua University
Hao Zhou, Tsinghua University

Expansionary Monetary Policy at the Federal Reserve in the 1920s

Patrick Newman, George Mason University


MACROECONOMICS: MONETARY & FISCAL POLICIES eJOURNAL

"On the Sensitivity of Banking Activity Shocks: Evidence from CEMAC Sub-Region" Free Download
Economics Bulletin, Vol. 34, No. 1, 2014

CHRISTIAN LAMBERT NGUENA, Association of African Young Economists (AAYE), Research in Applied Micro and Macroeconomy (REMA)
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ROGER TSAFACK-NANFOSSO, University of Yaounde II
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This paper qualitatively and quantitatively assesses the degree of resilience in the financial intermediary sector of the Economic and Monetary Community of Central African States (CEMAC) to macroeconomic shocks and discusses the relevant policy implications. Using GMM and a battery of estimations techniques, the panel-based investigations broadly show that the sub-region is vulnerable to macroeconomic shocks. Lower bank provisions result on the one hand from shortages or decreases in long-term financing, real exchange and GDP per capita growth rate on the other hand from increases of interest rates. Whereas the change in interest rate increases net income commission, the effect is negative from lower levels of short-term financing. The incidence of changes in interest rates on the interest rate margin of banks is ambiguous. The findings broadly confirm the need to incorporate macroeconomic shocks in financial policy decision making. The paper contributes at the same to the knowledge on stock management in monetary zones and the need to: (1) timely intervene to mitigate potential shocks and; (2) increase control to sustain the credibility of the banking system.

"The Long Run Relationship between Budget Deficit and Other Macroeconomic Variables in Vietnam, VECM - Cointegration Approach" Free Download

BINH THANH DAO, Hanoi University, FMT, Finance Department
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HONG HAI DOAN, Hanoi University

During the process of rapid economic development in Vietnam, the government has confirmed its crucial role of as an active regulator and participant in the market. Nonetheless, it is a common controversy whether the increase in government spending and budget deficit has beneficial influence on the growth of the economy. The paper aims to elaborate the long-run relationship between budget deficit and other macroeconomic variables so as to investigate the impact of deficit on the economic development in Vietnam. The cointegration approach is applied to analyze quarterly data from 2003Q1 to 2012Q4. The result suggests that there exists a long-run relationship between budget deficit and GDP, CPI, Exchange rate (prime), and Money supply (M2). The speed of adjustment from short-run disequilibrium error to long-run equilibrium is higher than 100%, i.e., the correction overshoots the long-run mean in each quarter. Another important result is that the differences in classifying and reporting budget revenues and expenditures can only affect the short run relationship and Granger causality among the investigated variables.

"Real and Nominal Equilibrium Yield Curves with Endogenous Inflation: A Quantitative Assessment" Free Download
Ross School of Business Paper No. 1256

ALEX C. HSU, Georgia Institute of Technology
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ERICA X. N. LI, Cheung Kong Graduate School of Business
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FRANCISCO PALOMINO, University of Michigan, Stephen M. Ross School of Business
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The links between real and nominal bond risk premia and macroeconomic dynamics are explored analytically and quantitatively in a model with nominal rigidities and monetary policy. The interest-rate policy rule becomes a restriction linking real and nominal risk premia through endogenous inflation. The estimated model captures macroeconomic and yield curve properties of the U.S. economy, implying significantly positive real term and inflation risk bond premia. Both premia are induced by wage rigidities as a compensation for permanent productivity shocks. Stronger policy-rule responses to inflation (output) increase (decrease) both premia. Policy surprises generate significant yield volatility but negligible risk premia.

"Hot Money and Quantitative Easing: The Spillover Effects of U.S. Monetary Policy on the Chinese Housing, Equity and Loan Markets" Free Download
Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper No. 211

STEVEN WEI HO, Tsinghua University
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JI ZHANG, Tsinghua University
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HAO ZHOU, Tsinghua University
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We develop a factor-augmented vector autoregression model to estimate the effects of changes in U.S. monetary policy and in U.S. economic policy uncertainty have on the Chinese economy. We find that the decline in the U.S. policy rate since the Great Recession has led to a significant increase in Chinese regulated interest rates and to a rise in Chinese housing investment. One possible reason for this effect is the substantial inflow of "hot money'' into China. The responses of Chinese variables to U.S. shocks at the zero lower bound are different from those responses in normal times, which suggests the existence of a structural change in both the Chinese economy and in the U.S. monetary policy transmission mechanism. Moreover, increased uncertainty regarding U.S. policy negatively impacts the Chinese stock and real estate markets during normal times but not at the zero lower bound.

"Expansionary Monetary Policy at the Federal Reserve in the 1920s" Free Download

PATRICK NEWMAN, George Mason University
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This paper analyzes the two main divergent interpretations of Federal Reserve monetary policy in the 1920s, the "Inflationary" (i.e. expansionary) view described by Rothbard (2008a [1963]) and earlier "Austrian" writers and the "Deflationary" (i.e. contractionary/neutral) view most notably held by Friedman & Schwartz (1993 [1963]) and later monetary historians. This paper argues in line with the former that the Federal Reserve engaged in expansionary monetary policy during the 1920s, as opposed to the gold sterilization view of the latter. The main rationale for this argument is that the increase in the money supply was driven by the increase in the money multiplier and total bank reserves, both of which were caused primarily by Fed policy (i.e. a decrease in reserve requirements and an increase in controlled reserves respectively). Showing that this expansion did in fact occur provides the first step in supporting an Austrian Business Cycle Theory (ABCT) interpretation of the 1920s, namely that the Federal Reserve created a credit fueled boom that led to the Great Depression.

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Macroeconomics: Monetary & Fiscal Policies eJournal

OLIVIER J. BLANCHARD
International Monetary Fund (IMF), National Bureau of Economic Research (NBER)

JOHN Y. CAMPBELL
Morton L. and Carole S. Olshan Professor of Economics, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)

STEPHEN G. CECCHETTI
Professor of International Economics, Brandeis International Business School, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR)

BENJAMIN M. FRIEDMAN
William Joseph Maier Professor of Economics, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)

ROBERT E. HALL
Stanford University - The Hoover Institution on War, Revolution and Peace, National Bureau of Economic Research (NBER)

ROBERT E. LUCAS
John Dewey Distinguished Service Professor, University of Chicago - Department of Economics, National Bureau of Economic Research (NBER)

BENNETT T. MCCALLUM
Professor, Carnegie Mellon University - David A. Tepper School of Business, National Bureau of Economic Research (NBER)

ALLAN H. MELTZER
University Professor of Political Economics, Carnegie Mellon University - David A. Tepper School of Business

FREDERIC S. MISHKIN
Alfred Lerner Professor of Banking and Financial Institutions, Columbia Business School - Finance and Economics, National Bureau of Economic Research (NBER)

PAUL M. ROMER
National Bureau of Economic Research (NBER)

JULIO J. ROTEMBERG
Harvard University - Business, Government and the International Economy Unit, National Bureau of Economic Research (NBER)

MATTHEW D. SHAPIRO
Professor, University of Michigan at Ann Arbor - Department of Economics, Professor, National Bureau of Economic Research (NBER)

ROBERT J. SHILLER
Yale University - Cowles Foundation, National Bureau of Economic Research (NBER), Yale University - International Center for Finance

CHRISTOPHER A. SIMS
Princeton University - Department of Economics, National Bureau of Economic Research (NBER)

JOHN B. TAYLOR
Stanford University