La transmisión de la política monetaria en la zona
del euro
Boletín Mensual del Banco Central Europeo. Julio 200. (descarga en la
Web del Banco de España)
Resultados recientes sobre la transmisión de la
política monetaria en la zona del euro. Boletín Mensual de Banco
Central Europeo. Octubre 2002.
(descarga en la Web del Banco de España)
-"q de Tobin"
-Selección adversa
-Información asimétrica
-Moral hazard
Canales de Transmisión
El canal tipo de interés
El canal tipo de cambio
El canal precio de los activos
El canal del crédito
Transmission
mechanism of monetary policy
This is the process through which monetary policy
decisions affect the economy in general and the price
level in particular. The transmission mechanism is
characterised by long, variable and uncertain time lags.
Thus it is difficult to predict the precise effect of
monetary policy actions on the economy and price level.
The chart below provides a schematic illustration of the
main transmission channels of monetary policy decisions.
Change in official interest rates
The central bank provides funds to the banking system
and charges interest. Given its monopoly power over the
issuing of money, the central bank can fully determine
this interest rate. Affects banks and money-market
interest rates
The change in the official interest
rates affects directly money-market interest rates and,
indirectly, lending and deposit rates, which are set by
banks to their customers
Affects expectations
Expectations of future official interest-rate changes
affect medium and long-term interest rates. In
particular, longer-term interest rates depend in part on
market expectations about the future course of short-term
rates.
Monetary policy can also guide economic agents’
expectations of future inflation and thus influence
price developments. A central bank with a high degree of
credibility firmly anchors expectations of price
stability. In this case, economic agents do not have to
increase their prices for fear of higher inflation or
reduce them for fear of deflation.
Affects asset prices
The impact on financing conditions in the economy and on
market expectations triggered by monetary policy actions
may lead to adjustments in asset prices (e.g. stock
market prices) and the exchange rate. Changes in the
exchange rate can affect inflation directly, insofar as
imported goods are directly used in consumption, but
they may also work through other channels. Affects
saving and investment decisions
Changes in interest
rates affect saving and investment decisions of
households and firms. For example, everything else being
equal, higher interest rates make it less attractive to
take out loans for financing consumption or investment.
In addition, consumption and investment are also
affected by movements in asset prices via wealth effects
and effects on the value of collateral. For example, as
equity prices rise, share-owning households become
wealthier and may choose to increase their consumption.
Conversely, when equity prices fall, households may
reduce consumption.
Asset prices can also have impact on aggregate demand
via the value of collateral that allows borrowers to get
more loans and/or to reduce the risk premia demanded by
lenders/banks.
Affects the supply of credit
For example, higher interest rates increase the risk of
borrowers being unable to pay back their loans. Banks
may cut back on the amount of funds they lend to
households and firms. This may also reduce the
consumption and investment by households and firms
respectively.
Leads to changes in aggregate demand and prices
Changes in consumption and investment will change the
level of domestic demand for goods and services relative
to domestic supply. When demand exceeds supply, upward
price pressure is likely to occur. In addition, changes
in aggregate demand may translate into tighter or looser
conditions in labour and intermediate product markets.
This in turn can affect price and wage-setting in the
respective market.
Empirical evidence on the monetary
policy transmission in the euro area
Understanding the transmission mechanism is crucial
for monetary policy. It is, therefore, not surprising
that a number of studies - produced by both academics
and Eurosystem staff - have tried to shed more light on
the complex interactions underlying it. While still
subject to considerable uncertainty (among other things
related to the use of largely pre-1999 data), the main
results of the studies on this issue seem to confirm
that a number of widely accepted and well-established
facts are also valid for the euro area.
Empirical estimates of the effects of changes in
the short-term interest rate on real activity and prices
Several econometric models of the euro area have been
used to estimate the effects of changes in the short-term
interest rate on output and prices. As an illustration,
the table below shows the results of the effects of
changes in short-term interest rates based on three
different models of the euro area, which reflect
different economic structures and/or econometric
methodologies. The table shows the responses of the
levels of GDP and prices to a transitory 1 percentage
point increase in the policy interest rate controlled by
the central bank, which is then maintained at the higher
level for two years. The main features of the responses
of GDP and prices are qualitatively consistent across
all three models. An increase in short-term interest
rates results in a temporary decrease in output, which
peaks about two years after the initial monetary policy
impulse and reverts back to the baseline level
thereafter. At the same time, prices adjust gradually to
a permanently lower level. Broadly similar patterns are
seen in a larger class of empirical models than those
reported in the table below and they are consistent with
the results for other countries and with the most
consensual theoretical models of the transmission
mechanism.
In short, they show that monetary policy is neutral
in the long run. Its effect on output is temporary while
its effect on prices is permanent. However, the
magnitude and the timing of these responses are quite
different across models, reflecting the uncertainty
about the precise features of the transmission mechanism.
For instance, the peak output responses in the three
models shown in the table below range between -0.38% and
-0.71% and, two years after the initial interest rate
shock, the price response lies in a range between -0.10%
and -0.30%. Altogether, these estimates confirm the
existence of long and uncertain lags in the mechanism by
which monetary policy affects the price level.
Estimates of responses of real GDP
and consumer prices to a I
percentage point increase in the
policy-controlled interest rate in
the euro area
Source: "Recent findings on monetary
policy transmission", ECB's Monthly
Bulletin, October 2002.
Notes: Numbers are expressed as a
percentage change compared with the
initial levels of GDP and the index
of prices. Model 1 is the ECB's Area-Wide
Model (AWM). Model 2 refers to an
aggregate of the macroeconomic
models of the national central banks
of the euro area. Model 3 is the
multi-country model of the United
Kingdom's National Institute of
Economic and Social Research. The
simulations reported assume that the
interest rate increase triggers an
increase in the long-term interest
rate and an exchange rate
appreciation.
Real GDP
Consumer prices
Year 1
Year 2
Year 3
Year 4
Year 1
Year 2
Year 3
Year 4
Model 1
-0.34
-0.71
-0.71
-0.63
-0.15
-0.30
-0.38
-0.49
Model 2
-0.22
-0.38
-0.31
-0.14
-0.09
-0.21
-0.31
-0.40
Model 3
-0.34
-0.47
-0.37
-0.28
-0.06
-0.10
-0.19
-0.31
Evidence on the channels of monetary policy
transmission in the euro area
Regarding the responses of individual components of GDP
to interest rate changes, some studies stress the
importance of the impact of monetary policy on
investment compared with its impact on consumption and
other components of aggregate demand. Business
investment is mainly influenced by changes in the user
cost of capital (a variable that is closely linked to
interest rates). It is also sensitive, albeit to a more
limited extent, to liquidity or cash-flow constraints
(i.e. the ability of firms to issue debt on financial
markets or to borrow from banks). Available empirical
studies also suggest that exchange rate effects can be
quite important in the euro area. Hence, the response of
consumer prices to a change in the official central bank
interest rates will also depend on the effects of this
change on the exchange rate. For example, the larger the
appreciation of the euro triggered by a change in
interest rates, the faster and larger the decline in
inflation will be. However, the central bank can take
for granted neither the size nor the direction of the
exchange rate response to the interest rate because this
response depends on other factors, e.g. foreign monetary
policy developments, that are not controlled by the
central bank.
From ECB
¿Determinan
los bancos centrales las condiciones monetarias globales?
The mandarins of
money
Aug 9th 2007
From The Economist print edition
Central banks in the rich world no longer determine global
monetary conditions
EXACTLY
30 years ago, in August 1977, The Economist published an
article by Alan Greenspan, the former chairman of America's
Federal Reserve, who was then a private-sector economist. It
listed five economic “don'ts”. One of these was: “Don't allow
money-supply growth to spiral out of hand.” Yet that is exactly
what central bankers have done in recent years. The bubble in
credit markets that now seems to be bursting and the frothiness
of so many asset prices was encouraged by loose monetary
policies which pumped liquidity into financial markets.
Many
economists blame that excess liquidity on Mr Greenspan himself
for keeping interest rates too low for too long when he headed
the Fed. After the dotcom bubble burst in 2000-01, the Fed
slashed short-term interest rates to 1% by 2003. The European
Central Bank (ECB) and the Bank of Japan
also cut rates to unusually low levels, pushing the average
interest rate in the big rich economies to a record low. The
real short-term interest rate is now above its long-term average
for the first time since 2001, suggesting that global monetary
policy is no longer loose. So why did financial markets remain
exuberant for so long? One reason is that the world's two most
important central banks, the Fed and the ECB,
have not been the main sources of global monetary liquidity.
Many
economists in investment banks and international institutions
mistakenly assume that “global” monetary conditions are set by
the central banks of the rich economies. Yet over the past year,
a staggering three-fifths of the world's broad money-supply
growth has flowed from emerging economies.
Their
mints are working overtime. Goldman Sachs reckons that growth in
China's M3 measure of broad money has
quickened to 20% over the past year. In Russia money supply has
grown by a striking 51% and India's is up by 24%. Indeed, the
broad money supply in emerging countries has increased by an
average of 21% over the past year, almost three times as fast as
it has in the developed world. Adjusted for inflation, their
money growth has accelerated alarmingly (see chart). As a result,
the entire world's money supply is growing at its fastest for
decades in real terms.
One would
expect emerging economies' money supply to outpace that of the
rich world, because their GDP growth is
faster. But their surplus money growth over and above the
increase in nominal GDP (a crude measure
of the excess money available to be invested in financial assets)
is also far bigger. Their interest policy has been timid: over
the past three years, as monetary policy has been tightened in
America and the euro area, average rates in the emerging world
have barely budged. China and India have real interest rates
among the world's lowest, even though they have the fastest-growing
economies.
A decade
or so ago, speedy monetary growth in emerging economies was of
little concern to the central banks of the developed world: a
monetary deluge in Brazil, say, simply caused hyperinflation
there. But today these economies play a larger role in the world
economy and cross-border financial flows are much bigger.
Inflation remains low, so the liquidity pumped out by central
banks is flowing somewhere else, namely into global financial
markets. For instance, huge purchases of Treasury bonds by these
central banks have reduced bond yields, and so spurred excessive
borrowing in America.
The
policies of the People's Bank of China (PBOC)
or the Bank of Russia are likely to have an increasing impact on
developed economies in future as capital controls are reduced
and markets become more integrated. This prospect becomes more
alarming when one considers that, unlike the Fed and the
ECB, most central banks in emerging
economies are not independent, and thus free to set interest
rates in the best long-term interest of the economy. They are
still firmly under the thumb of politicians.
Economics focus A
blunt tool Jun 30th 2001 From The Economist print edition
Is monetary policy less effective these days?
THE quarter-point cut in interest rates by America’s
Federal Reserve on June 27th takes the total reduction in rates over
the past six months to 2.75 percentage points—one of the most
aggressive easings in Fed history. Yet it seems to have done little,
so far, to revive America’s economy. Monetary policy always needs
time to take effect. This time the wait seems especially nerve-wracking.
The latest batch of
economic statistics paints a mixed picture. The economy may yet
avoid recession, but hopes of a quick, strong bounce-back have faded.
One reason why interest-rate
cuts may have been less effective than expected this year is that
they have actually done little to ease financial conditions. The
Fed’s main policy tool is the federal-funds rate, the rate at which
banks lend overnight to one another. However, this rate has little
direct impact on the economy, since neither firms nor households pay
it. The transmission mechanism through which changes in the federal-funds
rate affect the economy is a good deal more complex. The size of a
cut in the rate can be a poor measure of the likely impact of
monetary policy.
Broadly, monetary policy
affects the real economy through three channels:
•Through the cost of
borrowing in the market which, if reduced, could be expected to spur
consumer spending and investment. Interest rates on short-term loans
do indeed tend to move in line with the federal-funds rate. But much
other borrowing, by both firms and households, is linked to bond
yields, which hang more on market expectations about future interest
rates and inflation than on changes in short-term rates.
•Through the exchange
rate. In theory, looser monetary policy should push down the the
dollar, so boosting exports.
•Through the prices of
financial assets, especially equities. If lower interest rates lift
share prices, this may boost consumer spending as private
shareholders feel wealthier, or spur corporate investment by
reducing the cost of capital.
If changes in the
federal-funds rate do not feed through into market rates, the dollar
or share prices, they will have little effect upon the economy.
Bruce Kasman at J.P. Morgan Chase has analysed the Fed’s
macroeconomic model of the American economy, derived from past
behaviour. According to the model, a one percentage-point reduction
in the federal-funds rate should raise the level of GDP by 1.7%
after two years, but by only 0.6% after one year. This may suggest
that America simply needs patience.
However, the model also
suggests that, if lower interest rates are to revive the economy, a
cut of 2.5 percentage points (the size of the cut until this week)
would normally be expected to have lifted share prices by 22% within
a year, reduced long-term bond yields by three-quarters of a point,
and left the dollar 5% weaker. Yet since the Fed first started to
slash interest rates on January 3rd, the S&P 500 has actually fallen
by 10%, the dollar’s trade-weighted value has gained 7%, and both
bond yields and mortgage rates have remained broadly unchanged.
This is neatly summed up
by the “financial-conditions index” which Goldman Sachs calculates
every day. This is a weighted average of short-term interest rates,
corporate-bond yields, share prices and the trade-weighted dollar,
with the weights derived from the Fed’s model. The index has fallen
only modestly since the start of this year, because the stronger
dollar and lower share prices have offset lower short-term interest
rates.
In previous economic
cycles, as much as two-fifths of the total impact of interest-rate
cuts on GDP, on average, has come through the stockmarket and the
dollar—two channels that now appear to be blocked. This suggests
that the Fed will have to push even harder on the monetary lever to
revive growth.
The Fed has another
concern. Not only have long-term borrowing costs failed to follow
short-term rates down, but households and firms may also be less
responsive to lower rates. They may not want to borrow any more
because they are already up to their ears in debt. With capacity
utilisation in manufacturing at its lowest for 18 years, firms will
also be reluctant to invest more.
Yet there is no need for
too much gloom about the dwindling powers of the Fed. The economy
does look fragile, but what if the Fed had done nothing? Share
prices would have fallen more sharply, as would business and
consumer confidence. As it is, consumer confidence has not, so far,
been greatly dented. And the Fed’s easing has helped to prop up the
housing market. In other words, the Fed still carries clout.
Central bankers certainly
think so. In April, the Federal Reserve Bank of New York held a
conference on the monetary transmission mechanism. One paper*
observed that, since the early 1980s, changes in the federal-funds
rate seem to have had a smaller impact on output. However, the
authors concluded that there was no evidence that firms and
households had become less sensitive to changes in interest rates.
Instead, the impact of changes in monetary policy seems to have
declined because the conduct of policy has improved over the past
two decades. The Fed now responds more quickly to changing economic
expectations, which has helped to smooth out the effect of interest-rate
shocks, reducing the variability of output and inflation. A
reassuring conclusion for central bankers—but it will need
revisiting in a year’s time.
