monetary policy

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Money, Barter and Inflation in Russia

Using cointegration and error-correction models, this report examines the relative influences of the monetary, labour and foreign sectors on Polish inflation from 1990 to 1999. After the development of a theoretical framework, we make use of a structural system technique wherein cointegration relationships are used to derive deviations from steady-state levels. The deviations are interpreted as excess demand pressure on inflation in a specific sector and eventually incorporated to be able to figure out the short-run dynamics of Polish inflation. ...

Project category: Economics
Modelling inflation in China – a regional perspective

In this document, we model provincial inflation in China in the reform period. Particularly, we're excited about the potential of the hybrid New Keynesian Phillips Curve (NKPC) to capture the inflation process at the provincial level. The research illustrates variations in inflation formation and demonstrates that the NKPC offers a fair description of the inflation process limited to the coastal provinces. A probit analysis demonstrates that the forward-looking inflation component and the output gap are crucial inflation drivers in provinces ...

Project category: Economics
Monetary Policy for Smoothing Real Fluctuations? – Assessing Finnish Monetary Autonomy

The possible participation of Finland in the Stage III of the European Monetary Union would constitute a major change in the operating environment of the Finnish economy. As a member of the common currency area, Finnish interest and exchange rates would no longer be determined by domestic monetary policy or domestic financial market reactions, but would instead be given by the European Central Bank and the European financial markets.

Project category: Economics
Credit Crunch Caused Investment Slump

The monetary policy affects the economy through the LM-relation. When money supply changes, the interest rate and aggregate demand also change. The main objective of this paper is to empirically analyze and quantify the effect of changes in the supply of bank credit on private investment. The role of the credit crunch in explaining the collapse in private investment in the early 1990s is also analyzed. The effect of credit on investment comes through with a lag of about a year and ...

Project category: Finance
Divergences in the Euro Area

After a period of convergence in the early and mid-1990s, the euro area economies may have started diverging. As a consequence, the common monetary policy could become well-suited for a number of countries. This paper discusses the extent and severity of the recent divergences, and the capacity of exposed countries to compensate for nationally suboptimal monetary conditions through other policy channels. This paper presents a "convergence barometer" to monitor divergences, and a Taylor rule based "monetary thermometer" to compare the ...

Project category: Economics
Monetary Policy in a Bipolar International Monetary System

The study deals with the international transmission of economic shocks, their consequences for exchange rates and the reconciliation of exchange rate management with monetary policy. The theoretical part of the study consists of a mainstream model of two large, interdependent economies with special emphasis on the effects of various shocks on the inflation rate and exchange rate. The empirical application uses US and German data to shed light on the exchange rate implications of the choices faced by European and ...

Project category: Economics
Monetary Policy in the ERM: Internal Targets or External Constraints?

This study is concerned with the determinants of monetary policy in the ERM countries. We derive a monetary policy rule, an interest rate rule, from a minimization problem faced by the central bank. The loss function trades off costs of interest rate instability against benefits from successful demand management and stable exchange rate in the ERM. ERM-related considerations, particularly exogenous effects from German interest rates as well as deviations from the ERM central rates, are introduced into the analysis through ...

Project category: Economics
A Model of Common Monetary Policy

This paper analyses the prerequisites for and the results of unanimous monetary policy decisions in a monetary union consisting of heterogeneous members. The analysis is based on a multicountry version of Rogoff's model of the determination of monetary policy in the presence of supply shocks. It is shown that an international transfer system can be designed which creates consensus both on the average rate of inflation and the common response to asymmetric shocks to the participating economies. We conjecture that ...

Project category: Economics
Monetary policy, expected inflation and inflation risk premia

Within a New Keynesian business cycle model, we study variables that are normally unobservable but are very important for the conduct of monetary policy, namely expected inflation and inflation risk premia. We solve the model using a third-order approximation that allows us to study time-varying risk premia. Our model is consistent with rejection of the expectations hypothesis and the business-cycle behaviour of nominal interest rates in US data. We find that inflation risk premia are very small and display little ...

Project category: Economics
The Exchange Rate and Monetary Conditions in the Euro Area

Using information from a variety of sources, including our own estimates from quarterly data for each of the countries over the period 1972–1997, this paper suggests that the exchange rate will play an important role in the transmission of the impact of monetary policy through to the real economy and inflation in the euro area. Although the share of external trade in the euro area's GDP is only around 10 per cent this is only one factor that affects the ...

Project category: Economics

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