Monetary policy

Máximo Camacho, Danilo Leiva-Leon, Gabriel Pérez-Quirós, 01 December 2015

Today's monetary policy effectiveness depends on expectations of future monetary policy. Shocks affect such expectations, but the nature of the shock matters. This column presents evidence that negative demand shocks lead markets to expect looser policy in the short run. Negative supply shocks lead to expectations of looser policy in the medium to long run. Unexpected expansions – from either the supply or demand side – have no significant influence on markets' expectations of future monetary policy.

Donato Masciandaro, Paola Profeta, Davide Romelli, 26 November 2015

Not much is known about the drivers of gender diversity in monetary policy committees. This column presents new research suggesting that gender preferences may be endogenous with respect to the overall structural and institutional settings. Higher female representation is associated with higher levels of central bank independence and lower involvement of the central bank in both banking and financial sector supervision. 

Refet S. Gürkaynak, Troy Davig, 25 November 2015

Central banks around the world have been shouldering ever-increasing policy burdens beyond their core mandate of stabilising prices. This column considers the social welfare implications when central banks take on additional mandates that are usually the domain of other policymakers. Additional mandates are shown to worsen trade-offs faced by the central bank, while distorting the incentives of other policymakers. Central bank ‘mandate creep’ may be detrimental to welfare.

Javier Cravino, Andrei Levchenko, 23 November 2015

Large exchange rate swings remain a prominent and recurring feature of the world economy. This column uses household consumption patterns to examine the distributional impact of the devaluation of the peso during Mexico’s ‘Tequila Crisis’. Cost of living increases are found to be 1.25 to 1.6 times higher for the poor compared to the rich. In the interests of equity, exchange rate policy should take account of such distributional impacts.

Athanasios Orphanides, 11 November 2015

There is generally consensus among macroeconomists that monetary policy works best when it is systematic. Following the financial crisis, the US Federal Reserve shifted from long-term, systematic policy to short-term goals targeting unemployment. This column argues that, while these were appropriate in the aftermath of the downturn, such policy accommodations have been pursued for too long since. The need for a somewhat accommodative policy cannot be used to defend the current non-systematic policy and excessive emphasis on short-term employment gains.

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