Monetary theory and policy

The aim of this paper is to explore the contrasting views of inflation,
exchange rate misalignments and determinants of gold flows held by different branches of the classical school during the first half of the nineteenth century. The properties of money neutrality and money
endogeneity within the classical system are studied by reinterpreting these controversies through the analytical framework of the surplus approach as reconstructed by Sraffa [Production of Commodities by Means of Commodities. Cambridge: Cambridge University Press, 1960] and his followers.

DMBs are the major conduit for the monetary authority monetary policy transmission in Nigeria and the effectiveness of the monetary policy in the economy is contingent on their performance. Consequently, the study was carried out to determine the impact of monetary policy on the performance of DMBs in Nigeria. Annual data of the 17 DMBs in Nigeria was used for the period of 2013 to 2019. A causal research design was adopted with a census sampling technique. Monetary Policy Rate (MPR), Exchange Rate (EXR), Money Supply (M2), Cash Reserve Ratio were used as proxies for monetary policy (the explanatory variables) while Return on Equity (ROE) was used as a proxy for DMBs performance (the explained variable), and bank size (M) was used as a moderating variable to determine the moderating impact on the relationship between monetary policy and performance of DMBs in Nigeria. Diagnostic tests conducted include the Shapiro Wilk normality test, the Harris-Tzavalis Unit Root test, Pearson Product Moment Correlation test, Breusch-Pagan and Hausman tests for the determination of the appropriate model. The study made used of panel regression model and the random effect model was adopted based on the Hausman test conducted. The findings of the analysis revealed that MPR, EXR and CRR have negative impacts on the performance of DMBs in Nigeria however, only EXR is not significant at the 5% level of significance while M2 has a significant positive impact on performance. The moderating variable of bank size also showed a weak significant positive impact on the performance at 10% level of significance with the effect of moderating the magnitude of all the monetary policy instruments. Also, significant positive interactions were discovered between MPR and bank size as well as M2 and bank size. It was therefore recommended that the monetary authority should tread with caution in manipulating the monetary instruments to achieve certain macroeconomic objectives so as not to impact heavily on DMBs performance while DMBs management were advised to be conscious of the monetary policy and strategize ways to improve in their performance, amidst adverse policy prescriptions, which is only possible with a competent management team.

All of economics - hypothetico-axiomatic deductive equilibrium economics that is - agrees that lower interest rates stimulate growth and higher rates slow growth. This claim has been made so frequently in the past half century and beyond that one likes to assume that it refers to a well-established empirical fact. However, there is no empirical evidence. This paper presents the first thorough empirical study on this question. The claim is found to be untrue. There are major consequences for economics, research methodology and ecological economics.

This study is a review of the challenges of policy implementation in Nigeria with particular reference to the case of monetization policy. The paper adopted theoretical model that hinged on input-output models and analysis of observed cases as its methodology. The findings inter-alia was that the aim of the policy had not been realized as it had not succeeded in reducing the cost of governance. Secondly, effective implementation of the policy was hampered by the paucity of funds. Thirdly, poor planning, corruption and poor mobilization of funds added to lack of political-will were the causes of the failure in implementation of the policy and other policies of government. As a remedy, it is recommended, among others, that for the full realization of the policy, its implementation ought to have been staggered for convenience of funding and monitoring; that for the policy to have the desired impact on the economy, it must be all-inclusive at both state and local government levels, and also the private sectors. However caution should also be exercised in the threatened retrenchment of staff as it could exacerbate the level of unemployment and poverty in the country.

This study applied the Index of Institutional Quality (IQ) methodology to measure the level of independence of the Reserve Bank of Malawi (central bank) and examine its impact on inflation. The IQ methodology assesses independence of central banks based on their actual practices. The methodology is suitable for developing countries whose practices do not fully conform to the laws of Banks that are in place. The study finds that the average independence index of the Reserve Bank of Malawi (RBM) is 15.1, which is more than half below the total index value of 36. This clearly shows that the RBM is not convincingly independent. Although the results show an above-average value for index of monetary policy independence, indications are that the RBM is not free from political pressures as evidenced by below-average values for indices of political and fiscal independence. Using Ordinary Least Square (OLS), the results further show that the low degree of independence by the RBM has contributed to high inflation in Malawi.

Abstract
This paper evaluates the efficacy of macroeconomic performance vis-à-vis fiscal and monetary policy coordination for sustainable economic growth in Nigeria. The method adopted in this paper was econometric analysis, which employs unit root test, co-integration test and vector error correction mechanism (ECM). Both preliminary analysis, i.e., long-run (static) relationships and the final analysis, i.e., short-run (dynamic) relationships show that prudent expenditure policy, good revenue generation mechanism along with moderate broad money supply policy raise economic growth rate in a good policy environment. This analysis also reveals that sound fiscal policies together with healthy monetary policy reduce inflationary pressures in Nigeria. Therefore, efficient fiscal-monetary policy measures help to suppress inflationary tendencies and enhance factor productivity when properly coordinated. Finally, sound fiscal policy along with healthy monetary policy eliminates and/or minimizes inflationary crises in an environment of fiscal dominance.

Keywords: Economic reform, fiscal policy, monetary policy, inflation rate and economic growth

Neoclassical economics uses real analysis and this approach limits its applicability to practical economic problems, including policy applications. Joseph Schumpeter and later John Maynard Keynes himself rejected the approach of real analysis and the notion of money neutrality. They argued that to understand the changes in the economy requires closer reflection of the crucial importance of credit and money. Schumpeter and Keynes promoted monetary analysis as the proper method to analyze the modern economy. This book joins their instructive criticism by raising doubts about the traditional views on interest rate. We deal with a new theory of money and interest rate and I show that Wicksell’s classical concepts of the natural (real equilibrium) rate of interest would not give guidance for contemporary monetary policy practitioners. These terms are unobservable. The natural rate apparently became unstable after the global financial crisis. Such concepts of interest rates are key variables of real analysis, but they are inherently uncertain, and imprecise. There is a growing dissatisfaction with traditional macroeconomic approaches based on the notion of money neutrality in real analysis.
The endogenous theory of money highlighted the importance of money created by commercial bank credit. The central bank’s presumed control over money became questionable. Central banks determine interest rates (short term and nominal) but the quantity of money is determined endogenously. Macroprudencial and liquidity requirement regulations -- which are important factors in influencing commercial bank lending and endogenous money creation -- became the most important instrument the central bank can use to control money.
With respect to money creation, we distinguish between inside and outside money. Inside money is created by the private sector’s need for money helped with bank credit. Outside money is created by the state (not the private sector), but its creation is indirectly influenced by the money demand of the private sector.
We give a brief overview of the historical process of the emergence of money by comparing the main elements of the chartalist and metallist concepts of money. Concerning the current debates about the role of banks in money creation we compare three alternative theories of banking. All three are in conflict with each other in explaining even the basic facts, and yet still they live in peaceful coexistence in textbooks. These three theories treat the role of banks in money creation differently. According to one of the theories, banks simply act as intermedieries in channelling savings to borrowers, and play no part at all in money creation. Another set of theories maintains that individual banks are unable to create money, since they cannot print banknotes, but the banking system as a whole can create money in a manner governed by the central bank by the money multiplier process. According to the third theory banks may create money independently from the central bank endogenously through credit creation. The description of today’s money flows and the interpretation of today’s monetary policy is only possible through the endogenous money theory.
Globally important central banks will increase their interest rate eventually. However, at low interest rates a relatively small increase may lead to significant losses in portfolios with longer duration. Investment funds in their effort to minimize losses by shortening the duration of their portfolios may trigger abrupt changes in capital flows. Increased volatility may undermine financial stability. This type of stability risk is independent of the country’s liquidity situation or weather the banks are well capitalized or profitable. Such systemic risks cannot be managed by macroprudential tools but these tools remain an integral part of monetary policy management.
Keywords: endogenous money, interest rate, money multiplier, monetary policy, Post-Keynesian, macroprudential regulation
JEL: E12, E43, E51, E52, E58, G28

h i g h l i g h t s • We propose a refinement of Ascari's (2004) model by introducing two theoretical important ingredients. • We propose a re-evaluation of the macroeconomic effects of non-zero trend inflation. • The omission of some important theoretical ingredients significantly distorts the results obtained to date. a b s t r a c t To date, most of the papers which have examined the effects of trend inflation on the properties of New Keynesian model were based on relatively simple sticky-prices DSGE models and whose realism was sometimes questionable. In this paper, we re-evaluate the macroeconomic effects of non-zero trend inflation. Building on the model of Ascari (2004) as one of the most-cited papers in the literature on the effects of trend inflation, we show that the omission of some important theoretical ingredients significantly distorts the results obtained to date. We propose a refinement of this model by introducing two theoretical important ingredients, namely investment adjustment costs, and a roundabout production structure. Once we add these features to make the model more realistic, as commonly for medium-scale models, we find that the standard New Keynesian model without real frictions overestimates the short-term macroeconomic effects of a positive trend inflation rate and underestimates those of the long term.

Confidence in combining inflation-targeting-cum-flexible-exchange-rate regimes with isolated microprudential regulation as a means to guarantee both macroeconomic and financial stability has been shattered by the scale and synchronization of the asset price booms and busts that preceded the global financial crisis. This note explores some of the ways in which monetary policy can address asset price booms and busts through its integration with macroprudential regulation.

Η επανεμφάνιση του Πληθωρισμού. Για όσους, εξ ημών των οικονομολόγων, υπερασπίζαμε την ισχύ της ποσοτικής θεωρίας του χρήματος, ήταν θέμα χρόνου η επανεμφάνιση του Πληθωρισμού. Η διάρρηξη της εφοδιαστικής αλυσίδας λόγω της Πανδημίας, επιτάχυνε απλώς την έλευση του Πληθωρισμού. Μόνη σωτηρία να αποδειχθεί παροδικός, εάν οι δυνάμεις της προσφοράς αναδυθούν δυναμικά με το τέλος της Πανδημίας. Όμως όσο η ΕΚΤ συνεχίζει την ποσοτική χαλάρωση και τα μηδενικά επιτόκια, ο πληθωρισμός θα επιμένει. Η ΕΚΤ δεν θα αποτολμήσει σύσφιξη της νομισματικής πολιτικής, φοβούμενη την μετάπτωση των οικονομιών της ΕΕ σε κατάσταση στασιμοπληθωρισμού. Αυτό θα ήταν κάτι φρικτό και θα σημάνει το τέλος των προσδοκιών.
Βρισκόμαστε στο πιο επικίνδυνο πέρασμα, μεταξύ Σκύλλας (πληθωρισμός) και Χάρυβδης (στασιμοπληθωρισμός). Εάν με την ενίσχυση των δυνάμεων της προσφοράς, ανεχθούμε έναν μέτριο μέσο πληθωρισμό 4%, θα ήταν μια σχετικά ακίνδυνη πλεύση. Αν ξεφουσκώσει, θα είναι το τέλειο για μια εκπληκτική δεκαετία οικονομικών επιδόσεων!
Το κακό προηγούμενο της δεκαετίας του 1960-1970, που ο έρποντας πληθωρισμός οδήγησε στον στασιμοπληθωρισμό της δεκαετίας 1970-1980, συνοδεία της τότε ενεργειακής κρίσης, κρούει όλους τους κώδωνες μακροοικονομικού κινδύνου αλλά σε πείσμα των ιστορικών δεδομένων, σήμερα διαθέτουμε εκπληκτικά νέες τεχνολογίες, περισσότερη γνώση και πολυτιμότερη οικονομική σοφία. Μπορούμε να τα καταφέρουμε με φωτισμένες παγκόσμιες ηγεσίες. Περισσότερα στο άρθρο μου, Πλημμυρίς και Άμπωτις, όταν ολοκληρωθεί.
Ο πληθωρισμός άργησε να εμφανιστεί διότι η χρηματοπιστωτική κρίση 2007-2009 λειτούργησε σαν μαύρη τρύπα που καταβρόχθισε την αυξημένη ποσότητα χρήματος και η κρίση δημοσίου χρέους που ακολούθησε λειτούργησε σαν ένας παντοδύναμος μηχανισμός απορρόφησης των πληθωριστικών πιέσεων με αποκορύφωμα την Πανδημία που νέκρωσε τα πάντα και έριξε τις τιμές στο ναδίρ με το πετρέλαιο να φθάνει και σε αρνητικές τιμές. Αυτά τα πανίσχυρα μαγνητικά πεδία καθήλωσης των τιμών έπαιξαν τον αντιπληθωριστικό ρόλο και ουχί η ταχύτητα κυκλοφορίας του χρήματος και τα hedonics που ακόμη και σε οικονομετρική ανάλυση δεν θα τα έβλεπα να βγαίνουν στατιστικά σημαντικά. Η έξοδος από την Πανδημία, η αύξηση της ζήτησης, η υστέρηση της προσφοράς, η νομισματική χαλάρωση και τα απίστευτα δημοσιονομικά πακέτα στήριξης μας οδήγησαν αναπόφευκτα στον Πληθωρισμό.
Πως το νέο φρεσκοτυπωμένο χρήμα πήγαινε στα assets, οφείλεται σε ένα γιγαντιαίο swap μεταξύ κεντρικών τραπεζών, κρατικών θησαυροφυλακίων και χρηματαγορών αλλά δεν θα ήθελα να τα γράψω όλα εδώ.

"Could either monetary policy or financial prudential regulation be relied on individually to mitigate asset price cycles or their effects? If both ways are effective, monetary policy and prudential regulation could then be considered “substitutes,” in
the sense that the individual use of either instrument leads to a reduction in the volatility of both corresponding targets. This
note, however, argues in favor of complementarity—rather than substitution—in the use of monetary and macroprudential policies: the combined (articulate) use of both policies tends to be more effective than a standalone implementation of either."

Nigeria is one of the countries with high personal remittances inflows in the world. However, these inflows have serious implications for the effectiveness or otherwise of the CBN's objective of price stability. This is because they are not properly tracked and captured when designing monetary policy targets. Thus, this study was conceived to investigate the impact of personal remittances on monetary policy variables within a linear Autoregressive Distributed Lag (ARDL) model. Three equations were developed and secondary data from 1980 to 2016 was assembled for this study. The hypotheses stated in this study were tested at 10% and 5% levels of significance. The result obtained revealed that personal remittances and consumer price index have a positive and significant impact on broad money supply in the long and short runs within the period of study. It was therefore recommended that the CBN should keep track of all remittances inflow into the country by enacting laws that will encourage the transfer of remittances through financial institutions and prohibits transfer through other means.