Archive for June 2nd, 2021

Podcast with Ila Patnaik: Evolution of RBI’s monetary policy

June 2, 2021

Amit Varma hosts Dr Ila Patnaik in his brilliant Seen and Unseen Podcast.

The podcast has interesting discussion on how RBI’s monetary policy has evolved over the years.

Point targets, tolerance bands, or target ranges? Inflation target types and the anchoring of inflation expectations

June 2, 2021

Michael Ehrmann in this ECB working paper:

Inflation targeting is implemented in different ways – most often by adopting point targets, by having tolerance bands around a point target, or by specifying target ranges. Using data for 20 economies, this paper tests whether the various target types affect the anchoring of inflation expectations at shorter horizons differently.

It tests two contradictory hypotheses, namely that targets with intervals lead to (i) less anchoring, e.g. because they provide more flexibility to the central bank, or (ii) better anchoring, because they are missed less often, leading to an enhanced credibility.

The evidence refutes the first hypothesis, and generally finds that target ranges or (in some cases) tolerance bands outperform the other types. However, the effects partially depend on the economic context and no target type consistently outperforms all others. This suggests that there are some benefits to adopting intervals, but the central bank can anchor inflation expectations also by other means.


Understanding how central banks use their balance sheets: A critical categorisation

June 2, 2021

Stephen Cecchetti and Paul Tucker in this voxeu piece say that central banks use their balance sheets for multiple purpose. There is a need to list and specify these seperate purposes:

Since the Global Crisis, the size of central bank balance sheets has grown significantly. Traditional goals of price and financial stability are insufficient for assessing the success of modern central banking operations. This column introduces a new framework for categorising and understanding central bank balance sheet operations. Monetary policy decisions are separated from facilities for lender of last resort, market maker of last resort, providing selective credit, and ensuring emergency government financing. To maintain legitimacy and accountability, central banks should formally distinguish these operations by clearly setting out their purposes, objectives, and constraints. 

Why banks differ in the pace of adoption of new technology?

June 2, 2021

Prachi Mishra, Nagpurnanand Prabhala and Raghuram Rajan have a new paper on the topic. They explain the findings on voxeu:

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