IDEAS home Printed from https://ideas.repec.org/a/prg/jnlpol/v2011y2011i4id798p435-453.html
   My bibliography  Save this article

Vliv cílování inflace na povahu peněžní nabídky a finanční nerovnováhy
[Inflation Targeting and Its Impact on the Nature of the Money Supply and the Financial Imbalances]

Author

Listed:
  • Tomáš Munzi
  • Petr Hlaváč

Abstract

This paper provides a theoretical framework for a thesis that the transition to the inflation targeting regime, either explicit or implicit, may be one of the causes of the long-term latent accumulations of the financial and structural imbalances, materializing much later and with more dire consequences. Due to the long-term systematic manipulation of interest rates, within the operational framework of the stabilization of consumer prices and the output gap, as well as of anti-deflationary fundamentalism, the economy can transform itself into a kind of "black box", gradually and over time causing an "escape" of credit and monetary aggregates. Money supply tends to be more endogenous and elastic, changing the causality within a link between the money supply and its effective economic materialization, both in production processes of the real economy as well as in banking and financial services. Thereby, the economy lacks a needful defensive mechanism that would pull the overheating economy back through more exogenous and inelastic money supply, automatically adjusting market interest rates. In the empirical part we employed VECM tests to show that the money supply was exogenous before the implicit adoption of inflation targeting in the USA (1985), but endogenous after it.

Suggested Citation

  • Tomáš Munzi & Petr Hlaváč, 2011. "Vliv cílování inflace na povahu peněžní nabídky a finanční nerovnováhy
    [Inflation Targeting and Its Impact on the Nature of the Money Supply and the Financial Imbalances]
    ," Politická ekonomie, University of Economics, Prague, vol. 2011(4), pages 435-453.
  • Handle: RePEc:prg:jnlpol:v:2011:y:2011:i:4:id:798:p:435-453
    as

    Download full text from publisher

    File URL: http://www.vse.cz/polek/download.php?jnl=polek&pdf=798.pdf
    Download Restriction: free of charge

    File URL: http://www.vse.cz/polek/798
    Download Restriction: free of charge

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrew Atkeson & Patrick J. Kehoe, 2004. "Deflation and Depression: Is There an Empirical Link?," American Economic Review, American Economic Association, pages 99-103.
    2. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, pages 253-257.
    3. Mankiw, N. Gregory & Reis, Ricardo, 2002. "What measure of inflation should a central bank target?," Working Paper Series 0170, European Central Bank.
    4. Alchian, Armen A & Klein, Benjamin, 1973. "On a Correct Measure of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 173-191, Part I Fe.
    5. N. Gregory Mankiw & Ricardo Reis, 2003. "What Measure of Inflation Should a Central Bank Target?," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1058-1086, September.
    6. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-112.
    7. Adam S. Posen, 2006. "Why Central Banks Should Not Burst Bubbles," International Finance, Wiley Blackwell, vol. 9(1), pages 109-124, May.
    8. Friedman, Milton, 1982. "Monetary Policy: Theory and Practice: A Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(3), pages 404-406, August.
    9. Michael D. Bordo & John Landon Lane & Angela Redish, 2004. "Good versus Bad Deflation: Lessons from the Gold Standard Era," NBER Working Papers 10329, National Bureau of Economic Research, Inc.
    10. Marvin Goodfriend, 2004. "Inflation Targeting in the United States?," NBER Chapters,in: The Inflation-Targeting Debate, pages 311-352 National Bureau of Economic Research, Inc.
    11. William R. White, 2006. "Procyclicality in the financial system: do we need a new macrofinancial stabilisation framework?," BIS Working Papers 193, Bank for International Settlements.
    12. Campa, Jose Manuel & Goldberg, Linda S, 1999. "Investment, Pass-Through, and Exchange Rates: A Cross-Country Comparison," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 287-314, May.
    13. Hayek, F A, 1969. "Three Elucidations of the Ricardo Effect," Journal of Political Economy, University of Chicago Press, vol. 77(2), pages 274-285, March/Apr.
    14. Leonardo Gambacorta, 2009. "Monetary policy and the risk-taking channel," BIS Quarterly Review, Bank for International Settlements, December.
    15. Stephen G. Cecchetti & Hans Genberg & Sushil Wadhwani, 2002. "Asset Prices in a Flexible Inflation Targeting Framework," NBER Working Papers 8970, National Bureau of Economic Research, Inc.
    16. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
    17. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, pages 27-48.
    18. White, Lawrence H, 1999. "Hayek's Monetary Theory and Policy: A Critical Reconstruction," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 109-120, February.
    19. Alan Greenspan, 2004. "Risk and Uncertainty in Monetary Policy," American Economic Review, American Economic Association, pages 33-40.
    20. Claudio Borio & Mathias Drehmann, 2009. "Assessing the risk of banking crises - revisited," BIS Quarterly Review, Bank for International Settlements, March.
    21. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, pages 97-116.
    22. Friedman, Milton, 1982. "Monetary Policy: Theory and Practice," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 98-118, February.
    23. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute.
    24. William R. White, 2006. "Is price stability enough?," BIS Working Papers 205, Bank for International Settlements.
    25. John B. Taylor, 2009. "Getting Off Track - How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis," Books, Hoover Institution, Stanford University, number 3.
    26. repec:fip:fedgsq:y:2010:x:4 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jan Babecky & Alena Bicakova & Alexis Derviz & Tomas Havranek & Roman Horvath & Lubos Komarek & Zlatuse Komarkova & Jakub Mateju & Ke Pang & Renata Pasalicova & Zuzana Prelcova & Marie Rakova & Pierre, 2011. "Macro-Financial Linkages: Theory and Applications," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 9, number rb09/2 edited by Jan Babecky, June.
    2. Katerina Arnostova & Jozef Barunik & Jan Filacek & Michal Franta & David Havrlant & Roman Horvath & Filip Novotny & Marie Rakova & Lubos Ruzicka & Branislav Saxa & Katerina Smidkova & Peter Toth, 2012. "Macroeconomic Forecasting: Methods, Accuracy and Coordination," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 10, number rb10/1 edited by Jan Babecky, June.

    More about this item

    Keywords

    monetary policy; inflation targeting; endogenous money supply; asset-price bubbles; financial imbalances; VECM;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:prg:jnlpol:v:2011:y:2011:i:4:id:798:p:435-453. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Frantisek Sokolovsky). General contact details of provider: http://edirc.repec.org/data/uevsecz.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.