International reserves: self-insurance and monetary policy in crisis

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Antonio Francisco de Almeida da Silva Junior
Keyword(s):  
Monetary Policy ◽  
Utility Function ◽  
International Reserves ◽  
Constant Elasticity ◽  
Content Type ◽  
Constant Elasticity Of Substitution ◽  
States Of Nature ◽  
Substitution Elasticities ◽  
Ces Utility Function ◽  
The Impact

PurposeThis work presents a model of a two-period economy to discuss the link between the precautionary motivation for holding international reserves and the country's monetary policy concerns due to a crisis.Design/methodology/approachThere are two possible states of nature in the second period of the economy: a normal state and a crisis state. These states of nature represent uncertainty to the policy maker and he can insure against a crisis. The household has a constant-elasticity-of-substitution (CES) utility function, where utility depends on consumption and money.FindingsBy allowing money in the utility function and in the household financial constraint and considering that the objective of the central bank is to smooth inflation, it is concluded that monetary policy plays a role in the precautionary motivation of holding international reserves.Practical implicationsThe model can be used to calculate optimal reserves holdings in its complete or even in its simplified version. Furthermore, it is possible to evaluate the impact of the intra-temporal substitution elasticity between consumption and real money in the decision of accumulating international reserves.Originality/valueHigher intra-temporal substitution elasticities implies in more insurance via international reserves, and this discussion is not found in the existent literature on international reserves.

scholarly journals MONETARY POLICY, FACTOR SUBSTITUTION, AND CONVERGENCE

2016 ◽  
Vol 22 (1) ◽  
pp. 63-76
Author(s):  
Rainer Klump ◽  
Anne Jurkat
Keyword(s):  
Monetary Policy ◽  
Steady State ◽  
Production Functions ◽  
Elasticity Of Substitution ◽  
Model Parameters ◽  
Speed Of Convergence ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Factor Substitution ◽  
The Impact

In this paper, we examine the influence of monetary policy on the speed of convergence in a standard monetary growth model à la Sidrauski allowing for differences in the elasticity of substitution between factors of production. The respective changes in the rate of convergence and its sensitivities to the central model parameters are derived both analytically and numerically. By normalizing the constant elasticity of substitution (CES) production functions both outside the steady state and within the steady state, it is possible to distinguish between an efficiency and a distribution effect of a change in the elasticity of substitution. We show that monetary policy is the more effective, the lower is the elasticity of substitution, and that the impact of monetary policy on the speed of convergence is mainly channeled via the efficiency effect.

Non-tariff barriers removal in the Brazilian coffee industry

2020 ◽  
Vol 19 (3) ◽  
pp. 139-157
Author(s):  
Krisley Mendes ◽  
André Luchine
Keyword(s):  
Data Sets ◽  
Agricultural Producers ◽  
Constant Elasticity ◽  
Content Type ◽  
Instant Coffee ◽  
Constant Elasticity Of Substitution ◽  
Study Approach ◽  
Coffee Beans ◽  
The Impact ◽  
Tariff Equivalent

Purpose This study aims to identify and classified non-tariff measures (NTMs) on Brazilian imports of robusta coffee beans, calculated a tariff-equivalent of non-tariff barriers (NTBs) and assessed the effects of removing NTBs from upstream and downstream domestic instant coffee supply chain. Design/methodology/approach The analysis uses documentary research to identify NTMs and the price-wedge method is applied to estimate a tariff-equivalent. The effects of suppressing the tariff-equivalent were evaluated using a partial equilibrium model with constant elasticity of substitution (Armington, 1969) and by incorporating vertical integration and uncertainty (Hallren and Opanasets, 2018). Findings The results show that NTMs seemingly hinder the entrance of coffee beans into the domestic market. The tariff-equivalent was estimated at 13.61%. Suppressing it reveals that the share of domestic coffee beans used to produce domestic instant coffee falls 0.21 p.p. while the share of domestic instant coffee consumed by the international trade rises 8.60 p.p. Originality/value What makes this paper original is that this paper investigated the effects of NTMs in a developing country, namely, Brazil. Although Brazil is one of the largest agricultural producers in the world, it has not appeared in literature in this type of analysis until now. Furthermore, it contributes to the literature on using existing techniques to investigate the impact of NTM removal on individual products in a specific country, in contrast to more recent papers that discuss using multi-country and multi-product data sets at the HTS-6 level. Thus, this paper demonstrates how a case study approach can be useful in quantifying policy changes.

scholarly journals The impact of Musharakah financing on the monetary policy in the Islamic economy

2018 ◽  
Vol 3 (3/4) ◽  
pp. 139-152
Author(s):  
Hatem Adela
Keyword(s):  
Economic Theory ◽  
Monetary Policy ◽  
Interest Rate ◽  
Economic Activity ◽  
Methodological Framework ◽  
Mathematical Methods ◽  
Content Type ◽  
Return Rates ◽  
The Interest Rate ◽  
The Impact

Purpose This paper aims to contribute to formulating the methodological framework for a paradigm of Islamic economics, using the development of the conventional economics, theoretical and mathematical methods. Design/methodology/approach The study based on the inductive and mathematical methods to contribute to economic theory within the methodological framework for Islamic Economics, by using the return rate of Musharakah rather than the interest rate in influence the economic activity and monetary policy. Findings Via replacement, the concept of the interest rate by the return rates of Musharakah. It concludes that the central bank can control the monetary policy, economic activity and the efficient allocation of resources by using the return rates of Musharakah through the framework of Islamic economy. Practical/implications The study is a contribution to formulate the methodological framework for a paradigm of Islamic economics, where it investigates the impact of return rates of Musharakah on the money market and monetary policy, by the mathematical methods used in the conventional economy. Also, the study illustrates the importance of further studies that examine the methodological framework for Islamic Economics. Originality/value The study aims to contribute to formulating the Islamic economic theory, through the return rate of Musharakah financing instead of the interest rate, and its effectiveness of the monetary policy. As well as reformulating the concepts of the investment function, the present value and the marginal efficiency rate of investment according to the Islamic economy approach.

Public Good Provision Financed by Nonlinear Income Tax Under Reduction of Envy

2019 ◽  
Vol 19 (4) ◽  
Author(s):  
Takuya Obara ◽  
Shuichi Tsugawa
Keyword(s):  
Utility Function ◽  
Public Good ◽  
Income Tax ◽  
Optimal Taxation ◽  
Optimal Level ◽  
Elasticity Of Substitution ◽  
Public Good Provision ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Good Provision

Abstract We examine optimal taxation and public good provision by a government that considers reduction of envy as a constraint. We adopt the extended envy-freeness proposed by Diamantaras and Thomson (1990. “A Refinement and Extension of the No-Envy Concept.” Economics Letters 33: 217–22), called λ-equitability. We derive the modified Samuelson rule under an optimal nonlinear income tax and show, using a constant elasticity of substitution utility function, that the direction of distorting the original Samuelson rule to relax the λ envy-free constraint is crucially determined by the elasticity of substitution. Furthermore, we numerically show that the optimal level of provision increases (decreases) in the degree of envy-freeness when the original Samuelson rule is upwardly (downwardly) distorted.

Purges and Production: Soviet Economic Growth, 1928–1940

1975 ◽  
Vol 35 (3) ◽  
pp. 567-590 ◽  
Author(s):  
Barbaba G. Katz
Keyword(s):  
Growth Rate ◽  
Industrial Production ◽  
Alternative Hypothesis ◽  
Second World War ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Sequence Of Events ◽  
Massive Scale ◽  
The Impact ◽  
Second World

Did preparations for the Second World War account for the precipitous drop in the growth rate of Soviet industrial production from 10–12 percent per annum in the period 1928–1937 to only 2–3 percent per annum in the period 1937–1940? According to some who study the Soviet economy the answer is “yes.” This view has been succinctly expressed by Stanley Cohn: “After 1937, the rising spectre of Hitler forced the Soviet leadership to shift resources into armaments on a massive scale. As a result, the growth rate fell drastically to 3.6 percent per year between 1937 and 1940.” Such a sequence of events, however, has never been empirically demonstrated. The purpose of this paper is to investigate formally the validity of this explanation, via aggregate production functions, particularly of the CES (constant elasticity of substitution) variety, as well as to explore an alternative hypothesis, espoused, among others, by Naum Jasny, Alec Nove and Warren Nutter. This hypothesis stresses a domestic factor as the major contributor to the disruption in industrial production: namely, the impact of Stalin's terror in the form of chaos-producing political purges.

What are the benefits of clean air for Alpine destinations?

2018 ◽  
Vol 10 (2) ◽  
pp. 172-184 ◽  
Author(s):  
Alex Arcaro ◽  
Gianluigi Gorla ◽  
Manuela Zublena
Keyword(s):  
Air Quality ◽  
Quality Index ◽  
Air Quality Index ◽  
Constant Elasticity ◽  
Content Type ◽  
Constant Elasticity Of Substitution ◽  
Synthetic Indicators ◽  
Lack Of Information ◽  
Hourly Data ◽  
Clean Air

Purpose In this paper, the authors assume that the matter of a good quality of air will grow in importance in the future, and that it could be a noticeable part of a quality system to be used for communication purposes. The authors propose some synthetic indicators for air quality and discuss them in-depth to provide robust indexes suitable for ranking a set of alpine destinations. Design/methodology/approach The authors use locally based data on three pollutants with reference to 25 alpine touristic destinations. Starting from hourly data for 62 days of the 2014 summer season for each pollutant, the authors end with a single synthetic air quality index for any locality. The aggregation methodologies are at the core of the paper; in particular, the authors propose a constant elasticity of substitution (CES) function – a well-known tool in Economics – to aggregate the pollutants the authors deal with. Because the degree of substitution among them is unknown, the authors simulate two extreme cases and an intermediate one to rank the localities on the bases of the synthetic air quality index. Findings All the Alpine destinations the authors considered have – or had in summer 2014 – an excellent open-air quality, and this was a permanent trait of that period. Ranks look robust (stable), as they do not depend significantly on the available options of the techniques the authors used. Originality/value The originality of the paper is inherent first in the idea that high quality air can be an issue of interest for touristic goals, especially in the case of mountain destinations, which have all proven to offer an excellent open-air quality. Second, from a methodological perspective, the paper frames dispersed and sectorial approaches into a single flexible one which has the property of being theoretically grounded into the economics mainstream and, at meantime, suitable to deal with some lack of information and research.

Euro-area GDP growth will slow in 2019

2019 ◽  
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Balance Sheet ◽  
Lower Growth ◽  
Content Type ◽  
Large Size ◽  
Area Growth ◽  
Risks Assessment ◽  
European Parliament Elections ◽  
The Impact

Subject Reasons behind the euro-area growth slowdown. Significance In its Winter 2019 interim forecasts, the European Commission downgraded its expectations for euro-area growth to 1.3% and 1.6% for 2019 and 2020, respectively, from 1.9% and 1.7% three months earlier. At its January meeting, the ECB Governing Council foreshadowed lower growth, shifting its risks assessment, saying that downside risks will dominate. Impacts The European Parliament elections could have a destabilising impact on growth in some countries. Monetary policy can do nothing to cushion the impact of lower growth caused by trade conflict. In case of recession, monetary policy stimulus will be constrained by the large size of the ECB balance sheet.

scholarly journals Exploration of Complex Dynamics for Cournot Oligopoly Game with Differentiated Products

Complexity ◽  
2018 ◽  
Vol 2018 ◽  
pp. 1-13 ◽  
Author(s):  
S. S. Askar ◽  
Mona F. EL-Wakeel ◽  
M. A. Alrodaini
Keyword(s):  
Utility Function ◽  
Complex Dynamics ◽  
Discrete Dynamical System ◽  
Cournot Oligopoly ◽  
Differentiated Products ◽  
Time Step ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
3 Dimensional ◽  
Cournot Game

This paper proposes a Cournot game organized by three competing firms adopting bounded rationality. According to the marginal profit in the past time step, each firm tries to update its production using local knowledge. In this game, a firm’s preference is represented by a utility function that is derived from a constant elasticity of substitution (CES) production function. The game is modeled by a 3-dimensional discrete dynamical system. The equilibria of the system are numerically studied to detect their complex characteristics due to difficulty to get an explicit form for those equilibria. For the proposed utility function, some cases with different value parameters are considered. Numerical simulations are used to provide an experimental evidence for the complex behavior of the evolution of the system. The obtained results show that the system loses its stability due to different types of bifurcations.

scholarly journals What is the Impact of Increased Business Competition?

2019 ◽  
Vol 2019 (276) ◽  
Author(s):  
Sonia Feliz ◽  
Chiara Maggi
Keyword(s):  
Heterogeneous Firms ◽  
Firm Dynamics ◽  
Demand Elasticity ◽  
Employment Decisions ◽  
Firm Level ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Entry Time ◽  
Variable Markups ◽  
The Impact

This paper studies the macroeconomic effect and underlying firm-level transmission channels of a reduction in business entry costs. We provide novel evidence on the response of firms' entry, exit, and employment decisions. To do so, we use as a natural experiment a reform in Portugal that reduced entry time and costs. Using the staggered implementation of the policy across the Portuguese municipalities, we find that the reform increased local entry and employment by, respectively, 25% and 4.8% per year in its first four years of implementation. Moreover, around 60% of the increase in employment came from incumbent firms expanding their size, with most of the rise occurring among the most productive firms. Standard models of firm dynamics, which assume a constant elasticity of substitution, are inconsistent with the expansionary and heterogeneous response across incumbent firms. We show that in a model with heterogeneous firms and variable markups the most productive firms face a lower demand elasticity and expand their employment in response to increased entry.

scholarly journals Central bank's communication and markets' reactions: Polish evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Janusz Brzeszczyński ◽  
Jerzy Gajdka ◽  
Tomasz Schabek ◽  
Ali M Kutan
Keyword(s):  
Monetary Policy ◽  
Foreign Exchange ◽  
Financial Market ◽  
Foreign Exchange Market ◽  
Emerging Market ◽  
Public Information ◽  
Exchange Market ◽  
Market Segments ◽  
Content Type ◽  
The Impact

PurposeThis study contributes to the pool of knowledge about the impact of monetary policy communication of central banks on financial instruments' prices and assets' value in emerging markets.Design/methodology/approachEmpirical analysis is executed using the National Bank of Poland (NBP) announcements about its monetary policy covering the data from the broad financial market in its three main segments: stock market, foreign exchange market and bonds market. The reactions are measured relative to the changes in the NBP announcements and also with respect to investors' expectations. Autoregressive conditional heteroscedasticity (ARCH) models with dummy variables are used as the main methodological tool.FindingsBonds market and foreign exchange market are the most sensitive market segments, while interest rate and money supply are the most influential types of announcements. The changes of the revealed new macroeconomic figures had more impact on assets' prices movements than the deviations from their expectations. Moreover, greater diversity of the Monetary Policy Council (MPC) members' opinions on the voted motions, captured in the MPC voting reports, is associated with more cases of statistically significant NBP communication events.Practical implicationsThe findings have direct relevance for fund managers, portfolio analysts, investors and also for financial market regulators.Originality/valueThe results provide novel evidence about how the emerging financial market responds to monetary policy announcements. They help understand the nature of the impact of public information on financial assets' valuation and on movements of their prices, analysed comprehensively in three market segments, in the emerging market environment.

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