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The IUP Journal of Monetary Economics Journal

February' 07

Focus Areas
  • Macroeconomic Policy Issues
  • Money Markets
  • Monetary Standards and Regimes
  • Government and the Monetary System
  • Monetary Policy and Central Banking
  • Central Banks and Their Policies
  • Monetary Policy Designs and Consistency
  • Stabilization Policy
Income Distribution and Monetary Policy in Small Open Economies
Structural Changes in Australia's Monetary Aggregates and Interest Rates
Monetary Policy Transmission Mechanisms in the CEECs: How Important are the Differences with the Euro Area?
Measuring Monetary Policy Efficiency in European Union Countries: The Pre-EMU Years
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Income Distribution and Monetary Policy in Small Open Economies

-- Christopher Malikane

This paper investigates the role of income distribution in a small monetary model for policy analysis and assesses whether a central bank in a small open economy can improve economic performance by paying explicit attention to changes in income distribution. The study answers this question by reformulating a Ball-Svensson type macromodel, extended to incorporate both sluggish nominal wage and price adjustment and income distribution effects on aggregate demand. Further, it is observed that a simple price inflation targeting rule that does not react explicitly to changes in income distribution is incapable of achieving macrostability. The study shows that a simple rule that targets the productivity-adjusted nominal wage inflation rate is capable of achieving macrostability. These findings motivate income distribution sensitive monetary policy rules.

Article Price : Rs.50

Structural Changes in Australia's Monetary Aggregates and Interest Rates

-- Abbas Valadkhani and Mosayeb Pahlavani

This paper employs all quarterly time series currently available to determine endogenously the time of structural breaks for three monetary aggregates—the long- and short-term interest rates as well as the consumer price index—in Australia using the ZA (Zivot and Andrews, 1992) test and the LP (Lumsdaine and Papell, 1997) test. After accounting for the single most significant structural break, the results from the ZA test (model C) provide no evidence against the unit root null hypothesis for all series examined. However, when two structural breaks are incorporated in the testing procedure within the framework proposed by LP (i.e., model CC) the test results indicate that the unit root hypothesis is indeed rejected for four out of six of the variables under investigation at the 5% level. The estimated two structural breaks were found to be statistically significant in five out of six variables. The dates of structural breaks in most of the cases point to: (a) The 1973 oil shock; (b) The culmination of financial deregulation and innovation in the late 1980s; (c) The 1990-91 recession; and (d) The launch of the 1996 Wallis Inquiry into financial system.

Article Price : Rs.50

Monetary Policy Transmission Mechanisms in the CEECs: How Important are the Differences with the Euro Area?

-- Jérôme Creel and Sandrine Levasseur

We use a structural VAR model with short-term restrictions to investigate the relative importance of interest rate, exchange rate and credit channels in the monetary policy transmission (MPT) for the Czech Republic, Hungary and Poland over 1993:1-2004:3. Main results are as follows. First, in the three countries, following a positive shock on the interest rate, prices increase instead of decreasing, due to the immediate depreciation of the nominal exchange rate. The results thus exhibit an "exchange rate" puzzle conducing to the appearance of a "price-puzzle". Second, no channel is very powerful for the MPT in the three countries. Nevertheless, in the recent years the exchange rate and the interest rate channels play a major role in Poland, compared with the same in the Czech Republic and Hungary. As nominal exchange rate fluctuations allow for greater real shocks dampening in Poland, the cost of entering EMU may be more costly for this country than for the Czech Republic or Hungary.

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Measuring Monetary Policy Efficiency in European Union Countries: The Pre-EMU Years

-- Stefan Krause

This paper proposes a method for measuring the contribution of an improved monetary policy to the changes in macroeconomic performance—identified with inflation and output stability. The technique used involves estimating actual and optimal policy rules as a function of the aggregate supply and demand shocks, with the purpose of examining how much of the change in performance can be accounted for by changes in the volatility of the aggregate shocks and how much can be ascribed to improvements in policy efficiency. A study of the changes in the macroeconomic performance of 14 European Union countries from the 1980s to the 1990s is undertaken here. The findings suggest that an improved monetary policy has played an important stabilization role in almost all European Union countries, while a diminished exposure to aggregate shocks has largely contributed towards improved performance in at least seven countries.

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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.


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