2013年-IMF国际货币组织全球_Money_Targeting_in_a_Modern_Forecasting_and_Policy_Analysis_System_an_Application_to_Kenya_44页_532kb

Summary of "Money Targeting in a Modern Forecasting and Policy Analysis System: an Application to Kenya"

Core Content

This paper extends a previous forecasting and policy analysis system (FPAS) for low-income countries (LICs) to incorporate an explicit role for money targets and target misses in the analysis of monetary policy, with a specific application to Kenya. The study focuses on how money targeting interacts with other monetary policy instruments, such as interest rate rules, and how target misses can be interpreted in terms of structural shocks.

Main Points

• Framework Extension: The paper builds on the semi-structural New-Keynesian open economy model introduced in Andrle et al. (2013), integrating money targeting as a key component.

• Money Targeting Specification: A general rule is introduced for setting reserve money targets, which includes both simple money growth rules and more sophisticated rules based on optimal forecasts of future money demand. The model also allows for different degrees of adherence to these targets.

• Target Misses and Structural Shocks: Target misses are interpreted as reflecting structural shocks to the economy, such as changes in aggregate demand, money demand, or policy shocks. The paper argues that this interpretation provides a more nuanced understanding of monetary policy dynamics.

• Kenya Case Study:

  • Target Setting: Reserve money targets in Kenya are set in a manner consistent with money demand forecasting.
  • Empirical Properties: Targets correct for past misses and contain information about future money growth.
  • Policy Role: Despite these properties, money targets do not play a systematic role in monetary policy in Kenya.
  • Target Misses: These are mainly driven by shocks to money demand rather than by monetary policy itself.
  • Policy Implications: The paper finds that high adherence to money targets increases macroeconomic volatility, suggesting that interest rate-based frameworks may be more desirable.

• Cyclical Properties:

  • Money Demand Shocks: Result in more volatile inflation and output under strict money targeting.
  • Cost Push Shocks: Lead to more volatile output but less volatile inflation.
  • Demand Shocks: Have the opposite effect, with less volatility in inflation and more in output.
  • Sophisticated Rules: Are less costly than simple rules because they reduce the persistence of policy mistakes.

• Nowcasting and Forecasting:

  • Monetary aggregates can be useful for nowcasting, as they provide timely information about real growth and output.
  • The paper shows that this is the case in Kenya, where money aggregates help forecast current output levels.

• Policy Regime Implications:

  • Countries with money-targeting frameworks may benefit from incorporating forward-looking elements into their policy regime.
  • Flexible money targeting, as seen in many SSA countries, allows for a balance between money targets and interest rate rules, offering more policy flexibility.

Key Findings

• Money Targets in Kenya:

  • Set based on money demand forecasts.
  • Do not play a systematic role in monetary policy.
  • Misses are primarily due to structural shocks, especially money demand shocks.

• Macroeconomic Volatility:

  • Higher ex-post adherence to money targets leads to higher macroeconomic volatility.
  • Interest rate rules are more effective in stabilizing the economy in the face of shocks.

• Policy Flexibility:

  • Central banks in SSA operate along a continuum of money target adherence.
  • Some countries hit targets systematically, while others do not, depending on economic conditions and policy priorities.

• Model-Based Analysis:

  • The model allows for a more robust and structured analysis of monetary policy.
  • It helps interpret target misses in terms of structural shocks and links them to macroeconomic outcomes.

• Implications for Policy Transition:

  • Countries transitioning to interest rate-based frameworks may find hybrid regimes useful.
  • A forward-looking framework can better accommodate shocks to money demand and improve policy outcomes.

Structure of the Model

• New-Keynesian Model: A small open economy model with nominal and real rigidities.
• Equations:
  • IS Curve: Links output gap with foreign demand and real monetary conditions.
  • Phillips Curves: Two curves for food and non-food prices, reflecting the structure of CPI in Kenya.
  • Money Demand Equation: Error-correction specification that includes short-run and long-run dynamics.
  • Velocity Equation: Autoregressive process capturing persistent effects of shocks on money demand growth.

Data and Methodology

• Data Sources: Includes reserve money data, inflation forecasts, and output data.
• Empirical Application: Analyzes the Kenyan economy using the model to interpret target misses and assess the effectiveness of monetary policy.
• Nowcasting: Demonstrates how monetary aggregates can be used for nowcasting with incomplete data.

Conclusion

The paper highlights the benefits of a model-based approach to monetary policy analysis in LICs, particularly those with money-targeting frameworks. It argues that while money targets can be useful, they are not always systematically used in policy decisions. The findings support the idea that interest rate-based frameworks may be more effective in stabilizing the economy, especially when considering the volatility induced by strict adherence to money targets. The framework presented can also aid in the transition from money targeting to interest rate targeting, offering a more forward-looking and flexible policy approach.

References and Keywords

• Keywords: Monetary Policy, Money Targeting, Forecasting, Kenya, Low-Income Countries
• JEL Classification: E52, E58, F47, O23

Appendices and Additional Exercises

• Appendix I: Discusses the "bestiary" of money growth rules.
• Appendix II: Describes the calibration of the model.
• Appendix III: Provides details on the data used.
• Additional Exercises:
  • Assess the implications of target design and adherence on the cyclical properties of the Kenyan economy.
  • Analyze the potential of monetary aggregates for nowcasting.