Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Fear of floating wikipedia , lookup
Fractional-reserve banking wikipedia , lookup
Real bills doctrine wikipedia , lookup
Modern Monetary Theory wikipedia , lookup
Global financial system wikipedia , lookup
Helicopter money wikipedia , lookup
Quantitative easing wikipedia , lookup
Money supply wikipedia , lookup
International monetary systems wikipedia , lookup
Comments: “Inflation Targeting Framework for Jamaica: An Empirical Exploration” Myriam Quispe-Agnoli Federal Reserve Bank of Atlanta Conference on Inflation Targeting October 4 –5, 2004 Objective of the paper • Is inflation targeting (IT) an effective framework for monetary policy in Jamaica? Paper Structure • Monetary Policy in Jamaica since 1990. • Literature review comparing the IT experience of developed and developing countries. • Review of the fundamental requirements for IT in Jamaica. • Discusses the implementation of IT in Jamaica. Comments’ Outline • I will follow the outline of the paper for my comments: – First, I will look at the preconditions for inflation targeting (IT) followed by questions on specific topics – Second, I will discuss the some issues on IT design and implementation – Finally, I will bring general questions Suggested list of preconditions before adopting IT • • • • Central bank independence (CBI). Macroeconomic stability. Financial system stability. Other institutional elements. Preconditions for IT in Jamaica • Does the Central Bank have a reasonable degree of operational independence to ensure flexibility in monetary policy towards achieving the inflation target? Central Bank is independent but… - There is no law that prohibits public financing - Political independence is limited by the presence of government representatives on the board Some Questions Regarding Central Bank Independence • Table to compare CBI estimates of IT developing countries and Jamaica. • What do you think about CBI during the monetary targeting period, 1996-2002? • What can the financing of the fiscal deficit tell us about CBI? Preconditions for IT in Jamaica • Is monetary policy influenced by public sector borrowing from the bank? – Between 1994 and 1998, heavy reliance on seigniorage for public financing. – In subsequent years, external borrowing was the main source for public financing. – However, fiscal imbalances remain at high levels. Some Questions Regarding Fiscal Dominance • Fiscal imbalances might limit or restrict the credibility of future IT in Jamaica • Is there a plan to implement tax reform or an effort to reorganize government expenditures in Jamaica? • Do you think that the domestic capital market might become an alternative source for public financing? Preconditions for IT in Jamaica • A flexible and independent monetary policy requires a “deep” financial system that is an alternative source for public financing. – According to the paper, there is a well functioning financial market in Jamaica. • Competitive interest rates, no financial repression. • Diversified instruments for savings and investment. Some Questions Regarding Financial Depth • Could you tell us about the performance of private credit by banks as percentage of GDP? • Is there a regulatory and supervisory institution for the banking system? • What is the size and performance of the stock and bond market? • Is the financial system deep enough to absorb the placement of public debt? Issues of IT design and implementation • Bosede analyzes the appropriate inflation index to use for IT, concluding that either core or headline inflation could be used as the relevant price index. • The author also uses a VAR model to show the effect of different inflation target horizon and the bandwidth on the stability of monetary policy. • Conclusion: a 24-month horizon is the adequate for a successful IT implementation. General Questions • Given external shocks, is the Central Bank's commitment to price stability as a primary goal credible? • What is the import component of the price index? • What is the level of the dollarization degree of the financial system? • Is there an effort to coordinate fiscal and debt management policies? • What is the likelihood of new legislation to protect Central Bank independence? Some Macroeconomic Indicators 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Inflation rate 35% 20% 26% 10% 9% 6% 8% 7% 7% 10% * (-) appreciation Source: IFS, IMF. Change in Credit to Private Sector Real GDP Exchange Rate* as % of GDP (%) 33% 23% 1.0% 6% 24% 2.3% 6% 25% 0.4% -5% 24% -1.1% 3% 28% -1.2% 7% 28% 0.9% 9% 31% 0.8% 8% 12% 1.5% 5% 14% 1.1% 19% n.a. n.a.