Within a New Keynesian business cycle model, we study variables that are normally unobservable but are very important for the conduct of monetary policy, namely expected inflation and inflation risk premia. We solve the model using a third-order approximation that allows us to study time-varying risk premia. Our model is consistent with rejection of the [...]
Private Indebtedness and the Banking Crisis
In Finland the private sector borrowing started to rise rapidly in conjunction with the liberalization of capital movements and deregulation of the domestic financial sector during the second half of the 1980s. The financial deregulation coincided with and amplified an economic boom marked by favourable income expectations, loose fiscal policy associated with improved terms of [...]
The Term Structure of Interest Rates: Estimation and Interpretation
This document reports the currently used term structure estimation method at the Bank of Finland and discusses interpretation of the results it generates. We start by introducing two widely used term structure estimation methods: the Cubic Spline Function method and the Nelson-Siegel approach. We compare their results, paying special attention to the smoothness of forward [...]
Effects of fiscal policy on the durability of low inflation regimes
This paper deals with the interaction of fiscal and monetary policy when the central bank is pursuing a price stability-oriented monetary policy. In particular, we study the durability of the price stability regime when public debt accumulates as a result of ultimately unsustainable deficits. The growth of indebtedness causes the collapse of the price stability [...]
Policy interaction, learning and the fiscal theory of prices
We investigate both the rational explosive inflation paths studied by McCallum (2001) and the classification of fiscal and monetary policies proposed by Leeper (1991) for stability under learning of rational expectations equilibria (REE). Our first result is that the fiscalist REE in the model of McCallum (2001) is not locally stable under learning. By contrast, [...]
What if the Fed Had Been an Inflation Nutter?
A structural rational expectations model of U.S. monetary policy is used to make a counterfactual experiment of a strongly inflation averse Federal Reserve Bank. Results for U.S. interest rates, output, and inflation over 1965-1999 are discussed. Introduction : This paper studies how U.S. output, inflation, and interest rates would have evolved 1965-1999 if the Federal [...]
Hedging against Inflation: A study of Russian real estate funds
For an investor inflation has always caused problems since it eatsaway portfolio returns, reducing the purchasing power. Russia hasbeen fighting high inflation for the last two decades primarily due tothe economic restructuring from central planning to a free marketeconomy, raising the price levels. Historically property has been regardedas a good hedge against inflation and multiple [...]
The Impact of Inflation on Business and Trade: a case study of Ghana and Canada
The thesis looks at the relationship between inflation, interest rate, exchange rate and GDP for a developed country (Canada) and a developing country (Ghana). Through a detailed literature search looking at the economies of Ghana and Canada as well as statistical analysis using least squares and regression models the following questions were addressed: 1) What [...]