Bank Of Greece Sa · ATHEX:TELL
Bank Of Greece Sa — Investor Presentation (May 2016)
49 slides from Bank Of Greece Sa's investor presentation, May 24, 2016
Slide 1: An International Monetary System Built on Sound Policy Rules
An International Monetary System Built on Sound Policy Rules John B. Taylor Presentation at the Bank of Greece May 24, 2016
Slide 2: Many Calls for International Monetary Reform
Many Calls for International Monetary Reform • Jaime Caruana: global instability shows need for reform • Paul Volcker: “the absence of an official, rules-based, cooperatively managed monetary system has not been a great success.” • Raghu Rajan:“what we need are monetary rules that prevent a central
Slide 3: Research
Research • Economic research – rules-based monetary policy leads to good macroeconomic economic performance – in the national economy – and in the global economy • Empirical multi-country monetary models with – highly integrated international capital markets – no-arbitrage conditions in the term-str
Slide 4: σ y σ y Country 1
σy σy σp σp Country 1 Country 2
Slide 5: σ y σ y Country 1
σy σy B A σp σp Country 1 Country 2
Slide 6: σ y σ y Country 1
σy σy A B B A σp σp Country 1 Country 2
Slide 7: σ y σ y Country 1
σy σy A B B C A σp σp Country 1 Country 2
Slide 8: σ y σ y Country 1
σy σy A B B C C A σp σp Country 1 Country 2
Slide 9: σ y σ y Country 1
σy σy A B B C A σp σp Country 1 Country 2
Slide 10: σ y σ y Country 1
σy σy A B D B C A σp σp Country 1 Country 2
Slide 11: Corroboration
Corroboration • Central banks moved toward more transparent rules- based policies in 1980s, 1990s – including through a focus on price stability • Detected by Clarida, Gali, and Gertler, and later confirmed by others • Dramatic improvement compared with 1970s when policy was highly discretionary and
Slide 12: Then The Crisis
Then The Crisis • The end of NICE in both senses of the word. • Great Recession & Not-So-Great Recovery • Concerns about international spillover effects • Emerging market countries impacted • Developed countries—Japan—express concerns about exchange rates. • Small open economies take unusual actions
Slide 13: Policy Changes and the Crisis
Policy Changes and the Crisis • Evidence of monetary policy swinging away from rule-like policies • Detected by many (Kahn, Ahrend) – A decade ago—before the financial crisis—too low too long – Causality versus correlation • Econometric and historical evidence of effects – Econometrics: Nikolsko-Rzh
Slide 14: Monetary policy gets more predictable, inflation targets, rules-based
Monetary policy gets more From “Has the Fed Gotten predictable, inflation targets, Tougher on Inflation?” The rules-based FRBSF Weekly Letter, March 31, 1995, by John P Judd and 1965-79 Bharat Trehan of the San Francisco Fed 1987-92 1993-94
Slide 15: Chart from Fed, St. Louis Review, William Poole
Chart from Fed, St. Louis Review, William Poole (Jan/Feb 2007) Showing Shift Back Toward Discretion
Slide 16: Source: Taylor (2007)
| 2000 2001 2002 2003 2004 2005 2006 — —- Counterfactual Federal Funds Rate — Actual Federal Funds Rate Source: Taylor (2007)
Slide 17: wer
wer ie The Taylor rule says the 5.00% , Fed should have begun — ‘ to raise rates in late 2010 a . Federal 250% awh, ae , 4 Py We ws a", / keeping rates too low fore fame forwee Heereen serenenty
Slide 18: Reserve Balances at the Fed
Billions of dollars 3,000 QE3 2,500 Reserve Balances 2,000 at the Fed QE2 1,500 QE1 1,000 500 With liquidity 9/11 support only 0 Year 00 02 04 06 08 10 12 14 18
Slide 19: Historical analysis (Meltzer) and statistical tests
Historical analysis (Meltzer) and statistical tests (Nikolsko-Rzhevskyy, Papell, and Prodan) agree that when policy is rules-based performance is better 10
Slide 20: Growth rate of real GDP
Percent 20 Great Moderation 15 10 5 0 -5 -10 -15 1950 1960 1970 1980 1990 2000 2010 Growth rate of real GDP
Slide 21: Housing Investment versus Deviations from Policy Rule in Europe During 2001-6
Housing Investment versus Deviations from Policy Rule in Europe During 2001-6 Source: OECD
Slide 22: Source: BIS, Shin
Policy rates compared to Taylor rules* Graph 2 Source: BIS, Shin
Slide 23: Great Moderation statistics by period
S.D. Variance Period Output Inf. Sum Output Inf. Sum (post-2006) 1965.1 - 1983.4 3.6 2.4 6.0 13.0 5.8 18.8 C . 1984.1 - 2006.4 1.5 2007.1 - 2012.3 5.4 0.8 2.3 2.3 0.8 6.2 29.2 0.6 0.6 2.9 29.8 Source: Update of Ben Bernanke (2004) “The Great Moderation”
Slide 24: Source: Mervyn King's Stamp Lecture (2012)
Alternative View: Curve Shifted for Other Reasons Source: Mervyn King’s Stamp Lecture (2012)
Slide 25: The Global Benefits of Rules-Based Monetary Policy
The Global Benefits of Rules-Based Monetary Policy • Move to a more rules-based policy in 1980s led to better national/international performance in the 1980s, 1990s and until recently (NICE2) • The spread and amplification of policy deviations from rules-based policy in recent years are drivers of c
Slide 26: Empirical Evidence on Global Effects
Empirical Evidence on Global Effects • econometric models of spillover effects of policy deviations • regressions showing policy contagion and the multiplier effects of such contagion • the spread of unconventional monetary policy as weapons in currency wars • the impact of policy deviations on othe
Slide 27: Percentage change from baseline
Percentage change from baseline .008 - .004 - .000 - ~004 + Impact of US policy deviation on output in —— Emerging LatinAmerica -0085 \ f ~~) [reer Emerging Asia ———- Other countries (including South Africa) —-— Euro zone -.012 4 —~-~ Japan -.016 i 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2
Slide 28: Empirical Evidence on Global Effects
Empirical Evidence on Global Effects • econometric models of spillover effects of policy deviations • regressions showing policy contagion and the multiplier effects of such contagion • the spread of unconventional monetary policy as weapons in currency wars • the impact of policy deviations on othe
Slide 29: Empirical Evidence
Empirical Evidence • Central bank reaction functions with foreign policy deviations – Large and significant reaction coefficients • Colin Gray (2012) • Sebastian Edwards (2015) • Agustin Carstens (2015) • Examining actual central bank decisions…
Slide 30: A cut in the Norges bank policy rate
A cut in the Norges bank policy rate (black line to red line)…
Slide 31: Because interest rates were cut abroad
….because of interest rates were cut abroad. From 1-10
Slide 32: A rise on the Norges Bank policy rate
A rise on the Norges Bank policy rate (from black to red… 9 9 6 6 3 3 0 0 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Source: Norges Bank
Slide 33: Because interest rates were increased abroad
…because interest rates were increased abroad. 2 2 1.5 1.5 1 1 0.5 0.5 0 0 -0.5 -0.5 -1 -1 -1.5 -1.5 -2 -2 08 Q3 09 Q1 09 Q3 10 Q1 10 Q3 11 Q1 11 Q3 Higher demand in Norway Higher inflation in Norway Higher interest rates abroad and developments in the foreign exchange market Lower growth abroad Hig
Slide 34: Key policy rate compared simple monetary policy rule with and without external interest rates
Key policy rate compared simple monetary policy rule with and without external interest rates Taylor Rule Key Policy Rate Rule with external interest rates Growth rule From MPR 1/10
Slide 35: Empirical Evidence on Global Effects
Empirical Evidence on Global Effects • econometric models of spillover effects of policy deviations • regressions showing policy contagion and the multiplier effects of such contagion • the spread of unconventional monetary policy as weapons in currency wars • the impact of policy deviations on othe
Slide 36: Yen Dollar Exchange Rate
yen per dollar 130 Yen Dollar Exchange Rate 120 110 100 90 80 -- Abe Election 70 06 07 08 09 10 11 12 13 14 15 16
Slide 37: Euro dollar exchange rate
dollars per euro 1.40 1.35 -- August 2014 1.30 1.25 1.20 Euro dollar exchange rate 1.15 1.10 1.05 r r r r ct ct ct ct n n n n n l l l l Ju Ju Ju Ju Ap Ap Ap Ap Ja Ja Ja Ja Ja O O O O 2012 2013 2014 2015 2016
Slide 38: Dollar Index
Dollar Index 104 - 102 - Dollar exchange rate with other important trading partners 100 - 98 5 96 5 94 - — August 2014 92 - oe | Sa Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2012 2013 2014 2015
Slide 39: Empirical Evidence on Global Effects
Empirical Evidence on Global Effects • econometric models of spillover effects of policy deviations • regressions showing policy contagion and the multiplier effects of such contagion • the spread of unconventional monetary policy as weapons in currency wars • the impact of policy deviations on othe
Slide 40: Other Policy Impacts That May Detract From Economic Performance
Other Policy Impacts That May Detract From Economic Performance • Capital Controls: aimed at containing volatile shifts in the demand for local currency and mitigating risks – However, capital controls create distortions, lead to instability. – IMF now suggests it, calling it “capital flow managemen
Slide 41: Empirical Evidence on Global Effects
Empirical Evidence on Global Effects • econometric models of spillover effects of policy deviations • regressions showing policy contagion and the multiplier effects of such contagion • the spread of unconventional monetary policy as weapons in currency wars • the impact of policy deviations on othe
Slide 42: Emerging market capital flows, weekly, Jan 2001–Sept 2015
Emerging market capital flows, weekly, Jan 2001–Sept 2015 Source: Emerging Portfolio Fund Research, Bank of Mexico
Slide 43: Standard deviation in post Plaza-Louvre period
Standard deviation in post Plaza-Louvre period is 5.7 % and increases to 8.2 % in recent years.
Slide 44: Calls for a New Approach
Calls for a New Approach With “memories of a more orderly, rule- based world” Paul Volcker (June, 2014) asks: “What is the approach (or presumably combination of approaches) that can better reconcile reasonably free and open markets with independent national policies, maintaining in the process the
Slide 45: Proposal
Proposal • Each country reports and commits to its monetary strategy and thus helps build the foundation of the international monetary system – Analogies with other agreements: 1945, 1973, 1985 – Avoid encroaching on other countries monetary rules – Emerging market countries are all in. – The IMF or
Slide 46: Plaza Accord Louvre Accord: Interest Rate Policy in Japan
Peyrent Plaza Accord Louvre Accord Estimated Taylor Rule Actual Call Money Rate fo Too 44 T T T T T T T TT T T T T T T T T T T tT] 1985 1986 1987 1988 1989 1990 1991 1992 1984 Figure 1. Interest Rate Policy in Japan, 1984-92 (For details on the estimation of Taylor rule, see Leigh (2010)) Source of
Slide 47: No threat to national/international central bank independence
No threat to national/international central bank independence • Job of each central bank is to formulate and describe its strategy. • Parties to the agreement would not have a say in strategies of other banks • Strategies could be changed if the world changed or in an emergency
Slide 48: Key Feature
Key Feature • Each country would – choose its own independent monetary strategy, – avoid interfering with the principles of free and open markets, and – contribute to the common good of global stability and growth.
Slide 49: References
References • Taylor (2016a) “The Federal Reserve in a Globalized World Economy,” in The Federal Reserve’s Role in the Global Economy, M. Bordo and M. Wynne (Eds.) • Taylor (2016b), “A Rules-Based International Monetary System for the Future,” International Monetary Cooperation: Lessons from the Plaz