نواقص بازار مالی و سیاست پولی

In a model with imperfect money, credit and reserve markets, we examine if an inflation-targeting central bank applying the funds rate operating procedure to indirectly control market interest rates also needs a monetary aggregate as policy instrument. We show that if private agents use information extracted from money and financial markets to form inflation expectations and if interest rate pass-through is incomplete, the central bank can use a narrow monetary aggregate and the discount interest rate as independent and complementary policy instruments to reinforce the credibility of its announcements and the role of inflation target as a nominal anchor for inflation expectations. This study shows how a monetary policy strategy combining inflation targeting and monetary targeting can be conceived to guarantee macroeconomic stability and the credibility of monetary policy. Friedman's k-percent money growth rule, which can generate dynamic instability, and two alternative stabilizing feedback monetary targeting rules are examined.

Over the last decade, more and more central banks have adopted a new framework for conducting monetary policy known as inflation targeting, which is presented by Mishkin (1999) as a successor to and more efficient in controlling inflation than monetary targeting.1 In this context, the two-pillar monetary policy strategy of the ECB, announced in the autumn of 1998, appears quite singular and quickly becomes controversial. Political considerations, i.e. the need to demonstrate continuity with the policies of the Bundesbank, have apparently dictated that the ECB pays attention to monetary aggregates as well in its two-pillar strategy. The Bundesbank's success in controlling inflation is due to that its monetary targeting is quite similar to inflation targeting as it announced inflation target and transparently communicated to market participants and the public (e.g., Clarida and Gertler, 1996, Bernanke and Mihov, 1997, Laubach and Posen, 1997 and Clarida et al., 1998). Its monetary policy is actually closer to inflation targeting than to Friedman-like monetary targeting and thus might best be thought of as “hybrid” inflation targeting.2 Many observers have interpreted the ECB's two-pillar strategy as a bridge between the monetary targeting strategy of the old Bundesbank and the more up-to-date inflation targeting approach (Bernanke et al., 1999, Svensson, 2000, Rudebusch and Svensson, 2002 and Mayer, 2006). In effect, the “economic pillar” resembles an implicit form of inflation targeting and the “monetary pillar” a weak type of monetary targeting. However, for Assenmacher-Wesche and Gerlach (2007), this is a “misinterpretation” which has lead to the criticism of the framework for being inconsistent and lacking clarity. The disagreement among economists about the true nature of the two-pillar strategy is arguably due to the fact that the ECB provides neither an explicit representation of the inflation process nor an explanation for why it necessitates a two-pillar framework. In effect, it lacks a theory justifying the simultaneous use of monetary targeting and inflation targeting. In addition, it is at odds with the current consensus about the best monetary policy strategy, i.e. inflation targeting. According to this consensus, if the central bank controls the nominal interest rate, inflation expectations are independent of monetary aggregates. Furthermore, the duality problem in a simple New-Keynesian or traditional IS-LM model implies that we can either control money supply or nominal interest rate but not two of them at the same time. Several authors provide empirical models of two-pillar Phillips curve which justifies the two-pillar strategy (e.g. Gerlach, 2004 and Assenmacher-Wesche and Gerlach, 2007) by testing the hypothesis that inflation can be decomposed into a ‘trend’, which is explained by a smoothed measure of past money growth, and a deviation from that trend, which is accounted for by the output gap. Based on Ireland, 2004 and Barthélemy et al., 2008 have developed a DSGE monetary policy model for the Euro Area in which both the IS and Phillips curves depend on real balances. They have found a significant role for money in the Euro Area. These studies imply that the optimal interest rate rule depends on the money. Hence, inflation expectations depend on monetary aggregates even if only information extracted from the optimal inflation targeting rule, the Phillips curve and the IS curve are used to form them. Other arguments in favor of the ECB's two-pillar strategy do not require direct effects of money on output or inflation. Bordes and Clerc (2007) argue that the central bank can influence the real interest rate through the liquidity effect in the short term but not in the medium to long term. Therefore, in order to reduce long-term price level uncertainty and to ensure the consistency between short-term and long-term inflation expectations, its only means of action is to influence inflation expectations through the announcement of a money growth target (or reference value). Beck and Wieland (2007) have shown that, in the event of persistent policy misperceptions regarding potential output, the ECB-style cross-checking and changing interest rates in response to sustained deviations of long-run money growth can have some stabilization properties. Even Woodford (2008) agrees that, to the extent that money growth is useful as an indicator variable, there is no a priori reason to exclude monetary variables from the set of indicators that are taken into account by the central bank. The financial crisis of 2007–09 has lead De Grauwe and Gros (2009) to contest the consensus according to which the price stability is a strategy that will minimize the risk of financial instability and the main responsibility for maintaining financial stability is in the hands of the supervisors and regulators.3 Considering that there is a trade-off between price stability and financial stability, they suggest that the ECB would continue to use the interest rate to achieve its inflation target while using reserve requirements and macro-prudential controls to maintain financial stability. Thus, the ECB would have an instrument to prevent asset bubbles from getting out of hand, which should stabilize inflation expectations. The above studies neglect one important assumption which justifies the opposition between monetary targeting and inflation targeting. Indeed, under the assumption that all financial assets are perfect substitutes and hence interest rates in money and credit markets are perfectly controlled by the central bank, these two strategies become substitutable. By recommending the control of nominal interest rate, economists advocate that the supply of money is automatically determined by the demand (Woodford, 1998 and Rudebusch and Svensson, 1999). It implies that the monetary authority implicitly confers to the private sector the following message: any quantity of money that you wish at given nominal interest rate will be provided. In a reduced macro-economic model (New-Keynesian or traditional IS-LM model) which simplifies at maximum the functioning of money and financial markets, the inflation-targeting strategy is efficient and allows anchoring inflation expectations when the central bank is perfectly credible and transparent. However, in practice, financial institutions and other private agents do not have an unconstrained access to the central liquidity and the central bank is never perfectly credible and transparent. It is to notice that, since the end of 1980s, most central banks (including inflation-targeting central banks) target only indirectly market interest rates through a funds rate targeting procedure (Walsh, 2003). Under such an operating procedure, the central bank, setting the discount interest rate, conducts open-market operations to target the funds rate, a very short interest rate in the interbank market. The literature on inflation targeting and interest rate rules greatly simplifies the theoretical models by not distinguishing these interest rates with other market interest rates (e.g., longer term interbank interest rate, medium and long term lending rates), which directly affect private consumption and investment. As Romer (2000) has remarked, one area in which both the traditional IS-LM approach (where the money is considered as monetary policy instrument) and IS-MP approach (where MP stands for monetary policy, i.e. interest rate rule or inflation targeting rule) may have simplified too far is in their treatment of financial markets. In both approaches, the only feature of financial markets that matters for the demand for goods is ‘the’ real interest rate that monetary policy can powerfully and directly influence as the central bank desires. In practice, the demand for goods depends on interest rates that the central bank may not be able to control directly and tenuously as well as the level of credit which is available at those rates. An analysis, which more carefully takes account of the impacts of various developments in financial markets on the demand for goods as well as the mechanism through which the monetary policy affects these interest rates and the level of credit, would highlight many of the difficulties and uncertainties of actual policy-making. For B. Friedman (2003), abandoning the role of money and the analytic of the LM curve makes it more difficult to take into account how the functioning of the banking system (and with it the credit markets more generally) matters for monetary policy and also leaves open the underlying question of how the central bank manages to fix the chosen interest rate in the first place.4 A large empirical literature has shown that the transmission mechanism of monetary policy is hindered by incomplete interest rate pass-through from the discount rate to the credit market interest rate due to various imperfections or frictions in money and financial markets (e.g. Hofmann and Mizen, 2004, Liu et al., 2008 and Hulsewig et al., 2009). Incomplete interest rate pass-through offers a better description about how the economy is functioning and how the monetary policy is implemented, and it has important implications for the monetary policy strategy. For Kobayashi (2008), it implies that the central bank should smooth the movement in policy interest rate. A theoretical study of Kwapil and Scharler (2010) has shown that the incomplete pass-through renders the Taylor principle insufficient. Dai (2010) has proven that a monetary base operating procedure is always more efficient in stabilizing output than a funds rate targeting procedure when the control of market interest rates is indirect and imperfect. This paper examines how the monetary policy strategy of a central bank, which uses a funds rate targeting procedure to indirectly control market interest rates through setting the discount interest rate and conducting open-market operations, will be affected by the alternative assumptions about the transmission mechanism of monetary policy. More precisely, we assume that money, credit and reserve markets are imperfect so that there is an incomplete interest rate pass-through. We also assume that private agents use information extracted from equilibrium conditions in these markets to improve their inflation expectations. This contrasts with the common assumption adopted in the literature on inflation targeting, according to which only information extracted from the interest rate rule, the Philips curve and the IS curve is used. Under our new assumptions, inflation expectations will depend on the growth rate of a narrow monetary aggregate and display richer dynamics.5 Thus, setting the discount rate, while manipulating a narrow monetary aggregate, could be a sensible monetary policy strategy. The principal aim of this study is to show how to combine inflation targeting and monetary targeting to anchor inflation expectations and to ensure the dynamic stability of the economy when the impacts of monetary and financial factors on monetary policy strategy are taken into account. Their combination can be considered as a kind of two-pillar monetary policy strategy. Well designed, the latter will allow preventing macroeconomic and financial instability in an uncertain economic environment. However, it is not simply the reintroduction of the monetarism in the inflation-targeting framework through the adoption of Friedman's k-percent money growth rule. In effect, the design of money growth rules is crucial for the success of such a strategy. In worst economic and financial crises, a central bank too aggressive in reducing the discount rate can quickly find itself without interest rate instrument due to the zero bound on nominal interest rates and therefore the means of sufficiently reducing money and credit market interest rates and anchoring inflation expectations. In this respect, this paper is related to the literature on the zero bound on nominal interest rates and quantitative easing policy. Using a similar framework as in the literature on inflation targeting, theoretical studies about the zero bound on nominal interest rates (e.g. Svensson, 2001, Benhabib et al., 2002, Eggertsson and Woodford, 2003, Auerbach and Obstfeld, 2005 and Adam and Billi, 2007) do not make explicit the links between monetary policy and extremely negative financial shocks and hence are not wholly satisfactory for studying the underlying transmission mechanism of zero-interest and quantitative-easing policies. On the contrary, the present framework can take into account this kind of links, and hence allows understanding why these policies suddenly become necessary under extreme financial stress and how they affect the economy. The remainder of the paper is organized as follows. The next section presents a theoretical model with imperfect money and financial markets. In the section after, the optimal interest rate rules are derived by taking account of incomplete interest rate pass-through. The fourth section considers the reduced model and derives the dynamic equation for expected inflation rate. The fifth section analyzes the dynamic stability of the economy under Friedman's k-percent money growth rule. The sixth section examines two alternative feedback monetary targeting rules. The final section summarizes the findings.

In this paper, using a model which incorporates imperfect money, credit and reserves markets and hence incomplete interest rate pass-through, we reconsider the monetary policy strategy of an inflation-targeting central bank operating under the funds rate targeting procedure. It is argued that, when money and financial markets imperfectly transmit the effects of interest rate policy to the economy, the cheap talk of central bankers may not be sufficient to ensure the announced inflation target as a credible nominal anchor of private inflation expectations. Thus, inflation-targeting central banks have good reasons to use monetary targeting together with inflation targeting. Used as a communication and anchoring device, well-conceived monetary targeting with a commitment to a long-run money growth rate consistent with the inflation target, as part of a hybrid inflation-targeting regime similar to the ECB's two-pillar monetary policy strategy, could effectively reinforce the credibility of the central bank and the role of the inflation target as a strong and credible nominal anchor for inflation expectations. It is shown that a narrow monetary aggregate, i.e. a component of the monetary base, should be regulated with a rule but not in the way conceived by Milton Friedman. The inflation-targeting regime associated with Friedman's simple k-percent money growth rule can generate macro-economic instability. In effect, to ensure the macroeconomic stability, the money growth rate must be flexibly adjusted to answer directly and/or indirectly to shocks affecting inflation adjustment, aggregate spending, and money and financial markets. It is important that feedback money growth rules are designed to sufficiently diminish the liquidity in the economy when current inflation rate varies positively and current output varies negatively. Moreover, the design of these rules needs to take careful account of the structural parameters of the economy as well as the preferences of the central bank.