After an upward trend for about 25 years, the income velocity of money in South Africa reversed its course in 1994 and began a steep decline that continues to the present day. Some writers have argued that the change in income velocity is symptomatic of an unstable demand for money. The...

This paper considers the problem of forecasting inflation in the United States, the euro area and the United Kingdom in the presence of possible structural breaks and changing parameters. We examine a range of moving window techniques that have been proposed in the literature. We extend previous...

The New Keynesian Phillips Curve (NKPC) specifies a relationship between inflation and a forcing variable and the current period’s expectation of future inflation. Most empirical estimates of the NKPC, typically based on generalized method of moments (GMM) estimation, have found a significant...

We provide a new way of deriving a number of dynamic unobserved factors from a set of variables. We show how standard principal components may be expressed in state space form and estimated using the Kalman filter. To illustrate our procedure we perform two exercises. First, we use it to...

A recent contribution to the literature argues that the present international monetary system in many ways operates like the Bretton-Woods system. Asia is the new periphery of the system and pursues an export-led development strategy based on undervalued exchange rates and accumulated foreign...

As part of its monetary policy strategy, the European Central Bank has formulated a reference value for M3 growth. A pre-requisite for the use of a reference value for M3 growth is the existence of a stable demand function for that aggregate. However, a large empirical literature has emerged...

We investigate the drivers of the recent inflation in three currency areas: the United States, the euro area, and the United Kingdom. To do so, we use a VAR set-up to examine the nature of the shocks that underpinned the recent inflation. We apply two methods to calculate shocks -- the standard...

The euro-area sovereign debt crisis was characterized by feedback loops between (1) sovereign bond ratings and sovereign spreads in single jurisdictions and (2) sovereign spreads and ratings among jurisdictions. One explanation of this circumstance is that the ECB was unable to perform the role...

The euro-area financial crisis that erupted in 2009 was marked by negative confidence effects that had both domestic and international ramifications. Domestically, bank lending declined sharply. Internationally, the demand for the euro as a reserve currency fell precipitously. We investigate the...

During the euro-area financial crisis, interactions among sovereign spreads, sovereign credit ratings, and bank credit ratings appeared to have been characterized by selfgenerating feedback loops. To investigate the existence of feedback loops, we consider a panel of five euro-area stressed...