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THE EUROPEAN CENTRAL BANK (ECB) has its share of detractors and skeptics who say the institution doesn’t do enough or is too frequently “behind the curve,” in market parlance. Monetary Policy in Times of Crisis is more than a strong defense. Written by a team at the ECB, it is a unique exposition, laid out more transparently than by any other advanced economy central bank, of the analysis that draws from theory and models to inform the deliberations of its governing council’s monetary policy decisions. Readers will be impressed with what is under the hood—the science and art that go into monetary policymaking.
Report of the Managing Director to the International Monetary and Financial Committee on a New Income and Expenditure Framework for the International Monetary Fund
1. At its Spring Meeting, the IMFC reiterated the importance of implementing the program of quota and voice reforms in line with the timetable set out by the Board of Governors in Singapore.2 The Committee welcomed the initial informal Board discussions on a new quota formula and stressed the importance of agreeing on a new formula, which should be simple and transparent and should capture members’ relative positions in the world economy. It noted that this reform would result in higher shares for dynamic economies, many of which are emerging market economies, whose weight and role in the global economy have increased. The Committee also stressed the importance of enhancing the voice and participation of low-income countries, a key issue for which is an increase in basic votes, at a minimum preserving the voting share of low-income countries. The Committee called on the Executive Board to continue its work on the reform package as a matter of priority.
Calculated as the sum of variable weights multiplied by a country’s shares in the global total of the respective variables.
See Table 3 of Quotas—Further Thoughts on a New Quota Formula (2006). Calculated as the sum of variable weights multiplied with a country’s share in the global total of the respective variables. Weights do not reflect a variable’s contribution per se as correlation among variables is high.
In evaluating their foreign exchange exposure, international investors often compare actual portfolios with those calculated under the assumption that the variability of returns on various currency assets is time invariant. This paper uses autoregressive conditional heteroskedastic (ARCH) models to test that assumption. For major reserve currencies, including the SDR, we find evidence that the variances of returns do vary over time and that ARCH models that specify changing variances are superior to models that assume constant variance. By incorrectly assuming a constant variability of returns, the error introduced is smaller with the SDR than with any other national currency.