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Mr. Ramana Ramaswamy and Mr. Torsten M Sloek
The main finding of this paper is that the European Union (EU) countries fall into two broad groups according to the effects of monetary policy adjustments on economic activity. Estimates based on a vector autoregression model indicate that the full effects of a contractionary monetary shock on output in one group of EU countries (Austria, Belgium, Finland, Germany, Netherlands, and United Kingdom) take roughly twice as long to occur, but are almost twice as deep as in the other group (Denmark, France, Italy, Portugal, Spain, and Sweden). The paper discusses the implications of these results for the effective conduct of monetary policy in the euro area.

economy. Since our interest in this paper is on this latter issue, it requires an empirical strategy for identifying the policy-induced component of changes in output. A starting point for doing this is to focus on short-term interest rates rather than on money or reserves for identifying monetary policy innovations. Most central banks smooth overnight or other short-term interest rates, changing them only when they deliberately intend to change the stance of monetary policy. Consequently, changes in money or commercial banks’ reserves typically reflect demand shocks

Mr. Eric Parrado
The Monetary Authority of Singapore, instead of relying on short-term interest rates or monetary aggregates as its monetary policy instrument, conducts policy by managing the trade-weighted exchange rate index (TWI). This paper investigates how this operating procedure actually works. For empirical purposes, it assumes the authorities follow a reaction function that aims the TWI at stabilizing expected inflation and maintaining output at potential. A partial adjustment mechanism is included to dampen the actual changes in the exchange rate. The estimates confirm that the major focus of monetary policy in Singapore is controlling inflation. The estimated changes in the TWI track the actual change relatively well, and the estimated parameters are as expected. Accordingly, they support the hypothesis that monetary policy in Singapore can be described by a forward-looking policy rule that reacts to both inflation and output volatility. The results suggest that Singapore's monetary policy has mainly reacted to large deviations in the target variables, which is consistent with monetary policy's medium-term orientation.
Mr. Ales Bulir and Mr. Jan Vlcek
Does monetary policy react systematically to macroeconomic innovations? In a sample of 16 countries – operating under various monetary regimes – we find that monetary policy decisions, as expressed in yield curve movements, do react to macroeconomic innovations and these reactions reflect the monetary policy regime. While we find evidence of the primacy of the price stability objective in the inflation targeting countries, links to inflation and the output gap are generally weaker and less systematic in money-targeting and multiple-objective countries.
Mr. Sohrab Rafiq
This paper explores how monetary policy affects the real economy and its efficacy in promoting financial stability in a large low income country. This paper shows that monetary policy modestly impacts real economic activity and inflation via the bank lending and financial accelerator channels. Second, money market and treasury rates signal changes in the policy stance, while altering banks’ intermediation cost curves due to shifting risk premia. At the same time, evidence points to monetary policy inducing an overshooting in asset prices. These findings suggest that financial stability could be undermined if the calibration of monetary policy is based solely on output and inflation without accounting for the stage of the financial cycle. Finally, the paper discusses policy measures that would enhance the transmission of monetary policy and promote financial stability in Bangladesh.
Mr. Ales Bulir and Mr. Jan Vlcek

focus on the whole yield curve, distinguishing between its level and slope shifts. The textbook view of the term structure of interest rates, Mishkin (1995) , suggests that monetary policy innovations, as well as other domestic and external developments, result in level and slope shifts of the yield curve, with the relative pass-through to these two factors depending on whether inflation expectations are anchored or not. In countries where inflation expectations are anchored, monetary policy innovations are predominantly propagated through changes in the slope of