The Interaction of Monetary and Macroprudential Policies in Dynamic Macro Models

This thesis contributes to the debate on the interaction of monetary and macroprudentialpolicies in dynamic macro models, specifically using New Keynesian dynamic stochastic general equilibrium (DSGE) models.First, we propose a general equilibrium framework that highlights the interaction of reserve requirements and a conventional monetary policy in a model that combines endogenous housing loan defaults and financial intermediation frictions due to the costs of enforcing contracts. Weuse the model to examine how the interaction of these policies affect (i) the credit and business cycle; (ii) the distribution of welfare between savers and borrowers; and (iii) the overall welfare objectives when monetary and macroprudential policies are optimised together or separately. We find that models with an optimised reserve ratio rule are effective in reducing the sudden boom and bust of credit and the business cycle. We also find that there are distributive implications of the introduction of reserve ratio where borrowers gain at the expense of savers. However,there is no difference in the overall welfare results whether monetary and macroprudential policies are optimised together or separately. This chapter is co-authored with Professor Joseph Pearlman and Professor Michael Ben-Gad (both from City, University of London) and has been accepted for publication by the Economic Modelling Journal.Second, we use a DSGE framework to assess the macroeconomic effects of the output floor, anew regulatory constraint recently introduced in the Basel III framework. The main purpose of the output floor is to reduce the excessive variability of banks’ risk-weighted assets and ensure a robust level of capital requirements. Our assessment concludes that the output floor counters the downward pressures generated by modelled risk weights on risk-weighted assets and, in turn,reduces the cyclicality of capital to risks-weighted assets ratio. This contributes to mitigate the excessive expansions of credit. Our model also predicts that the output floor might trigger behavioural reactions by banks. More specifically, banks may have the incentive to shift theirportfolio from assets with a large gap between internally modelled and standardised risk weights (mortgages) to non-financial corporation loans which display a smaller gap. This chapter is co-authored with Dr. Jonathan Acosta-Smith and Dr. Marzio Bassanin (both from Bank of England). This chapter also beneffited from my PhD research internship at the Prudential Policy Directorate of the Bank of England and is due to appear as a Bank of England Staff Working Paper.Finally, the current low interest environment prompted many questions on how financial stability and the conduct of macroprudential policy should be implemented. On the onehand, low interest rate environment leads to a decrease in banks’ profitability, bank capital,and eventually bank lending, calling for a lower capital regulation. On the other hand, this environment encourages more indebtedness by borrowers and banks excessive risk taking, calling for a higher capital regulation. We study the consequences of capital regulation when the interest rate is at zero lower bound (ZLB) using a DSGE framework. We use the UK data to calibrate the parameters of the model. Our assessment concludes that the benefits of high capital regulation when the monetary policy is constrained at ZLB is greater than the model with low capital regulation. This chapter is also co-authored with Professor Joseph Pearlmanand Professor Michael Ben-Ga

An Analysis of Monetary and Macroprudential Policies in a DSGE Model with Reserve Requirements and Mortgage Lending

We propose a general equilibrium framework that highlights the interaction of reserve requirements and a conventional monetary policy in a model that combines endogenous housing loan defaults and financial intermediation frictions due to the costs of enforcing contracts. We use the model to examine how the interaction of these policies affect (i) the credit and business cycle; (ii) the distribution of welfare between savers and borrowers; (iii) the overall welfare objectives when monetary and macroprudential policies are optimised together or separately. We find that models with an optimised reserve ratio rule are effective in reducing the sudden boom and bust of credit and the business cycle. We also find that there are a distributive implications of the introduction of reserve ratio where borrowers gain at the expense of savers. However, there is no difference in the overall welfare results whether monetary and macroprudential policies are optimised together or separately

Computation of the effective area and associated uncertainties of non-rotating piston gauges FPG and FRS

The effective areas of three force-balanced piston gauges (FPGs) and two Furness Rosenberg standards (FRS) in the operating pressure range of each device varying for 1 Pa–15 kPa have been accurately computed both in the gauge and absolute modes. Geometrical data for the non-rotating piston-cylinder assemblies (PCAs) have been provided by the National Metrology Institutes (NMIs) of PTB, RISE, INRiM and CMI. Since the flow is in a wide range of the Knudsen number, simulations have been based on the Batnagar–Gross–Krook (BGK) kinetic model equation, while the typical Dadson and CFD approaches have been complimentary applied only in the viscous regime. Furthermore, an uncertainty analysis has been performed. The effective area is strongly affected by the PCA geometry and the flow conditions, while its dependency on pressure may be different even for devices of the same type. The main source of uncertainty is the dimensional measurements of the piston and the cylinder, followed by the accommodation coefficient characterizing the gas-surface interaction, while the effect of other flow and modeling parameters is negligible. The total relative standard uncertainty of the effective area has been always found to be less than 1 · 10−5 indicating that pressure measurements of high accuracy can be ensured. Since the effective area is estimated based solely on computations the FPG and the FRS assemblies may be characterized as primary pressure standards

Computer simulation of a 1.0 CPa piston-cylinder assembly using finite element analysis (FEA)

The paper reports a preliminary study of the behavior of a high performance controlledclearance piston gauge (CCPG) in the pressure range up to 1 GPa through finite elemental analysis (FEA). The details of the experimental haracterization of this CCPG has already been published (Yadav et al., 2007 [1]). We have already pointed out that the use of Heydemann–Welch (HW) model for the characterization of any CCPG, has some limitation due to the fact that the linear extrapolation of the cube root of the fall rate versus jacket pressure (v1/3–pj) curve is assumed to be independent of the rheological properties of the pressure transmitting fluids. The FEA technique addresses this problem through simulation and optimization with a standard ANSYS program where the material properties of the piston and cylinder, pressure dependent density and viscosity of the pressure transmitting fluid etc. are to be used as the input parameters. Thus it provides characterization of a pressure balance in terms of effective area and distortion coefficient of the piston and cylinder.The present paper describes the results obtained on systematic studies carried out on the effect of gap profile between piston and cylinder of this controlled-clearance piston gauge, under the influence of applied pressure (p) from 100 MPa to 1000 MPa, on the pressure distortion coefficient (k) of the assembly. The gap profile is also studied at different applied jacket pressure (pj) such that pj/p varied from 0.3, 0.4 and 0.5

Industrial Standards in the Intermediate Pressure-to-Vacuum Range

A final workshop on industrial standards in the intermediate pressure-to-vacuum range took place in RISE, Borås, Sweden on 16th – 17th May 2018. That workshop was an output of the joint research project (JRP) entitled “Industrial Standards in the Intermediate Pressure-to-Vacuum Range” carried out within the European Metrology Programme for Innovation and Research (EMPIR), jointly funded by the EMPIR participating countries within EURAMET and the European Union and registered as EMPIR JRP 14IND06 pres2vac. In the project, 10 national metrology institutes (NMIs) collaborate with 4 universities and 2 industrial companies. The overall goal of this project was to enable the SI traceable measurement of absolute, positive and negative gauge pressures in the intermediate range from approximately (1 to 104) Pa with an accuracy level of 310 5×p + 0.005 Pa in order to increase the efficiency of industrial productions and processes. This work included the production of primary and transfer standards for dissemination of the pressure scale and developing appropriate calibration methods for high-accuracy state-of-the-art pressure devices in order to establish a calibration service in this pressure range. SI traceable measurement of absolute, positive and negative gauge pressure are relevant for such industries as power plants, cleanroom technologies, petrochemical and pharmaceutical production, storage of nuclear and toxic wastes, in order to support innovation and efficiency in industrial production and processes. Reliable, accurate, traceable pressure measurements are needed for such industries as they are subject to strict international requirements with respect to safety, precision, sterility and performance. Conventional calibration procedures applied to instruments for low differential pressures are extremely dependent on weather conditions, especially the stability of atmospheric pressure. Alternative calibration approaches and techniques are needed to ensure a low level of uncertainty, independent of ambient conditions, for a high-accuracy calibration service. Further to this, the EU mercury strategy includes a comprehensive plan addressing mercury pollution both in the EU and globally. An amendment by the Commission Regulation restricts the use of mercury in barometers and sphygmomanometers for industrial and professional use from 10 April 2014. With the project, support is provided for the replacement of primary mercury manometers, which are still in use in many research institutions and reference laboratories, by mercury-free instruments and techniques. More than 35 representatives of industry (both manufacturers and users), academic and national metrology institutes from 16 countries were invited and participated. During the workshop, 22 talks on key topics, each of 5 to 35 minutes\u27 duration, were held. These oral presentations are published in the present report. This PTB report comprises the presentations held at the final workshop

Development of 1.6 GPa pressure-measuring multipliers

Two 1.6 GPa pressure-measuring multipliers were developed and built. Feasibility analysis of their operation up to 1.6 GPa, parameter optimisation and prediction of their behaviour were performed using Finite Element Analysis (FEA). Their performance and metrological properties were determined experimentally at pressures up to 500 MPa. The experimental and theoretical results are in reasonable agreement. With the results obtained so far, the relative standard uncertainty of the pressure measurement up to 1.6 GPa is expected to be not greater than 2·10&lt;sup&gt;-4&lt;/sup&gt;. With this new development the range of the pressure calibration service in Europe can be extended up to 1.5 GPa.</jats:p

Progress in development of an interferometric oil manometer

At PTB, a new interferometric oil manometer for the measurement of pressures below 2 kPa, is in development. This paper describes how the main quantities, length and liquid density, are determined, both in-situ, the latter for the first time in a primary pressure standard. The key features of both methods are presented.</jats:p