Academic literature on the topic 'Money demand function'

As monetary policy authorities influence many macroeconomic variables by determining monetary aggregates, their relationships with other macroeconomic variables are critical in setting the most appropriate monetary policy rules. Identifying the variables affecting money demand and having a stable money demand function is essential for monetary policy. This paper examines the stability of the money demand function for 12 developing countries over the sample 2006.Q1-2023.Q3. We employ the Autoregressive Distributed Lag Model and the Cross-Sectionally Autoregressive Distributed Lag Model because of the different degrees of integration of the selected variables. According to the results, there is a stable long-run relation in the money demand function for selected developing countries. The uncertainty variable, which is the study’s primary objective, affects money demand negatively in the long run; it does not temporarily affect the demand for money. The findings also indicate that the real GDP (inflation) positively (negatively) impacts demand for real monetary aggregates as expected. The real interest rate measuring the opportunity cost of holding money does not significantly affect money demand. Although the effect of the exchange rate is positive in the short run, it turns negative as time passes and in the long run. This finding supports the ‘wealth effect’ in developing countries.

This paper examines the long-run stability issue of money demand function in Nepal using the annual data set of 1975-2009 by using the recently developed ARDL modelling to cointegration popularized by Pesaran and Shin (1999). The bounds test shows that there exists the long-run cointegrating relationship among demand for real money balances, real GDP, and interest rate in case of both narrow and broad monetary aggregates. Further, the CUSUM and CUSUMSQ test reveal that both the long-run narrow and broad money demand functions are stable. The results show that demand for money balance in Nepal is a stable and predictable function of a few variables and the central bank can rely on the monetary aggregates as intermediate targets for achieving the broad economic objectives.DOI: http://dx.doi.org/10.3126/bj.v3i1.7508 Banking Journal Vol.3(2) 2013 pp.1-27

Volatilities in the interest rate and the exchange rate cause instability in money demand functions. This study investigates the effect of interest and exchange rates volatilities on money demand in developing countries using time series data of four African countries namely, Equatorial Guinea, Gambia, Nigeria and Uganda. The model used is a conventional log linear money demand function, with money demand specified as a function of income, interest rate, inflation rate, exchange rate, interest rate volatility and exchange rate volatility. The results show that on the whole the interest rate and exchange rate volatilities do not have significant effects on money demand in developing countries. However, the money demand functions of these economies prove unstable. These findings imply that the monetary authorities should resort to inflation targeting monetary policy and employ the interest rate as the policy instrument.

This paper aims to investigate the stability of money demand function for Saudi Arabian economy over the period of 2007:Q1-2018:Q4 by applying various structural break tests. The obtained results from the utilized tests reveal the stability of money demand function. The estimated money demand function also shows the impact of income on money demand is consistent with theory expectations in addition to the positive impact of exchange rate and interest rate on the demand for money. Moreover, the estimated error correction model indicates that money demand needs about 5 quarters to adjust to its equilibrium path in case it deviates from the steady state condition.

Traditional money demand functions are often criticized for persistent over-prediction, implausible parameter estimates, highly serially correlated errors and unstable money demand. This study argues that some of these problems may have emerged for the lack of factoring financial innovation into the money demand function. This study estimates money demand for India during the post-reform period, from 1996:Q2 to 2016:Q3. The money demand function is estimated with the linear ARDL approach to cointegration developed by Pesaran, Shin, & Smith (2001), Bounds testing approaches to the analysis of level relationships, Journal of Applied Econometrics, 16(3), 289–326, after employing various proxies for financial innovation. In conclusion, the study finds that there is a stable long-run relationship among variables, such as real money balances, and the scale and opportunity cost variables. In a nutshell, the study assesses the relative importance of financial innovation variables in the money demand equation, and finds that financial innovation plays a very significant role in the money demand specification and its stability. JEL Classification: E41, E44, E42, E52, O16, O53

Doctor of Philosophy<br>Department of Economics<br>Steven P. Cassou<br>This dissertation consists of three chapters. The first chapter surveys recent studies on the stability of the money demand function in selected developing countries. This chapter presents specific details about modeling and estimating the money demand function. Also, reasons behind the mixed results in the literature on the stability of the money demand function are explored as well as providing a guideline for future research on the stability of the money demand function in developing countries. The second chapter empirically investigates the stability of the money demand function in South Korea and Malaysia. The conventional money demand specification and cointegration framework with a single unknown structural break are conducted. The results of the residual-based tests for cointegration reveal that the M1, M2, and M3 demand are stable in the long run in Malaysia. However, there is no evidence of the stability for all three measures of the money demand in South Korea. The results of the residual-based tests suggest that structural breaks in the cointegration vectors are important and need to be accounted for in the specification of the M1, M2, and LF demand in South Korea, where LF includes M2 in addition to the reserves of nonbanking financial institutions and long-term deposits. The third chapter complements the previous chapter. It aims to evaluate the stability of the money demand function in South Korea and Malaysia using a cash in advance model and cointegration framework with one unknown structural break. This theoretical model adds short-term foreign interest rates and real exchange rates in addition to short-term domestic interest rates and real income. Also, the Granger causality and currency substitution analysis are conducted in this chapter. The results of the residuals-based tests indicate that the M2 and LF demand in South Korea, and M1, M2, and M3 demand in Malaysia are stable in the long run. The structural breaks may not be fairly absorbed when a cash in advance model is used for M1 in South Korea. Thus, the residual-based tests suggest that the structural break is still important and needs to be included in the specification of the M1 demand in South Korea.

Countries with unemployment insurance (UI) program can effectively conduct a labor market policy and observe the flow of unemployed-employed. But should we just hand UI over to anyone who has no job? Do individual response to the program in terms of their decision to work or to enjoy more leisure unanimously the same across leisure type characteristic individuals? In a heterogeneous constructed labor search market we derive that introduction of the UI program increases the wage gap between the different individuals when the program impacts the productivity of firm positively. In an empirical investigation of the impact of unemployment benefits on the duration of unemployment using a job search model, we specify a distribution of duration of unemployment that we estimate using maximum likelihood estimation and find that there is in the National Longitudinal Survey of Youth (NLSY 97) there are 3 types of individuals and the type of leisure individuals present an adverse response to the program: An increase in UI for the highest leisure type leads to a longer duration of unemployment. Whereas the lowest values of leisure do not tend to have an extended duration of unemployment from a positive change in UI. Finally, the response for the type 2 individuals is completely ambiguous as it could either see them having a prolonged duration of unemployment or a shortened period with no work. So a selective increase in unemployment insurance to those with a relatively low value of leisure may decrease the equilibrium rate of unemployment. The second part of the dissertation focuses on modeling money demand and shocks in Cote D'Ivoire for the period of 1960-2009. Unlike Drama and Yao (2010) our result suggests M1 is not in a long-run equilibrium with its determinants real income and expected inflation and therefore unstable. However, the broad definition M2 is cointegrated with its long-run determinants and it is therefore the most appropriate definition of money for the Cote D'Ivoire economy. As a consequence M2 can be used as an alternative to the interest rate as a long run monetary policy instrument.

This research attempts to evaluate the stability of money demand functions and estimate monetary inflation models in the East African Community (EAC), using quarterly aggregate data that range from 2000Q1 to 2012Q3. We used Johansen co-integration analysis to estimate and analyse the stability of the M3 money demand model for each country member of the EAC. From this estimation, we derived a country-specific measure of money overhang. We compared its forecasting power of future inflation with that of money stock growth, and money stock available in the economy. Regarding country-specific money demand functions, with the exception of Uganda, we identified a reasonable and stable country-specific M3 money demand model. Also, for predicting future inflation, the estimation results showed that M3 money stock growth is more reliable in Burundi and in Kenya, while M3 money overhang is preferable in Rwanda and M3 money stock in Tanzania. As both country-specific and regional (EAC area) information on monetary quantity growth and its impact on price level is important to know in a monetary union, we considered the EAC area as a single market and attempted to estimate the aggregate (EAC area) demand functions for broad money M2 and M3 using Johansen co-integration analysis. The estimated long-run aggregate money demand models M2 and M3 appeared to be stable over the sample period. However, the aggregate M2 and M3 at the EAC level were proven to be weakly exogenous, which should discard them for consideration at the EAC level as the intermediate targets variables in order to achieve the overall objective of price stability in the EAC region. Instead, short-term interest rate should be given a prominent role in monetary policy framework at the EAC level.

碩士<br>國立東華大學<br>經濟學系<br>106<br>Abstract This study investigates the money demand function in Indonesia for the period 1985-2016. In this period many financial liberalizations took place and it includes the 1997 Asian financial crisis and global financial crisis of 2007-2008. This study aims to re-examine the money demand stability in Indonesia. Empirical results suggest that there exists a cointegration relationship between real narrow money and its determinants. This study shows that income and interest rate elasticities are consistent with the theory of money demand. The Gregory-Hansen cointegration approach suggests that narrow money demand occurs structural breaks in 2008 and 2012 which are compatible with global financial crisis and financial liberalization in Indonesia.

碩士<br>淡江大學<br>財務金融學系<br>92<br>The article applied nonlinear model to build up the Taiwan money demand function in smooth transition error correction model. The main purpose is to analyze the short-run dynamic adjustment to long-run equilibrium in money demand function. Take Taiwan as a small open economy system, the exchange rate, income and interest rates are the endogeneous variables in money demand function, then estimate the money demand function. About econometric method, the article applied maximum likelihood test to get a long-run cointegration relation, then build up the linear error correction model. But after error and model test, the linear error correction model isn''t suitable for analyze Taiwan money demand function’s short-run dynamic adjustment behavior. Therefore applied the LM-type test on the linearity. We reconfirm nonlinear logistic smooth transition error correction model for the money demand function in Taiwan. Then through the serial correlation test, the normality test, the conditional heteroscedasticity for error, and the Ramsey’s model specification test, we find that use logistic smooth transition error correction model to analyze the adjustment behavior of money demand function in Taiwan than linear error correction model, and short-run dynamic adjustment have asymmetric smooth transition process.

The main purpose of this study is to analyze the foreign trade of Russia and Turkey. Considering the foreign trade volume between the two countries, an experimental study was carried out to determine export and import demand functions of Turkey. The Russian Federation has been one of the countries having an important part in export of Turkey. Whereas textile products have taken the first place within the export of Turkey, petroleum gas and natural gas have taken the first place in import. The data used in the study covered the period between 1995 and 2010 quarterly. The data were obtained from Turkish Republic Central Bank, International Money Fund, Russian Central Bank and Russian Federal Statistics Service databases. According to obtained results, export of Turkey to Russia has affected more from the income of Russia rather than the relative prices, and import of Turkey from Russia has affected more from the income of Turkey rather than the relative prices. When income and price elasticity of export and import demands were analyzed, income and price elasticity of the export demand was noticed as being greater than the income and price elasticity of the import demand.

Abstract This study was initiated to develop a quick, accurate evaluation of the energy usage and demand of hospitals. The computer programs that were available to facilitate such energy studies required more time, accuracy and data than was available in the project scope (i.e. an industrial type of overall energy audit) to perform a long-term energy analysis. The thoroughness required of a comprehensive study of such a complex facility could not, however, be sacrificed for the sake of a quick, expedient solution. A compromise solution that is both accurate and quick was found in the series of nomographs produced by an exhaustive study by the Federal Programs Office of the U.S. Department of Energy. This report, dated June 1, 1979, is entitled, “Architects and Engineers Guide to Energy Conservation in Existing Buildings.” Pertinent nomographs from this report were converted into mathematical functions. These, in turn, were assimilated into a seamless stand alone database application, complete with data entry screens, pull down menus, help messages and data entry screening. The result is an effective, user friendly software program that is simple enough to be used by contractors, but with the accuracy and input variability required of professional energy auditors. The weather data bases includes over four hundred U.S. stations and several hundred international locations, to include bin analysis capabilities at each. The cumulative result of the equations itemized herein, when used for a building analysis, is a consistent match to actual metered energy usage data. This was proven on a dozen comprehensive hospital energy audits, for which over $10 million in actual energy conservation projects were proved. These were done for the Texas Loan Star program using oil overcharge money. There is strong confidence by users of this software that the values this application of nomographs produces are accurate and trustworthy. The calculations are performed quickly and easily enough that many iterations can be done — in the time taken to do a single run on competing software — to evaluation many interrelated project costs and paybacks.

We seek to understand when heterogeneity in agent preferences yields improved outcomes in terms of overall cost. That this might be hoped for is based on the common belief that diversity is advantageous in many multi-agent settings. We investigate this in the context of routing. Our main result is a sharp characterization of the network settings in which diversity always helps, versus those in which it is sometimes harmful. Specifically, we consider routing games, where diversity arises in the way that agents trade-off two criteria (such as time and money, or, in the case of stochastic delays, expectation and variance of delay). Our main contributions are: 1) A participant-oriented measure of cost in the presence of agent diversity; 2) A full characterization of those network topologies for which diversity always helps, for all latency functions and demands.

Fashion generates billions of money and employs a huge number of people from different contexts including arts, marketing, advertising, engineering, law, and psychology. However, the urge for new trends, chic and distinct clothing resulted in a constant cycle of excess supply over demand, contributing to a high volume of waste. Environmental concerns of such mass production have increased significantly over time resulting in tons of waste worldwide from non-use of materials, causing environmental degradation and spill of hazardous chemicals. Consumer’s linear system of buy-use-or not use-dispose creates large negative effects on the environment and economic losses to entrepreneurs within this field. Similarly, there is no time to keep up with consumer demands, as entrepreneurs struggle with unstable, unrealistic, and competitive market conditions. These socio-environmental issues are a huge part of the fashion industry, and such concerns have reached new heights due to the rate of fashion devolution and inhumane practices that have gained traction in the industry. This comes as no surprise as calls for social and environmentally conscious fashion production have emerged. Behavioral change is urgently needed now more than ever in the industry. One such promising avenue to resolve the tension between fashion and socio-environmental issues in the industry is to apply psychological principles to this context. This sparks feelings of anxiety, losses, insecurity, and inadequacies among the entrepreneurs. Despite these challenges workers in this industry work to meet the increasing needs of consumers. Whilst this has contributed greatly to the success of many fashion houses, modern trends in organizational sustainability require psychologists to offer insights into how the fashion industry can manage social and environmental challenges in a manner that is deemed to be socially responsible by society. In light of this, the current work aim at exploring the functional systems of industrial psychologists and the role they play in enabling fashion businesses to adopt sustainable business practices. Deploying a systematic literature review approach, the results showed that fashion and psychology are both disciplines essentially about humans. That functionally, the psychologists seek to understand how individual fashion designers think, feel and behave. Since they can understand behavior, psychologists are better able to design programs that can lead to long-term behavior change at different levels in the industry. Psychologists play a crucial role in the fashion industry such as offering counseling and insights into consumer behavior, consumer preferences, and product designs that work to stimulate sales and after-sales services that are environmentally sustainable.

The phenomenon called Big Data today is one of the most significant and least visible consequences of the development of technology and the Internet. Namely, the data generated by today's globally connected world is growing at an exponential rate and they are a real "gold mine" for those users who know how to correctly interpret such data and make successful decisions based on them. Data analysis and processing is one of the most important components of a large data system, and in this branch of data science the most popular is the Python programming language, which provides its users with a large number of constantly maintained program libraries and developing environments. The most important thing for legal entities and individuals is that almost all program libraries and functions provided by this programming language come with free licenses and possess open code, maintained and quality technical documentation, which provides each company with significant money savings and time. This research paper is dedicated to the possibility of determining and creating a multi regression model of large amounts of data by using Python, on the basis of large amounts of data provided by two market retailers in order to display a multi regression model and assess its predictive power. Because the number of variables is large, several models have been made in this research paper and a comparative analysis of the different models has been made, which shows that Python is a good tool that can be used repeatedly to select different variants and evaluate the resulting model for which a graphical interface can be made and would be much more acceptable as an end user, can be placed on a server on the Internet or on a modern Cloud platform and used by users as an on-demand concept and the results can be embedded in end-user interfaces and models made in this way (with dynamic data extraction)can be used in BI and machine learning processes.

Irrespective of whether advanced economies (AEs) or emerging market economies (EMEs), the number one problem of the global economy is not being able to generate a satisfactory growth. Income levels is in some countries are barely above the per-crisis level. Despite ample liquidity due to quantitative monetary policies, consumption and investment demands are weak. Because high level of indebtedness deter economic agents from using credit. Credit markets still do not function well either.&#x0D; Quantitative easing policies have been successful in containing further deterioration. Despite ample liquidity inflation has not risen, but it did delivered the expected growth. Because banking system in AEs is weak and monetary transmission mechanisms are not functioning well. As for EMEs, commodity prices and World trade appears to be weak; economic growth are slowing down, capex is visibly falling in heavy industrial sectors due to already existing excess capacity.&#x0D; The academia as well as the business community are worried about the appropriateness of the present policies in case another recession comes, central banks will have little ammunition to deal with it. The option being talked of now is what is dubbed as “helicopter Money”.&#x0D; Turkey being an open economy, has been and will be effected by the developments in the global economy through trade, capital flows and expectation channels.&#x0D; By international standards, Turkey have a reasonable growth rate of 3 to 4 %, implying a new growth era where high growth cycle ended due to changing global financial conditions and its structural problems. Future growth performance will depend on the level of investments and savings to finance it. As her own saving is low, foreign capital flows is crucial. &#x0D; High inflation and interest rate are the two negatives, but it has a strong fiscal position, debt / GDP is 32.3%, the budget is almost balanced, producing primary surplus which proved it is resilience in the face of recent failed coup and the negative attitudes displayed by the rating agencies.

Attention to safety and health are of ever-increasing priority to industrial organizations. Good Safety is demanded by stockholders, employees, and the community while increasing injury costs provide additional motivation for safety and health excellence. Safety has always been a strong corporate value of DuPont and a vital part of its culture. As a result, DuPont has become a benchmark in safety and health performance. Since 1990, DuPont has re-engineered itself to meet global competition and address future vision. In the new re-engineered organizational structures, DuPont has also had to re-engineer its safety management systems. A special Discovery Team was chartered by DuPont senior management to determine the “best practices’ for safety and health being used in DuPont best-performing sites. A summary of the findings is presented, and five of the practices are discussed. Excellence in safety and health management is more important today than ever. Public awareness, federal and state regulations, and enlightened management have resulted in a widespread conviction that all employees have the right to work in an environment that will not adversely affect their safety and health. In DuPont, we believe that excellence in safety and health is necessary to achieve global competitiveness, maintain employee loyalty, and be an accepted member of the communities in which we make, handle, use, and transport products. Safety can also be the “catalyst” to achieving excellence in other important business parameters. The organizational and communication skills developed by management, individuals, and teams in safety can be directly applied to other company initiatives. As we look into the 21st Century, we must also recognize that new organizational structures (flatter with empowered teams) will require new safety management techniques and systems in order to maintain continuous improvement in safety performance. Injury costs, which have risen dramatically in the past twenty years, provide another incentive for safety and health excellence. Shown in the Figure 1, injury costs have increased even after correcting for inflation. Many companies have found these costs to be an “invisible drain” on earnings and profitability. In some organizations, significant initiatives have been launched to better manage the workers’ compensation systems. We have found that the ultimate solution is to prevent injuries and incidents before they occur. A globally-respected company, DuPont is regarded as a well-managed, extremely ethical firm that is the benchmark in industrial safety performance. Like many other companies, DuPont has re-engineered itself and downsized its operations since 1985. Through these changes, we have maintained dedication to our principles and developed new techniques to manage in these organizational environments. As a diversified company, our operations involve chemical process facilities, production line operations, field activities, and sales and distribution of materials. Our customer base is almost entirely industrial and yet we still maintain a high level of consumer awareness and positive perception. The DuPont concern for safety dates back to the early 1800s and the first days of the company. In 1802 E.I. DuPont, a Frenchman, began manufacturing quality grade explosives to fill America’s growing need to build roads, clear fields, increase mining output, and protect its recently won independence. Because explosives production is such a hazardous industry, DuPont recognized and accepted the need for an effective safety effort. The building walls of the first powder mill near Wilmington, Delaware, were built three stones thick on three sides. The back remained open to the Brandywine River to direct any explosive forces away from other buildings and employees. To set the safety example, DuPont also built his home and the homes of his managers next to the powder yard. An effective safety program was a necessity. It represented the first defense against instant corporate liquidation. Safety needs more than a well-designed plant, however. In 1811, work rules were posted in the mill to guide employee work habits. Though not nearly as sophisticated as the safety standards of today, they did introduce an important basic concept — that safety must be a line management responsibility. Later, DuPont introduced an employee health program and hired a company doctor. An early step taken in 1912 was the keeping of safety statistics, approximately 60 years before the federal requirement to do so. We had a visible measure of our safety performance and were determined that we were going to improve it. When the nation entered World War I, the DuPont Company supplied 40 percent of the explosives used by the Allied Forces, more than 1.5 billion pounds. To accomplish this task, over 30,000 new employees were hired and trained to build and operate many plants. Among these facilities was the largest smokeless powder plant the world had ever seen. The new plant was producing granulated powder in a record 116 days after ground breaking. The trends on the safety performance chart reflect the problems that a large new work force can pose until the employees fully accept the company’s safety philosophy. The first arrow reflects the World War I scale-up, and the second arrow represents rapid diversification into new businesses during the 1920s. These instances of significant deterioration in safety performance reinforced DuPont’s commitment to reduce the unsafe acts that were causing 96 percent of our injuries. Only 4 percent of injuries result from unsafe conditions or equipment — the remainder result from the unsafe acts of people. This is an important concept if we are to focus our attention on reducing injuries and incidents within the work environment. World War II brought on a similar set of demands. The story was similar to World War I but the numbers were even more astonishing: one billion dollars in capital expenditures, 54 new plants, 75,000 additional employees, and 4.5 billion pounds of explosives produced — 20 percent of the volume used by the Allied Forces. Yet, the performance during the war years showed no significant deviation from the pre-war years. In 1941, the DuPont Company was 10 times safer than all industry and 9 times safer than the Chemical Industry. Management and the line organization were finally working as they should to control the real causes of injuries. Today, DuPont is about 50 times safer than US industrial safety performance averages. Comparing performance to other industries, it is interesting to note that seemingly “hazard-free” industries seem to have extraordinarily high injury rates. This is because, as DuPont has found out, performance is a function of injury prevention and safety management systems, not hazard exposure. Our success in safety results from a sound safety management philosophy. Each of the 125 DuPont facilities is responsible for its own safety program, progress, and performance. However, management at each of these facilities approaches safety from the same fundamental and sound philosophy. This philosophy can be expressed in eleven straightforward principles. The first principle is that all injuries can be prevented. That statement may seem a bit optimistic. In fact, we believe that this is a realistic goal and not just a theoretical objective. Our safety performance proves that the objective is achievable. We have plants with over 2,000 employees that have operated for over 10 years without a lost time injury. As injuries and incidents are investigated, we can always identify actions that could have prevented that incident. If we manage safety in a proactive — rather than reactive — manner, we will eliminate injuries by reducing the acts and conditions that cause them. The second principle is that management, which includes all levels through first-line supervisors, is responsible and accountable for preventing injuries. Only when senior management exerts sustained and consistent leadership in establishing safety goals, demanding accountability for safety performance and providing the necessary resources, can a safety program be effective in an industrial environment. The third principle states that, while recognizing management responsibility, it takes the combined energy of the entire organization to reach sustained, continuous improvement in safety and health performance. Creating an environment in which employees feel ownership for the safety effort and make significant contributions is an essential task for management, and one that needs deliberate and ongoing attention. The fourth principle is a corollary to the first principle that all injuries are preventable. It holds that all operating exposures that may result in injuries or illnesses can be controlled. No matter what the exposure, an effective safeguard can be provided. It is preferable, of course, to eliminate sources of danger, but when this is not reasonable or practical, supervision must specify measures such as special training, safety devices, and protective clothing. Our fifth safety principle states that safety is a condition of employment. Conscientious assumption of safety responsibility is required from all employees from their first day on the job. Each employee must be convinced that he or she has a responsibility for working safely. The sixth safety principle: Employees must be trained to work safely. We have found that an awareness for safety does not come naturally and that people have to be trained to work safely. With effective training programs to teach, motivate, and sustain safety knowledge, all injuries and illnesses can be eliminated. Our seventh principle holds that management must audit performance on the workplace to assess safety program success. Comprehensive inspections of both facilities and programs not only confirm their effectiveness in achieving the desired performance, but also detect specific problems and help to identify weaknesses in the safety effort. The Company’s eighth principle states that all deficiencies must be corrected promptly. Without prompt action, risk of injuries will increase and, even more important, the credibility of management’s safety efforts will suffer. Our ninth principle is a statement that off-the-job safety is an important part of the overall safety effort. We do not expect nor want employees to “turn safety on” as they come to work and “turn it off” when they go home. The company safety culture truly becomes of the individual employee’s way of thinking. The tenth principle recognizes that it’s good business to prevent injuries. Injuries cost money. However, hidden or indirect costs usually exceed the direct cost. Our last principle is the most important. Safety must be integrated as core business and personal value. There are two reasons for this. First, we’ve learned from almost 200 years of experience that 96 percent of safety incidents are directly caused by the action of people, not by faulty equipment or inadequate safety standards. But conversely, it is our people who provide the solutions to our safety problems. They are the one essential ingredient in the recipe for a safe workplace. Intelligent, trained, and motivated employees are any company’s greatest resource. Our success in safety depends upon the men and women in our plants following procedures, participating actively in training, and identifying and alerting each other and management to potential hazards. By demonstrating a real concern for each employee, management helps establish a mutual respect, and the foundation is laid for a solid safety program. This, of course, is also the foundation for good employee relations. An important lesson learned in DuPont is that the majority of injuries are caused by unsafe acts and at-risk behaviors rather than unsafe equipment or conditions. In fact, in several DuPont studies it was estimated that 96 percent of injuries are caused by unsafe acts. This was particularly revealing when considering safety audits — if audits were only focused on conditions, at best we could only prevent four percent of our injuries. By establishing management systems for safety auditing that focus on people, including audit training, techniques, and plans, all incidents are preventable. Of course, employee contribution and involvement in auditing leads to sustainability through stakeholdership in the system. Management safety audits help to make manage the “behavioral balance.” Every job and task performed at a site can do be done at-risk or safely. The essence of a good safety system ensures that safe behavior is the accepted norm amongst employees, and that it is the expected and respected way of doing things. Shifting employees norms contributes mightily to changing culture. The management safety audit provides a way to quantify these norms. DuPont safety performance has continued to improve since we began keeping records in 1911 until about 1990. In the 1990–1994 time frame, performance deteriorated as shown in the chart that follows: This increase in injuries caused great concern to senior DuPont management as well as employees. It occurred while the corporation was undergoing changes in organization. In order to sustain our technological, competitive, and business leadership positions, DuPont began re-engineering itself beginning in about 1990. New streamlined organizational structures and collaborative work processes eliminated many positions and levels of management and supervision. The total employment of the company was reduced about 25 percent during these four years. In our traditional hierarchical organization structures, every level of supervision and management knew exactly what they were expected to do with safety, and all had important roles. As many of these levels were eliminated, new systems needed to be identified for these new organizations. In early 1995, Edgar S. Woolard, DuPont Chairman, chartered a Corporate Discovery Team to look for processes that will put DuPont on a consistent path toward a goal of zero injuries and occupational illnesses. The cross-functional team used a mode of “discovery through learning” from as many DuPont employees and sites around the world. The Discovery Team fostered the rapid sharing and leveraging of “best practices” and innovative approaches being pursued at DuPont’s plants, field sites, laboratories, and office locations. In short, the team examined the company’s current state, described the future state, identified barriers between the two, and recommended key ways to overcome these barriers. After reporting back to executive management in April, 1995, the Discovery Team was realigned to help organizations implement their recommendations. The Discovery Team reconfirmed key values in DuPont — in short, that all injuries, incidents, and occupational illnesses are preventable and that safety is a source of competitive advantage. As such, the steps taken to improve safety performance also improve overall competitiveness. Senior management made this belief clear: “We will strengthen our business by making safety excellence an integral part of all business activities.” One of the key findings of the Discovery Team was the identification of the best practices used within the company, which are listed below: ▪ Felt Leadership – Management Commitment ▪ Business Integration ▪ Responsibility and Accountability ▪ Individual/Team Involvement and Influence ▪ Contractor Safety ▪ Metrics and Measurements ▪ Communications ▪ Rewards and Recognition ▪ Caring Interdependent Culture; Team-Based Work Process and Systems ▪ Performance Standards and Operating Discipline ▪ Training/Capability ▪ Technology ▪ Safety and Health Resources ▪ Management and Team Audits ▪ Deviation Investigation ▪ Risk Management and Emergency Response ▪ Process Safety ▪ Off-the-Job Safety and Health Education Attention to each of these best practices is essential to achieve sustained improvements in safety and health. The Discovery Implementation in conjunction with DuPont Safety and Environmental Management Services has developed a Safety Self-Assessment around these systems. In this presentation, we will discuss a few of these practices and learn what they mean. Paper published with permission.

The title of this article is the title of a speech delivered in the wake of the Global Financial Crisis of 2008 by former European Central Bank President Jean-Claude Trichet. Although his call was made 14 years ago, it seems as relevant today as it was then. To see why, we need to look at the nature of markets and banking. From a realistic point of view, markets are about matching, while banking is about mismatching. The inherent incompatibility between the two explains, to a large extent, why market economies are repeatedly plagued with financial crises and credit crunches. Markets are places where supply is matched with demand. Money itself is an ingenious invention for matching buyers and sellers. Trade brings value to both parties, so matching is instrumental in creating wealth. Technology greatly improves the matching between production and consumption. Just-in-time technologies, for example, substantially enhance the efficiency of managing inventory. In the digital age, producers are able to sell directly to consumers, eliminating retailers and intermediaries, further improving the match between the two sides. In the 21st century, multi-sided platforms, like Uber, Airbnb, Freelancer, eBay, and similar platforms, brought the functions of the market to a new level in creating value and improving efficiency.

Banco de la República is celebrating its 100th anniversary in 2023. This is a very significant anniversary and one that provides an opportunity to highlight the contribution the Bank has made to the country’s development. Its track record as guarantor of monetary stability has established it as the one independent state institution that generates the greatest confidence among Colombians due to its transparency, management capabilities, and effective compliance with the central banking and cultural responsibilities entrusted to it by the Constitution and the Law. On a date as important as this, the Board of Directors of Banco de la República (BDBR) pays tribute to the generations of governors and officers whose commitment and dedication have contributed to the growth of this institution.1 Banco de la República’s mandate was confirmed in the National Constitutional Assembly of 1991 where the citizens had the opportunity to elect the seventy people who would have the task of drafting a new constitution. The leaders of the three political movements with the most votes were elected as chairs to the Assembly, and this tripartite presidency reflected the plurality and the need for consensus among the different political groups to move the reform forward. Among the issues considered, the National Constitutional Assembly gave special importance to monetary stability. That is why they decided to include central banking and to provide Banco de la República with the necessary autonomy to use the instruments for which they are responsible without interference from other authorities. The constituent members understood that ensuring price stability is a state duty and that the entity responsible for this task must be enshrined in the Constitution and have the technical capability and institutional autonomy necessary to adopt the decisions they deem appropriate to achieve this fundamental objective in coordination with the general economic policy. In particular, Article 373 established that “the State, through Banco de la República, shall ensure the maintenance of the purchasing power of the currency,” a provision that coincided with the central banking system adopted by countries that have been successful in controlling inflation. In 1999, in Ruling 481, the Constitutional Court stated that “the duty to maintain the purchasing power of the currency applies to not only the monetary, credit, and exchange authority, i.e., the Board of Banco de la República, but also those who have responsibilities in the formulation and implementation of the general economic policy of the country” and that “the basic constitutional purpose of Banco de la República is the protection of a sound currency. However, this authority must take the other economic objectives of state intervention such as full employment into consideration in their decisions since these functions must be coordinated with the general economic policy.” The reforms to Banco de la República agreed upon in the Constitutional Assembly of 1991 and in Act 31/1992 can be summarized in the following aspects: i) the Bank was assigned a specific mandate: to maintain the purchasing power of the currency in coordination with the general economic policy; ii) the BDBR was designatedas the monetary, foreign exchange, and credit authority; iii) the Bank and its Board of Directors were granted a significant degree of independence from the government; iv) the Bank was prohibited from granting credit to the private sector except in the case of the financial sector; v) established that in order to grant credit to the government, the unanimous vote of its Board of Directors was required except in the case of open market transactions; vi) determined that the legislature may, in no case, order credit quotas in favor of the State or individuals; vii) Congress was appointed, on behalf of society, as the main addressee of the Bank’s reporting exercise; and viii) the responsibility for inspection, surveillance, and control over Banco de la República was delegated to the President of the Republic. The members of the National Constitutional Assembly clearly understood that the benefits of low and stable inflation extend to the whole of society and contribute mto the smooth functioning of the economic system. Among the most important of these is that low inflation promotes the efficient use of productive resources by allowing relative prices to better guide the allocation of resources since this promotes economic growth and increases the welfare of the population. Likewise, low inflation reduces uncertainty about the expected return on investment and future asset prices. This increases the confidence of economic agents, facilitates long-term financing, and stimulates investment. Since the low-income population is unable to protect itself from inflation by diversifying its assets, and a high proportion of its income is concentrated in the purchase of food and other basic goods that are generally the most affected by inflationary shocks, low inflation avoids arbitrary redistribution of income and wealth.2 Moreover, low inflation facilitates wage negotiations, creates a good labor climate, and reduces the volatility of employment levels. Finally, low inflation helps to make the tax system more transparent and equitable by avoiding the distortions that inflation introduces into the value of assets and income that make up the tax base. From the monetary authority’s point of view, one of the most relevant benefits of low inflation is the credibility that economic agents acquire in inflation targeting, which turns it into an effective nominal anchor on price levels. Upon receiving its mandate, and using its autonomy, Banco de la República began to announce specific annual inflation targets as of 1992. Although the proposed inflation targets were not met precisely during this first stage, a downward trend in inflation was achieved that took it from 32.4% in 1990 to 16.7% in 1998. At that time, the exchange rate was kept within a band. This limited the effectiveness of monetary policy, which simultaneously sought to meet an inflation target and an exchange rate target. The Asian crisis spread to emerging economies and significantly affected the Colombian economy. The exchange rate came under strong pressure to depreciate as access to foreign financing was cut off under conditions of a high foreign imbalance. This, together with the lack of exchange rate flexibility, prevented a countercyclical monetary policy and led to a 4.2% contraction in GDP that year. In this context of economic slowdown, annual inflation fell to 9.2% at the end of 1999, thus falling below the 15% target set for that year. This episode fully revealed how costly it could be, in terms of economic activity, to have inflation and exchange rate targets simultaneously. Towards the end of 1999, Banco de la República announced the adoption of a new monetary policy regime called the Inflation Targeting Plan. This regime, known internationally as ‘Inflation Targeting,’ has been gaining increasing acceptance in developed countries, having been adopted in 1991 by New Zealand, Canada, and England, among others, and has achieved significant advances in the management of inflation without incurring costs in terms of economic activity. In Latin America, Brazil and Chile also adopted it in 1999. In the case of Colombia, the last remaining requirement to be fulfilled in order to adopt said policy was exchange rate flexibility. This was realized around September 1999, when the BDBR decided to abandon the exchange-rate bands to allow the exchange rate to be freely determined in the market.Consistent with the constitutional mandate, the fundamental objective of this new policy approach was “the achievement of an inflation target that contributes to maintaining output growth around its potential.”3 This potential capacity was understood as the GDP growth that the economy can obtain if it fully utilizes its productive resources. To meet this objective, monetary policy must of necessity play a countercyclical role in the economy. This is because when economic activity is below its potential and there are idle resources, the monetary authority can reduce the interest rate in the absence of inflationary pressure to stimulate the economy and, when output exceeds its potential capacity, raise it. This policy principle, which is immersed in the models for guiding the monetary policy stance, makes the following two objectives fully compatible in the medium term: meeting the inflation target and achieving a level of economic activity that is consistent with its productive capacity. To achieve this purpose, the inflation targeting system uses the money market interest rate (at which the central bank supplies primary liquidity to commercial banks) as the primary policy instrument. This replaced the quantity of money as an intermediate monetary policy target that Banco de la República, like several other central banks, had used for a long time. In the case of Colombia, the objective of the new monetary policy approach implied, in practical terms, that the recovery of the economy after the 1999 contraction should be achieved while complying with the decreasing inflation targets established by the BDBR. The accomplishment of this purpose was remarkable. In the first half of the first decade of the 2000s, economic activity recovered significantly and reached a growth rate of 6.8% in 2006. Meanwhile, inflation gradually declined in line with inflation targets. That was how the inflation rate went from 9.2% in 1999 to 4.5% in 2006, thus meeting the inflation target established for that year while GDP reached its potential level. After this balance was achieved in 2006, inflation rebounded to 5.7% in 2007, above the 4.0% target for that year due to the fact that the 7.5% GDP growth exceeded the potential capacity of the economy.4 After proving the effectiveness of the inflation targeting system in its first years of operation, this policy regime continued to consolidate as the BDBR and the technical staff gained experience in its management and state-of-the-art economic models were incorporated to diagnose the present and future state of the economy and to assess the persistence of inflation deviations and expectations with respect to the inflation target. Beginning in 2010, the BDBR established the long-term 3.0% annual inflation target, which remains in effect today. Lower inflation has contributed to making the macroeconomic environment more stable, and this has favored sustained economic growth, financial stability, capital market development, and the functioning of payment systems. As a result, reductions in the inflationary risk premia and lower TES and credit interest rates were achieved. At the same time, the duration of public domestic debt increased significantly going from 2.27 years in December 2002 to 5.86 years in December 2022, and financial deepening, measured as the level of the portfolio as a percentage of GDP, went from around 20% in the mid-1990s to values above 45% in recent years in a healthy context for credit institutions.Having been granted autonomy by the Constitution to fulfill the mandate of preserving the purchasing power of the currency, the tangible achievements made by Banco de la República in managing inflation together with the significant benefits derived from the process of bringing inflation to its long-term target, make the BDBR’s current challenge to return inflation to the 3.0% target even more demanding and pressing. As is well known, starting in 2021, and especially in 2022, inflation in Colombia once again became a serious economic problem with high welfare costs. The inflationary phenomenon has not been exclusive to Colombia and many other developed and emerging countries have seen their inflation rates move away from the targets proposed by their central banks.5 The reasons for this phenomenon have been analyzed in recent Reports to Congress, and this new edition delves deeper into the subject with updated information. The solid institutional and technical base that supports the inflation targeting approach under which the monetary policy strategy operates gives the BDBR the necessary elements to face this difficult challenge with confidence. In this regard, the BDBR reiterated its commitment to the 3.0% inflation target in its November 25 communiqué and expects it to be reached by the end of 2024.6 Monetary policy will continue to focus on meeting this objective while ensuring the sustainability of economic activity, as mandated by the Constitution. Analyst surveys done in March showed a significant increase (from 32.3% in January to 48.5% in March) in the percentage of responses placing inflation expectations two years or more ahead in a range between 3.0% and 4.0%. This is a clear indication of the recovery of credibility in the medium-term inflation target and is consistent with the BDBR’s announcement made in November 2022. The moderation of the upward trend in inflation seen in January, and especially in February, will help to reinforce this revision of inflation expectations and will help to meet the proposed targets. After reaching 5.6% at the end of 2021, inflation maintained an upward trend throughout 2022 due to inflationary pressures from both external sources, associated with the aftermath of the pandemic and the consequences of the war in Ukraine, and domestic sources, resulting from: strengthening of local demand; price indexation processes stimulated by the increase in inflation expectations; the impact on food production caused by the mid-2021 strike; and the pass-through of depreciation to prices. The 10% increase in the minimum wage in 2021 and the 16% increase in 2022, both of which exceeded the actual inflation and the increase in productivity, accentuated the indexation processes by establishing a high nominal adjustment benchmark. Thus, total inflation went to 13.1% by the end of 2022. The annual change in food prices, which went from 17.2% to 27.8% between those two years, was the most influential factor in the surge in the Consumer Price Index (CPI). Another segment that contributed significantly to price increases was regulated products, which saw the annual change go from 7.1% in December 2021 to 11.8% by the end of 2022. The measure of core inflation excluding food and regulated items, in turn, went from 2.5% to 9.5% between the end of 2021 and the end of 2022. The substantial increase in core inflation shows that inflationary pressure has spread to most of the items in the household basket, which is characteristic of inflationary processes with generalized price indexation as is the case in Colombia. Monetary policy began to react early to this inflationary pressure. Thus, starting with its September 2021 session, the BDBR began a progressive change in the monetary policy stance moving away from the historical low of a 1.75% policy rate that had intended to stimulate the recovery of the economy. This adjustment process continued without interruption throughout 2022 and into the beginning of 2023 when the monetary policy rate reached 12.75% last January, thus accumulating an increase of 11 percentage points (pp). The public and the markets have been surprised that inflation continued to rise despite significant interest rate increases. However, as the BDBR has explained in its various communiqués, monetary policy works with a lag. Just as in 2022 economic activity recovered to a level above the pre-pandemic level, driven, along with other factors, by the monetary stimulus granted during the pandemic period and subsequent months, so too the effects of the current restrictive monetary policy will gradually take effect. This will allow us to expect the inflation rate to converge to 3.0% by the end of 2024 as is the BDBR’s purpose.Inflation results for January and February of this year showed declining marginal increases (13 bp and 3 bp respectively) compared to the change seen in December (59 bp). This suggests that a turning point in the inflation trend is approaching. In other Latin American countries such as Chile, Brazil, Perú, and Mexico, inflation has peaked and has begun to decline slowly, albeit with some ups and downs. It is to be expected that a similar process will take place in Colombia in the coming months. The expected decline in inflation in 2023 will be due, along with other factors, to lower cost pressure from abroad as a result of the gradual normalization of supply chains, the overcoming of supply shocks caused by the weather, and road blockades in previous years. This will be reflected in lower adjustments in food prices, as has already been seen in the first two months of the year and, of course, the lagged effect of monetary policy. The process of inflation convergence to the target will be gradual and will extend beyond 2023. This process will be facilitated if devaluation pressure is reversed. To this end, it is essential to continue consolidating fiscal sustainability and avoid messages on different public policy fronts that generate uncertainty and distrust. 1 This Report to Congress includes Box 1, which summarizes the trajectory of Banco de la República over the past 100 years. In addition, under the Bank’s auspices, several books that delve into various aspects of the history of this institution have been published in recent years. See, for example: Historia del Banco de la República 1923-2015; Tres banqueros centrales; Junta Directiva del Banco de la República: grandes episodios en 30 años de historia; Banco de la República: 90 años de la banca central en Colombia. 2 This is why lower inflation has been reflected in a reduction of income inequality as measured by the Gini coefficient that went from 58.7 in 1998 to 51.3 in the year prior to the pandemic. 3 See Gómez Javier, Uribe José Darío, Vargas Hernando (2002). “The Implementation of Inflation Targeting in Colombia”. Borradores de Economía, No. 202, March, available at: https://repositorio.banrep.gov.co/handle/20.500.12134/5220 4 See López-Enciso Enrique A.; Vargas-Herrera Hernando and Rodríguez-Niño Norberto (2016). “The inflation targeting strategy in Colombia. An historical view.” Borradores de Economía, No. 952. https://repositorio.banrep.gov.co/handle/20.500.12134/6263 5 According to the IMF, the percentage change in consumer prices between 2021 and 2022 went from 3.1% to 7.3% for advanced economies, and from 5.9% to 9.9% for emerging market and developing economies. 6 https://www.banrep.gov.co/es/noticias/junta-directiva-banco-republica-reitera-meta-inflacion-3