Monetary Policy Its Instruments and Convergence of Its Objectives: Case of Angola 2005/2017

The Working Papers are works in evolution, whose publication aims to encourage the debate and the deepening of the subjects discussed. The views expressed are those of the authors and do not necessarily reflect those of the National Bank of Angola, nor do they bind the Institution in any way. Abstract This paper proposes a new paradigm for the analysis of monetary policy, and presents the monetary policy framework in Angola which includes the policy instruments, and implementation mechanism the way between instrument and objective. To study the Monetary Policy instruments in Angola based on a multiple linear regression model. Before the model was conceived an analogy was made about the politics and instruments of monetary policy from the classical Keynesian model in the matter, but also less important also to analyze the concrete objective of monetary policy if the authors agree connected with those currents of economic thought. For the estimation of the equation for the monetary aggregate M2 that represents the money supply by the Central Bank in Angola The author applied the current implementation and the existing theories to display the Angola monetary tools such as basic interest rate for monetary policy orientation (tbna), open market operation, Lending Facility, coefficient of required reserve, net international reserves, and the Gross Domestic Product, the reference oil price to brent. Most of the variables present the expected results.


Introduction
In many central banks, once the Monetary Policy objectives have been defined, they over time are distancing themselves from their reach and tend to assume other objectives, without the procedures in the use of the instruments being adjusted. This practice, instead of making it possible to correct the observed deviations, results in a greater distance in the scope of the objectives initially defined. In this sense, the objective of this paper is to present an empirical analysis of the impact of the instruments and Also discussed are the discordant points about the effect of money in the short and long term, as well as the objectives to be pursued by policymakers.
Section II presents the field of action of the National Bank of Angola from 2005 to 2017, its duties and obligations, without disregarding the statute that the law confers on it, it is also made an analysis of the selected intermediate instruments and variables to achieve the objectives to be pursued. And as well as an analysis of the instruments used to affect the supply of money in the economy. Being a (nominal) variable indirectly controllable by the monetary authorities in the sense to influence the financial system and the economic activity depending on the economic conjuncture. And finally, identify the variables used to estimate the money supply.
Finally, in section III, the analysis of the estimators and the respective interpretation of the generated results are done.

Literature Review -Basic Concepts Of Monetary Policy
The attempt to improve understanding of monetary policy begins with the analysis of the basic concepts. The vocabulary used in the monetary policy approach is generally universal, it does not impose any specific application in a particular country.
Monetary policy can be defined as a deliberate action by the monetary authorities to influence the quantity and cost of the currency in order to achieve desired objectives that guarantee the maintenance of macroeconomic equilibria. The implementation of this action is chosen by the operational variable which may be monetary aggregates or interest rates (such as their handling) in order to manage the amount of money in the economy. The importance of the currency in socio-economic life has made policy makers and other actors seek to design monetary policies of special recognition. monetary authorities use to control the supply of money and the interest rate, ie to control the global liquidity of the economic system, being: the rate of mandatory reserves, rediscount operations and operations of open market.

Analysis of the Choice of Monetary Policy Instruments
A monetary policy to be effective must emit clear signals to the agents in order to stimulate them to act in the direction indicated by the policymakers. The sharper the policy signals, the safer and more confident the agents will be, as regards the monetary instruments that will be activated by the monetary authorities. However the ultimate goal of monetary policy is the welfare of society. While it is difficult to disagree with this objective, there is certainly wide divergence among economists on how to implement it in practice. Monetarists emphasize the stability of the price level; Keynesian economists prefer the level of employment. Thus some authors Keynes (1936), Klein (1949) and Davidson (1978).
They argue that the objectives pursued by the monetary authorities consist of: (i) High level of employment; (ii) Ensuring price and currency stability; (iii) Ensure levels of economic growth. Friedman (1968) argues that monetary policy managers must pursue the monetary objectives that are controllable by their instruments, and if they follow the non-controllable ones, they may be the source of economic disturbances. Sargent and Wallace (1981) with the incorporation of rational expectations argue that a consensus has emerged in the new-classical economy, that the implementation of any monetary policy has effects on the real variables of the economy. Barbosa (1996), the monetary policy instruments in a generic way, are variables that the central banks control directly and they are: (a) Open market operations are the operations conducted by the central bank with objectives to manage liquidity in the economy through the sale and purchase of securities in the market; (b) Rediscount rate -interest rates charged by the central bank to lend funds to commercial banks in case of emergency. (c) And the reserve requirement coefficients -consists of the regulation that concerns the minimum amount of reserves that commercial banks must keep on their deposits with the central bank. These instruments act on the monetary base (BM) influencing liquidity in the banking system. For the choice of which instruments (interest rate and currency) the general conclusion is as follows: (i) if the main source of disturbance in the economy is shocks to the IS curve or the market for goods and services, use the coin offer is ideal. (ii) On the other hand, if the main source of disruption is shocks in the demand for currency or the financial markets or the LM curve, then interest rate target is ideal.

Monetary Policy Objectives in the Vision of Milton Friedman
In relation to the objectives of monetary policy there is an extensive field of disagreement with its aims.
According to Friedman (1968)  in an attempt to solve this problem, could produce other problems and be the source of economic disturbances. Mishkin (2000) monetary policy is a flexible instrument to achieve the objective of price stability and is the main responsible for inflation, it does not affect economic activity in the long term, such as employment and output levels, to long term. The primary objective of monetary policy under the European Treaty is to make it clear that ensuring price stability is the most important contribution that monetary policy can make in order to achieve a favorable economic environment and a high level of employment (European Central Bank, 2001).

Objectives of Monetary Policy (Currency Neutrality) in the New Classics View
The hypothesis of the existence of a natural rate of unemployment is the starting point for the construction of the new-classical corollary of the ineffectiveness of monetary policy. Such a hypothesis was formulated by Friedman (1968) as being that rate adequate to the Walrasian general equilibrium system that would incorporate the structural and institutional characteristics of the labor market and goods such as: imperfections, seasonal variations in demand and supply, cost and the time to collect information on available vacancies the cost and time of mobility from one job to another.
natural rate of unemployment equals the current unemployment rate. In this situation, if the government announced an increase in the supply of money, agents would react to policymakers' decision exclusively by increasing their prices without hiring any additional workers. Thus, the current rate of unemployment would remain on the natural rate. In other words, the expansionist monetary policy decisions known to the agents would not cause any increase in the level of employment and real output, would simply increase the general price level equivalent to the increase in the stock of money. Thus, the term currency neutrality refers to the fact that currency is not capable of sustaining real output growth over the long term. A currency to be considered neutral does not mean that monetary policy should not be used to influence the product in the short term, only reports that this action would be temporary and that in the long term the product would tend to its natural level.
In the new-classic model, private agents fail because they are surprised. The surprise is always the result of the introduction of new variables in the real world or the unexpected change in the magnitude of existing variables and, therefore, part of the subjective model that processes the rational expectations of the economic agents. In the event that monetary interventions are not transmitted to the public, surprise occurs due to unanticipated changes in the currency stock, which result in expectation errors and consequently, some discrepancy between the current unemployment rate and the natural rate. In this sense, while the clarity of monetary policy for the new-classical theory seeks to reduce current unemployment, it should be a secret that should only be shared among policymakers, according to this last chain the element of surprise is indispensable. Entrepreneurs with information constraints due to the use of the element, even if they formed rational expectations, would misunderstand the movement of prices due to the variation of monetary stock and expand their production by hiring more workers, they would understand that the price increase would not be provoked by an increase in the money supply, but rather a real increase in demand for its products. Thus, firms would be encouraged to hire more workers than their potential, the current rate of unemployment would be lower than the natural rate.
However, after the time required for workers and entrepreneurs to understand that it was an unexpected variation in the money supply that led to an increase in production, they reworked their decisions, making the economy return to the point corresponding to the natural rate of unemployment. Monetary policy would be ineffective in reducing the natural rate of unemployment because the worker would perceive that the nominal higher wage did not mean a real increase in wages and entrepreneurs would perceive that the price increase was not relative to his favor, but rather an absolute and neutral.

Coordination Versus Subordination of Monetary Policy (Postnes Keynesana View)
The post-keynesian form of monetary policy, the coordination of the use of macroeconomic intervention instruments is fundamental. The more coordinated the monetary instruments are, the more efficient the monetary instruments are likely to be monetary policy.
Cairncross (1992) quoted by Siscú (1997)  conditions prevailing at that moment. Each instrument uses a different transmission channel acting with varying timing and intensities, but all affect a single variable, the demand. Therefore, it is essential to coordinate the use of the various. Chick (1993)

Monetary Policy View of the European Central Bank
In the view of Gameiro et al. (2011) considers that monetary policy is conducted effectively, the central bank needs to have a large influence on money market interest rates and changes in these rates need to be transmitted to the rest of the economy. In addition to the definition of interest rates, the operational framework of monetary policy also has important implications for the financial system, operational aspects such as liquidity management influence the decisions of financial intermediaries, and consequently financial stability, as it has been clearly demonstrated in the recent financial crisis of 2008-2009. Finally, communication can also be seen as a monetary policy instrument that can influence financial stability through the effects on the agents' expectations.

Definition of the Means of Payment and the Monetary Base (Money Supply)
In the context of macroeconomic policies, the central bank draws the assumption of the expansion of and define its instruments to be used in order to achieve the result but efficient.

= .
(2) Adding equations (4) and (5) we have equation (6) = + + Dividing the means of payments and the monetary base both with DT -total deposits, we obtain an equation (7) and (8); The acronyms cm, r, and r represent the result of the Currency Circulation (CM) ratio, free reserves (RL), Mandatory Reserves (RO).
Whereas the acronym nmp represents the result of the ratio of the Notes and Currency in Public Power.

A Static Model
According to Poole (1970), he begins to suppose by presenting nonstochastic linear version of the Hicksian IS-LM model depicted in Figure 1. The model has the two equations. Figure 1 shows the familiar IS-LM diagram in which the price level is assumed constant. The monetary policy problem is viewed as setting the money stock at the level such that the function will cut the IS function at the full employment level of income, Alternatively the policy problem could be viewed with the monetary authorities setting the interest rate at r*,' thereby making the LM function horizontal. In the deterministic model it obviously makes no difference whatsoever whether the policy prescription is in terms of setting the interest rate at r* or in terms of setting the money stock at the level, say * , that makes the LM function cut the IS function at .
And the variables are all in real terms, equation (11), the function, is obtained by combining linear consumption and investment equations with the equilibrium condition = + . In equation (12), the -function, the left-hand side is the stock of money and the right-hand side is the demand for money.

Empirical Model Suggested in the Study
For our model we will use this approximation, for the interest rate we will use two instruments, being the required reserves in national currency and the basic interest rate of orientation of monetary policy and it is expected that they generate negative signals, or an increase of this instrument increases the price of the coin. GDP will be exogenous, this is a data provided by the National Institute of Statistics

Role Of The National Bank Of Angola -Its Instruments Goals And Objectives
The  To ensure the stability of the national financial system, ensuring, to that end, the role of financier of last resort; f) To manage the external availability of the country that is committed to it, without prejudice to the provisions of a special law.

Graph 4 -Evolution of Required Reserve and their Coeficient Rate Required in National Currency (CRO MN)
Published by SCHOLINK INC.
February and November of the same year given the deterioration of the conditions (exchange crisis) and the reduction of the price of oil in the international market, some commercial banks began to present liquidity problems, leading the regulator to dramatically reduce CRO by 12.50%. From this period until November 2017 the CRO was set at 30%, reducing the ratio of credit to the private sector on the mandatory reserves from 5.76% to 2.46%. Finally, in December 2017 the CRO increased to 21% and the ratio improved from 2.46% to 3.55%.
Other operational instruments were also used cautiously, on the one hand, to accommodate the financial crisis, on the other hand to ensure price stabilization. The basic TBNA interest rate as the BNA-defined liquidity-providing facilities and the exchange rate were used to influence LUIBOR's behavior and to encourage financial institutions to reduce or increase lending rates between them and to have an impact

Figure 2. Factors Affecting the Monetary Base
Source: Author -Excel.
Note. Where FAO is Borrow Facility.

Oï l Price
Tax Policy  Payments of goods and services,  Public debt,  Exterlization. Source: Author -Excel.

Linear Serial Correlation Test
The series provided are in a quarterly frequency, and the test carried out concludes that the coefficients of the reserve requirements in local currency lagged in 1 quarter have a negative and weak linear relationship, whereas, Real GDP (%) lagged in 5 quarters has a relation positive and weak, the net international reserves in dollars lagged in 5 quarters have a moderate but negative relation, and on the other hand the price of the outdated Brent in 1 period shows a positive and weak relation, and finally the TBNA has a negative and weak. : Real Gross Domestic Product.

Data Used and Unit Root Test
After testing the linear correlation, it should be noted that series, net international reserves in foreign currency RIL (net international reserves in dollars), M2 MN, CRO (produced by BNA) and oil prices   affecting the means of payments in national currency at -0.02823 pp while the price of oil it affects positively, showing insignificant but with a correct theoretical signal, that is, a 1% increase in the price of oil expands the M2MN by 0.096556 percentage points. The TBNA shows insignificant but with an expected economic signal, it transmits a negative effect, that is, an acceleration of inflation in 1 percent expands the M2MN in -0.00038954.

Discussion
The normality test of the residues serial correlation and of heteroscedasticity suggest that the residues are normal presenting zero mean and constant variance. The serial correlation test for the H0-null hypothesis consists of an assertion that there is no serial correlation, and for the alternative hypothesis H1-the existence of serial correlation, the result falls into a region of non-existence of serial correlation with a probability above 10%. While the heteroscedasticity test consists of the definition of the null hypothesis H0 -non-existence of heteroscedasticity (constant variance) and the alternative hypothesis H1-the existence of heteroscedasticity, i.e., non-constant variance) and the test result falls in the acceptance region with a probability above 10%.
The Breusch-Pagan test is used to verify if there is no serial correlation between the residues. In the obtained results, the p-value is equal to 0,337 and 0,1655 paw the Model. The null hypothesis is not rejected, so it is accepted that the residues are not correlated or absence of serial correlation in a test with a significance level of 10%.  According to the corrologram test of the residues, both Autocorrelogram and Partial Autocorrelogram, the tests indicate that the residues concentrate in the zone of acceptance of absence of constant auto correlation at the level of 10% of significance, given that their probabilities are greater than 10%.
Accordinting the normally test is widely known as the Jarque-Bera test. The test has as null hypothesis normality. Thus, if p-value is less than 5% (or 10%), p <0.05 (p <0.10), then normality is rejected. If p> 0.05 is accepted, normality is accepted. Only the p-value will not tell how big the deviation from normality is. The Jarque-Bera test uses as parameters the coefficients of kurtosis and asymmetry (which in normal are 3 and 0, respectively). The Jarque-Bera test of normalities of residues, its results are concentrated in the region of acceptance that the residues are normally distributed, it is known that the result of the probability of Jarque Bera in the test carried out corresponds to 93.14% for the proposed model.

Conclusions
A monetary policy to be effective must emit clear signals to the agents in order to stimulate them to act in the direction indicated by the policymakers. The sharper the signs of policy, the more confident and confident the agents will be. However, the ultimate goal of monetary policy is the well-being of society.
While it is difficult to disagree with this objective, there is certainly wide divergence among economists on how to implement it in practice. Monetarists emphasize the stability of the price level; Keynesian economists prefer the level of employment.
According to Law 16/10, of July 15, it is the responsibility of the National Bank of Angola to implement the monetary policy in the country, its main objective being the preservation of the value of the national currency and, therefore, to contribute to the stability of prices in the economy. In addition to conducting, executing, monitoring and controlling monetary, financial, foreign exchange and credit policies within the economic policy of the Executive Branch. The major limitation of this work is not to have a quarterly sample not satisfactory, and the existing monthly some variables are only available from 2011 this somewhat limit is may infer some conclusions ambiguous or not satisfactory.
The redefinition of objectives throughout the year is a sign that some information fails in macro executive programming because some objectives of nominal variables such as inflation are defined at the beginning of each year, sometimes in the middle of the year the objective is already exceeded and it becomes to redefine new inflation targets, this provides a sign of uncertainty in the economy of information or programming deficiency, i.e., some variables are being underestimated, so one should avoid redefining constant objectives throughout the calendar year .
The exchange problems must be solved either through diversification of the economy and the consequences of export diversification, since most of the inputs used in the production process depend on imports, i.e., large flows of external resources enter the balance of payments and also because of the level of imports. Thus, the exchange problems affect: (a) The performance of economic activity, which may cause large shocks in the market for goods and services on the supply side; (b) as well as in the supply of foreign exchange in the foreign exchange market. Therefore, this procedure may impede the effectiveness and efficiency of economic policy instruments and therefore affect the objective variable.
The choice of the use of operational tools by the BNA anchor nominal (monetary base) or interest rate should be clear, as the use of the tools will define the functioning of the economy, whether in the real sphere or also financial. The National Bank of Angola should not have too many illusions to affect the real variables in the long term since it is known that it is neutral. But you can use the intermediate variables to be able to affect the objective variable in the short term. The central bank must be, but communicative, and issue clear signals in the economy according to its master lines, although not all information is disclosed to the public taking into account the surprise effect of a policy. And finally, the clear definition of the objectives that the BNA can have and not accommodate the fiscal policy, when this happens many objectives of the central bank should be redefined depending on the state of the fiscal policy. The work is not conclusive because it opens a field of discussions for future authors that can contribute with the research done and criticizing or improving it.

Figure 3. Autocorrelation and Partial Coefficients
Source: Job Search.