inconsistent voting behaviour in the fomc this article uses transcript data to examine determinants of inconsistent voting behaviour in the federal open market committee fomc in the period 1989 2008 inconsistent voting behaviour occurs

tax management loss harvesting and hifo accounting virtually all companies and individuals are faced with the management of taxable assets to manage these assets efficiently investors need to be aware of the impact of taxes on investment returns in the study we report in this article we quantified the benefits of loss harvesting and highest in first out hifo accounting by using monte carlo simulations and investigated the robustness of these strategies in various markets and with various cash flows and tax rates we concluded that a market with high stock specific risk low average return and high dividend yield provides more opportunities to harvest losses in addition a steady stream of contributions refreshes a portfolio and allows the benefits of loss harvesting to remain strong over time conversely withdrawals reduce the advantages of realizing losses our findings show that no matter what market environment occurs in the future managing a portfolio in a tax efficient manner gives substantially better after tax performance than a simple i

whom can we trust to run the fed theoretical support for the founders views abstract the federal reserve has been called a bizarre policymaking structure this paper documents and formalizes a historical argument that the fed s structure was a response to public conflict over inflation s redistributive powers the paper shows that in the face of conflict over redistributive inflation policy by majority can lead to policy that is worse even for the majority than obvious alternatives in balancing the interests for and against surprise inflation the fed s structure can lead to a better outcome

having your cake and eating it too the before and after tax efficiencies of an extended equity mandate this article shows that extended mandates are especially effective for investors subject to taxes not only is the portfolio more efficiently positioned from a before tax perspective but it also offers significant after tax benefits from both increased loss harvesting and tax arbitrage between tax rates on long and short positions

regional house price dynamics and voting behavior in the fomc i introduction interest rate decisions by the federal open market committee fomc are not always made unanimously different individual views about the appropriate monetary policy stance may lead to the result that members cast dissenting interest rate votes in fomc meetings that is they opt for a higher or lower interest rate than proposed by the chairman of the fomc several studies find that fomc members have different views about the appropriate monetary policy when casting interest rate votes belden 1989 chappell and mcgregor 2000 chappell mcgregor and vermilyea 2005 2008 2012 gildea 1990 1992 havrilesky and gildea 1991 1995 havrilesky and schweitzer 1990 meade and sheets 2005 meade 2010 tootell 1991 1996 an important source of such dissenting votes may be the regional bias of the fomc member which is constituted by its regional affiliation several studies have examined the impact of the regional unemployment rate on the interest rate votes of fomc members while gildea 1992 meade and sheets 2005 and chappell mcgregor and vermilyea 2008 find that a higher regional unemployment rate relative to the national rate increases decreases fomc members preference for monetary easing tightening tootell 1991 finds no significant evidence 1 in this article we analyze whether fomc members align their interest rate voting behavior with house price developments of the federal reserve district they represent in addition to the regional unemployment rate studied so far in this way we can test whether regional house prices and or regional unemployment rates have a significant impact on the voting behavior of fomc members and we examine whether there are systematic differences between regional bank presidents and board members various studies have examined the link between monetary policy and asset price developments according to gilchrist and leahy 2002 there are some good reasons why central banks should align their monetary policies with asset prices first the consumer price index cpi or gross domestic product gdp deflator are incomplete measures since they only signal information on the prices of goods consumed today whereas a more complete measure would also signal future cost of living such as the information contained in asset prices alchian and klein 1973 second asset prices may be useful in forecasting inflation goodhart and hofmann 2000 third asset prices may directly affect real economic activity and inflation since for example wealthier consumers spend more which may affect price developments carroll otsuka and slacalek 2011 whether central banks should react to asset prices is however debated in the literature the traditional view is that central banks should only react to asset prices to the extent that they feed back into the conventional monetary policy goals inflation and output bernanke and gertler 1999 2001 on the contrary cecchetti et al 2000 conclude that it may be reasonable for central banks to react to asset prices in particular house prices in order to avoid the buildup of asset price bubbles as the burst of asset price bubbles may lead to financial crises reinhart and rogoff 2009 leaning against the buildup of extreme asset price changes may therefore be a reasonable choice for central banks as a part of their mission to manage systemic risk allen and carletti 2009 bordo and jeanne 2002 another rationale that central banks should take asset prices particularly house prices into account is that house prices have been shown to be suitable early warning indicators for the outbreak of the recent financial crisis kemme and roy 2012 several empirical papers analyze the impact of asset prices on interest rate setting rigobon and sack 2003 and dupor and conley 2004 find evidence that fomc interest rate decisions are influenced by equity prices on the contrary fuhrer and tootell 2008 find that fomc interest rate decisions are not a direct response to equity price movements and are an indirect response only to the extent that equity prices helped forecast the conventional monetary policy goals

does the federal reserve respond to errant money growth evidence from three monetary regimes this paper tests the hypothesis that the federal reserve responds to deviations between actual and targeted money growth with a corrective adjustment in their policy instrument the authors divide the sample period of 1975 87 into three monetary regimes their results suggest that the fed responded to errant money growth in the pre 1979 and the 1979 82 subperiods however the authors find no evidence that the fed responded to errant money growth in the post 1982 subperiod these results yield some insights into the source of the money supply announcement puzzle by lending support for what has been termed the policy anticipation effect copyright 1992 by ohio state university press

does a good central banker make a difference the personalities of central bankers moved center stage during the recent financial crisis indeed several central bankers even became superstars in this article we investigate whether superstar central bankers have an impact on economic performance we employ school grades given to central bankers by the financial press defining as superstars those central bankers receiving the top grade first we explain the grades in a probit estimation with measures of economic performance institutional features and personal characteristics second we employ a matching approach to account for the endogeneity of grading with respect to economic performance using entropy balancing we identify credible counterfactuals for top graded central bankers that is nonsuperstar central bankers who face similar situations comparing the economic performance of both groups we find that superstars do indeed matter a top graded central banker faces a significantly more favorable output inflation tradeoff than his peers this effect is driven by outstanding central bankers in both advanced and emerging economies and is especially prevalent in the precrisis subsample jel e52 e58

federal reserve independence abstract the federal reserve is always called an independent agency the term independent is rarely defined the only attempt in the literature and internal records is based on chairman martin s statement that the federal reserve is independent with the government not independent of the government martin explained several times that independence within government meant that the federal reserve helped to finance government budget because they were approved by congress and signed by the president financing budget deficits is the very opposite of the principle adopted when congress approved the federal reserve act in 1913 in fact the federal reserve has supported treasury operations many times i conclude that it is far more important to have an enforceable policy rule such as the taylor rule but any rule must have a provision that permits the rule to be set aside

rotating savings and credit associations the choice between random and bidding allocation of funds abstract the performance and efficiency of random and bidding rotating savings and credit associations roscas are compared within a game theoretic model information about individuals return from investing the rosca pool is assumed to be asymmetric and imperfect and rosca members are allowed to use funds raised outside the rosca to supplement the funds raised in the rosca the conclusion is that although both types of roscas can improve individual welfare the bidding rosca is preferred to the random rosca except when credit from other sources is costly and types of rosca members are not widely dispersed

political business cycles 40 years after nordhaus the aim of this article is to survey the huge literature that has emerged in the last four decades following nordhaus s rev econ stud 42 2 169 190 1975 publication on political business cycles pbcs i first propose some developments in history of thought to examine the context in which this ground breaking contribution saw the light of the day i also present a simplified version of nordhaus s model to highlight his key results i detail some early critiques of this model and the fields of investigations to which they gave birth i then focus on the institutional context and examine its influence on pbcs the actual research agenda finally i derive some paths for future research

forecast dispersion dissenting votes and monetary policy preferences of fomc members the role of individual career characteristics and political aspects using data from 1992 to 2001 we study the impact of members economic forecasts on the probability of casting dissenting votes in the federal open market committee fomc employing standard ordered probit techniques we find that higher individual inflation and real gdp growth forecasts relative to the committee s median significantly increase the probability of dissenting in favor of tighter monetary policy whereas higher individual unemployment rate forecasts significantly decrease it using interaction models we find that fomc members with longer careers in government industry academia non governmental organizations ngos or on the staff of the board of governors are more focused on output stabilization while fomc members with longer careers in the financial sector or on the staffs of regional federal reserve banks are more focused on inflation stabilization we also find evidence that politics matters with republican appointees being much more focused on inflation stabilization than democratic appointees moreover during the entire clinton administration natural monetary policy preferences of bank presidents and board members for inflation and output stabilization were more pronounced than under periods covering the administrations of both george h w bush and george w bush respectively

money politics and the post war business cycle abstract the political economy literature has enshrined as stylized fact the view that lower inflation and temporarily lower growth follow the election of republican presidents and has emphasized political manipulation of monetary policy as an explanation support for the monetary explanation comes in econometric work that largely ignores identification issues that dominate the literature on measuring the effects of monetary policy we generalize a standard vector autoregression framework to accommodate discrete political party variables we find almost no support for the view that political effects on the macroeconomy operate through monetary policy and only weak evidence that political effects are significant at all

the timing of partisan and nonpartisan appointments to the central bank some new evidence this paper empirically tests two prevalent but competing theories regarding the timing of appointments to the board of governors by presidential administrations both theories were developed simultaneously in the economics literature by havrilesky and gildea 1992 and waller 1992 and are observationally equivalent by suggesting that administrations will select partisans early in their four year terms and nonpartisans sectoral later in their four year terms although each bases this prediction on a different theoretical model several empirical replications with updated data sets presented here work to confirm the solutions put forth consistently by both models however the results of a new statistical test perhaps lends slightly more credence to the theoretical foundations of waller s bargaining model

financial services for microenterprises principles and institutions abstract this article argues for the use of a financial systems approach in the provision of financial services to the poor the experience of the last decade has produced a successful technology for credit delivery that utilizes sound financial principles as its basis that is understanding the needs of the client increasing efficiency by cutting administrative costs and using various techniques to motivate repayment savings receives equal emphasis as a financial service and several principles for its provision are discussed the institutional dimensions behind this approach focus on the need to achieve self sufficiency which the article frames as a four stage process finally the article outlines various factors related to creating financial institutions that reach the poor and the policy implications that these suggest

how well does the beige book reflect economic activity evaluating qualitative information quantitatively eight times a year approximately two weeks before every fomc meeting the federal reserve releases a description of economic conditions in the twelve federal reserve districts called the beige book this description relies primarily on surveys and anecdotal evidence gathered by the twelve district banks for this paper we read and numerically scored past beige books in order to determine the extent to which the descriptions in these books accurately reflect current economic activity as measured by quarterly real gdp growth we find that both in sample and out of sample the quantitative beige book indices do have significant predictive content for current and next quarter real gdp growth furthermore the beige book has information about current quarter real gdp growth not present in other indicators such as the blue chip consensus forecast or time series models that use real time data

the biases of federal reserve bank presidents this paper develops statistical tests which show that in federal open market committee voting federal reserve bank presidents as a group prefer less expansionary monetary policy than federal reserve board members further tests show that a subset of federal reserve bank presidents vote in a manner which is consistent with the partisanship of the u s president during whose term they were appointed membership in this subset is highly correlated with a career as an economist these results have implications for reforms which would alter the voting power of bank presidents on the fomc

a long history of fomc voting behavior we devise and apply a method for estimating monetary policy reaction functions for individual members of the federal open market committee fomc of the federal reserve our method uses members votes on the monetary policy directive in fomc meetings as the key source of data on individual preferences the analysis provides a ranking by preference for ease for 84 fomc members who served during the 1966 1996 period

the objectives and priorities of monetary policy under different federal reserve chairmen this paper utilizes a monetary policy reaction function that relates policy intentions to forecasts of policy objectives estimates of this reaction function over the post accord period suggest that the burns period was unique while the martin and volcker periods were extremely similar the burns period was structurally distinct from both the martin and volcker periods further model specifications that allow for an independent influence on monetary policy from different presidential administrations also imply that there are significant differences in monetary policy under different fed chairmen copyright 1990 by ohio state university press

portfolio tax trading with carryover losses we study portfolio choice with multiple stocks and capital gains taxation assuming that capital losses can only offset current or future realized capital gains we show through backtesting using empirical distributions that optimal equity holdings over an extended period are significantly lower on average than benchmark holdings suggested in the literature using value and growth or small and large portfolios the backtests show that allocations remain persistently underdiversified carryover losses have large economic significance since they can dramatically shrink the no trade region finally the backtested economic cost of incorrectly modeling capital losses is at least 8 of lifetime wealth the internet appendix is available at https doi org 10 1287 mnsc 2017 2733 this paper was accepted by neng wang finance

monetary policy theory and practice in respect of the theory of monetary policy i am reminded of the comment that jacob viner made many years ago at a meeting of the american economic association about alfred marshall s economics what is new is highly unlikely at this late date also to be true and significant 1 consequently i shall restrict my remarks on theory to trying to summarize what i regard as the present intellectual position

the influence of fomc member characteristics on the monetary policy decision making process abstract this paper provides new empirical evidence on a monetary policy committee with heterogeneous members whose decisions affect the efficacy of monetary policy it thereby provides a link between the literature on monetary policy committees and central bank monetary policy implementation through monetary rules using a novel dataset of the idiosyncratic characteristics of fomc members over the period from august 1979 to february 2014 the empirical findings show that characteristics such as education age and to a lesser extent work experience are not important in understanding the fomc decision making process instead the results point to the importance of time spent within the federal reserve system tenure on the fomc itself and the influence of the chair in shaping the decision making process the results are expected to have implications for the capacity of economic agents as well as various markets in the economy to more readily interpret public monetary policy information that reaches them this makes the monetary policy decision process less noisy and thus enhances the capability of agents and markets to attach the correct weight to this information

do after tax returns affect mutual fund inflows abstract this paper explores the relationship between the after tax returns that taxable investors earn on equity mutual funds and the subsequent cash inflows to these funds previous studies have documented that funds with high pretax returns attract greater inflows this paper presents evidence based on a large sample of retail equity mutual funds over the period 1993 1999 that after tax returns have more explanatory power than pretax returns in explaining inflows in addition funds with large overhangs of unrealized capital gains experience smaller inflows all else equal than funds without such unrealized gains a large capital gain overhang discourages both gross fund inflows and gross outflows but the inflow effect dominates the outflow effect

a decade of dissent explaining the dissent voting behavior of bank of england mpc members we examine the dissent voting record of the bank of england monetary policy committee contrary to findings in the fomc literature for example havrilesky and schweitzer in the political economy of american monetary policy pp 197 210 1990 chappell et al in q j econ 108 1 185 218 1993 the effects of members career backgrounds and the political channel of appointment on voting behavior are negligible reflecting the distinct institutional constraints and incentives associated with uk monetary policy our findings also suggest that literature which characterizes voting behavior as being predominantly determined by members internal or external status is overly simplistic this view is supported by econometric results appertaining to the introduction of member specific fixed effects which account for possible unobserved heterogeneity

the frequency of monetary policy signaling from the administration to the federal reserve note recently this journal published a paper that reported the first hard evidence of direct and systematic administration influence on monetary policy havrilesky 1988a an index was constructed from a simple weekly sum of the number of wall street journal articles that indicated whether the administration desired either easier 1 or tighter 1 monetary policy the index signaling from the administration to the federal reserve or safer was premised on the notion that the financial press efficiently reports the content of the mostly informal exchanges that are occumng between the executive branch and the fed one problem with using this index as a means of continually measuring an administration s influence on monetary policy and whether its signals are heeded regularly or only episodically say as presidential elections approach l is that periodically the level of signaling shifts rather abruptly for example a precipitous drop in signaling occurred after 1984 the yearly average of the absolute value of monthly signals fell by over one half in the 1984 1988 period compared to the 1981 1984 period the break coming in 1985 when the yearly total of the absolute value of monthly signals fell to six as compared to twenty two in 1984 2 unless such shifts can be explained standard reaction function estimation of the causes and consequences of signaling is not feasible across all time periods this paper will attempt to explain these and other changes in signaling over the period from october 1974 to december 1989 using data on the state of the economy and the partisan composition of the federal reserve board of governors except for the welldocumented shift that occurred during the reagan administration it will be as

the influence of the federal advisory council on monetary policy the federal advisory council consists of twelve bankers elected by federal reserve bank directorates who advise the federal open market committee every three months on their desired direction for monetary policy this paper tests the conjecture that the council s directives to the committee contain information that predicts subsequent changes in interest rates and committee directives regression equations and granger causality tests do not disprove the conjecture this is the first hard evidence of private interest group influence on monetary policy copyright 1990 by ohio state university press

bureaucracy altruisme and monetary policy a note from a forecasting perspective sets over the period 1916 1987 their structured critique is consistent with the earlier work of strong 1984 boyd 1984 allen mccrickard cartwright and delorme 1988 mester 1994 and others in general all question the findings of toma 1982 shughart and tollison 1983 boyes mounts and sowell 1988 and others that bureaucratic effects and institutional incentives have had a significant impact on the development and conduct of monetary policy an underlying issue in this debate is whether variables proxying bureaucratic or institutional effects emanating from the incentives contained in the structure

determinants of inflationary performance corporatist structures vs central bank autonomy studies by economists have shown that countries with autonomous central banks experience lower inflation than others banian laney and willett 1983 and bade and parkin 1987 one reason for this may be that countries with autonomous central banks are less likely to monetize their deficits burdekin and wahar 1990 studies by political scientists have used measures of the strength of corporatist structures to explain macroeconomic outcomes cameron 1984 however neither economics nor political science research has employed measures of both central bank autonomy and the strength of corporatist structures to explain comparative inflation rates the present paper tests whether measures of corporatist structures and central bank autonomy explain the comparative inflation performance of eighteen industrialized countries this issue is of great importance for students of piecemeal monetary reform in countries where the central banking structure is susceptible to reorganization the results of this paper should inform parties who are active in the reformation and reorganization of central banks in lesser developed and nascent market economics throughout the world

financial access and exclusion in kenya and uganda abstract policy emphasis has recently shifted to finance for all given evidence that financial sector development contributes to growth but effects on poverty do not arise from pro poor provision we argue that given this policy goal analyses of barriers to access must be country specific and go beyond the emphasis on transactions costs to incorporate the effects of social institutions since these contribute to discrimination this paper uses data from financial access surveys carried out in 2006 in kenya and uganda to investigate the socio economic demographic and geographical factors influencing access to and exclusion from formal semi formal and informal financial services

congressional influence on u s monetary policy abstract congressional influence is generally discounted or ignored in political models of federal reserve behavior here i show that changes in the leadership of the senate banking committee are significantly correlated with monetary base growth more liberal committee leaders are associated with significantly higher base growth other factors held constant the result is shown to hold across several econometric specifications and different definitions of the congressional preference variable

microenterprise credit programs deja vu abstract microenterprises in low income countries are the target of an increasing number of credit programs these efforts resemble earlier problematic attempts to assist operators of small farms with credit similarities discussed include target group definition assumptions policies and project justifications authors go on to list a dozen lessons from the experience with small farmer credit that might apply to microenterprise credit efforts authors then conclude that debt is not an effective tool for helping most poor people to enchance their economic conditions be they operators of small farms or microenterprises

the regional representation of federal reserve bank presidents recent litigation has questioned the constitutionality of having federal reserve bank presidents serve on the federal open market committee inherent but undocumented in these lawsuits is the belief that district bank presidents vote differently than federal reserve governors at federal open market committee meetings this paper analyzes the voting behavior of federal reserve bank presidents and uncovers a regional bias in their monetary policy preferences presidents representing regions with higher unemployment rates or with larger percentages of democratic voters tend to vote for more expansionary monetary policy this study provides yet another clue to the monetary policymaking behavior of federal reserve officials copyright 1992 by ohio state university press

regional influences on fomc voting patterns this paper looks at the monetary policy decisions of the u s federal reserve and asks whether observed voting patterns have been driven entirely by national concerns or whether regional factors have also played a role we find that fed policymakers take into account developments in regional unemployment when casting votes on monetary policy these results are robust to different specifications of the voting equation this research is relevant for the fed and it may also be relevant for europe s fledgling central bank in frankfurt in light of regional differences within the euro area

the educational and professional background of central bankers and its effect on inflation an empirical analysis we assume that central banks can control inflation so that inflation rates reflect the preferences of the central bank council the hypothesis to be tested is that these preferences depend on the central bankers educational and or professional background in a panel data analysis for the euro area and eleven countries since 1973 we explain inflation either by the weights with which the educational and professional characteristics of the 391 council members were represented in the various central bank councils or by the education or profession of the median council members control variables are added using professional background weights we find that former members of the central bank staff and in some specifications former insurance executives commercial bankers other businessmen and public servants prefer significantly lower inflation rates than former union leaders and politicians do in the median voter analysis former central bankers commercial bankers businessmen and public servants are also significantly more inflation averse than economic scholars as for the education of the council members our results are less robust however if the median member of the central bank council has studied business the inflation rate is significantly lower than if she has studied economics taking educational and professional background together central banks seem to attract or produce primarily economists who are monetary conservatives whereas keynesian economists are more prominent in academia jel classification e42 e58

tax managed factor strategies we examine the tax efficiency of an indexing strategy and six factor tilts between june 1995 and march 2018 average value added by tax management exceeded 1 50 per year at a 10 year horizon for

bank branch presence and access to credit in low to moderate income neighborhoods banks specialize in lending to informationally opaque borrowers by collecting soft information about them some researchers claim that this process requires a physical presence in the market to lower information collection costs the author provides evidence in support of this argument in the mortgage market for low income borrowers mortgage originations increase and interest spreads decline when there is a bank branch located in a low to moderate income neighborhood

presidential politics budget deficits and monetary policy in the united states 1960 1976 this paper has focused on the extent to which the traditional tools of macroeconomic management in the united states monetary and fiscal policy have contributed to a political business cycle regardless of whether politicians can successfully influence real economic variables to their own ends the evidence presented here suggests that they tried and that they enjoyed some at least indirect aid from their independent monetary authorities in doing so several major conclusions emerge

ngo performance what breeds success new evidence from south asia abstract what is the best way for nongovernment organisations ngos to make a lasting impact on poverty this paper summarizes the findings of recent research into the impact sustainability and cost effectiveness of two ngos in india and two projects implemented by save the children fund uk in bangladesh the factors determining performance are explored through the interaction of organizational decisions with the external context although these interactions are complex and dynamic some clear conclusions emerge making a difference to livelihoods and capacities among poor people depends on ngo successes in fostering autonomous grassroots institutions and linking them with markets and political structures at higher levels these conclusions question the current predilection among donor agencies to fund large scale ngo service delivery

the determinants of tenure on the federal reserve board of governors should i stay or should i go this paper examines the quit behaviour of members of the federal reserve board of governors we find that the probability of a member continuing is lower when the member is an economist when the member comes to the board from the private sector and when their policy views differ from the board as a whole in addition we find evidence that the president can exert influence on the fed by the power of appointment and in contrast with what one might expect we find that salaries on the board relative to the private sector do not seem to be an important factor in determining the decision to continue service on the board

the policy preferences of fomc members as revealed by dissenting votes comment the purposes of this comment are to present evidence that casts doubt on several of the conclusions of susan belden s recent paper in this journal 1989 and to suggest directions for future research in this area to begin there is skepticism that dissenting votes at least as belden measures them can be unbiased indicators of policy preferences in addition belden partially recognizes but does not fully specify three influences on federal open market gommittee fomc member voting that are prominently featured in the literature these influences are 1 fomc member training background and career experience 2 state of the economy measures and 3 partisanship measures each of these factors alone may help to explain one of belden s three major findings first the training backgrounds and career experiences of bank presidents may help to explain belden s affirmation of their penchant to dissent from fomc directives on the side of monetary tightness second the state of the economy may help to explain belden s finding of a decline in dissent voting when arthur burns was chairman of the federal reserve third differences between the party of the president and the partisan composition of the board of governors may help to explain belden s discovery of shifts in ease and tightness dissent voting behavior under different chairmen since this comment will indicate how these influences qualify belden s elndings it will at the same time suggest fruitful directions for the research agenda in this area

a little at a time the use of regularly scheduled repayments in microfinance programs abstract informal lenders appear to be thriving even in regions where microfinance institutions mfis such as the grameen bank have established lending programs we suggest that an explanation for this well documented observation lies in the ubiquitous use of regularly scheduled repayments by mfis borrowers are typically required to repay their loans in tightly structured installments beginning soon after loan disbursement this little remarked aspect of the repayment schedule is usually explained as inculcating fiscal discipline among borrowers we argue that an alternative rationale for this loan repayment structure lies in the difficulty of monitoring borrowers actions the potential for moral hazard leads mfis to use innovative mechanisms such as regularly scheduled repayments which indirectly coopt the better informed informal lenders conversely this installment repayment structure allows informal lenders to survive further we show that this linkage can not only expand the volume of informal lending but may also raise the interest rate in the informal sector

reliable and unreliable partisan appointees to the board of governors every new appointment to the board of governors in recent years has triggered speculation as to how the new governor will vote in fomc meetings while several studies have hinted at partisan voting behavior by governors no study has yet attempted to identify reliable and unreliable partisan voting behavior and to pinpoint the background characteristics of governors that distinguish between the two this paper indicates that board members with a background in economics consistently voted in line with the economic ideology of the appointing president noneconomists on the board however displayed no such partisan voting behavior and were seen to be influenced by pressures emanating from the administration and by the monetary environment prior to their appointment over the 1951 to 1987 period most presidents have appointed reliable governors earlier in their presidential terms when the returns from being able to influence subsequent monetary policy are great and have chosen unreliable governors later in their terms when election support from the interest groups that these unreliables represent is important the results of the present paper suggest skepticism toward the recent spate of rational expectations game theoretic models which feature a dictatorial policy maker gaming atomistic market participants whose only political activity voting generates monetary surprises followed by convergence to an equilibrium because of their obsession with the ceremonial formalism of their genre these models ignore a vast complementary literature and as a consequence display conspicuously flimsy institutional and historical premises instead the present paper argues for the greater relevance of models of uncoordinated interaction between multiple political and private principals and federal reserve agents

bashing and coercion in monetary policy bashing and coercion in monetary policy i introduction we ve got excess plant capacity i don t think that growth is excessive i have not been overly concerned with inflation president bush in a february 14 1989 interview with the wall street journal p a8 with the economy running close to potential the risks seem to be on the side of a further strengthening of price pressure chairman greenspan in testimony before congress on february 21 1989 reprinted from the wall street journal february 22 1989 p a2 many investors appeared to be confused by conflicting statements by bush greenspan and other u s officials wall street journal february 22 1989 p a1 if the fed pushes interest rates significantly higher bush may go public with critism wall street journal march 24 1989 p a1 recent research in macroeconomic policy games by rogoff 1985 alesina 1988 tabellini 1987 and waller 1989a has concentrated on the importance of an independent central bank in a discretionary policymaking environment in the original work on policy games by barro and gordon 1983a 1983b no distinction was made between the monetary authority and the fiscal authority but these researchers argue that because the fiscal authority may have incentives to create excessive inflation giving the powers of money creation to an independent monetary authority whose inflation preferences differ from the current fiscal authority may enable society to reduce the equilibrium inflation rate this results holds even though monetary policy is still chosen in a discretionary fashion therefore backus and driffill 1985a 537 conclude autonomous central banks thus act as a precommitment device which may help to make noninflationary policies more credible and less costly implicit in the term independent is the belief that the central bank is free to choose monetary policy without interference from the fiscal authority administration however this is not generally the case the appointment of central bankers by the legislative or executive branch of the government governmental oversight of policy decisions or political pressure on the central bank by these branches will tend to influence the setting of monetary policy and subsequently the extent to which the central bank is truly independent 1 kane 1984 argues that even if it is not able to directly choose monetary policy the current administration still may be able to achieve its preferred monetary growth path by putting pressure on the monetary authority to do its bidding restricting the powers of the central bank public criticism of central bank performance here after referred to as bashing 2 exclusion from fiscal policy planning which hurts the egos of central bankers or undertaking actions which damage the post central bank income or opportunities of the central bankers are ways he suggests in which the administration can coerce cooperation from the central bank in creating excessive money growth such arguments have given rise to the view that the administration is engaged in a reputation building game with the central bank although the central bank has control of the money supply the administration can threaten to impose a welfare loss by bashing the central bank if it does not generate the monetary policy preferred by the administration the success of this strategy depends on the size of the bashing costs imposed on the central bank and also on the extent to which these threats are credible credibility in turn depends on the benefits and costs incurred by the administration in carrying out its threats as a result the administration may choose to bash the central bank if it does not produce the administration s preferred money inflation outcome by establishing a reputation for bashing the administration may be able to obtain its desired policy outcome in the future

the congressional bureaucratic system a principal agent perspective with applications to the sec this paper provides the theoretical perspective and empirical support for congressional dominance of agency decisions my thesis is twofold first because much of the previous evidence on this question is not evidence at all many scholars intuition and conclusions are based on a logically flawed foundation second i have provided here and in previous work a look at a variety of different agencies and in each case have shown how the events can plausibly be interpreted as involving congress agency problems within the congressional bureaucratic system are real and substantial just as they are within corporations however as in the latter institutional forms develop within the congressional system to partially if not wholly mitigate these problems the logical perspective together with the evidence provide a strong case against the agency dominance hypothesis as typified by the early sections of niskanen 1971 and wilson 1980

the political economy of american monetary policy preface 1 introduction thomas mayer 2 studying the fed towards a broader public choice perspective thomas willett 3 the federal reserve reaction function a specification search salwa khouri 4 corporate profitability as a determinant of restrictive monetary policy estimates for the post war united states gerald epstein and juliet schor 5 federal reserve behavior since 1980 a financial market perspective william melton and v vance roley 6 the federal reserve and its institutional environment a review michael munger and brian roberts 7 the political economy of monetary policy robert hetzel 8 political monetary cycles nathaniel beck 9 congress and the fed why the dog does not bark in the night nathaniel beck 10 the federal reserve as a political power james pierce 11 monetary policy and political economy the federal reserve and the bank of japan thomas cargill and michael hutchinson 12 a positive analysis of the policymaking process at the federal reserve raymond lombra and nicholas karamouzis 13 a theory of fomc dissent voting with evidence from the time series thomas havrilesky and robert schweitzer 14 explaining fomc members votes john gildea 15 fed behaviour and x efficiency theory toward a general framework harinder singh and roger frantz 16 minimizing regret cognitive dissonance as an explanation of fomc behavior thomas mayer 17 the discount window william poole 18 leaning against the wind the behavior of the money stock in recession and recovery 1953 8 elmus wicker 19 bureaucratic self interest as an obstacle to monetary reform edward kane index

political parties and the business cycle in the united states 1948 1984 this paper tests the existence and the extent of a politically induced business cycle in the u s in the post world war ii period the cycle described in this paper is different from the traditional political business cycle of nordhaus it is based on a systematic difference between the monetary policies of the two parties in a model with labor contracts from an explicit optimization problem we derive a system of equations for output and money growth then we successfully test the non linear restriction imposed by the theory on the parameters of the system of equations we cannot reject the hypothesis that money growth has been systematically different under the two types of administration and that this difference contributes to explain output fluctuations

agent heterogeneity and consensual decision making on the federal open market committee the consensual aspects of decision making are essential for understanding policy made by administrative organizations that take the form of a commision or board consensual decision making reflects the degree of policy cohesion exhibited by high level officials within administrative organizations it is proposed here that this type of behavior may differ between heterogeneous agents the federal open market committee fomc of the federal reserve system serves as a salient setting for testing these propositions in a time series context the empirical results indicate that major intra institutional differences exist between board of governor bog and regional bank president rbp members of the federal open market committee fomc regarding consensual behavior in terms of policy decision making the econometric evidence clearly demonstrates that the consensual behavior of these agents are fundamentally different from one another this in turn has important implications for the study of other commission and board policy making bodies that consist of agents who are not all homogeneous

monetary policy preferences of individual fomc members a content analysis of the memoranda of discussion the memoranda of discussion provide detailed records of federal open market committee fomc meeting deliberations procedures are developed for coding the textual data in the memoranda and assessing the reliability of those codings the codings are then used in the estimation of parameters of individual fomc members reaction functions data from the 1970 to 1976 period are employed in the estimation in the future similar methods could be used to analyze newly released transcripts of fomc meetings held after 1976

the effect of fomc votes on financial markets this paper shows that since votes of members of the federal open market committee have been included in press statements stock prices increase after the announcement when votes are unanimous but f

monetary policy signaling from the administration to the federal reserve this chapter employs the index of monetary policy signaling from the administration to the federal reserve safer that was developed in chapter two the safer index is a simple weekly sum of articles that appeared in the wall street journal in which administration officials expressed a desire for easier 1 or tighter 1 monetary policy a key assumption is that systematically over time the financial media capture the essence of communication that is going on between the executive branch and federal reserve officials 1 the signaling index is employed in ordinary least squares regressions for the period from january 1964 to november 1991 cumulative values of the safer index over a three week period as an explanatory variable are found to have a statistically significant effect on the average federal funds rate during the third week as the dependent variable further evidence suggests that the safer index is granger causal with respect to the federal funds rate after classifying the signals by sources within the administration oval office council of economic advisers treasury and other and unidentified sources it is shown that for the overall 1964 1991 period signals from the treasury department and from other and unidentified sources have a statistically significant effect on the federal funds rate while signals from the oval office and the council do not when the data are segmented according to who was the chairman of the federal reserve board at the time ordinary least squares results indicate that the federal reserve did not systematically respond to executive branch signaling in a statistically significant way when william mcchesney martin g william miller and alan greenspan were chairmen but did respond statistically significantly to administration signaling during portions of the periods during which arthur burns and paul volcker were chairmen

why doesn t society minimize central bank secrecy i introduction central banks have repeatedly revealed a preference for secrecy in conducting monetary policy in the united states for example the federal reserve has expressed its bias towards policy secrecy in a number of ways ranging from delays in releasing the minutes of federal open market committee fomc meetings to ambiguous policy statements at congressional hearings 1 nevertheless the degree of disclosure required by congress and the court system does not appear to minimize central bank secrecy indeed the fed s right to limit disclosure of policy intentions was upheld in a recent supreme court case 2 furthermore similar social tolerance of central bank secrecy appears in the banking institutions of other countries since legal and social institutions allow for central bank secrecy its presence may be attributed to the preferences of the social planners who designed these institutions in the first place forward looking planners know that monetary policy in future periods will be the outcome of a symbiotic relationship between monetary authorities politicians and private interest groups 3 as the relative importance of these different groups and their preferences change over time so will the policy objectives of the monetary authorities if secrecy is allowed monetary authorities could effect policy changes in response to relationship changes without immediate detection by private markets recognizing this policy effect of secrecy a social planner would design institutions to affect the environment so that desirable future policy formation takes place 4 this paper offers two explanations for why social institutions do not legally minimize central bank secrecy 5 first when establishing institutional disclosure requirements for central banks social planners recognize the tendency for central bankers to be secretive this secrecy imposes costs upon members of society by making shifts in policy objectives more difficult to detect faced with this tendency members of society set legal institutions that appear to require less disclosure because more restrictive laws would induce central bankers to become more secretive in other less informative ways 6 second if the policy objectives that society finds desirable change over time then members of society may directly prefer some degree of central bank secrecy economic theory holds that unanticipated changes in monetary policy can have an economic effect intuitively secrecy allows central banks to conduct unanticipated policy actions in periods when on average society most prefers them for example in periods when public opinion favors pushing down unemployment central banks may conduct a surprise monetary expansion 7 the paper develops examples of each of these two effects using a discretionary equilibrium similar to that in cukierman and meltzer 1986a the desired trade off between two policy objectives changes over time in response to changing political pressures although i use the trade off between output and inflation as an example the basic results hold with any policy trade off that varies over time the policy objectives could include targets for real exchange rates or interest rates for instance the plan of the paper is as follows section ii describes the discretionary equilibrium given institutional settings for the conduct of monetary policy sections iii and iv describe examples of each of the two explanations for secrecy described above concluding remarks follow ii the degree of policy disclosure in a discretionary equilibrium when the policy objectives of the monetary authorities shift over time due to changing economic or political circumstances their choice of discretionary policy also shifts 8 in the absence of a mechanism to pre commit to a particular policy rule the authorities will implement policy changes

a multinominal logit analysis of the influence of policy variables and board experience on fomc voting behavior previous studies have used probit or logit models to analyze two states of monetary policy tighter or looser in this paper we employ multinominal logit to permit federal reserve monetary policy to assume one of three alternative states tighter looser or no change as a function of three independent economic variables unemployment real growth and inflation and the amount of experience of the board of governors the results indicate that the federal reserve reacted differently under burns miller and volcker and between volcker s two operating procedures in the formulation of monetary policy

a bargaining model of partisan appointments to the central bank abstract in this paper a bargaining model is developed to analyze the appointment of central bankers in a two party political system the major results of the paper are 1 the party in power will appoint partisans early on but later appointments will be increasingly moderate in their views concerning monetary policy 2 changing the timing of the appointment of the board chairman from the end of a president s term in office to the first period of the president s term will lead to more partisan monetary policy 3 in equilibrium nominations to the board are not rejected thus confirmation hearings appear to be nothing more than a rubber stamp process 4 lengthening the terms on the board relative to the electoral cycle will lead to more moderate appointments to the central bank and a reduction in partisan policymaking

partisan monetary policies presidential influence through the power of appointment we investigate the channels through which partisan influence from a presidential administration could affect monetary policy making influence could be a result of direct presidential pressure exerted on members of the federal open market committee fomc or it could be a result of partisan considerations in presidential appointments to the board of governors to investigate these two channels of influence we devise and apply a method for estimating parameters of monetary policy reaction functions that can vary across individual members of the fomc our results suggest that the appointments process is the primary mechanism by which partisan differences in monetary policies arise

the tax benefits of separating alpha from beta long only active investment strategies have an inherent flaw investors pay capital gains taxes on market related gains as well as on the alpha created by separating alpha and beta taxes can be r

congressional influence on u s monetary policy a reconsideration of the evidence abstract one of the few works that finds strong evidence of congressional influence on u s monetary policy is grier 1991 which finds a direct relationship between the liberalism of the senate oversight committee leadership and monetary base growth we extend this analysis by considering a longer sample period and by considering the preferences of house oversight committee leaders in addition to senators grier s evidence is not robust to these extensions where we do find correlation between congressional preferences and monetary base growth increased liberalism of congressional oversight committees is associated with lower monetary base growth

does government ideology matter in monetary policy a panel data analysis for oecd countries this paper examines whether government ideology has influenced monetary policy in oecd countries we use quarterly data in the 1980 1 2005 4 period and exclude emu countries our taylor rule specification focuses on the interactions of a new time variant index of central bank independence with government ideology the results show that leftist governments have somewhat lower short term nominal interest rates than rightwing governments when central bank independence is low in contrast short term nominal interest rates are higher under leftist governments when central bank independence is high the effect is more pronounced when exchange rates are flexible our findings are compatible with the view that leftist governments in an attempt to deflect blame of their traditional constituencies have pushed market oriented policies by delegating monetary policy to conservative central bankers

regional banking instability and fomc voting abstract this study analyzes if regionally affiliated federal open market committee fomc members take their districts regional banking sector instability into account when they vote considering the period 1979 2010 we find that a deterioration in a district s bank health increases the probability that this district s representative in the fomc votes to ease interest rates according to member specific characteristics the effect of regional banking sector instability on fomc voting behavior is most pronounced for bank presidents as opposed to governors and fomc members who have career backgrounds in the financial industry or who represent a district with a large banking sector

the immediate challenges for the european central bank immediate challenges for the ecb issues in formulating a single monetary policy this paper discusses a number of issues that the newly constituted board of the ecb will face early on conducting a european monetary policy will be very different from living under the protective umbrella of the bundesbank we discuss voting on the ecb board and argue that the ability to communicate with the public will be critical for the success of the new institution we also ask how a single monetary policy a common change in the interest rate controlled by the ecb is transmitted to the economy of each member country we show that the monetary process differs significantly inside emu initially at least the cost of a disinflation episode could fall disproportionately on a few member countries those with both a financial structure that spreads a monetary contraction widely and a wage price structure that is relatively inflexible this process moreover is sure to evolve in part as a result of financial industry restructuring already under way but in part accentuated by the common money furthermore as the lucas principle suggests the wage price process itself will adapt to the changing focus of european monetary policy rudi dornbusch carlo favero and francesco giavazzi

a political model of monetary policy with application to the real fed funds rate abstract we construct an empirical model of u s monetary policy assuming that the federal reserve is an ordinary federal bureaucracy we use the real federal funds rate as our policy measure and show the existence of significant executive legislative and bureaucratic influence on the real rate of interest from 1961 to 1996 we find that presidential party is an adequate statistical measure of executive influence and that the voting scores of the senate banking committee leadership best represent legislative influence we argue that political changes cause systematic and predictable changes in monetary policy

central bank behavior a positive empirical analysis abstract the central bank is analyzed as a utility maximizing unit acting in the framework of a politico economic model it derives utility from keeping the price level stable and is constrained by government the structure of the economy and the political commitment to stable exchange rates it uses a satisficing strategy concentrating on keeping conflicts with government below a certain level in the case of serious conflict the central bank follows the policy directions undertaken by government but with a time lag the complete model comprising endogenous consumer voters government and central bank is econometrically tested for germany with good results

managing credit for the rural poor lessons from the grameen bank abstract this paper based on a detailed study of the grameen bank in bangladesh suggests that the credit policies of the bank do not constitute a sufficient explanation for the bank s success and that its acclaimed policy of replacing individual collateral with group guarantee is in fact not practiced the paper presents an alternate explanation for the success of the grameen bank in addition it explains how the grameen bank has been able to overcome typical problems of implementing development programs by sustaining good performance from its large work force and keeping to a minimum the tendency of a few target beneficiaries to corner program benefits and flout organizational norms for their personal benefit

presidential influence on the federal reserve in the 1970 s this research examined presidential influence on federal reserve monetary policy in the 1970s a reaction function for the change in the federal funds rate was estimated and then checked to determine whether that reaction function shifted at politically important points the two political influences studied were elections and administration the federal reserve did not appear to manipulate the money supply in 1972 to aid president nixon s reelection the reaction function shifted between the nixon and ford administrations it did not shift with the ascension of carter and it did not shift with the replacement of chairman arthur burns by chairman william miller

majority rule consensus building and the power of the chairman arthur burns and the fomc this paper investigates decision making within the federal open market committee of the federal reserve focusing on the competing pressures of majority rule consensus building and the power of the chairman to undertake this analysis we have constructed an original data set recording desired federal funds rates for each member of the committee over the 1970 78 period our results confirm a disproportionate influence of the chairman in the policy process they also confirm that other voting members of the committee have an impact on policy choices estimates indicate that the chairman exercises 40 to 50 of the voting weight in committee decisions

portfolio constraints and the fundamental law of active management active portfolio management is typically conducted within constraints that do not allow managers to fully exploit their ability to forecast returns constraints on short positions and turnover for example are fairly common and materially restrictive other constraints such as market capitalization and value growth neutrality with respect to the benchmark or economic sector constraints can further restrict an active portfolio s composition we derive ex ante and ex post correlation relationships that facilitate the performance analysis of constrained portfolios the ex ante relationship is a generalized version of a previously developed fundamental law of active management and provides an important strategic perspective on the potential for active management to add value the ex post correlation relationship represents a practical decomposition of performance into the success of the return prediction process and the noise associated with portfolio constraints we verify the accuracy of these relati

federal open market committee structure and decisions abstract this paper examines the dissents of federal open market committee members regarding the domestic monetary policy directive it shows that on balance governors appointed by democratic u s presidents dissented significantly on the easier side while governors appointed by republican u s presidents dissented significantly on the tighter side the pattern of dissents for the reserve bank presidents was like that of republican appointees to the board of governors the bank presidents voting did not reflect regional points of view furthermore the timing of the dissents by both the governors and presidents did not seem to be associated with the onset of congressional or presidential elections

policy preferences of fomc members as revealed by dissenting votes the composition of the federal open market committee the ability to predict the effect of policy decisions on economic and f1nancialvariables and political influence from the white house and the congress are all potentially significant determinants of monetary policy decisions this study uses the record of dissenting votes from federal open market committee meetings to consider the relevance of these influences tests for differences between voting patterns of bank presidents versus members of the board of governors and differences during various historical periods provide insight into four questions 1 are the policy preferences of bank presidents different from those of the members of the board 2 does uncertainty about the economic and financial results of policy actions influence the level of dissent 3 is there a difference in the pattern of dissent under different chairmen and 4 is there effective political influence on monetary policymakers the legitimacy of district bank presidents serving on the fomc has been challenged in the courts and the legislature challengers fear that district bank presidents who serve without executive or legislative approval prefer policy that produces lower inflation and higher unemployment relative to the policy preferred by members of the board who are appointed by the president and confirmed by the senate rogoff 1985 argues that in the presence of market distortions it is better for society to have central bankers who attach a larger weight than the society s

rural credit markets and institutions in developing countries lessons for policy analysis from practice and modern theory this article presents evidence of the failure of government intervention in rural credit markets of ldcs in the past three decades it then shows how lessons for policy analysis can be drawn from modern theory particularly those theories focussing on credit rationing in competitive markets and interlinking of credit contracts with labor and land contracts the article outlines the policy implications of these theories and finds them insufficient to account for the empirical evidence it contends that a more systematic and rigorous analysis of institutions and institutional environments is essential for understanding and implementing effective policy reforms of rural credit markets it presents suggestions for undertaking such an analysis

private sector influences on monetary policy in the united states i examine the extent to which the federal reserve s monetary policy actions are correlated with the expressed wishes of private sector lobbying groups i update and extend work by havrilesky 1990 1993 regarding the effect of signals from the banking industry through the federal advisory council fac i also construct a new database containing statements from non financial interest groups i find that monetary policy actions are correlated with signals from non financial groups before 1979 but not after and are correlated with signals from the fac after 1979 but not before i also find that the fed s policy stance more closely matches the preferred stance of the banking industry after 1979

the performance of village intermediaries in rural credit delivery under changing penalty regimes evidence from senegal this article concerns the use of village intermediaries to mitigate asymmetric information problems in rural credit delivery we consider an example from senegal and examine the intermediaries screening of loan applicants the results show that when the intermediaries expected to incur a substantial penalty in the event of borrower default they engaged in appropriate screening allocating credit to borrowers likely to repay their loans when the default penalty was lowered however the intermediaries engaged in opportunistic screening emphasising political affiliation and consanguinity in their lending decisions these results reveal both the potential efficacy of village intermediaries in allocating credit and their extreme sensitivy to penalty regimes

appointment procedures and fomc voting behavior an important issue for the conduct of monetary policy in the united states is whether the various appointment procedures of members of the federal open market committee help determine their voting behavior it is usually asserted that the method by which district bank presidents are appointed leads to more independence and or more conservative behavior increased independence is generally believed to reduce suboptimal short run manipulation of monetary policy but at the cost of reducing the central bank s accountability to the country s short run and longrun objectives the social desirability of any potential differences in monetary policy resulting from these appointment procedures and the optimality of discretionary policy in general are not addressed in this paper however instead the effect on monetary policy of the different appointment procedures currently in place within the federal reserve system is examined does the increased independence that the district bank presidents supposedly possess produce significantly different monetary policy from that of the politically appointed board governors many studies have examined the effects various appointment procedures may have on voting at the fomc and the results have been somewhat mixed belden 2 chappell havrilesky and mcgregor 3 havrilesky and gildea 6 and puckett 8 find that bank presidents tend to vote for tighter policy than board governors while tootell 10 finds no differences between the two groups most of the literature has concluded that in some unclearly defined way and for no clear theoretical reason the more independent district presidents are more conservative than the board governors in this paper conservative is defined over several clear dimensions in order to test whether district presidents vote more conservatively than board governors some slight variation in the voting behavior of bank presidents and board governors is found but the causes of any dissimilarities are shown to be much different from those asserted in the earlier literature

what ever happened to poverty alleviation abstract the failure of many programs directed toward alleviating poverty is better understood than the successes this paper identifies the traits that characterize several better performing programs funded by the ford foundation traits that are not commonly found in such programs all focused narrowly on a particular trade or activity in the beginning used credit as an entry point started by brokering loans rather than lending directly and had leadership linked to powerful institutions participants were already engaged in the economic activities supported by the programs marketing channels existed and powerful consumer groups were often in favor of production by beneficiary groups though these findings seem obvious few programs funded by donors display these characteristics suggesting that donors choose programs and organizations more carefully and not limit their funding to the nongovernmental sector

microenterprise development programs in the united states and in the developing world abstract sparked by examples from bangladesh bolivia indonesia and other developing countries hundreds of microenterprise programs have been started in the united states will these us efforts be successful this paper reviews the evidence and concludes that microenterprise development is much more difficult in the united states than in the developing world the paper suggests some ways to address the challenges of us microenterprise development

the federal reserve s response to aggregate demand and aggregate supply shocks evidence of a partisan political cycle the orthodox approach to modeling the fed s response to economic conditions is to employ a monetary policy reaction function most reaction functions are estimated by regressing a policy indicator possibly the federal funds rate or a monetary aggregate on variables that describe the state of the economy such as unemployment inflation and growth in output under certain conditions which we discuss below estimated coefficients from a reaction function provide information about the fed s monetary policy priorities moreover extending the model to include election and partisan dummy variables may provide information about the fed s response to political pressures there are two problems with interpreting the coefficients in a standard reaction function as the weights that the fed attaches to its policy objectives first the monetary policy decision may not be represented accurately by an aggregate reaction function one that models the fed as a whole because there are twelve voting members on the fomc chappell havrilesky and mcgregor 10 have recently addressed this issue by employing a disaggregated set of reaction functions the second problem with interpreting reaction function coefficients as the weights the fed places on its policy objectives is that this interpretation implicitly assumes structural stability of the underlying macroeconomy abrams froyen and waud 1 31 acknowledge this shortcoming when they state coefficients from estimated reaction functions do not provide direct information on policymaker utility functions rather than being the solution to an unconstrained optimization dependent only on policymaker preferences reaction functions are the output of a constrained maximization where the constraints are the reduced form equations that characterize