stabilizing inflation in the open economy optimal monetary policy in the open economy continues to be of interest to the profession as in benavie and froyen 1 and price level stabilization has been investigated by bradley and jansen 4 marquis and cunningham 13 and fischer 6 among many others price level stabilization has also been investigated in the monetary policy literature by for example black 2 or black and gavin 3 the academic literature has included analysis of price level stabilization in a variety of macroeconomic frameworks ranging from overlapping generations models to equilibrium business cycle models and keynesian contracting models what has been lacking however is a rigorous analysis of price level stabilization in the open economy this apparent omission is interesting because the most famous historical application of price level targeting occurred in the 1930s in sweden a small open economy in this paper we carefully examine the effectiveness of price level or inflation stabilization in the small open economy 2 employing an equilibrium business cycle model with differentially informed agents we find that when shocks to the economy exhibit some persistence inflation stabilization has favorable output stabilization properties relative to alternative monetary policies further these beneficial aspects of inflation stabilization exist whether or not agents contemporaneously observe the money stock the only instance in which inflation stabilization policy is not preferred is when all shocks to the economy are strictly temporary shocks and when uninformed agents can not observe the money stock contemporaneously finally in all instances we find that price level stabilization is preferred from a macroeconomic stabilization perspective to exchange

how delegation improves commitment abstract mccallum 1995 american economic review papers and proceedings 85 2 207 211 conjectures that delegation merely relocates the commitment problem but does not solve it this holds if optimal ex ante policies do not change if additional information becomes available however with a flexibility credibility trade off delegation improves credibility

rogoff s conservative central banker restored we show that delegation of monetary policy to a weight conservative central banker can be desirable although the government can also use an inflation contract an employment target an inflation target or any combination of these to control the central banker the key feature of our model is a stochastic inflation bias arising when wage setters receive some information about a supply shock prior to signing nominal wage contracts weight conservatism is found to be desirable if fully state contingent delegation is not possible and the stochastic inflation bias cannot be eliminated by optimal choice of the delegation parameters

a local income and employment multiplier analysis of a proposed nuclear power station development at hinkley point in somerset nuclear power stations have a range of local economic implications for their host localities some direct through local employment on the development others more indirect resulting from the filtering through into the local community of income and expenditure this paper focusses on the indirect effects using a disaggregated dynamic multiplier approach the case study used is that of the proposed pressurized water reactor pwr nuclear power station development at hinkley point in somerset england the analysis highlights the significance of the indirect effects and the importance of disaggregation by expenditure category and over time a particularly important distinction is that between the indirect effects associated with the construction stage of the development and with the operational stage

should renewable energy policy be renewable political flexibility brings about trade offs for policy makers aiming to support the deployment of renewable energy sources res on the one hand it allows incorporating new information on ex ante uncertain benefits and costs of res policy on the other hand it may deter res investments this paper scrutinizes how these trade offs play out economically and politically when res policy makers choose the degree of flexibility as well as the instruments to implement flexibility the analysis builds on a theoretical framework distinguishing between flexibility by design and by adjustment it is complemented by a discussion of three case studies res support schemes in germany and the united kingdom and the eu emissions trading scheme theoretical as well as empirical results suggest that the politically chosen degree of flexibility by policy design may be sub optimally low in contrast flexibility by policy adjustment is often excessively high

on the low frequency relationship between public deficits and inflation summary we estimate the low frequency relationship between fiscal deficits and inflation and pay special attention to its potential time variation by estimating a time varying vector autoregression model for us data from 1900 to 2011 we find the strongest relationship neither in times of crisis nor in times of high public deficits but from the mid 1960s up to 1980 employing a structural decomposition of the low frequency relationship and further narrative evidence we interpret our results such that the low frequency relationship between fiscal deficits and inflation is strongly related to the conduct of monetary policy and its interaction with fiscal policy after world war ii copyright 2015 john wiley sons ltd

the institutional foundations of monetary commitment a comparative analysis abstract this paper adopts an institutional perspective on the problem of designing governance structures for restraining monetary policy this perspective broadens the standard literature on central bank independence in several dimensions first although it recognizes that an independent central bank is one important institutional arrangement it also considers a much broader variety of institutional arrangements that have been used historically and today to restrain monetary policy second it considers not only the formal or legal institutional arrangements governing monetary policy but also the broader environment or institutional endowment in which those formal arrangements are embedded third this paper is concerned with the problem of enforcement given the institutional endowment in which formal monetary rules are implemented how likely are they to stick broadening the perspective in these ways frames the issue as a matching problem when it is recognized both that countries differ in the nature of their institutional endowments and that there is an array of possible formal arrangements that can be adopted to govern monetary policy the question then becomes how best to align the formal arrangements with the endowment in which they will be embedded case studies of diverse monetary policy making institutions in cote d ivoire argentina thailand and new zealand are used to motivate and illustrate the analysis

area policy impacts a multiplier analysis of gear this paper attempts to quantify the employment and income effects of the glasgow eastern area renewal gear programme on its target area this is done using an augmented keynesian multiplier approach the multiplier model is adjusted to take into account the particular characteristics of the injection and the fact that the target area is small and well integrated within a large conurbation the results are disaggregated so that the impact of each element of the programme is separately identified and the overall results are subject to sensitivity analysis although the estimated increases in employment and income are large in absolute terms they are small relative to the decline that immediately preceded the introduction of the gear programme

issues in new political economy an overview a brief overview of the historical background nature and rapid growth in volume and scope of new political economy since the early 1980s is provided the paper continues with some general reflections on the strengths and weaknesses of the new political economy approach illustrated by the other contributions to this special issue of the journal of economic surveys the final section summarises these contributions

time consistent collection of optimal seigniorage a unifying framework this paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations it develops a unifying accounting framework and suggests a general measure for seigniorage which encompasses the standard measures employed in the literature in addition the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the ramsey principle we show that the different recommendations of the public finance literature i e the friedman rule of optimal deflation moderately positive inflation and seigniorage maximizing inflation are specific solutions to the optimal taxation problem the paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion as possible solutions to the time consistency problem we consider reputational forces institutional reforms that establish central bank independence and specific ways of asset and debt management in particular it is formally shown that a modified version of the asset and debt management scheme suggested by persson persson and svensson is not only necessary but also sufficient for optimality although this did not hold in their model

openness and inflation a new assessment romer 1993 uses a barro gordon type model to argue that openness puts a check on the government s incentive to engage in unanticipated inflation because of induced exchange rate depreciation 2 therefore in the absence of precommitment in monetary policy more open economies will tend to have lower inflation rates romer finds that empirically over a large sample of countries and over a broad time frame average inflation rates are lower in smaller more open economies this relationship is significant quantitatively large and robust moreover these findings suggest that models in which the absence of precommitment in monetary policy leads to inefficiently high average levels of inflation are essential to understanding inflation in most of the world this comment suggests that the negative link between inflation and openness romer found may be largely driven by the responses of severely indebted countries sics to the debt crisis of the 1980s figures i and ii show the scatterplots of the logarithms of average inflation and openness for the subperiods 1973 to 1981 predebt crisis and 1982 to 1990 the debt crisis period different groups of countries are separated according to their indebtedness level 3 the solid lines in the figures represent the predicted value of inflation obtained from a regression of openness on inflation for the countries in each group as the scatterplots show there is indeed a strong negative relation between openness and inflation among sics during the debt crisis

the distribution of school leaver unemployment within scottish cities this paper examines the phenomenon of intra urban unemployment in the context of school leaver unemployment in scottish cities unlike much of the previous work in this area the paper avoids the ecological fallacy by utilising data on individual school leavers from the 1981 scottish school leavers survey in conjunction with detailed small area statistics from the 1981 decennial census probit analysis is employed to avoid certain statistical problems the results indicate that in terms of employment probabilities there is little evidence of any area effects within scottish cities in this sense there is one urban labour market in which personal characteristics matter but where area of residence is of little import these findings were found to hold in aberdeen dundee edinburgh and glasgow within each of these cities the effects of inter city variations in unemployment rates was found to fail disproportionately on the less qualified and less advantaged young job seekers

when and how much to talk credibility and flexibility in monetary policy with private information abstract this paper analyzes the role of noisy or imprecise announcements in mitigating the basic credibility problem in monetary policy based on a model where the monetary authority s private information gives rise to an unavoidable trade off between flexibility and credibility the analysis finds that noisy announcements can serve as a meaningful form of communication to make that trade off more favorable however such talk is not cheap the analysis predicts that those central banks who can speak more precisely are those who are less likely to speak at all

estimating the benefits of job creation from local investment subsidies this paper reviews the application of project appraisal techniques to analysing the cost effectiveness of local investment subsidies advance factory building cost per job measures are shown to be dependent upon the method of assessing the number of jobs created and the assumptions used in evaluating exchequer as well as social costs and benefits if realistic probabilities are adopted about the likelihood of previously unemployed persons obtaining a job other than in the advance factories then such local investment subsidies are not economically viable in exchequer terms local investment subsidies may be justified on cost benefit grounds but even by this criterion the number of subsidy created relative to subsidy diverted jobs is crucial to the decision

price level targeting vs inflation targeting a free lunch price level targeting without base drift and inflation targeting with base drift are compared under commitment and discretion with persistence in unemployment price level targeting is often said to imply more short run inflation variability and thereby more employment variability than inflation targeting counter to this conventional wisdom under discretion a price level target results in lower inflation variability than an inflation target if unemployment is at least moderately persistent a price level target also eliminates the inflation bias under discretion and as is well known reduces long term price variability society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting a price level target thus appears to have more advantages than commonly acknowledged

policy review section in this policy review section gerry stoker of the institute of local government studies presents a critical review of the role of urban development corporations udcs in comparing the experience of the udcs consideration is given to the varying nature of the land and property market in each udc area to the relationship with local authorities and other local bodies and the regeneration strategies pursued by the udcs this is followed by an assessment of the impact of the udcs in economic social and political terms in the second article john britton of the university of toronto examines the theoretical case for interventionist public policies to assist the innovation process in small and medium sized enterprises these arguments are supported by a review of the experience of various national support programmes introduced in the uk in particular the manufacturing advisory service introduced in 1978 and the design advisory service launched in 1982

meltzer s history of the federal reserve this review argues that allan meltzer s account of the fed between 1913 1951 complements friedman and schwartz s in their monetary history meltzer emphasises policy making within the system rather than the evolution of the money supply and its effects on the economy he stresses the uncertainty of the fed s independence before the 1951 accord and the effects of economic ideas notably the real bills and riefler burgess doctrines on policy many virtues in the book are noted and one weakness a failure to explain why inadequate ideas became dominant within the fed when sounder alternatives were available in contemporary monetary thought

on the performance of nominal income targeting as a strategy for monetary policy in a small open economy abstract there is a great deal of support for nominal income targeting in the literature on strategies for monetary policy in a closed economy framework is nominal income targeting equally attractive in a small open economy this paper compares nominal income targeting to alternative monetary policy rules in a stochastic macro model for a small open economy we find that both the weighting in the overall price level of the exchange rate and foreign prices and the elasticity of output supplied with respect to the real exchange rate are important factors in assessing the attractiveness of nominal income targeting in a small open economy where the size of both parameters is not negligible a rule targeting the overall price level may actually be preferred to nominal income targeting

destabilizing effects of exchange rate escape clauses abstract this paper studies policy rules with escape clauses analyzing as an example fixed exchange rate systems that allow member countries the freedom to realign in periods of stress while well designed escape clause rules can raise society s welfare in principle limited credibility makes it difficult to implement such rules in practice an ems type institution that imposes political costs on policymakers who realign may raise welfare but can also produce equilibria far inferior to an irrevocably fixed exchange rate switches between multiple equilibria may have the character of sudden speculative attacks

the effectiveness of monetary policy anchors firm level evidence analyses of monetary policy posit that exchange rate pegs inflation targets and central bank independence can help anchor private sector inflation expec tations yet there are few direct tests of this argument we offer cross national micro level evidence on the effectiveness of monetary anchors in controlling private sector inflation concerns using firm level data from eighty one countries approximately 10 000 firms we find evidence that international anchors exchange rate commit ments correlate significantly with a substantial reduction in private sector concerns about inflation while domestic anchors inflation targeting and central bank inde pendence do not our conjecture is that private sector inflation expectations are more responsive to exchange rate anchors because they are more transparent more con straining and more costly than domestic anchoring arrangements the literature on monetary policy highlights the role of monetary institutions in stabilizing private sector inflation expectations central bank independence cbi inflation targeting it and fixed exchange rates pegs are widely viewed as insti tutions that have the capacity to mitigate private sector concerns that policymak ers will exploit them after they have locked in their price wage and investment decisions while other empirical research explores the institutional correlates of inflation and its variability yielding mixed results we use firm level data in our study to directly assess the impact of monetary anchors on private sector inflation concerns we find evidence that pegs mitigate firm owners concerns with infla tion but that domestic anchors such as it and cbi are uncorrelated with our micro indicators of inflation expectations considerable research has investigated the use of it cbi and pegs as institu tions that establish monetary policy credibility whereas these anchors are expected

job additionality and deadweight spending in perfectly competitive industries the case for optimal employment subsidies abstract this paper links the old literature on employment subsidies with the current theories of contract and regulation one important source of inefficiency of employment subsidies is non additional employment and deadweight spending which occur when private firms receive a subsidy for jobs that would have been created without the subsidy we identify the asymmetry of information between the government and the private firm as the source of these problems when the government proposes optimal incentive contracts to promote employment we show that all employment creations are additional and that the deadweight spending is equal to the information rent which may be null when firms types are discrete

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

the european central bank independence accountability and strategy a review this paper reviews research on central banking and monetary policy with special emphasis on the position of the future european central bank nowadays it is often thought that an independent central bank with an explicit mandate to aim for price stability constitutes an important institutional device to assure price stability indeed the ecb will be one of the most independent central banks as follows from the codings of various indicators measuring legal independence still it does not follow straightforwardly from the literature that the statute of the ecb is optimal it is also argued that the accountability of the ecb is poorly arranged for in comparison with that of several national central banks finally the discussion about the monetary strategy of the ecb is reviewed

a new assessment of openness and inflation reply terra 1998 argues that my finding romer 1993 of a negative relationship across countries between openness and inflation is actually caused by the severely indebted countries over the debt crisis period she proposes an explanation of the openness inflation relationship based on indebted countries need to raise revenue to repay their debts the smaller a country s trade share the more depreciated the real value of the currency must be in order to generate a given trade surplus as a share of gdp and the more depreciated the currency the greater the pressure on the government s budget and thus the greater pressure to inflate in contrast in my paper i argue that the relationship stems from imperfect commitment in monetary policy the less open the economy the greater the benefits of surprise inflation and thus the higher the level of inflation in the absence of complete commitment terra has uncovered interesting variation in the opennessinflation relationship across countries and over time nonetheless i want to make three brief points that suggest that the channel she proposes accounts for only a modest part of the overall relationship first terra s results do not justify her claim that the relationship is a product only of the severely indebted countries sics during the debt crisis this can be seen from her table i for the sics the openness inflation link in the precrisis period though weaker than during the crisis is large and statistically significant the estimates for the moderately indebted countries although imprecise suggest a relationship that is very similar to that for the sics in both periods and for the less indebted countries the point estimates again suggest a negative relationship indeed for the full sample period the coefficient on openness is significantly different from zero only for the high income countries terra s all other countries is there no evidence of a negative association between openness and inflation

evaluation of deadweight spending in regional enterprise financing tokila a and haapanen m evaluation of deadweight spending in regional enterprise financing regional studies the problem of deadweight spending has been previously studied using diverse methods however regional variations in deadweight spending have not yet been considered an evaluation of regional business subsidies in finland during 2000 2003 is conducted the analysis reveals regional differences in deadweight spending in proportional and particularly in monetary terms deadweight spending is dependent on many firm project and regional level factors which also largely account for regional differences however there seems to be some regional variation in deadweight spending that originates from differences in the subsidy processes among regions tokila a et haapanen m evaluer les investissements non productifs dans l aide regionale a la creation d entreprise regional studies dans le passe la question des investissements non productifs a ete etudiee a partir de diverses methodes cepend

factors underlying the employment effects of financial assistance policies this paper examines the employment creation effects of financial assistance to industry the assistance schemes covered are the regional policy instruments of regional development grant and regional selective assistance and the assistance policies of local authorities and a number of other agencies using survey data and regression techniques it is shown that there are significant variations in cost effectiveness between assistance schemes and between projects of different purpose a policy implication of this is that agencies could increase the employment creation effects of their policies by focusing assistance on particular types of project

the limits of independence and the policy of the ecb it is argued that the european central bank s independence is not as secure as it seems and that as a result it has appreciable institutional incentives to protect and enhance its position it follows that its behaviour should not be understood as being solely determined by the pursuit of price stability one consequence is that certain points on which it has been criticised on the basis that its approach makes for ineffective monetary policy might be better understood as often effective attempts to protect its position another is that making a central bank or any other institution completely independent may be much harder than it seems and failed attempts which come close are not necessarily to be preferred even by the advocates of independence to less ambitious designs

central banking as a political principal agent problem i introduction conventional wisdom holds that during election periods political leaders have incentives to misuse policy instruments to enhance their chances of reelection rogoff and sibert 1988 construct a rational political economy model of monetary policy based on this theme 1 the results of their model can be interpreted in the following way 2 society elects a leader every other period whose competence affects the level of output in the economy and private agents will tend to vote for the incumbent if the level of output is expected to be higher than that which can be provided by an unknown challenger voters have imperfect information regarding the politician s true impact on output and exogenous shocks to output and consequently cannot disentangle the effects of one from the other in an election period this asymmetry of information gives the incumbent an incentive to expand output through the use of inflationary monetary policy in order to appear more competent than he really is however rational voters are aware of this incentive to inflate and adjust their expectations such that in equilibrium no gain in output occurs and the economy suffers from excessive inflation an implication of the rogoff sibert model is that unless a society does away with elections as a way to choose policymakers excessive inflation and a political inflation cycle will be an unavoidable cost of democracy however societies can try and have tried to avoid these ill effects by taking the power of money creation away from the elected officials and giving it to an appointed independent central banker who will presumably pursue the public good but can this approach actually work the problem with this proposal is that the central bankers well being in many respects reappointment post central bank employment opportunities avoidance of public criticism etc often hinges on pleasing their political benefactors giving the central bankers incentives to act in the interest of elected officials 3 as a result the central banker could pursue objectives different from society s and may actually function as a veil for the elected policymaker in the real world this veil is not complete but partial and hence we can characterize the relationship between the monetary authority and society as a principal agent problem the advantage of delegating power to an appointed central banker and then erecting appropriate institutions is that the inflation problems may be resolved without abandoning the electoral process in this paper we develop a rational political business cycle model that starts from the foundations laid down by rogoff and sibert we depart from their model by having monetary policy delegated to a central banker who is appointed by the elected leaden the concern about reappointment is what motivates the agency problem the central banker would like to be reappointed and this desire leads her to partially accommodate the wishes of the current administration which in turn may not coincide with the desires of the electorate we then analyze the problem faced by a central banker who is concerned about her own selfinterest as well as social well being it is this feature that turns the setting of monetary policy into a political principal agent problem the contributions of our approach to modelling the agency problem of central banking are 1 it explicitly incorporates reappointment concerns into the decision process of the central banker which heretofore has not been done in the literature and 2 we explicitly model the source of the agency problem unlike previous research that simply assumes an agency problem exists our key results are as follows in equilibrium the pursuit of her own self interest leads the central banker to create a socially inefficient inflation bias while rogoff and sibert also obtain this result our explicit functionalform model allows us to analyze this bias in more detail and tie it directly to the strength of the relationship between the central banker and the current administration

political parties and district council economic policies 1978 90 strong political party effects have previously been found in local government economic policies in london this paper assesses whether the same holds true for the 333 non metropolitan district coun

evaluating irish industrial policy in terms of deadweight and displacement a quantitative methodological approach evaluation should consider what would have happened in the absence of assistance to produce an assessment of this counter factual scenario involves considering the twin concepts of deadweight and displacement an evaluative framework is developed for measuring the impact of grant assistance to individual firms logit regression analysis is used to estimate predictive models for deadweight and displacement the data were gathered during face to face interviews with the managing directors of firms that received grants from shannon development in the shannon region of ireland self assessment approach the objective was to establish whether certain characteristics of grant assisted firms can predict probable deadweight and displacement effects in the case of deadweight it was found that grant type size of firm whether investment appraisal carried out by firm included grant received and whether firm was a first time or repeat grant recipient all impact on the level of deadweight regarding displacement

can local incentives alter a metropolitan city s economic development cities in the us and europe have chosen increasingly to offer incentives designed to attract and retain local economic development the increased use of local incentives has occurred with little or

two fallacies concerning central bank independence this paper takes issue with two basic conclusions prevalent in the literature on central bank behavior first the paper argues that it is inappropriate to presume that central banks will in the absence of any precommitment technology necessarily behave in a discretionary fashion that implies an inflationary bias since there is no functional connection between average rates of money creation or inflation and policy responsiveness to cyclical disturbances it is entirely feasible for the bias to be avoided in other words there is no necessary tradeoff between flexibility and commitment second to the extent that the absence of any absolute precommitment technology is nevertheless a problem it will apply to a consolidated central bank plus government entity as well as to the central bank alone thus contracts between governments and central banks do not overcome the motivation for dynamic inconsistency they merely relocate it this abstract was borrowed from another version of this item

the flexible few oligarchs and wealth defense in developing democracies based on an original large n dataset of individual ukrainian oligarchs and qualitative evidence this article tests competing perspectives on the political power of big capital we find surprising

review of allan h meltzer s a history of the federal reserve volume 2 university of chicago press 2009 abstract this is a review of allan meltzer s a history of the federal reserve volume 2 by carefully reviewing thousands of transcripts and records meltzer s history lets policy makers explain their decisions in their own words and creatively weaves historical events into a single exceptionally clear story as he did in volume 1 in this review i first examine the book s main theme that discretionary monetary policy failed in the great depression 1929 1933 in the great inflation 1965 1980 and in the recent great recession 2007 2009 and then consider its main conclusion that monetary policy should be based on less discretion and more rule like behavior

partially independent central banks politically responsive governments and inflation theories of central bank independence have more exact implications regarding inflation in different political economic environments than generally understood or empirically examined they imply that inflation in any given country time will be a weighted average of what it would be if the central bank completely controlled monetary policy and what it would be if the government completely controlled it with the degree of central bank independence weighting the former an equation embodying this theoretical expectation is estimated by constrained least squares from a time series cross section of inflation rates in developed democracies since the bretton woods era the results confirm that the antiinflationary benefit of central bank independence is not constant but rather depends on every variable in the broader politicaleconomic environment to which wholly autonomous central banks and governments would respond differently conversely the inflationary impacts of all such political economic variables depend on the degree of central bank independence

optimal reputation building in the new keynesian model abstract we study the optimal committed monetary policy when the private sector has imperfect information and has to infer the central banker s ability to commit the optimal policy is designed to influence learning and improve the central banker s reputation of being committed the reputation building implies that when a committed central banker first takes office he should resist the temptation to stimulate output with initially high but declining inflation he should reverse a missed inflation target rather than accommodate it and he should adopt a less accommodative inflation response to a cost push shock than a full commitment solution suggests

public inflation aversion and the political economy of macroeconomic policymaking do the macroeconomic priorities of citizens differ across countries if so what accounts for this variation and what are its consequences for explanations of the choice of monetary institutions macroeconomic policy and international monetary cooperation this article uses survey data from twenty advanced economies to examine individual preferences about macroeconomic priorities the analysis establishes three key findings first the results suggest that economic context defined by inflation and unemployment performance has a substantial impact on the public s economic objectives in a way that is broadly consistent with the specification of utility loss functions in the theoretical political economy literature second the results suggest that there is significant cross country variation in inflation aversion controlling for economic context third some of this variation is accounted for by national level factors affecting the aggregate costs of inflation and unemployment these results have significant implications for optimal monetary policymaking the explanation of variation in economic outcomes and for accounts of the choice of institutional frameworks for policymaking i thank the bank of england the center for basic research in the social sciences and the institution for social and policy studies for research support and jim alt andrew bailey bill bernhard lawrence broz john freeman jeff frieden jim granato shigeo hirano david lake jeff lax simon price rose razaghian ron rogowski david stasavage gabriel sterne mike tomz jim vreeland the editor and two anonymous reviewers for helpful comments all views expressed are those of the author and do not represent those of the bank of england

the stabilizing properties of a nominal gnp rule the author examines the ability of a nominal gnp rule for monetary policy to stabilize output and inflation other regimes considered are a money rule an exchange rate rule a price level rule and discretion the rules compare favorably to discretion to the extent that a time consistent commitment to a nominal anchor is needed to eliminate an inflationary bias in the economy the choice among the four rules depends on the relative magnitudes of the disturbances considered supply shocks velocity shocks and exchange rate shocks the nominal gnp rule dominates the exchange rate and other rules for plausible parameter values copyright 1995 by ohio state university press

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

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

dynamic commitment and incomplete policy rules considering the dynamics of commitment highlights some neglected features of time inconsistency problems we modify the standard rules versus discretion question in three ways 1 a government that does not commit today retains the option to do so tomorrow 2 the government s commitment capability is restricted to a class of simple rules and 3 the government s ability to make irrevocable commitments is restricted three results stand out first the option to wait makes the incumbent regime rules or discretion relatively more attractive second the option to wait means that increased uncertainty makes the incumbent regime more attlwactive third because the commitment decision takes place in real time policy choice displays hysteresis when monetary policy is subject to dynamic inconsistencies optimal policy requires some precommitment by the central bank despite a proliferation of mechanisms designed to address this problem work in this area has continued to assume a once and for all choice between rules and discretion this paper asks two closely related questions first what happens if commitment decisions are made in real time so that failure to commit today does not rule out the possibility of commitment tomorrow second if governments can make only commitments that are difficult but not impossible to reverse what determines the dynamics of commitment and reversal the assumption of once and for all choice enforces simplistic dynamics on the policy process if the standard models are interpreted literally for example the commitment problem for u s monetary policy is moot having been resolved with the founding of the federal reserve system in 1914 if not at the constitutional convention of 1789 much of the interest in dynamic inconsistency however arises pre

review of a history of the federal reserve volume i 2003 by allan h meltzer abstract this is a book review of a history of the federal reserve volume i 2003 by allan h meltzer

the inflationary bias in a model of the open economy a note abstract in this paper we highlight the importance of aggregate supply effects on the size of the inflationary bias under discretionary policy making using a simple model of an open economy that imports a foreign resource input we show that under discretion the inflationary bias bears an inverse relationship to the elasticity of output supplied with respect to the real exchange rate this theoretical finding is consistent with romer 1993 romer d 1993 openness and inflation theory and evidence quarterly journal of economics 108 869 903 empirical results that point to the existence of a negative association between openness and inflation

classifying monetary economics fields and methods from past to future we propose a simple yet sufficiently encompassing classification scheme of monetary economics it comprises three fundamental fields and six recent areas that expand within and across these fields the elements of our scheme are not found together and in their mutual relationships in earlier studies of the relevant literature neither is this an attempt to produce a relatively complete systematization our intention in taking stock is not finality or exhaustiveness we rather suggest a viewpoint and a possible ordering of the accumulating knowledge our hope is to stimulate an improved understanding of the evolving nature and internal consistency of monetary economics at large

the displacement and multiplier effects of regional selective assistance a computable general equilibrium analysis this paper uses a hybrid approach to simulate the effects of regional selective assistance rsa for scotland this combines industrial survey estimation of the direct impacts and computable general equilibrium cge modelling of the system wide effects the results are compared to those derived using the method currently adopted in official evaluation studies of rsa and other regional regeneration policy instruments the cge approach captures capacity labour market displacement and migration effects ignored in existing studies simulation identifies the conditions under which these effects are likely to be quantitatively important a partir d une facon hybride cet article cherche a simuler pour l ecosse l impact des primes regionales une estimation des effets directs a partir d une enquete aupres de l industrie se voit allier a la modelisation des effets generalises par une analyse d equilibre general sur ordinateur on compare les resultats a ceux qui proviennent des methodes employees actuellement

inflation in open economies abstract this paper relates the time consistent inflation rate to the degree of trade openness of an economy the mechanism linking the welfare effects of monetary surprises and hence the incentives to inflate to openness does not rely on a large country terms of trade effect but rather is due to imperfect competition and nominal price rigidity in the non traded sector the empirical evidence supports the main predictions of the model 1997 elsevier science b v

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

on the impossibility of central bank independence four decades of time and intellectual inconsistency the intellectual justification for modern central banking time inconsistency celebrated its fortieth anniversary in 2017 alongside the cambridge journal of economics however the key progeny of the time inconsistency literature central bank independence has fundamental flaws that have been thus far neglected in mainstream research in the first instance the argument for independence relies on a utilitarian rather than institutional analysis one that neglects the genesis of central banks and their relation to other institutions within a country second central bank independence neglects the complex interdependencies of the global monetary and financial system applying an institutional lens to the concept of central bank independence i conclude that independence fails under the reality of globalization as much as it does in a domestic context with central banks reliant on all manner of political institutions they are never really independent operationally or in terms of policy

do we really want an independent central bank the issue of an independent central bank is assessed in the context of experience in the u k economy the historical role of the bank of england is examined revealing that the success of anti inflation policy depends on the exchange rate regime as well as on the institutional arrangements holding between the bank and government inflation targets are discussed but independence is also addressed by seeing how other targets such as nominal gdp might perform the theoretical arguments for and against an independent central bank are discussed in detail it is argued that partial independence where the central bank enjoys autonomy in relatively good states and is overridden in bad states is the preferred form of independence attention is drawn to the costs arising owing to a lack of coordination of policy when the finance ministry may compete against the central bank in the case where the latter is independent copyright 1994 by oxford university press

targeting jobs to local people the british urban policy experience the paper compares the effectiveness of a number of employment generating schemes in terms of the proportion of jobs created going to locally resident unemployed workers whilst the paper establishes that considerable leakages do occur a wide range of experience is identified which may in part be due to the differing methodologies used by the policy analysts concerned this is due to the often inadequate attention paid to the study of local labour market institutions and dynamics some categories of workers continue to be systematically discriminated against and policies which are currently being developed may help some of these workers overcome obstacles but without identifying and dismantling labour market barriers

inflation taxes and the coordination of monetary and fiscal policy by use of a game of chicken in this study some of the consequences of an uncertain policy struggle game of chicken between independent taxing agencies a monetary and a fiscal authority are exam ined we show that policy uncertainty may improve upon regimes where there is no uncer tainty and one agency succeeds in implementing a low tax policy at the expense of the other agency an uncertain tax policy never dominates a fully coordinated tax policy but it can move average tax rates in the right direction in this sense the game of chicken between agencies can be beneficial and can compensate for the lack of a specific coordinating admin