does central bank transparency impact financial markets a cross country econometric analysis blinder et al 2001 argues that more open public disclosure of central bank policies may enhance the efficiency of markets we examine this claim by studying for a set of seven industrialized countries whether selected central banks moves toward more open disclosure during the 1990s improved or worsened the predictability of the corresponding national financial markets employing methodologies analogous to campbell and schiller 1991 we find that for all countries the forecasting error has decreased for interest rates on the respective government bonds across most maturity lengths and that the expectations hypothesis has generally performed better at the short end of the yield curve our results also tentatively show that the effects are stronger for central banks that made the move to greater disclosure compared to those banks that resisted increasing the public s information set these findings are consistent with tabellini s 1987 view that central bank secrecy will hinder the smooth functioning of financial markets

central bank transparency and the crowding out of private information in financial markets we use an asset market model based on diamond 1985 to demonstrate that increased central bank transparency may lead to crowding out of costly private information which can result in a market that is less able to predict monetary policy consequently for intermediate levels of public information precision it is optimal for the central bank to actually disclose less than it knows we show that such crowding out can occur even in the likely scenario that public information is more precise than private information under the plausible assumption that traders are nearly risk

monetary mystique secrecy and central banking abstract the paper contains a discussion of the role of secrecy in the implementation of monetary policy it documents the federal reserve s defense of secrecy as argued in a recent freedom of information act suit the federal reserve s arguments are evaluated on the basis of economic theory theoretical papers related to the secrecy issue are reviewed the discussion highlights a number of potential benefits and costs of central bank secrecy and identifies some conditions under which secrecy could be socially beneficial

the term premium time varying interest rate volatility and central bank policy reaction abstract the solution of the mccallum policy reaction model of the term structure of interest rates including a volatility dependent term premium indicates that the performance of the expectations hypothesis of the term structure ehts in simple regression and arch in mean framework is strongly affected by policy reaction this finding is illustrated with us data for the 1973 1995 period

the theory of taxation for developing countries tax policy has far reaching implications for economic development and public administration this book which presents a modern theory of public finance brings together many of the most distinguished economists who have written on the subject they provide coherent principles for tax design and a systematic framework for the analysis of practical questions of tax reform and pricing policy in developing countries the book is especially timely as countries experience increasing shortages of government revenue and the distortions brought about by poorly designed tax systems it pays particular attention to the special problems of developing countries such as the taxation of agriculture the aim throughout is to develop techniques that can be quantitatively applied given the data available and empirical case studies illustrate the methods in action the authors analyze the links between tax theory social cost benefit analysis and the pricing of publicly supplied goods and services they also explore the empirical and econometric problems of identifying the tradeoffs between equity and efficiency other topics treated include the analysis of labor markets the taxation of foreign private investment and of fuel and the pricing of education although the models used concentrate on developing countries most of the methods and discussion apply as well to the problems of more affluent countries

imperfections in the economics of public policy imperfections in markets and climate change the economics of public policy has suffered from collective amnesia we have forgotten or ignored much of the tradition of public policy in imperfect economies whose foundations were laid by james meade and paul samuelson this has been associated with a period of around two decades from the early 1980s to the early 2000s where the economics of public policy has bent to political winds and has fed arguments for government to get out of the way and leave everything to the markets to self interest and to self regulation this has manifested itself via the choice of models those which imply often directly from assumptions passive government patterns of teaching the marginalisation of public economies in imperfect economics and compartmentalisation examples in climate change where this amnesia has misled include approaches to discounting and the failure to make non marginal change central to analysis on the other hand creative application of modern public economics gives interesting results such as the possibility of making both current and future generations better off and of informed discussion complementing economic instruments there are strong formal analogies between policy on climate change and on behavioural economics indeed there seems to be great potential in the combination of these two fields jel a10 a12 d61 d62 d63

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

caregiving to elderly parents and employment status of european mature women abstract we study the prevalence of informal caregiving to elderly parents by their mature daughters in europe and the links between parental health intense daily caregiving and the employment status of daughters we group data from share into three country pools north central and south which differ in the availability of public formal care services and female labor market attachment there is a strong north south gradient in the positive effect of parental ill health on the probability of daily caregiving the loss of employment ascribable to daily informal caregiving seems negligible except in southern countries we use a time allocation model to provide a link to an empirical iv treatment effects framework and to interpret our findings

is there a core of usable macroeconomics we should all believe in real output in most advanced capitalist economies fluctuates around a rising trend one can argue about whether it is best to think about that trend as passing through successive cyclical averages defined in one way or another or best to think of it as passing through cyclical peaks or some other measure of potential output while the outcome of that argument has consequences for macroeconomic theory i will bypass it for now the important observation is that on the whole the observed fluctuations around trend are contained within a moderately narrow corridor unemployment rates tend to run between say 5 percent and 10 percent in the united states other countries have different typical ranges and in each of them the range can shift from time to time it is important theoretically and practically to understand why but that remains an open question there are notable exceptions to this generalization of course the most famous being the depression of the 1930 s but they are exceptions again it is important to know why fluctuations are so contained this could reflect some natural equilibrating process or it could reflect the intervention of automatic or discretionary government policy or it could be a mixture of both that is another issue on which opinions differ i think it is part of the usable common core of macroeconomics that the trend movement is predominantly driven by the supply side of the economy the supply of factors of production and total factor productivity and that the appropriate vehicle for analyzing the trend motion is some sort of growth model preferably mine now what about those fluctuations around the trend of potential output a moment ago i put the normal range of unemployment rates at 5 10 percent by okun s law i am talking about fluctuations of real gdp with an amplitude of 8 10 percent or so from peak to trough contained but not trivial in my picture of the usable common core of macroeconomics those fluctuations are predominantly driven by aggregate demand impulses and the appropriate vehicle for analyzing them is some model of the various sources of expenditure i am not so obtuse as not to have observed that the whole point of real business cycle theory is the assertion that these short run motions of the economy are in fact supplydriven but my view is that this explanation has been an empirical failure or at best a nonsuccess there are now two possibilities as for the first i entertain the hope that flexible observant members of the real business cycle school like martin eichenbaum and his coworkers have come more or less to the same conclusion and they have found ways to open up the fabric of their underlying model so that it will allow or insist that demand side impulses play the dominant role in short run macroeconomic fluctuations then this proposition is indeed part of the usable core of macroeconomics and economists can go on to argue back and forth about the best way of modeling those demand side forces the other case is that the situation is as before and the real business cycle school holds monolithically to the view that short run fluctuations are just optimal supply side adjustments to unforeseeable shocks to tastes and department of economics massachusetts institute of technology cambridge ma 02139

changes in uk monetary policy rules and discretion in practice abstract in october 1992 following sterling s departure from the exchange rate mechanism britain adopted a new framework for monetary policy that comprised two components first an explicit target for inflation and second institutional changes designed to give greater influence to the bank of england by increasing the transparency and openness of the process by which interest rates are set this paper analyses those changes from the perspective of the debate on rules versus discretion and argues that an appropriate design of institutional arrangements can provide incentives for central bankers to pursue the first best state contingent monetary policy

secrecy of monetary policy and the variability of interest rates this paper addresses the issue of how secrecy of the short run monetary policy objectives affects the behavior of the federal funds rate secrecy is modeled by assuming that financial markets are unc ertain about a parameter in the federal reserve reaction function th ey learn over time about this parameter by means of bayes rule and this learning process is reflected in the time path of interest rates and of reserve aggregates the main result of the paper is that secr ecy tends to increase the volatility of the funds rate and of reserve aggregates copyright 1987 by ohio state university press

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

minimum wage legislation as a second best policy mass unemployment is a striking phenomenon of the present economic situation of european market economies although the profession of economists has been criticized for not providing satisfactory cures it has produced a number of different explanations either complementary or contradictory for the occurrence of mass unemployment in this paper we examine the argument that unemployment is the consequence of minimum wage legislation which is socially desirable the observation of current wage legislations suggests that the above argument is broadly at least partly accepted by policy makers curiously enough a defence of this argument meeting the rigorous requirements of modern theory seems to be missing symmetrically attacks against minimum wage legislation often rely upon reasonings of dubious relevance i e the obvious remark that unemployment is a waste with first best efficiency criteria the present paper proposes a second best analysis where second best stems from informational asymmetries which prevent the implementation of lump sum transfers needed for a first best redistribution policy the question under scrutiny can be reformulated in a more precise way as follows does a second best optimal redistribution policy lead to minimum wage legislation and unemployment our elements of answer are gathered in 3 sections in section 2 the principles of the analysis of the desirability of quantity controls and existing results are recalled in section 3 the analysis of section 2 is specified to a simple prototype model for the study of linear income taxation in section 4

new hope for the expectations hypothesis of the term structure of interest rates survey data on interest rate expectations permit separate testing of the two alternative hypotheses in traditional term structure tests that the expectations hypothesis fails and that expected future interest rates are ex post inefficient forecasts we find that the source of the spread s poor predictions of future interest rates varies with maturity at short maturities the expectations hypothesis fails at long maturities however changes in the yield curve reflect changes in expected future rates one for one an implication of the expectations hypothesis this result confirms earlier findings that long rates underreact to short rates but now it cannot be attributed to term premia if the attractiveness of an economic hypothesis is measured by the number of papers which statistically reject it the expectations theory of the term structure is a knockout most tests beginning with macaulay 1938 find no evidence supporting the expectations hypothesis 1 many cannot even reject statistically the alternative hypothesis that the spread between long and short rates contains no information about future interest rate changes 2 to make matters worse in u s postwar data future long rates tend to rise when short rates are above long rates since the expectations hypothesis would predict that long rates tend to fall the theory often does worse than even the naive model that future interest

explaining the failures of the term spread models of the rational expectations hypothesis of the term structure contrary to the predictions of the rational expectations hypothesis of the term structure of interest rates empirical evidence suggests that the term spread between long and short rates fails to forecast future movements of long term rates although its forecasts of future short term rates are in the correct direction in this paper the authors show that this puzzling behavior of the term spread alone can be explained by a time varying term premium that is correlated with the term spread once this is accounted for neither expression of the expectations hypothesis is against the predictions of the theory copyright 1997 by ohio state university press

monetary policy secrecy and federal funds rate behavior abstract the behavior of the federal reserve system can be characterized as secretive one common justification for this secrecy is the financial markets will overreact to information causing undue variability in interest rates this paper examines the credibility of this assertion under the post october 1979 non borrowed reserves operating procedure the major result is that conditional on this operating procedure secrecy can reduce the variability of the federal funds rate however in a result analogous to barro 1976 secrecy raises the variance of the forecasting error of the federal funds rate

central bank secrecy fed watching and the predictability of interest rates abstract a common criticism of central bank secrecy is the assertion that it will lead to lower forecast accuracy on the part of private agents the model considered here demonstrates that reducing central bank secrecy can actually reduce the forecasting accuracy of many of the private agents in the economy when it is recognized that some agents engage in fed watching and others do not this result comes about because the interest rate process depends in part on the information that agents use in forecasting future interest rates

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

term structure views of monetary policy under alternative models of agent expectations abstract term structure models and many descriptions of the transmission of monetary policy rest on the empirical relevance of the expectations hypothesis small differences in the perceived policy reaction function in var models of agent expectations strongly influence the relevance in the transmission mechanism of the expected short rate component of bond yields mean reverting or difference stationary characterizations of interest rates require large and volatile term premiums to match the observable term structure however short rate descriptions that capture shifting perceptions of long horizon inflation evident in survey data support a more substantial term structure role for short rate expectations