inflationary bias of the federal reserve system the creation of the federal reserve system coincides with a turning point in the inflationary history of the united states before 1914 there was no overall trend in the price level generally during war time periods the consumer price index increased significantly but during the intervening periods prices gradually declined to approximately their former levels however since the creation of the fed there has been an unmistakable and almost continuous upward trend in prices l

the use of inputs by the federal reserve system reply in our 1983 paper we offered evidence that the law of demand operates inside the federal reserve in particular the fed faces a requirement that it return all revenues in excess of operating expenses to the treasury and this constraint lowers the price of amenities in terms of foregone profits the monetary authority accordingly buys more of the wage and nonwage perquisites of office than otherwise because we treated amenities as a monotone transformation of federal reserve system employment our theory suggested that the fed would pad its operating expenses by increasing the number of employees on its payroll moreover given that expansionary open market operations raise the interest income earned by the fed on its securities portfolio bureaucratic incentives would impart an inflationary bias to monetary policy in subsequent tests of the theory we found a positive and significant ceteris paribus relationship between changes in the monetary base and the size of the fed this result suggested that one motivation for expansions in the money supply is to finance the growth in the fed s bureaucracy we also found evidence that employment causes money in the sense of christopher sims 1972 but not the reverse and that the growth in fed employment over time does not appear to have been due to the fact that more people are required to manage larger money stocks in their comments john boyd and john strong suggest that there are methodological and empirical problems with our paper both comments focus primarily on the causality tests but each raises other issues designed to cast doubt on the strength of our results in what follows we discuss the main points raised by our critics i causality

bureaucratic theory and the choice of central bank goals economists have frequently asserted that central bank priorities among economic goals have not been appropriate to the public s desires for example one interpretation of the results of reuber s pioneering study of central bank preferences was that the bank of canada s reactions reflect the placing of a very heavy implicit weight on price stability compared with higher employment presumably based on a judgement about the relative economic costs of more unemployment and more price inflation the evidence examined on the relative economic costs of price inflation and unemployment suggests that the economic costs of inflation are not as high relative to the costs of unemployment as the reactions and statements of the authorities have implied reuber p 132 1

tax innovations and public revenues in sub saharan africa we study the effect of two tax innovations value added taxes vat and autonomous revenue authorities ara on tax revenues in sub saharan africa the dataset consists of 47 countries over 1980 2010 we find that vats have no effect on total tax revenues neither in the short nor in the long run aras lead to higher tax revenues in the short and medium run but the effect dissipates over time the main conclusion is that tax innovations are not a panacea to overcome the revenue shortages in african countries but they are helpful in the short and medium run

the federal reserve as a bureaucracy an examination of expense preference behavior in this paper the federal reserve system is viewed as a bureaucracy with a bureau s incentive to increase expenses beyond the profit maximizing point moreover the bureau consists of divisions the district banks that exhibit their own expense prefer ence behavior an empirical investigation of labor demand by the boar d and district banks reported in this paper demonstrates that the fed eral reserve has engaged in expense preference behavior and that the centralization of the monetary authority amplified this type of behav ior copyright 1988 by ohio state university press

the value added tax its causes and consequences almost unknown in 1960 the value added tax vat is now found in more than 130 countries raises around 20 percent of the world s tax revenue and has been the centerpiece of tax reform in many developing countries this paper explores the causes and consequences of the remarkable rise of the vat a key question is whether it has indeed proved as its proponents claim an especially effective form of taxation to address this it is first shown that a tax innovation such as the introduction of a vat reduces the marginal cost of public funds if and only if it also leads an optimizing government to increase the tax ratio this observation leads to the estimation on a panel of 143 countries for 25 years of a system of equations describing both the probability of vat adoption and the revenue impact of the vat the results point to a rich set of determinants of vat adoption this being more likely for example if a country has a program with the imf and the less open it is to international trade in the revenue equation the presence of a vat does indeed have a significant impact but also a complex one with a negative intercept effect counteracted by positive effects that are greater the higher are per capita income and more tentatively openness while the sign of the revenue impact of the vat is thus in general ambiguous most countries that have adopted a vat seem to have gained a more effective tax instrument in doing so though this is less apparent in subsaharan africa and most without it seem likely to gain from its adoption

designing vat systems some efficiency considerations this paper undertakes a cross country analysis of the determinants of vat compliance using data from a sample of 17 oecd countries for 1987 an index of compliance is constructed and regressed against variables which represent characteristics of the countries and their vat rates it is found that a a higher vat rate is associated with lower compliance and this tradeoff limits the revenue maximizing vat rate to under 25 b compliance is substantially lower with multiple vat rates and c an extra dollar spent on administration raises revenue by 12 and longer experience with administering a vat also raises compliance several oecd countries are ranged along a frontier collecting about 8 of gdp through a vat but with rates of 14 to 22 on bases between 60 and 40 of gdp for these the base could only be broadened if the tax rate were lowered copyright 1996 by mit press

research activities and budget allocations among federal reserve banks this paper applies the theory of bureaucracy to the internal operation of the federal reserve system according to the bureaucratic model the board of governors will use budget allocations to the individual reserve banks as a means of controlling their provision of information by examining the research publications of reserve banks we find two banks which began providing adverse publicity for the system in recent years the empirical analysis reveals that the budgets of these banks have decreased following the changes in research agendas

inflationary bias of the federal reserve system a bureaucratic perspective abstract the federal reserve system does not receive a budget from congress but instead finances its operation from interest payments on its government security portfolio this peculiar financing arrangement provides the foundation for a bureaucratic model of federal reserve official behavior the empirical section tests the bureaucratic model by analysing the fed s expenditure record since 1947 and its policy actions during periods of constitutional revision

monetisation of external socio economic costs of industrial production a social lca based case of clothing production abstract the purpose of this study is to benchmark production processes and production chains of clothing products by means of social life cycle assessment s lca in this paper we present the socio economic costs s eco costs method for monetisation of external socio economic burden for workers the method is applied to six cases of garment production chains the s eco costs are the marginal prevention costs to reach a sustainable level the performance reference point prp for wages and are the monetary compensation costs beyond the prp to account for unacceptable exploitation of workers the s eco costs in include five sub indicators proposed as a base line for several social issues in s lca minimum acceptable wage based on minimum wages in rich countries and statistics on economic migrants child labour forced labour not able to attend school extreme poverty derived from world bank absolute poverty line excessive working hours forced labour involuntary occupational safety and health based on statistics of ilo these s eco costs have been calculated for cotton t shirts and pairs of jeans for three garment production chains usa europe western w india bangladesh asian a china india bangladesh asian best practice abp revealing the hotspots in these chains and enabling benchmarking the total results for the s eco costs of t shirts are w 0 05 a 1 46 and abp 0 33 the results for the jeans are w 0 38 a 12 56 and abp 2 67 the most important hotspots are in the cotton fields in india and the garment production phase in bangladesh the authors hope that the proposed system will inspire others in the field of s lca to proceed with the development of quantitative indicator systems

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

fed behavior in periods of price and wage controls there is a literature which addresses the bureaucratic behavior and incentives of the federal reserve system some of the papers along these lines include acheson and chant 1973 kane 1980 levy 1981 toma 1981 friedman 1982 shughart and tollison 1983 and allen 1986 this paper brings to bear some additional evidence on the behavior and the incentives of the fed in particular we examine the behavior of the fed during periods of price and wage controls the public interest approach to fed behavior suggests that the fed should pursue a monetary policy that is consistent with price and wage controls in order to control inflationary forces the private interest approach suggests that price and wage controls make seigniorage operations more profitable for the fed and make it more difficult for fed overseers to monitor fed performance in both cases leading the fed to pursue monetary expansion in its own self interest during a period of price and wage controls the setting of price and wage controls therefore provides a test of public versus private interest hypotheses about fed behavior the paper proceeds as follows section 2 develops the competing explanations of federal reserve behavior section 3 presents the estimates of a structural money supply reaction function and an arima transfer function model of fed behavior in each case controlling for ceteris paribus conditions and periods of wage and price controls the results of both models indicate a falsification of the public interest explanation of fed policy section 4 offers some concluding remarks

bureaucracy altruism and monetary policy it has recently been argued that the fiscal relationship between the federal reserve and the treasury by which the fed keeps a portion of its earnings imparts an inflationary bias to monetary policy because that relationship gives the fed an incentive to increase its earnings by increasing the monetary base this hypothesis is tested within the framework of a federal reserve objective function incorporating bureaucratic and social goals and no evidence is found to support it

no taxation without information deterrence and self enforcement in the value added tax abstract claims that the vat facilitates tax enforcement by generating paper trails on transactions between firms contributed to widespread vat adoption worldwide but there is surprisingly little evidence this paper analyzes the role of third party information for vat enforcement through two randomized experiments among over 400 000 chilean firms announcing additional monitoring has less impact on transactions that are subject to a paper trail indicating the paper trail s preventive deterrence effect this leads to strong enforcement spillovers up the vat chain these findings confirm that when taking evasion into account significant differences emerge between otherwise equivalent forms of taxation jel d83 h25 h26 k34 o17

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

environmental relevance and use of energy indicators in environmental management and research this thesis aim is to develop an approach for scoping of environmental aspects regarding the material use in a large organisation in order to contribute to a strategic environmental management the study object is the swedish national rail authority the transport sector is closely linked to the environmental pressures caused by our society consequently a lot of studies have been made regarding the contribution from different transport sectors however the bulk of these studies concerns only the transports and thus omits the environmental pressures from the material use needed to support these sectors i e building and maintaining the infrastructure the rail transport sector is generally conceived to be the most environmentally adapted land transport mode however this notion commonly only includes environmental pressures from the traffic phase the method uses material related energy use and co2 emissions as a proxy to environmental pressures from material use furthermore the robustness of the method is tested by the use of scenarios and sensitivity analysis in particular the environmental relevance of the energy indicator is studied the approach developed in this thesis can be used to introduce new perspectives such as upstream environmental pressures to an organisation s environmental management it can be employed to identify hot spots in an organisation s material use consequently this new knowledge can be used to influence the design of new products to set environmental demands for purchasing and to focus further environmental analyses of the hot spots the approach can also be used to broaden the perspectives in for instance environmental impact assessments strategic environmental assessment and environmental reviews in the studied rail building project 3 products constituted 99 5 weight of the total material use these products were steel rails concrete ties and ballast materials they share the common characteristics of being noncomplex non toxic and made out of very few materials

communicating the eco efficiency of products and services by means of the eco costs value model abstract at the delft university of technology a new model has been developed to describe the sustainability of products the evr model this model comprises two concepts the virtual eco costs as a lca based single indicator for environmental impact the evr eco costs value ratio as an indicator for eco efficiency in this publication an experiment is described to test whether the evr model leads to a good understanding of the eco efficiency of a product service combination in this experiment three separate groups of 8 11 people were asked to rank four alternative solutions of a product service system the after sales service and the maintenance service of an induction plate cooker both in terms of sustainability and of general preference the three respective groups were customers among whom representatives of consumer organizations business representatives from the manufacturing company of the induction plate cookers governmental representatives employees of the dutch ministries of environmental affairs and economic affairs and of the dutch provinces as well as consultants involved in governmental policies all experts in the field of sustainability the basic idea was to ask each group to rank the four alternatives after three levels of information input level 1 basic explanation of the four alternatives some major features and characteristics such as price were given but no environmental data level 2 on explanation of an lca of the four alternatives given in nine impact classes and the eco indicator 95 level 3 an explanation of the evr model and the evr data of the four alternatives each time the group was asked to rank the proposed alternatives in terms of expected environmental performance and of best choice in general which system would you have bought in a real life situation from the experiments it can be concluded that the concept of eco costs was accepted by the majority of the non experts they based their ranking on it and they preferred it rather than direct lca output or the damage based eco indicator 95 data the environmental experts in the governmental group did not directly accept the concept of eco costs model they wanted in depth information first they tended to stick to their existing knowledge of lca data and the eco indicator 95 overall preferences of the customers and business representatives were primarily ranked on the perceived value costs ratio of the product service combination the sustainability of the product service combination played a secondary role

industrial eco efficiency regional disparity and spatial convergence of china s regions abstract in this study the industrial eco efficiency measures of 30 chinese provinces municipalities and autonomous regions from 2001 to 2015 were estimated based on a proposed data envelopment analysis dea model and the non convex metafrontier undesirable outputs super efficiency slacks based measure ncmeta us sbm which simultaneously incorporates non convex metafrontier technology undesirable outputs and super efficiency into slacks based measure subsequently dynamic spatial econometric models were employed to test the spatial convergence of industrial eco efficiency the empirical results show that 1 the average value of industrial eco efficiency was the highest in the eastern region 0 67 followed by the western region 0 30 and central region 0 27 indicating the existence of a significant regional disparity 2 strong evidence for global and club spatial convergence of industrial eco efficiency was found with regard to regional heterogeneity provinces in the eastern region converged faster than those in the central and western regions while the convergence speed of industrial eco efficiency increased after 2008 with respect to temporal heterogeneity 3 the ownership structure appeared to have a higher impact on industrial eco efficiency than other controls in the presence of spatial conditional convergence these findings are robust with regard to both spatial econometric model and spatial weighting matrix specifications based on the empirical analysis the following policies promote industrial eco efficiency in china have been recommended first relevant authorities must take effective measures to encourage the central western regions to adopt clean energy technologies the energy subsidy policies should strive to break through the technological lock in and turn to regional green development second full advantage of the spatial effects must be taken and technological exchanges and cooperation among neighboring areas must be strengthened to ensure that the industrial eco efficiency of the central and western regions converge with those of the eastern coastal areas policy implications of multidimensional heterogeneity and adjustment of industrial structure should be highlighted while promoting industrial eco efficiency finally it is crucial to emphasize factors such as foreign direct investment fdi ownership and industrial structures to attract fdi and optimize the current industrial structure

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

the benefits of central bank s political independence abstract we consider a two tier model of monetary policy where the central banker is both subject to the explicit influence of elected political principals through contracts and the implicit influence of interest groups willing to capture monetary policy we analyze the impact of granting independence to the central banker on the scope for capture and the agency costs of delegating the monetary policy to a central banker political independence increases those agency costs but significantly stabilizes the politically induced fluctuations of inflation and improves ex ante social welfare

preliminary evidence on the determinants of federal reserve open market operations in the absence of a fixed policy rule the federal reserve bank fed has significant discretion in setting monetary policy the existence of professional fedwatchers attests to the fact that fed policy actions are difficult to interpret recent literature has focused on the motivations behind fed policy making and the need for secrecy and ambiguity we investigate one aspect of fed behavior the propensity of the fed to buy and sell government securities beyond that required to implement stated policies milton friedman 1982 26 called attention to this issue when he wrote

historical considerations property rights and budgets a comment on the use of inputs by the federal reserve when considered in an alternative historical setting with a property right perspective the extended public choice model found in amcd offers strong confirmation for the s t view of monetary authority behavior

eco efficiency approach for global warming in the context of kyoto mechanism abstract this study discusses an approach to measuring and improving the economic and ecological efficiency of kyoto mechanism projects the approach consists of global warming eco efficiency gwee clean development mechanism cdm joint implementation ji environmental efficiency ee and cdm ji economic productivity ep the gwee indicator is based on the ratio of the value added of a system to its global warming influence in order to measure the eco efficiency of a product in terms of the global warming issue in addition cdm ji ee and cdm ji ep are proposed to measure the environmental and economic performances of cdm and ji projects respectively while ee is defined as the ratio of the certified emission reductions cer obtained from a cdm project or emission reduction unit eru from a ji project to total global warming influence relevant to the cdm or ji implemented ep is defined as the ratio of the total of cer profit and eru profit and the sales revenue to the costs of the cdm and ji implemented then the feasibility of these indicators is examined through a case study for the power generations in the field of alternative energy

of finance and development neglected and unsettled questions abstract the article analyzes some of the neglected and still unsettled issues on the interrelationship of finance and development and in the subdiscipline of finance notably the implications of the dichotomy of formal and informal finance the modalities and sequencing of financial reform the challenge of maintaining competition in oligopolistic systems the scope for market related monetary policy instruments the case for autonomy of central banks and divestiture of their developmental role and revamping of their prudential functions it argues for a sharply focused country specific issues oriented research agenda

spot and forward rates in the canadian treasury bill market abstract the efficiency of the canadian treasury bill market is examined with data on spot and forward rates of return over the period from 7 62 to 3 79 the bill market has been efficient in the sense that it correctly uses the information contained in past spot rates in assessing the expected future spot rate and in determining the forward rate moreover the forward rate is found to contain some information about future spot rates above and beyond that in past spot rates

some pervasive challenges to sustainability by design of electronic products a conceptual discussion sustainability should encompass responsibility for unintended environmental consequences of modern developments this study examined some pervasive challenges to sustainability by design of electronic products namely i product and consumption redundancies i embodied environmental and social impacts occurring distant in time and space from the point of consumption and iii production and consumption dynamics this analysis identified essential developments in certain areas that can assist design practice in preventing unintended environmental consequences these were 1 complementing life cycle assessment studies with analyses of unintended environmental consequences and 2 exploiting the vital role of product design in fostering a circular economy indicators that provide information about a the increasing spatial and decreasing temporal separation of production consumption and waste management b constraints in raw materials supply and c marginal changes in money and time spent should be available to product designers and consumers furthermore information technology namely computer aided design cad tools should be refined to assist product designers in designing for effective circularity and end of waste and limiting hibernation of resources in the use phase

cheap talk and the fed a theory of imprecise policy announcments this paper examines the problem faced by the federal reserve in announcing its private information about its future policies because it would like to manipulate expectations and pursue a time inconsistent policy the fed cannot reveal its policy objectives precisely and credibly it can however communicate some information about its goals through the cheap talk mechanism of vincent crawford and joel sobel making announcements that are imprecise and only giving ranges within which these goals may lie copyright 1989 by american economic association

monetary policy theory and practice comment in his article monetary policy theory and practice 2 milton friedman included a section on the appropriateness of defensive open market operations the section discusses a number of substantive issues it also contains figures on actual federal reserve operations in 1980 and the share they represent qf securities dealer operations he used the numbers to illustrate his complaint that the federal reserve engages in excessive securities transactions churns its portfoliin a misguided effort to fine tune the supply of nonborrowed reserves while we feel that the allegation basically depends on fundamental policy issues rather than on the numbers cited we nonetheless think it is desirable to set the record straight as to the magnitude of system open market operations the figures given by friedman seriously distort the picture as they represent about a fourfold overstatement of the size of system reserve operations in addition they grossly exaggerate the share of securities dealer transactions accounted for by system operations and thereby give a misleading impression of the importance of these operations to dealer profitability these points will be discussed in turn followed by some observations on the substantive issues

the ruthless fed a critique of the ast hypothesis this paper examines the hypothesis that the great contraction was the result of rational rent seeking by members of the federal reserve system in contrast to the ast hypothesis evidence on the share prices of member banks that survived the contraction suggests that the owners of these banks suffered an absolute decline in real wealth and a decline relative to a broad spectrum of other investment alternatives furthermore monetary surprises had no statistically discernible effect on the share prices of these banks this evidence conflicts with the notion that rational rent seeking would lead the owners of member banks and their bureaucratic conspirators in the federal reserve system to unleash a policy with the goal of contracting the money supply by 35 percent

a general framework for measuring vat compliance rates summary measures of value added tax vat compliance rates are valuable for identifying problem areas in vat implementation they are also essential for meaningful crosscountry and crosstime comparisons of vat compliance we present a comprehensive and general framework for calculating vat compliance rates at both the economy wide and detailed sectoral levels unlike existing measures of vat compliance our framework isolates a compliance measure from the effects on vat receipts of detailed features of vat systems as actually implemented by tax authorities these features include multiple vat rates exemptions registration rates refund limitations informal activity taxation of domestic nonresidents and undeclared imports we implement our comprehensive vat compliance measure for vietnam a country with a complex vat system our estimate of vietnam s vat compliance rate is about 13 percentage points higher than that calculated by the most popular measure of compliance collection efficiency ce our m

cheating ourselves the economics of tax evasion no government can announce a tax system and then rely on taxpayers sense of duty to remit what is owed some dutiful people will undoubtedly pay what they owe but many others will not over time the ranks of the dutiful will shrink as they see how they are being taken advantage of by the others thus paying taxes must be made a legal responsibility of citizens with penalties attendant on noncompliance but even in the face of those penalties substantial tax evasion exists and always has the history of taxation is replete with episodes of evasion often notable for their inventiveness during the third century many wealthy romans buried their jewelry or stocks of gold coin to evade the luxury tax and homeowners in eighteenth century england temporarily bricked up their fireplaces to escape notice of the hearth tax collector webber and wildavsky 1986 p 141 this essay reviews what is known about the magnitude nature and determinants of tax evasion with an emphasis on the u s income tax alm 1999 andreoni erard and feinstein 1998 and slemrod and yitzhaki 2002 offer more comprehensive recent reviews of the literature it then places this information into a conceptual and policy context

the effect of a fiscal squeeze on tax enforcement evidence from a natural experiment in china abstract this paper investigates the impact of the abolition of the agricultural taxes in 2005 across china on county governments incentives for tax enforcement i show that the revenue loss of county governments was largely offset by tougher tax enforcement the incentive for vat enforcement can be weakened however if the county 1 receives a lower share of total vat revenues 2 has a broader vat tax base or 3 has more abundant sources of revenue from land sales these findings suggest that incentives of local governments can be vital to tax enforcement and to the tax capacity of a country

a game theory framework for cooperative management of refillable and disposable bottle lifecycles abstract firms engaged in industrial ecology hope to reduce environmental impacts and costs improve resource efficiency and create symbiotic relationships that reduce transaction costs and enhance information flow however current lca tools do not explain firms incentives to implement the principles of industrial ecology or how an individual or firm can affect the products and processes at other firms game theory on the other hand allows investigation of the willingness of producers and consumers to seek strategies that promote the common interest of the system while not harming their own interests this paper applies game theory to the lifecycle of bottle packaging and presents a framework for analysis of the choice between refillable and disposable bottles although refillable bottles may be more cost effective in the long run bottlers only have incentive to use refillable bottles when they are sure that consumer return rates will be reasonably high it has been found that consumers who keep or dispose of refillable bottles or respond to deposit refund return incentives by reducing their demand may drive costs up and encourage adoption of disposables a simple model is provided which finds the optimal bottler strategy as a function of the bottler s expectations for consumer cooperation

dispersed communication by central bank committees and the predictability of monetary policy decisions the paper asks whether members of central bank decision making committees should communicate with the public in a collegial manner by conveying the consensus or majority view of the committee or in an individualistic way by providing the diversity of views among the committee members it finds that more active as well as more consistent communication by committee members improves the predictability of monetary policy decisions significantly this effect is sizeable as communication dispersion across committee members accounts on average for one third to one half of the market s prediction errors of fomc policy decisions moreover more active and more consistent communication are found to also reduce the degree of uncertainty about the future path of interest rates these findings suggest that a collegial communication which stresses the consensus view on policy inclinations can enhance the effectiveness of central bank communication

a public choice theory of the great contraction the conventional chicago wisdom about the great contraction is that it was the result of a massive policy failure according to this view the collapse of the economy was brought about mostly by the fact that the monetary policymakers of the day were more concerned with internal power struggles than with supplying reserves to member banks an explanation which with apologies to professor stigler must have elicited uproarious laughter at the bankers club it has been our purpose in this paper to suggest an alternative theory briefly stated the restrictive monetary policy pursued by the fed from 1929 to 1933 was motivated by the economic interests of member banks the fed s policy produced a massive differential failure rate between member and nonmember banks in which the latter were eliminated at a rate at least five times higher than the former fed member banks faced substantially less competition in the banking market after the house cleaning than before although all banks suffered net losses in the short run in the long run member bank profitability was enhanced by the reduction in the number of nonmember competitors at the same time the fed itself benefitted from a substantial increase in the proportion of the total banking system within its bureaucratic jurisdiction and from a change in its method of finance putting the great contraction in interest group terms we suggested that the fed was acting as the agent of congressmen serving on important oversight committees who in turn were representing the interests of the member banks in their states due to interstate branching restrictions the state is the relevant geographic market within which banks compete we tested this hypothesis using bank failure rate data across states and found that holding other things equal the failure rates of nonmember banks in the early 1930s were significantly higher in states with representation on the house banking and currency committee of course not even friedman and schwartz 1963 299 301 argue that fed policy was the sole direct cause of the great contraction but instead maintain that the fed acted in such a way as to take a relatively severe contraction and turn it into by far the most severe business cycle contraction in the whole of u s history but to the extent that the great contraction was worsened by fed policy and this in turn led to the succession of events called the great depression the latter was a side effect of economically rational interests of federal reserve member banks to say the least this would appear to have been an enormously inefficient method of obtaining the postulated benefits certainly there were other less costly methods available by which member banks could have reduced the number of their nonmember rivals this is perhaps the most difficult problem our theory of the great contraction confronts we can offer two responses first although the literature on the great depression tends to focus on fluctuations in national macroeconomic aggregates e g the money supply unemployment and so on it is clear that the severity of the depression differed radically across states states with relatively large agricultural sectors tended to be especially hard hit suffering the highest rates of unemployment and the most significant numbers of bank failures by contrast states in some other areas most notably new england and the southeast seemed to be less seriously affected we note that in some of our regressions the number of nonmember bank failures was negatively and significantly related to state unemployment rates in 1934 this is certainly not conclusive evidence but it does suggest a pattern of differential costs associated with the great contraction that is the costs of providing benefits to federal reserve member banks in states with representation on the relevant oversight committees may have fallen more heavily on the economies of states not so represented if so this would cast a very different light on the actual costs of these policies to the relevant political decision makers second the potential dilemma in this case is no worse than that encountered in the application of the economic theory of politics to many other kinds of government behavior economists since adam smith have ascribed protectionist trade policies to the influence of special interest groups who benefit modestly at the cost of relatively huge economic inefficiencies many other government actions that might be plausibly explained from an interest group perspective would similarly seem to involve costs to the economy which grossly outweigh the benefits special interests might reasonably expect presumably even in such seemingly extreme cases marginal benefits equal marginal costs to the relevant actors some writers have suggested that the political marketplace in modern democracies is characterized by much larger transactions costs than are normally encountered in ordinary markets see demsetz 1982 this might help explain the seemingly huge discrepancies we observe between apparent concentrated benefits and diffused costs in depression era monetary policy in any event this problem is not peculiar to our theory but is shared by many applications of the interest group model of government it is worth emphasizing that the events we have described do fall into the interest group model s stylized depiction of concentrated benefits versus diffuse costs moreover without having a complete picture of all of the options available to the monetary policymakers we cannot be sure that any of the alternatives was in fact more efficient we do know the path that was chosen and that contrary to the conventional wisdom this path had a rationally motivated interest group basis