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

central bank design abstract starting with a blank slate how could one design the institutions of a central bank for the united states this paper explores the question of how to design a central bank drawing on the relevant economic literature and historical experiences while staying free from concerns about how the fed got to be what it is today or the short term political constraints it has faced at various times the goal is to provide an opinionated overview that puts forward the trade offs associated with different choices and identifies areas where there are clear messages about optimal central bank design

explaining european union citizens trust in the european central bank in normal and crisis times we study the determinants of trust in the european central bank ecb as measured by the european commission s eurobarometer survey in particular during the global financial crisis and the european sovereign debt crisis we find that the fall in trust in the ecb in crisis times can be rather well explained based on the pre crisis determinants we also show that the fall in trust reflected the macroeconomic deterioration a more generalized fall in the trust in european institutions in the wake of the crisis and the severity of the banking sector s problems to which the ecb was associated in the public opinion

monetary policy signaling and movements in the term structure of interest rates this paper examines how various monetary policy signals such as repo rate changes inflation reports speeches and minutes from monetary policy meetings affect the term structure of interest rates we find that unexpected movements in the short end of the yield curve are mainly driven by unexpected changes in the repo rate however published inflation reports and speeches also have some impact on short rates speeches are found to be a more important determinant for the longer end of the term structure our conclusion is that central bank communication is an essential part of the conduct of monetary policy

the effect of inflation targeting on the behavior of expected inflation evidence from an 11 country panel abstract inflation targets were introduced in the 1990s in australia canada new zealand sweden and the united kingdom change in the behavior of expected inflation in the five targeting countries is measured in a panel that includes six non targeting countries france germany italy the netherlands japan and the united states the level of expected inflation in targeting countries falls after the announcement of targets with controls for country effects year effects ongoing inflation reduction and the business cycle neither the variability of expected inflation nor the average absolute forecast error falls after the announcement of targets with controls for the level and variability of past inflation both targeting and non targeting countries experience unexpected disinflation

would helicopter money be spent new evidence for the netherlands according to some economists central banks should use helicopter money to boost inflation expectations based on a survey among dutch households we examine whether respondents would spend the

the effect of inflation targets on the level of expected inflation in five countries did inflation targets reduce the level of expected inflation in australia canada new zealand sweden and the united kingdom in this note predictions of forecasts by professional forecasters are constructed for five consecutive 12 month periods after the announcement of targets these predictions use a variety of information variables known to forecasters at the time they make their forecasts the results show that after the announcement of targets predicted forecasts are less than actual forecasts in australia canada new zealand and sweden this is evidence that targets reduced the level of expected inflation no evidence of such effects is found in the united kingdom

outsiders at the bank of england s mpc the monetary policy committee mpc of the bank of england which was established in may 1997 consists of five internal and four external members we study the voting record and show that insiders dissent rarely and typically for higher rather than lower rates whereas outsiders dissent more often prefer lower rates and disagree with the majority when economic growth slows moreover their dissents forecast future interest rate changes we show that a model in which outsiders dislike output below potential more than output above replicates the observed voting pattern well

first impressions matter signalling as a source of policy dynamics we provide the first direct empirical support for the importance of signalling in monetary policy by testing two key predictions from a novel structural model first all policymaker types should become less tough on inflation over time and secondly types that weigh output more should have a more pronounced shift voting data from the bank of england s monetary policy committee strongly support both predictions counterfactual results indicate signalling has a substantial impact on interest rates over the business cycle and improves the committee designer s welfare implications for committee design include allowing regular member turnover and transparency regarding publishing individual votes

monetary policy committees and interest rate setting abstract this paper shows that it is preferable for monetary policy to be conducted by a committee instead of a single policy maker if there is uncertainty about potential output we examine three decision procedures an optimal procedure averaging and voting and find that the latter is the appropriate way to reach decisions if policy makers are not equally skilled finally we demonstrate that efficient decision procedures reduce the persistence of shocks

the dissent voting behaviour of central bankers what do we really know we examine the determinants of the dissent in central bank boards voting records about monetary policy rates in the czech republic hungary sweden the uk and the us in contrast to previous studies we consider 25 different macroeconomic financial institutional psychological or preference related factors jointly and use bayesian model averaging bma to formally assess the attendant model uncertainty we find that the rate of dissent is between 5 and 20 for the examined central banks our results suggest that most of the examined regressors including factors that capture the effects of inflation and output are not robust determinants of voting dissent this result suggests that unobserved characteristics of central bankers and different communication strategies drive the dissent rather than the level of macroeconomic uncertainty

trust no more the impact of the crisis on citizens trust in central banks abstract citizens trust in economic institutions has generally declined since the onset of the crisis in particular eurobarometer surveys show that trust in the european central bank ecb has fallen significantly during the crisis this paper studies the determinants of public trust in the ecb over the lifetime of the euro net trust in the ecb has decreased significantly in those countries which have experienced increasing sovereign bond yields and financial market turbulence the finding that country specific variables affect citizens trust in the ecb may seem counterintuitive however it is consistent with strong evidence in the political science literature showing that domestic considerations play a significant role when citizens get an opportunity to express their opinion on eu matters

publicity of debate and the incentive to dissent evidence from the us federal reserve transparency in committee decision making may have clear benefits by making members more accountable to outside observers we consider one potential cost the possibility that publishing records of deliberations will make members more reluctant to offer dissenting opinions we construct a model that compares incentives for members with career concerns to voice dissent when deliberations occur in public or in private we test the model using an original dataset based on deliberations of the federal reserve s federal open market committee asking whether the fomc s 1993 decision to begin releasing transcripts of its meetings has altered incentives for dissent we find evidence that this is indeed the case there has been much recent discussion of the advantages of transparency in agency relationships both in and outside of government while research has attempted to model this issue theoretically there has been less progress with empirical tests a problem due no doubt in large part to the fact that it is difficult to make before and after comparisons of a shift in transparency often no data are available on an agent s actions prior to the establishment of transparency in this article we focus on one specific type of transparency publishing verbatim transcripts of committee meetings and one specific reason why this type of transparency might not be desirable the possibility that the quality of deliberation on a committee will suffer if the deliberations take place in public we develop a theoretical model that helps to identify the potential costs of this type of transparency and we then test the model empirically using an original dataset on deliberations of the federal reserve s federal open market committee fomc our dataset is unique in that it records views expressed by policymakers at fomc meetings and not just their official votes our empirical tests focus in particular on the observed effect of the institutional change that occurred in 1993 when the fomc decided to begin releasing transcripts of its meetings after a delay of five years transparency is a particularly relevant issue in monetary policy because it is commonly argued that when central banks take actions such as publishing macroeconomic forecasts revealing individual votes on monetary policy committees or releasing minutes of meetings this will lead to improved economic outcomes while simultaneously facilitating democratic accountability 1

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

on the information content of asymmetric fomc policy statements evidence from a taylor rule perspective i introduction since 1983 the federal open market committee fomc has included in its policy directives a statement indicating conditional expectations about the future although the specific language used to communicate expectations has evolved over the years the bias statement has persistently been interpreted as an indicator of the likely direction of future changes in the committee s federal funds rate target and has therefore been carefully monitored by fed watchers and other financial market participants as the fomc has enhanced its efforts to communicate its policy intentions to the public in recent years the contemporary version of the bias statement has been subject to considerable discussion and scrutiny from 2000 through 2002 the fomc s postmeeting press releases included a statement referring to the balance of risks in the foreseeable future paralleling the federal reserve s dual objectives of price stability and maximum sustainable economic growth the statements took the form of stating that the concerns of fomc members about prospective economic developments are tilted toward either inflation pressures or economic weakness in 2003 the committee expanded this balance of risks language further to identify separate risk assessments for both inflation and real economic activity when it was adopted the language of the balance of risks statement was intended to be more general than the previous statements of policy bias to avoid giving the impression that the statements directly signaled impending changes in the funds rate target nevertheless as was the case with the earlier language the balance of risks statement has tended to be interpreted as indicating likely future policy moves in this article i examine the question of whether such an interpretation might be warranted as an empirical matter in particular i examine the information content of asymmetric policy statements for predicting future fomc policy actions using monthly dummy variables to indicate the prevailing direction of policy asymmetry over a sample period of 1984 2002 the time series approach facilitates the use of a monthly data set for conditioning the information content of the bias statement on macroeconomic variables thought to be of importance to policy makers in particular i use inflation and output data to estimate a baseline taylor rule specification for policy and test whether the bias statement provides any additional information for forecasting changes in the fomc s federal funds rate target the evidence presented here shows that the statements of policy asymmetry do indeed convey information that is useful for forecasting changes in the funds rate target the information content in the bias statement has been a statistically significant factor for predicting changes in the funds rate target over the sample period even after controlling for responses to policy variables in the taylor rule equation in light of this finding i estimate an alternative specification in which the variables representing asymmetry are interacted with the parameters of the estimated taylor rule equation from this perspective statements of policy bias are associated with a greater or lesser degree of responsiveness to inflation and output data during the sample period considered here variation in the committee s responses to inflation data has evidently been the predominant factor for explaining the predictive power of asymmetric policy statements this is particularly true for the first half of the sample period in which the fomc was actively pursuing a policy of disinflation ii the asymmetric policy statement and its interpretation a brief history from 1983 until 1997 statements of an asymmetric bias were included in the fomc policy directive as a note that greater reserve restraint or lesser reserve restraint either would or might be acceptable during the intermeeting period depending on emerging economic circumstances

the policy choices and reaction functions of bank of england mpc members the results of an econometric exercise are presented showing that monetary policy committee mpc members appointed from outside the ranks of bank of england staff outsiders react differently to forecasts of inflation and output than those appointed from within the bank insiders all results are reinforced by the well established findings that compared with outsiders insiders choose higher interest rates are more likely to vote as a bloc and feature on the winning side of policy decisions more frequently on the basis of these results it is argued that the current mpc framework is biased toward the policy choices of insiders

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

politics and monetary policy abstract how and why do politicians preferences about monetary policy differ from the interest rates set by independent central banks looking at the european central bank ecb this paper shows that politicians on average favor significantly lower interest rates three factors explain the different preferences first politicians put relatively less weight on inflation and more on output in their preferred monetary policy reaction function second their preferences are affected by political economy motives third different preferences are also and largely due to different constituencies as politicians primarily focus on national economic objectives rather than the euro area as a whole

does central bank communication signal future monetary policy in a post crisis era the case of the ecb abstract we examine the european central bank s ad hoc communication and explore how it informs future monetary policy decisions using the rich dataset of the inter meeting verbal communication by the members of the european central bank s governing council between 2008 and 2016 we construct a measure of communication evaluating its inclination towards easing tightening or maintaining the monetary policy stance we find that this measure provides useful additional information about future monetary policy decisions even when we control for market based interest rate expectations and lagged decisions our results also suggest that in particular communication related to conventional measures and or by the ecb president explain the future ecb rate changes well all aforementioned results hold also in the environment of the zero lower bound overall these results point to the importance of transparent communication in understanding the future course of monetary policy

european union energy policy integration a case of european commission policy entrepreneurship and increasing supranationalism focusing on gas this article explores the role of the european commission in the process of european union energy security policy development and the extent to which the policy area is becoming increasingly supranational situating the article within the literature on agenda setting and framing it is argued that a policy window was opened as a result of enlargement to include more energy import dependent states a trend of increasing energy imports and prices and gas supply disruptions from the mid 2000s the commission contributed to a shift in political norms successfully framing import dependency as a problem requiring an eu level solution based on the institution s pre existing preferences for a diversified energy supply and internal energy market whilst member states retain significant sovereignty the commission has achieved since 2006 creeping competencies in the internal and to a lesser extent external dimensions of eu energy policy

order in product customization decisions evidence from field experiments differentiated product models are predicated on the belief that a product s utility can be derived from the summation of utilities for its individual attributes in one framed field experiment and two natural field experiments we test this assumption by experimentally manipulating the order of attribute presentation in the product customization process of custom made suits and automobiles we find that order affects the design of a suit that people configure and the design and price of a car that people purchase by influencing the likelihood that they will accept the default option suggested by the firm

salience and consumer choice we present a theory of context dependent choice in which a consumer s attention is drawn to salient attributes of goods such as quality or price an attribute is salient for a good when it stands out among the good s attributes relative to that attribute s average level in the choice set or more broadly the choice context consumers attach disproportionately high weight to salient attributes and their choices are tilted toward goods with higher quality price ratios the model accounts for a variety of disparate evidence including decoy effects and context dependent willingness to pay it also suggests a novel theory of misleading sales

is the central bank s publication of economic forecasts influential abstract we examine how a central bank s economic forecasts affect forecasts by professional forecasters and vice versa results show that while central bank forecasts are not significantly influenced by those of professional forecasters the latter are however notably affected by the former

the role of central bank transparency for guiding private sector forecasts central banks have become remarkably more transparent over the last few decades in this paper we study the effects of this evolution focusing on whether enhanced central bank transparency lowers dispersion among professional forecasters of key economic variables we use a large set of proxies for central bank transparency in 12 advanced economies we find evidence for a sizeable effect e g by announcing a quantified inflation objective or by publishing inflation and output forecasts however there are decreasing marginal effects to increases in transparency and the disagreement among the expectations of the general public is not affected this suggests that there are possible limits to transparency

links between trust in the ecb and its interest rate policy we analyse determinants of trust in the european central bank ecb our main finding is that when households have pessimistic expectations aggressive cuts in interest rates have an adverse effect on their trust in central bank this result is in accordance with the lack of confidence shock hypothesis developed by schmitt grohe and uribe 2012 and in contrast with the fundamental shock hypothesis which implies positive effects of aggressive cuts for trust in the ecb the result is robust to various changes in the modelling approach

investigating inflation persistence across monetary regimes under inflation targeting estimates of the indexation parameter in hybrid new keynesian phillips curves are either equal to zero or very low in the united kingdom canada sweden and new zealand analogous results hold for the euro area under the european monetary union and for switzerland under the new monetary regime under stable regimes with clearly defined nominal anchors inflation appears to be purely forward looking these results question the notion that the intrinsic inflation persistence found in post wwii u s data is structural in the sense of lucas carnegie rochester conference series on public policy 1 1976 19 46 and suggest that hardwiring inflation persistence in macroeconomic models is potentially misleading

on the long term effectiveness of exchange rate communication and interventions abstract exchange rate communication has come to play an increasingly important role as a policy tool for monetary authorities over the past decade the paper assesses the strategies and the long term effectiveness of communication as well as actual interventions the empirical results for the g3 economies indicate that communication has not only exhibited a significant contemporaneous effect on exchange rates but also has moved forward exchange rates up to a horizon of 6 months in the desired direction moreover communication is found to reduce exchange rate volatility and uncertainty whereas actual interventions tend to raise it overall this underlines a key difference between these two policy tools and suggests that communication tends to be a fairly effective policy tool over the medium term

monetary transmission mechanism in central and eastern europe surveying the surveyable this paper surveys recent advances in empirical studies of the monetary transmission mechanism mtm with special attention to central and eastern europe cee our results indicate that the strength of the exchange rate pass through substantially declined over time mainly due to a fall in inflation rates and to some extent due to the so called composition effect the asset price channel is weak and is likely to remain weak because of shallow stock and private bond markets and because of low stock and bond holdings of domestic household house prices may become an exception with higher levels mortgage lending and with high owner occupancy ratios while the credit channel could be a powerful channel of monetary transmission as new funds raised on capital markets are close to zero in cee it is actually not as both commercial banks and non financial corporations can escape domestic monetary conditions by borrowing from their foreign mother companies the moderately good news is however that those banks and firms are influenced by monetary policy in the euro area because their parent institutions are themselves subjected to the credit channel in the euro area

is the mpc s voting record informative about future uk monetary policy it is shown that the voting record of the monetary policy committee of the bank of england helps predict future policy rate changes this result is robust to the inclusion of market participants expectations as measured by the slope of the term structure of money market rates and interest rate futures moreover expectations seem to adjust to the information contained in the voting record which suggests that publishing the minutes of mpc meetings increases the transparency of monetary policy

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

communication by central bank committee members different strategies same effectiveness the paper assesses the communication strategies of the federal reserve the bank of england and the european central bank and their effectiveness we find that the effectiveness of communication is not independent from the decision making process the paper shows that the federal reserve has been pursuing a highly individualistic communication strategy amid a collegial approach to decision making while the bank of england is using a collegial communication strategy and highly individualistic decision making the european central bank ecb has chosen a collegial approach both in its communication and in its decision making assessing these strategies we find that predictability of policy decisions and the responsiveness of financial markets to communication are equally good for the federal reserve and the ecb this suggests that there may not be a single best approach to designing a central bank communication strategy

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

federal reserve information and the behavior of interest rates this paper tests for the existence of asymmetric information between the federal reserve and the public by examining federal reserve and commercial inflation forecasts it demonstrates that the federal reserve has considerable information about inflation beyond what is known to commercial forecasters it also shows that monetary policy actions provide signals of the federal reserve s information and that commercial forecasters modify their forecasts in response to those signals these findings may explain why long term interest rates typically rise in response to shifts to tighter monetary policy jel e52 e43 d82 asymmetric information between the federal reserve and the public is a phenomenon that is often posited but rarely tested numerous models of central bank behavior for example show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency yet there

how much to save decision costs and retirement plan participation abstract deciding how much to save for retirement can be complicated drawing on a field experiment conducted with the department of defense we study whether such complexity depresses participation in an employer sponsored retirement saving plan we find that simplifying one dimension of the enrollment decision by highlighting a potential rate at which non participants might contribute increases participation in the plan similar communications that did not include a highlighted rate yield smaller effects the results highlight how reducing complexity on the intensive margin of a decision how much to contribute can affect extensive margin behavior whether to contribute at all in a setting of policy interest

transparency and trust the case of the european central bank abstractwe examine how the transparency of the european central bank s monetary policy affects the amount of trust that the citizens of the european union have in this institution we use nearly half a million individual responses from the european commission s eurobarometer survey from 2000 to 2011 and estimate probit regressions with sample selection we find that transparency exerts a non linear effect on trust transparency increases trust but only up to a certain point too much transparency harms trust this result is robust to controlling for a number of macroeconomic conditions financial stability transparency measures and economic and socio demographic characteristics of respondents including examining respondents in european union countries that do not use the euro and addressing clustering issues

dissent in monetary policy decisions voting records indicate that dissents in monetary policy committees are frequent and predictability regressions show that they help forecast future policy decisions in order to study whether the latter relation is causal we construct a model of committee decision making and dissent where members decisions are not a function of past dissents the model is estimated using voting data from the bank of england and the riksbank stochastic simulations show that the decision making frictions in our

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

productivity growth transparency and monetary policy abstract this study examines whether central bank transparency about views of future productivity growth contributes to stabilizing macroeconomic fluctuations in a standard new keynesian model the central bank and private agents make their subjective estimates on the persistence of productivity growth in this situation if private agents believe that the central bank s projections include forecast errors on future productivity growth these beliefs can destabilize private agents own expectations because the central bank s forecast errors may lead to policy mistakes in the future consequently central bank transparency does not necessarily stabilize the variations of the output gap and inflation rate the central bank should respond strongly to the inflation rate if the impact of transparency is uncertain

the relation between narrative and money market indicators of monetary policy this paper studies the relation between narrative based indicators of monetary policy and widely used money market indicators of monetary policy three principal findings emerge first changes in monetary policy as measured by the narrative based policy indices are associated with persistent changes in the levels of m2 and the monetary base in contrast changes in the narrative policy indicators lead to transitory changes in short term interest rates nonborrowed reserves and the spread between the six month commercial paper rate and the three month treasury bill rate third these findings are generally robust across different narrative based policy indices

too little too late interest rate setting and the costs of consensus abstract central banks have been criticised for changing interest rates too little too late this pattern arises if policymakers are uncertain about the optimal level of interest rates and is exacerbated if decisions are taken by consensus rather than a vote

the welfare economics of default options in 401 k plans default contribution rates for 401 k pension plans powerfully influence choices potential causes include opt out costs procrastination inattention and psychological anchoring using realistically parameterized models we show how the optimal default the magnitude of the welfare effects and the degree of normative ambiguity depend on the behavioral model the scope of the choice domain deemed welfare relevant the use of penalties for passive choice and other 401 k plan features while results are theory specific our analysis provides reasonably robust justifications for setting the default either at the highest contribution rate matched by the employer or contrary to common wisdom at zero jel d14 d91 j26 j32

a model of focusing in economic choice we present a generally applicable theory of focusing based on the hypothesis that a person focuses more on and hence overweights attributes in which her options dier more our model predicts that the decisionmaker is too prone to choose options with concentrated advantages relative to alternatives but maximizes utility when the advantages and disadvantages of alternatives are equally concentrated in intertemporal choice because the relative concentrations of an option s costs and benets can be dierent from the perspective of a single period and the perspective of the entire choice problem the decisionmaker often exhibits a form of time inconsistency she is present biased when the costs of current misbehavior are distributed over many future dates such as in harmful consumption but future biased when the benet of many

inferior products and profitable deception we analyse conditions facilitating profitable deception in a simple model of a competitive retail market firms selling homogenous products set anticipated prices that consumers understand and additional prices that naive consumers ignore unless revealed to them by a firm where we assume that there is a binding floor on the anticipated prices our main results establish that bad products those with lower social surplus than an alternative tend to be more reliably profitable than good products specifically 1 in a market with a single socially valuable product and sufficiently many firms a deceptive equilibrium in which firms hide additional prices does not exist and firms make zero profits but perversely 2 if the product is socially wasteful then a profitable deceptive equilibrium always exists furthermore 3 in a market with multiple products since a superior product both diverts sophisticated consumers and renders an inferior product socially wasteful in comparison it guarantees that firms can profitably sell the inferior product by deceiving consumers we apply our framework to the mutual fund and credit card markets arguing that it explains a number of empirical findings regarding these industries

oral interventions versus actual interventions in fx markets an event study approach the article assesses whether exchange rate communication or oral intervention has been an effective policy tool for monetary authorities to influence exchange rates it employs an event study methodology that identifies intervention clusters or events for the euro dollar and the dollar yen exchange rates the article finds that both oral intervention events and actual intervention events have been highly successful over the short to medium run the article shows that the success of intervention events is related to market conditions and to the coordination among policy makers it also finds that the success of communication and actual interventions is largely unrelated to monetary policy thus suggesting that interventions primarily function through a coordination channel

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

does money matter abstract the desire to attain personal wealth has long been regarded as the foremost motive for entrepreneurship other goals and values however may also contribute to entrepreneurial motivation thus the extent to which money matters relative to other motives is an empirical question in this study we examine the role of wealth as the motive for the decision to found new ventures three focal questions guide our research 1 does money matter more relative to other decision dimensions in deciding to start a new high technology venture 2 does money matter more to entrepreneurs compared to non entrepreneurs and 3 does money matter in absolute terms that is does a decision model that focuses solely on the motive of wealth attainment parsimoniously predict entrepreneurs start up decisions we conducted in depth interviews with 51 entrepreneurs and a control group of 28 senior managers who decided not to start ventures non entrepreneurs in the high technology industry in british columbia to address our research questions the motives we examined are wealth attainment and an aggregate of other dimensions identified by entrepreneurs and managers we considered three components of values participants ratings of the importance of various decision dimensions their rating of the salience of these dimensions and their satisfaction with prior levels of attainment on those decision dimensions we assessed beliefs as participants perceived probability of attaining their desired level of a particular decision dimension in each of three alternatives the position held at the time the venture decision was made the venture itself and the next best career alternative at that time the data were analyzed to compare entrepreneurs values and beliefs regarding wealth with an aggregate of other decision dimensions our relative hypotheses and with those of non entrepreneurs our comparative hypotheses our findings do not support the common perception that money is the only or even the most important motive for entrepreneurs decisions to start new ventures wealth attainment was significantly less important to entrepreneurs relative to an aggregate of 10 other decision dimensions and entrepreneurs did not rate wealth as any more important than did non entrepreneurs non entrepreneurs rated wealth as no more important than other motives wealth attainment was also significantly less salient to entrepreneurs decisions to venture than were other motives non entrepreneurs reported that wealth was significantly more salient to their decision against founding a venture than other dimensions in fact non entrepreneurs rated wealth attainment as significantly more salient to their decision against founding than entrepreneurs rated it for their decision to proceed with starting a high technology business a significant number of entrepreneurs started businesses even when they believed that doing so offered them a lower probability of obtaining their most desired level of wealth than did one of their other alternatives satisfaction ratings and stated beliefs also dispute classical predictions just prior to making the decision to venture the entrepreneurs in our study were as satisfied with wealth as they were with other decision dimensions the non entrepreneurs were actually more satisfied with wealth attainment than with other dimensions a comparison of the groups revealed no difference in satisfaction with wealth attainment levels entrepreneurs did believe that their chances of attaining their desired level of wealth were much greater through founding a new high technology venture than through their other alternatives this difference in beliefs however was not significantly greater than their optimistic beliefs about chances of attaining desired levels of other dimensions it was significantly higher compared to the non entrepreneurs belief difference measures for wealth in fact the entrepreneurs stated beliefs regarding the chances of attaining their desired levels of all dimensions were higher than those of the non entrepreneurs suggesting that entrepreneurs were simply more optimistic at the time of their decision than non entrepreneurs salience findings suggest that these optimistic beliefs about wealth did not motivate the founding decision alone we can distinguish those people who successfully started ventures by their regard for wealth as a less salient factor and their beliefs in higher chances of a venture producing monetary and other returns other motives such as innovation vision independence and challenge were more important and much more salient to this sample of entrepreneurs our findings have implications for practice teaching and research venture capitalists who partially base their assessment of entrepreneurs on the extent to which they are motivated to make a great deal of money may benefit from reconsideration of this criterion we have evidence of one group of high technology entrepreneurs who achieved success without placing much decision weight on attainment of personal wealth nascent entrepreneurs and those who teach entrepreneurship can use this empirical finding to argue two main points 1 not all entrepreneurs found a business for personal wealth reasons and 2 one need not be motivated by personal wealth attainment to be a successful entrepreneur similarly theoretical models that assume money is the primary motive for entrepreneurial activity require re examination future research in entrepreneurship should focus less on wealth attainment and more on other motives for the venturing decision a multiple attribute decision model may be able to more fully explain venturing decisions

optimal central bank transparency should central banks increase their degree of transparency any further we show that there is likely to be an optimal intermediate degree of central bank transparency up to this optimum more transparency is desirable it improves the quality of private sector inflation forecasts but beyond the optimum people might 1 start to attach too much weight to the conditionality of their forecasts and or 2 get confused by the large and increasing amount of information they receive this deteriorates the perceived quality of private sector inflation forecasts as a result inflation is set in a more backward looking manner resulting in higher inflation persistence by using a large scale panel data set on the transparency of central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized our results indicate that while several central banks would benefit from further transparency increases some already have reached the optimal level

the german public and its trust in the ecb the role of knowledge and information search abstract in this paper we analyse the effects of objective and subjective knowledge about monetary policy as well as the information search patterns of german citizens on trust in the ecb we rely on a unique representative public opinion survey of german households conducted in 2011 we find that subjective and factual knowledge as well as the desire to be informed about the ecb foster citizens trust specific knowledge about the ecb is more influential than general monetary policy knowledge objective knowledge is more important than subjective knowledge however an increasing intensity of media usage especially newspaper reading has a significantly negative influence on trust we conclude that the only viable way for the ecb to generate more trust in itself is to spread monetary policy knowledge

choice based on reasons the case of attraction and compromise effects building on previous research this article proposes that choice behavior under preference uncertainty may be easier to explain by assuming that consumers select the alternative supported by the best reasons this approach provides an explanation for the so called attraction effect and leads to the prediction of a compromise effect consistent with the hypotheses the results indicate that 1 brands tend to gain share when they become compromise alternatives in a choice set 2 attraction and compromise effects tend to be stronger among subjects who expect to justify their decisions to others and 3 selections of dominating and compromise brands are associated with more elaborate and difficult decisions

does inflation targeting really make a difference evaluating the treatment effect of inflation targeting in seven industrial countries abstract we evaluate the treatment effect of inflation targeting in seven industrial countries that adopted this policy in the 1990s to address the self selection problem of policy adoption we make use of a variety of propensity score matching methods recently developed in the treatment effect literature our results show that inflation targeting has no significant effects on either inflation or inflation variability in these seven countries further evidence from long term nominal interest rates and income velocity of money also supports the window dressing view of inflation targeting

the reaction of asset markets to swiss national bank communication abstract in this paper we analyze high frequency movements in swiss asset markets in reaction to real time communication by the swiss national bank our analysis of central bank communication encompasses monetary policy announcements speeches and interviews we examine the reactions of the currency market the bond market and the stock exchange the evidence suggests that speeches and interviews along with monetary policy announcements engender a significant price reaction this paper sheds light on the relevance of communications other than monetary policy announcements

when should the ask be a nudge the effect of default amounts on charitable donations abstracthow does setting a donation option as the default in a charitable appeal affect people s decisions in eight studies comprising 11 508 participants making 2 423 donation decisions in both experimental settings and a large scale natural field experiment the authors investigate the effect of choice option defaults on the donation rate average donation amount and the resulting revenue they find 1 a scale back effect in which low defaults reduce average donation amounts 2 a lower bar effect in which defaulting a low amount increases donation rate and 3 a default distraction effect in which introducing any defaults reduces the effect of other cues such as positive charity information contrary to the view that setting defaults will backfire defaults increased revenue in the field study however the findings suggest that defaults can sometimes be a self canceling intervention with countervailing effects of default option magnitude on decisions and resulting in no net effect

does foreign exchange intervention matter the portfolio effect until recently there was an unusual degree of consensus among economists that intervention by central banks in the foreign exchange market did not offer an effective or lasting instrument for affecting the exchange rate at least not independently of monetary policy this consensus was largely shared among policymakers and participants in the financial markets as well the 1982 g 7 economic summit at versailles commissioned a study of intervention known as the jurgenson report which found that the effects were small and transitory at most we think that the time is ripe for new statistical testing of the question many policymakers and foreign exchange traders believe that the intervention operations that have taken place since the plaza agreement of september 1985 have had an effect especially when operations are coordinated moreover the theoretical case against the effectiveness of intervention is not as clear as a reading of the economics literature might suggest the academic literature is predicated on the distinction between intervention operations that are sterilized and those that are allowed to affect the money supply we study the intervention operations that actually took place between 1982 and 1988 regardless of whether they were sterilized however we do begin in section i with a review of the issues involved 2 there are two possible channels through which intervention whether sterilized or not can influence the foreign exchange rate the portfolio and the expectations channels intervention can even if sterilized influence exchange rates through the portfolio channel provided foreign and domestic bonds are considered imperfect substitutes in investors portfolios intervention operations that for example increase the current relative supply of mark to dollar assets which private investors are obliged to accept into their portfolios will force a decrease in the relative price of mark assets 3 intervention can also influence exchange rates regardless of whether foreign and domestic bonds are imperfect substitutes through the expectations channel the public information that central banks are intervening in support of a currency or are planning to intervene in the future may under certain conditions cause speculators to expect an increase in the price of that currency in the future speculators react to this information by buying the currency today bringing about the change in the exchange rate today in sections ii and iii we describe the econometric problems that arise in the standard portfolio balance estimation equation we derive an alternative portfolio balance dominguez kennedy school of government harvard university 79 j f kennedy street cambridge ma 02138 frankel department of economics university of california 787 evans hall berkeley ca 94720 we thank three anonymous referees for valuable comments and suggestions julia marsh and julia lowell for research assistance and franz scholl at the bundesbank jean pierre roth at the swiss national bank and officials at the u s treasury and the board of governors of the federal reserve system for making the daily intervention data available 1many of the econometric results finding little or no effect were reported in kenneth s rogoff 1984 and dale w henderson and stephanie sampson 1983 2for authoritative statements see henderson 1984 or maurice obstfeld 1990 3the exchange rate reaction to an increase in the relative supply of outside foreign assets may be reduced if there is an increase in their expected rate of return that induces a corresponding increase in demand

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

defaults and donations evidence from a field experiment we study the effects of defaults on charitable giving in a large scale field experiment on an online fundraising platform we exogenously vary default options along two choice dimensions the chari

federal reserve communications and newswire coverage in this article we explore the determinants of newswire coverage of federal reserve fed communications our sample covers all 344 forward looking communications made in the period may 1999 to may 2004 we find first that there is a higher likelihood of newswire coverage for monetary policy reports and speeches by chairman greenspan than for testimony and speeches by other fed members furthermore communications with an explicit monetary policy inclination or tone different from the current interest rate path are particularly likely to be covered however the release of important macroeconomic news reduces the likelihood of newswire coverage second speeches by regional fed presidents are relatively less likely to be reported than speeches by board members nevertheless newswire coverage of fed president speeches is more likely if central bank communication is stale finally our results indicate that ben bernanke played a distinguished role even before his chairmanship

will the european commission s policy hinder gas supplies to central and eastern european countries opal case decision abstract natural gas has become one of the most important sources of energy the liberalization of the gas sector in the last decades brought a dynamic development of the energy infrastructure in the eu thus it must be underlined that the liquidity of the gas market is dependent on the outside supplies the study examines the european commission s policy taking into consideration specifically its decision on the exemption of opal gas pipeline from eu rules the main question is what would be the long term effect of such policy in the authors opinion there are several serious doubts whether the commission has made an appropriate decision the major one concentrate on the impact of the decision which according to the commission refers only to germany and czechia gas market nevertheless an analysis of gas flow based on the entsog leads to a conclusions that decision could have a substantial influence on slovakia and poland if so under the eu provisions the investment can not be excluded form the eu rules therefore the authors will analyze step by step the commission decision and present its possible future impact on the internal energy market

optimal defaults and active decisions defaults often have a large influence on consumer decisions we identify an overlooked but practical alternative to defaults requiring individuals to make an explicit choice for themselves we study such active decisions in the context of 401 k saving we find that compelling new hires to make active decisions about 401 k enrollment raises the initial fraction that enroll by 28 percentage points relative to a standard opt in enrollment procedure producing a savings distribution three months after hire that would take 30 months to achieve under standard enrollment we also present a model of 401 k enrollment and derive conditions under which the optimal enrollment regime is automatic enrollment i e default enrollment standard enrollment i e default non enrollment or active decisions i e no default and compulsory choice active decisions are optimal when consumers have a strong propensity to procrastinate and savings preferences are highly heterogeneous financial illiteracy however favors default enrollment over active decision enrollment

who supports the ecb evidence from eurobarometer survey data this paper contributes empirically to the long debated issue of the legitimacy of the european central bank ecb with regard to european polities using micro level data from the eurobarometer survey we shed light on the socio demographic determinants of public opinion support for the ecb we find that people with higher level of education and income and centre to right wing political orientation tend to support the ecb as well as people with optimistic expectations on the economic situation by contrast the unemployed tend to distrust the ecb the policy relevance of such results is important for ecb s communication strategy with the general public

when the grace period is over assessing the new member states compliance with eu requirements for oil stockholding the accumulation of appropriate emergency stocks of crude oil and petroleum products has been at the heart of the european commission s efforts to increase the security of supply this study investigates how effectively the new member states comply with the requirements of council directive 2006 67 ec which imposes the obligation to maintain minimum stocks of crude oil and or petroleum products the empirical focus of this analysis is not only motivated by the practical relevance of this issue but also by the fact that eleven of the twelve new member states were given grace periods between one and seven years to bring their national stockholding arrangements in line with the european requirements the granting of extended deadlines raises the question whether this instrument indeed facilitates the transposition process the empirical findings show that except for latvia compliance with the eu stockholding requirements is generally very good a more detailed analysis of the latvian case highlights that the transposition delays principally stem from budgetary constraints more generally the individual new member states capacity to cope with the financial burdens and the degree of adjustment pressure determine the variation in oil stock levels

the effect of central bank transparency on exchange rate volatility abstract the increase in central bank transparency has been one of the main developments in central banking in the past two decades this leads to the question of the effect of central bank transparency on the volatility of exchange rates according to theoretical considerations more information could lead to either more precise forecasts or more noise trading this raises the need for an empirical estimation of the relationship the present study shows that the effect of central bank transparency on exchange rate volatility depends on a country s development while there is no effect of central bank transparency in the full sample and for developing countries transparency increases exchange rate fluctuations in developed countries

does a bias in fomc policy directives help predict intermeeting policy changes since 1984 the fomc has issued directives indicating a bias toward easing or tightening this paper investigates the information content of these asymmetric directives for the likelihood of inter meeting changes in policy during the greenspan chairmanship if policy is measured by the change in the average daily federal funds rate after a directive is issued the results indicate that a bias predicts a significant change in the average funds rate if policy is measured qualitatively by whether the target for the federal funds rate changed a bias significantly affects the probability that the target will be changed

what is wrong with taylor rules using judgment in monetary policy through targeting rules it is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule e ither ageneral targeting rule explicit objectives for monetary policy or a specific targeting rule a criterion for the forecasts of the target variables to be fulfilled essentially the equality of the marginal rates of transformation and substitution between the target variables targeting rules allow the use of judgment and extramodel information are more robust and easier to verify than optimal instrument rules and they can nevertheless bring the economy close to the socially optimal equilibrium

testing the transparency benefits of inflation targeting evidence from private sector forecasts abstract using inflation forecast data for 11 it adoption countries it adoption is found to promote convergence in forecast errors suggesting that it enhances transparency this result which is subjected to several robustness checks and found to be robust supports morris and shin s 2002 contention that better public information is most beneficial for forecasters with bad private information however it does not support their hypothesis that better public information could make private forecasts less accurate

coherent arbitrariness stable demand curves without stable preferences economic theories of valuation generally assume that prices of commodities and assets are derived from underlying fundamental values for example in finance theory asset prices are believed to reflect the market estimate of the discounted present value of the asset s payoff stream in labor theory the supply of labor is established by the tradeoff between the desire for consumption and the displeasure of work finally and most importantly for this chapter consumer microeconomics assumes that the demand curves for consumer products chocolates cds movies vacations drugs and so forth can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products because it is difficult as a rule to measure fundamental values directly empirical tests of economic theory typically examine whether the effects of changes in circumstances on valuations are consistent with theoretical prediction for example whether labor supply responds appropriately to a change in the wage rate whether compensated demand curves for commodities are downward sloping or whether stock prices respond in the predicted way to share repurchases however such comparative static relationships are a necessary but not sufficient condition for fundamental valuation e g summers 1986 becker 1962 was perhaps the first to make this point explicitly when he observed that consumers choosing commodity bundles randomly from their budget set would nevertheless produce downward sloping demand curves

open mouth operations abstract this paper explains how central bank statements rather than open market operations can be used to implement monetary policy in the extreme policy instruments can be held constant and yet interest rates will evolve along the path desired by the central bank we show how the recent implementation of monetary policy in new zealand works in this way using announcement data from new zealand we find that open mouth operations lead to large changes in interest rates across all maturities and these changes cannot be explained by open market operations implications are drawn for monetary policy in other jurisdictions

exploiting naivete about self control in the credit market we develop a model of the credit market where competitive lenders oer long term contracts specifying a non linear schedule of possible repayment schedules to borrowers who may dier both in their taste for immediate gratication and their prior beliefs about that taste the equilibrium contract to a borrower with given beliefs is discontinuous it features an advantageous option involving fast repayment and a penalty for deviating and repaying later these predictions seem to resemble some salient features of many credit card and mortgage contracts for fully sophisticated borrowers the discontinuity acts as a commitment device and yields fast repayment but all other borrowers even those with an arbitrarily small amount of naivete end up delaying repayment despite the penalty and receive little benet from commitment furthermore because they believe they will repay early they underestimate the cost of credit and hence borrow too much non sophisticated borrowers cross subsidize sophisticated borrowers while sophisticated borrowers discipline rms by preventing very exploitative contracts we identify natural conditions under which the above results obtain even if

charitable giving emotions and the default effect we report an experiment to study the effect of defaults on charitable giving in three different treatments participants face varying default levels of donation in three other treatments that are paired with the first three they receive the same defaults but are informed that defaults are thought to have an effect on their donation decisions the emotional state of all individuals is monitored throughout the sessions using facereading software and some participants are required to report their emotional state after the donation decision we find that the default level has no effect on donations and informing individuals of the possible impact of defaults also has no effect the decision to donate is independent of prior emotional state unless specific subgroups of participants are considered donors experience a negative change in the valence of their emotional state subsequent to donating when valence is measured with facereading software this contrasts with the selfreport data in which donating correlates with a more positive reported subsequent emotional state

who trusts the bank of england and high street banks in britain following the global financial crisis gfc of 2008 there was recognition that client trust in financial institutions had been damaged while institutional trust has become an accepted barometer l

optimal linear contracts under common agency and uncertain central bank preferences we analyze the effects of imperfectly known central banker s preferences on optimal linear contracts offered by the government and an interest group these effects depend on the type of uncertainty faced by the principals when the central bank s output target is uncertain the results by campoy and negrete public choice 137 197 206 2008 under perfectly known preferences obtain uncertainty about the central banker s degree of conservatism or about its degree of selfishness has a multiplicative impact on the principals instruments in the agent s best response function this may generate an inflation bias independently of the type of contract offered by the interest group

are experienced people affected by a pre set default option results from a field experiment the objective of the present paper is to investigate the robustness of the well known result that pre set default options determine people s choices we do so by conducting a field experiment among environmental economists attending a large international conference on environmental economics the participants were at the time of registration randomly allocated to different treatments related to carbon offsetting what differs from earlier default studies is that our subjects have good knowledge about the good at hand we investigate whether the choices of these experienced individuals are affected by a pre set default option and we also study the effect of a treatment with no pre set default option our results together with previous findings indicate that the effect of a default option attenuates with experience