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

the most dangerous idea in federal reserve history monetary policy doesn t matter the hundredth anniversary of the founding of the federal reserve is a natural time to reflect on the record of us monetary policy it is widely agreed that this record is far from perfect and that there have been some major failures of monetary policy over the past century our thesis is that overly pessimistic views about the power of monetary policy have been a critical source of these failures there is little doubt that the opposite problem an overinflated belief in the power of monetary policy has also contributed to important policy errors most famously policymakers in the mid 1960s believed that they faced a longrun inflation unemployment trade off and thus that monetary policy could move the economy to a sustained path of very low unemployment and low inflation this belief led them to pursue highly expansionary policy starting the economy down the road to the inflation of the 1970s for example romer and romer 2002 and primiceri 2006 the record of such errors has led some to argue that perhaps the most impor tant attribute of a successful central banker is humility for example booth 2012 in this paper we present evidence that an unduly pessimistic view of what monetary policy can accomplish has been a more impor tant source of policy errors and poor outcomes over the history of the federal reserve at various times in the 1930s faced with the great depression federal reserve officials believed that the power of monetary policy to combat the downturn or stimulate recovery was minimal in

inflation and reputation in many macroeconomic models with rational expectations optimal policy is time inconsistent and therefore announced policy may not be credible this paper models the government s credibility explicitly using kreps and wilson s analysis time consistent optimal government policy emerges as a sequential equilibrium in a repeated game this policy is at least as good as the inconsistent optimal policy and dominates the consistent policy when reputational effects are ignored thus the analysis resolves the problem of specifying a credible optimal policy in such models the results show why attempts to disinflate may lead to recession even with perfectly flexible prices this abstract was borrowed from another version of this item

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

collective moral hazard maturity mismatch and systemic bailouts the paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy when everyone engages in maturity transformation authorities haver little choice but facilitating refinancing in turn refusing to adopt a risky balance sheet lowers the return on equity the key ingredient is that monetary policy is non targeted the ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage while the distortion costs are to a large extent fixed this insight has important consequences first banks choose to correlate their risk exposures second private borrowers may deliberately choose to increase their interest rate sensitivity following bad news about future needs for liquidity third optimal monetary policy is time inconsistent fourth macro prudential supervision is called for we characterize the optimal regulation which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets we establish the robustness of our insights when the set of

learning from prices public communication and welfare we study the effect of releasing public information about productivity or monetary shocks using a micro founded macroeconomic model in which agents learn from the distribution of nominal prices while a public release has the direct beneficial effect of providing new information it also has the indirect adverse effect of reducing the informational efficiency of the price system we show that the negative indirect effect can dominate thus the public information release may increase uncertainty about the monetary shock and reduce welfare we find that the optimal communication policy is always to release either all or none of the information

fiscal consequences for mexico of adopting the dollar dollarization implies a reduction in the menu of assets available to the government and to the private sector in managing risk whatever the gains from dollarization the costs of reducing the asset menu need to be weighed against them this paper presents models one a simple generalization of a well known model of tax smoothing by ba1ao in which these costs are explicit along the way it suggests that there is likely to be no reduction in interest costs to the government from dollarization recently economists have been paying increasing attention to a dynamic general equilibrium approach to the theory of the price level that is often called the fiscal theory of the price level or ftpl this way of thinking emphasizes the role of fiscal and monetary policy in determining the risk and return properties of government liabilities it is particularly useful in analyzing proposals for large scale institutional changes that imply shifts in monetary and fiscal policies when dollarization is considered from this perspective some disadvantages are brought to light that may not be so apparent from other points of view section 1 below lays out the main ideas of ftpl section 2 displays a model that extends an earlier one of barro s to argue that optimal fiscal policy will use surprise inflation to achieve lower deadweight tax loss than would otherwise be possible section 3 considers the composition of government liabilities along the lines of the theory of corporate finance asking if dollarization will reduce the cost of funds section 4 presents annual estimates of the unanticipated returns to holders of u s government debt to show that these are substantial and are to some extent timed to match legitimate periods of fiscal stress as the optimality theory of section 2 would suggest section s discusses the lendel of last resort function and its connection to these fiscal issues section 6 briefly discusses some alternatives to pure dollarization in our concluding section 7 we sum up finding much to worry about in the prospect of dollarization

how central should the central bank be the nature and scope of the federal reserve s authority and the structure of its decision making are now on the table to an extent that has not been seen since 1935 and the fed s vaunted independence is under some attack this essay asks what the federal reserve should and shouldn t do leaning heavily on the concept of economies of scope in particular i conclude that the central bank should monitor and regulate systemic risk because preservingfinancial stability is a closely aligned with the standard objectives of monetary policy and b likely to require lender of last resort powers i also conclude that the fed should supervise large financial institutions because that function is so closely to regulating systemic risk however several other functions now performed by the fed could easily be done elsewhere jel e52 e58 g21 g28

real wage rigidities and the new keynesian model most central banks perceive a trade off between stabilizing inflation and stabilizing the gap between output and desired output however the standard new keynesian framework implies no such trade off in that framework stabilizing inflation is equivalent to stabilizing the welfare relevant output gap in this paper we argue that this property of the new keynesian framework which we call the divine coincidence is due to a special feature of the model the absence of nontrivial real imperfections we focus on one such real imperfection namely real wage rigidities when the baseline new keynesian model is extended to allow for real wage rigidities the divine coincidence disappears and central banks indeed face a trade off between stabilizing inflation and stabilizing the welfare relevant output gap we show that not only does the extended model have more realistic normative implications but it also has appealing positive properties in particular it provides a natural interpretation for the dynamic inflation unemployment relation found in the data

channels of interstate risk sharing united states 1963 1990 we develop a framework for quantifying the amount of risk sharing among states in the united states and construct data that allow us to decompose the cross sectional variance in gross state product into several components which we refer to as levels of smoothing we find that 39 percent of shocks to gross state product are smoothed by capital markets 13 percent are smoothed by the federal government and 23 percent are smoothed by credit markets the remaining 25 percent are not smoothed we also decompose the federal government smoothing into subcategories taxes transfers and grants to states

comment on when does a central bank s balance sheet require fiscal support by marco del negro and christopher a sims abstract a central bank is insolvent if its plans imply a ponzi scheme on reserves so the price level becomes infinity if the central bank enjoys fiscal support in the form of a dividend rule that pays out net income every period including when it is negative it can never become insolvent independently of the fiscal authority otherwise this note distinguishes between intertemporal insolvency rule insolvency and period insolvency while period and rule solvency depend on analyzing dividend rules and sources of risk to net income evaluating intertemporal solvency requires overcoming the difficult challenge of measuring the present value of seignorage

policy boards and policy smoothing partisan politics and random election outcomes generate policy uncertainty and partisan business cycles to reduce policy uncertainty society must design the policy making environment to overcome electoral uncertainty and partisanship i show that delegating policy to an independent policy board with discretionary powers will produce substantial policy smoothing and lower policy uncertainty relative to a simple model in which elected officials set policy board members are chosen in a partisan noncooperative environment yet in the benchmark model policy variability is eliminated and the cooperative bargaining solution is replicated

aggregate and welfare effects of redistribution of wealth under inflation and price level targeting abstract an unanticipated rise in the price level redistributes wealth from lenders to borrowers its size depends on the monetary policy regime as inflation targeting it and price level targeting pt have different implications for the price level path following price level movements the effects of an unexpected 1 price level increase are measured and assessed under both regimes overall the redistribution of wealth and the implied aggregate and welfare effects are larger under it than they are under pt the youngest the poorest and the government gain at the expense of the rest of the population and when the government gain is given to households as lump sum transfers the effects on gdp are negative and long lasting

monetary policy for inattentive economies we offer a contribution to the analysis of optimal monetary policy we begin with a critical assessment of the existing literature arguing that most work is based on implausible models of inflation output dynamics we then suggest that this problem may be solved with some recent behavioral models which assume that price setters are slow to incorporate macroeconomic information into the prices they set a specific such model is developed and used to derive optimal policy in response to shocks to productivity and aggregate demand optimal policy is price level targeting base drift in the price level which is implicit in the inflation targeting regimes currently used in many central banks is not desirable in this model when shocks to desired markups are added optimal policy is flexible targeting of the price level that is the central bank should allow the price level to deviate from its target for a while in response to these supply shocks but it should eventually return the price level to its target path optimal policy can also be described as an elastic price standard the central bank allows the price level to deviate from its target when output is expected to deviate from its natural rate

the informational content of prices when policy makers react to financial markets abstract when can policy makers use policy relevant information from financial market prices and how does policy affect price informativeness i analyze a novel setting with noise where a policy maker tries to infer information about a state variable from prices to improve policy decisions and policy in turn affects asset values i derive a necessary and sufficient condition for the possibility of information revelation in equilibrium which might not be possible if the policy reaction to prices punishes traders for revealing their information if the policy maker is uninformed then policy objectives do not change price informativeness but they do if the policy maker has independent information about the state i also analyze policy maker transparency and find that policy makers with objectives having a large impact on asset values should publish their information before trading to make prices more informative in other cases intransparency can be optimal

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

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

interest on reserves abstract in a general equilibrium setting we study versions of the proposal to pay interest on reserves at the market rate we argue that the proposal makes the demand for total reserves indeterminate whether interest is paid on total reserves or on required reserves only one consequence is that tax financing of the proposal gives rise to a continuum of equilibria equilibria which differ in real returns and consumption allocations another consequence is that financing through earnings on the central bank s portfolio either gives rise to an equilibrium with a zero nominal interest rate or to no equilibrium

how the world achieved consensus on monetary policy the worldwide progress in monetary policy is a great achievement and especially considering the situation 30 years ago a remarkable success story i describe how the world achieved a working consensus on the core principles of monetary policy by the late 1990s i survey the muddled state of affairs in the 1970s and then ask what happened in federal reserve policy to produce an understanding of the practical principles of monetary policy how did formal institutional support for targeting low inflation abroad follow from an international acceptance of these ideas and how did a consensus theoretical model develop in academia i explain how the modern theoretical consensus known alternatively as the new neoclassical synthesis or the new keynesian model of monetary policy reinforces key advances the priority for price stability the targeting of core rather than headline inflation the importance of credibility for low inflation and preemptive interest rate policy supported by transparent objectives and procedures of course a working consensus does not constitute complete agreement accordingly the conclusion identifies important monetary policy issues that remain to be explored

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

money as meta rule buchanan s constitutional economics as a foundation for monetary stability this paper explores james buchanan s contributions to monetary economics and argues these contributions form the foundation of a robust monetary economics paradigm while often not recognized for his contributions to monetary economics buchanan s scholarship offers important insights for current debates especially the renewed interest in narrow banking in the wake of the financial crisis we argue that the post 2007 crisis milieu creates a unique opportunity to recognize as buchanan did the vital role that money plays in the market as the grammar of commerce that recognition makes the need for more fundamental reform of our monetary regimes at the constitutional level more apparent making buchanan s work on monetary constitutions more relevant than ever before we then discuss how adopting buchanan s monetary framework can improve both monetary scholarship and institutions

the mystique surrounding the central bank s balance sheet applied to the european crisis abstract a central bank s resource constraint bounds the dividends it can distribute by the present value of seignorage which is a modest share of gdp this is in spite of the mystique behind a central bank s balance sheet moreover the statutes of the federal reserve or the ecb make it difficult for it to redistribute resources across regions in a simple model of sovereign default where multiple equilibria arise if debt repudiation lowers fiscal surpluses the central bank may help to select one equilibrium the central bank s main lever over fundamentals is to raise inflation but otherwise the balance sheet gives it little leeway

should a central bank transfer its profits to the treasury in this paper we show how two seemingly irrelevant accounting principles for central banks namely the choice of the unit of account for its balance sheet and the method of inventory valuation of foreign currency reserves can overstate or understate profits transferred to the treasury and how this can threaten the ability of central banks to control inflation we show the first point through monte carlo experiments calibrated for the venezuelan economy and the second point in an infinitely lived representative agent model that illustrates the problem of the joint determination of the level of central bank assets and the size of profits transferred to the treasury when the objective of the central bank is to eliminate the possibility of hyperinflation

central banking in the credit turmoil an assessment of federal reserve practice abstract central banking is understood in terms of the fiscal features of monetary credit and interest on reserves policies monetary policy expanding reserves by buying treasuries transfers all revenue from money creation directly to the fiscal authorities credit policy selling treasuries to fund loans or acquire non treasury securities is debt financed fiscal policy interest on reserves frees monetary policy to fund credit policy independently of interest rate policy an ambiguous boundary of responsibilities between the fed and the fiscal authorities contributed to economic collapse in fall 2008 accord principles are proposed to clarify fed credit policy powers and secure its independence on monetary and interest rate policy the fed needs more surplus capital from the fiscal authorities to be fully flexible against both inflation and deflation at the zero interest bound

central bank communication design in a lucas phelps economy abstract in a lucas phelps island economy an island has access to many informative signals about demand conditions each signal incorporates both public and private information the correlation of a signal s realizations across the economy determines its publicity if information sources differ in their publicity then price formation and expectations formation processes separate causing output gaps to open an output stabilizing central bank prefers averagely public information and sometimes limits the clarity of its policy announcements to achieve this the bank s incentive to engage privately in costly information acquisition and transmission is strongest not for the most influential signals but instead for those which drive the largest wedge between prices and expectations signals that are far from averagely public

inflation targeting a new framework for monetary policy he world s central bankers and their staffs meet regularly in venues from basle to washington to share ideas and discuss common problems perhaps these frequent meetings help explain why changes in the tactics and strategy of monetary policymaking such as the adoption of money growth targets in the 1970s the intensification of efforts to reduce inflation in the 1980s and the recent push for increased institutional independence for central banks tend to occur in many countries more or less simultaneously whatever their source major changes in the theory and practice of central banking are of great importance for both individual countries and the international economy in this article we discuss a new strategy for monetary policy known as inflation targeting which has sparked much interest and debate among central bankers and monetary economists in recent years this approach is characterized as the name suggests by the announcement of official target ranges for the inflation rate at one or more horizons and by explicit acknowledgment that low and stable inflation is the overriding goal of monetary policy other important features of inflation targeting include increased communication with the public about the plans and objectives of the monetary policymakers and in many cases increased accountability of the central bank

modern macroeconomics in practice how theory is shaping policy over the last three decades macroeconomic theory and the practice of macroeconomics by economists have changed significantly for the better macroeconomics is now firmly grounded in the principles of economic theory we focus on the role of economic theory in shaping policy over the last several decades the united states and other countries have undertaken a variety of policy changes that are precisely what macroeconomic theory of the last 30 years suggests the evidence that theoretical advances have had a significant effect on the practice of policy is often hard to see for policymakers and advisers involved in the hurly burly of day to day policymaking but easy to see if one steps back and takes a longer term perspective examples of the effects of theory on the practice of policy include increased central bank independence adoption of inflation targeting and other rules to guide monetary policy increased reliance on consumption and labor taxes instead of capital income taxes and increased awareness of the costs of policies that distort labor markets

bureaucrats or politicians part i a single policy task this paper investigates the normative criteria that guide the allocation of a policy task to an elected politician versus an independent bureaucrat the bureaucrat is preferable for technical tasks for which ability is more important than effort or if there is great uncertainty about whether the policymaker has the required abilities the optimal allocation of redistributive tasks is ambiguous and depends on how the bureaucrat can be instructed but irrespective of the normative conclusion the politician prefers not to delegate redistributive policies

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

requirements planning with pricing and order selection flexibility past requirements planning research has typically assumed that the firms demands are determined prior to production planning in contrast we explore a single stage planning model that implicitly decides through pricing decisions the demand levels the firm should satisfy in order to maximize contribution to profit we briefly discuss solution methods and properties for these problems when production capacities are unlimited the key result of this work is a polynomial time solution approach to the problem under time invariant finite production capacities and piecewise linear and concave revenue functions in price

measuring core inflation in this paper we argue that measured rpi inflation is conceptually mismatched with core inflation the difference is more than just measurement error we propose a technique for measuring core inflation based on an explicit long run economic hypothesis core inflation is defined as that component of measured inflation that has no medium to long run impact on real output a notion that is consistent with the vertical long run phillips curve interpretation of the co movement in inflation and output we construct a measure of core inflation by placing dynamic restrictions on a vector autoregression var system

inflation and unemployment in the long run we study the long run relation between money measured by inflation or interest rates and unemployment we first document in the data a positive relation between these variables at low frequencies we then develop a framework where unemployment and money are both modeled using microfoundations based on search and bargaining theory providing a unified theory for analyzing labor and goods markets the calibrated model shows that money can account for a sizable fraction of trends in unemployment we argue it matters qualitativelynand quantitatively whether one uses monetary theory based on search and bargaining or an alternative ad hoc specification

the power of sunspots an experimental analysis abstract in an experiment using a coordination game with extrinsic random signals sunspots we systematically vary the stochastic process generating these signals and measure how signals affect behavior we find that sunspot equilibria emerge naturally with salient public signals however highly correlated private signals can also lead to sunspot driven behavior even when this is not an equilibrium private signals reduce the power of public signals as sunspot variables the higher the correlation of extrinsic signals and the more easily they can be aggregated the more powerful these signals are in distracting actions from the action that minimizes strategic uncertainty

choosing the federal reserve chair lessons from history stable noninflationary growth has been the goal of monetary policymakers since the inception of the modern federal reserve in the mid 1930s policymakers however have come closer to achieving this goal in some eras than in others under chairmen william mcchesney martin jr in the 1950s and early 1960s and alan greenspan in the late 1980s and beyond the federal reserve presided over decades of low inflation and mild real fluctuations under paul volcker in the 1980s the federal reserve oversaw a significant recession but one that returned the american economy to near price stability and steady growth in contrast under marriner eccles in the late 1930s the federal reserve triggered a recession that was second in severity only to the great depression and that resulted in severe deflation and under arthur burns and g william miller in the 1970s the u s economy experienced high and rising inflation and painfully variable real growth an obvious question is why monetary policy has been so much more successful under some federal reserve chairmen than others this question has taken on new urgency because current chairman alan greenspan will need to be replaced in the near future it is crucial to understand what has determined policy success in the past and to identify factors that help predict success only by learning the lessons of history will we be able to choose a new federal reserve chair who is likely to replicate our policy triumphs and avoid our policy failures this paper demonstrates that the key determinants of policy success have been policymakers views about how the economy works and what monetary policy can

shocking language understanding the macroeconomic effects of central bank communication we explore how the multi dimensional aspects of information released by the fomc has effects on both market and real economic variables using tools from computational linguistics we measure the information released by the fomc on the state of economic conditions as well as the guidance the fomc provides about future monetary policy decisions employing these measures within a favar framework we find that shocks to forward guidance are more important than the fomc communication of current economic conditions in terms of their effects on market and real variables nonetheless neither communication has particularly strong effects on real economic variables

do high oil prices matter evidence on the mobility behavior of german households focusing on travel survey data from germany this paper investigates the determinants of automobile travel with the specific aim of quantifying the effects of fuel prices and fuel economy the analysis is predicated on the notion that car mileage is a two stage decision process comprising the discrete choice of whether to own a car and the continuous choice of distance traveled to capture this process we employ censored regression models consisting of probit and ols estimators which allows us to gauge the extent to which sample selectivity may bias the results our elasticity estimates indicate a significant positive association between increased fuel economy and increased driving and a significantly negative fuel price elasticity which ranges between 35 and 41 taken together these results suggest that fuel taxes are likely to be a more effective policy measure in reducing emissions than fuel efficiency standards

the case for forecast targeting as a monetary policy strategy at central banks around the world forecasts have come to play an increasingly important role both in policy deliberations and in communications with the public the most striking examples are the bank of england sweden s riksbank norway s norges bank and the reserve bank of new zealand all of which conduct policy on the basis of a procedure sometimes referred to as inflation forecast targeting svensson 1997 1999 under this approach the central bank constructs quantitative projections of the economy s expected future evolution based on the way in which it intends to control short term interest rates and public discussion of those projections is a critical part of the way in which the bank justifies the conduct of policy to the public what accounts for the appeal of a forecast targeting approach and should it be adopted more widely or more explicitly i begin by reviewing the long running debate between the proponents of monetary rules intended to ensure confidence in the value of money over time and the proponents of discretionary monetary policy aimed at stabilizing the real economy i will argue that inflation forecast targeting represents a powerful synthesis of the two approaches in particular it is an improvement both over simpler rules such as targeting a monetary aggregate and over weaker versions of inflation targeting i shall also argue that a much more extensive communication policy is crucial to escaping from the limitations of the traditional alternatives of rigid rules or rudderless discretion i will then explore some common questions that arise about inflation forecast targeting should only the inflation forecast matter and if not in what way should forecasts of other economic variables affect policy decisions what assumptions about the course of future policy should be used in constructing the quantitative projections that are presented to the public finally given that economic forecasts

preferences or private assessments on a monetary policy committee using bank of england voting data we show empirically that members votes are driven by heterogeneous individual assessments of the economy as well as their individual policy preferences estimates indicate that internal committee members form more precise assessments than externals and are also more hawkish the estimates allow the first quantification of the gain due to information aggregation on monetary policy committees the marginal gain from additional committee members tapers quickly after five members there is no evidence of gains through externals moderating internals preferences a relatively small committee of highly informed internal members emerges as a desirable committee structure

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

consensus and uncertainty in economic prediction we define consensus as the degree of agreement among point predictions aimed at the same target by different individuals and uncertainty as the diffuseness of the corresponding probability distributions this distinction is made operational with the aid of the nber asa survey data on matched point and probabilistic forecasts of inflation and the rate of change in gross national product the means of the two sets of forecasts agree closely standard deviations of point forecasts tend to understate uncertainty as measured by standard deviations of the predictive probability distributions however these measures of consensus and uncertainty are on the whole positively correlated there is evidence that expectations of higher inflation generate greater uncertainty about inflation tests also favor the hypothesis that a rise in inflation uncertainty has adverse effects on real growth

social value of public information comment morris and shin 2002 is actually pro transparency not con the main result of morris and shin 2002 restated in papers by amato morris and shin 2002 and amato and shin 2003 and commented upon by the economist 2004 has been presented and interpreted as an anti transparency result more public information can be bad however some scrutiny of the result shows that it is actually pro transparency except in very special circumstances more public information is good furthermore for a conservative benchmark of equal precision in public and privateinformation social welfare is higher than in as ituation without public information

the fomc versus the staff where can monetary policymakers add value a key issue in monetary policymaking is the appropriate division of labor between the profes sional staff of the central bank and the appointed policymakers lars e o svensson 1999 argues that the appropriate role of a policymaking group such as the federal open market com mittee fomc in the united states is to make judgments about social welfare taking as given the likely outcomes of different policies as esti mated by the staff in this division the staff is relied upon to assess current and prospective economic conditions and to forecast the effects of different policies policymakers only role is to decide which of the various options should be chosen

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