central bank constitutions for federal monetary unions abstract in a monetary union the central bank constitution must distribute the power over monetary policy between the members and the administrative center of the union we compare alternative distributions and evaluate their performance dominance of regional interests always leads to inefficient monetary stabilization policies whether or not dominance of regional interests leads to a higher long run rate of inflation depends on the union s political constitution

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

independent central banks low inflation at no costs a widely held view suggests that politically independent central banks bring about relatively low and stable inflation rates a more debated question is whether one has to pay for this good outcome with more real instability in his seminal contribution kenneth rogoff 1985 suggests that an independent and inflation averse central bank reduces average inflation but as a result increases output variability the conservative central banker reduces the inflation bias due to the time inconsistency problem but stabilizes less however alesina and summers 1993 do not find that at least within the oecd countries more independent central banks are associated with more variability of growth or unemployment thus they conclude that independent central banks bring about low inflation at no apparent real costs the point of this paper is to provide theoretical underpinnings to this finding which is in contrast to rogoff 1985 2 the basic idea is that one can isolate two sources of output variability one is the economic variability induced by standard exogenous shocks that monetary policy is supposed to stabilize for instance money demand shocks or supply shocks the second source of variability is political or more generally policy induced this is the variability introduced in the system by the uncertainty about the future course of policy for instance alesina 1987 studies the effect of uncertain electoral outcomes in a model where the two contending parties have different preferences over inflation and unemployment an inflation averse independent central banker does not stabilize as much the economic variability in order to keep inflation low and stable this is rogoff s point however by insulating monetary policy from political pressures an independent central bank can reduce the political variability the overall effect of independence on output variability is thus ambiguous this result is consistent at least prima facie with the evidence in alesina and summers 1993 on the lack of correlation between centralbank independence and output variability in fact it is possible that when the politically induced output variability is predominant a more independent central bank reduces average inflation and the variance of output

the anti inflationary influence of corporatist structures and central bank independence the importance of the hump shaped hypothesis many studies have found strong negative correlations between central bank independence and inflation but the casual significance of this relationship is often challenged we find that the negative relationship remains even when a number of other explanatory variables are considered special attention is given to the role of corporatism following calmfors and driffell it is argued that both high and low levels of centralization should be associated with lower inflation we present empirical support for his hump shaped hypothesis and find that the inclusion of corporatism does not diminish the significance of central bank independence

agent discretion regulatory policymaking and different institutional arrangements this paper examines agent discretion that is a result of the structure of the legislative process based on several distributions of lawmaking powers different games are analyzed in which players decide on regulatory policies the analysis shows that agent discretion increases as lawmaking powers are differentiated and assigned to specialized players particularly monopoly initiation power which allows a player to act as a gatekeeper has a substantial impact on discretion agent discretion will be even larger when these players also have heterogenous preferences the framework that is developed in this paper permits comparisons across different political systems with regard to agent discretion and legislative control on policymaking

shocking intellectual austerity the role of ideas in the demise of the gold standard in britain britain s 1931 suspension of the gold standard remains one of the most shocking policy shifts of the past century conventional explanations focus on changing international conditions alongside the rise of social democracy when britons refused to shoulder the increasing costs of defending the exchange rate the bank of england was forced to abandon the gold standard this article refocuses attention on policy makers causal ideas at critical moments drawing on numerous primary sources held in several archives it reveals a cleavage within the bank over the appropriate response to the flight from sterling following the nervous collapse of the bank s governor the deputy governor shifted the bank s strategy from making defensive rate hikes to pursuing fiscal austerity he then temporarily suspended gold convertibility in a gambit to forestall the election he incorrectly assumed would unseat the gold standard s supporters in parliament when the unintended experiment with a managed float proved successful keynes was able to persuade policy makers to embrace the new exchange rate regime

political influence on the central bank international evidence political influence on the central bank is measured bere by looking at the probability that a central bank governor will be replaced shortly after a political change of government the governor changes about half the time witbin six months of a nonconstitutional or other radical change of government a military coup or a restoration of democracy the governor is much less likely to change within six months following a routine change in the head of government about one fourth of the time in developing countries and one tenth in industrial countries these indicators vary across countries and correlate statistically with inflation and its variability and with real growth and real interest rates differences in the vulnerability of the central bank to political instability in political instability itself and in central bank turnover in nonpolitical periods seem to be a major part of the explanation for why developing countries have on average higher and more variable inflation than industrial countries do

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

april 15 syndrome i introduction the popular characterization of completing and mailing individual tax forms is that people wait until the last minute to fill out their returns and then rush to mail them at their nearest post office which has extended its hours until midnight this phenomenon which we call april 15 syndrome has large private costs we estimate that for tax year 1988 the 73 2 million taxpayers claiming refunds gave up nearly one billion dollars in interest or an average of about 13 50 per return due to filing the forms later than the earliest possible time 1 more incomprehensible from an economic standpoint but of less quantitative significance are the impatient tax filers 10 5 million taxpayers who owed the internal revenue service irs money and passed up 46 million in interest by mailing in their taxes before the filing deadline in addition to these direct costs tax returns done in haste at the last minute may be more prone to error to the extent they are not caught by the irs this adds to the capriciousness of the tax burden correcting the errors due to rushed completing of forms also adds to the administrative costs of the irs many cities and towns keep their post offices open late for no reason other than to accommodate the severe procrastinator finally return processing is slowed by the avalanche of returns filed in mid april we present some exploratory analyses of april 15 syndrome using 1988 tax return data after describing in section ii the legal framework for tax filing in section iii we discuss the data and present the basic facts with which any model of filing behavior has to contend there is a wide distribution of filing times and a substantial fraction of households which despite being owed refunds file late or which despite owing taxes file early in section iv we consider some basic models of the decision as to when to file one s taxes we note that the simplest model fails to rationalize the most obvious characteristic of the data the substantial heterogeneity of filing times in the baseline rational model individuals simply maximize their income less effort which involves either complete procrastination or prompt filing adding imperfect information does not seem to eliminate the result we are led to a model in which individuals have a stochastic opportunity cost of doing their taxes this model generates a wide distribution of filing times for returns which will get refunds and rationalizes procrastination however our framework fails to generate early filing of returns with taxes due and we consider the issue again after our analysis of the data in section v we take the predictions of our model to the data we examine the various characteristics of refund and remittance returns and perform some reduced form regressions of the determinants of return filing time most supportive of our interpretation of late filing for refunds there is much less procrastination for returns which are filled out by a paid preparer than for returns which are filed by the taxpayer further we find that the complexity of forms delays filing both for returns with tax due and for those with refunds people with a higher marginal valuation of time proxied by higher incomes are more likely to file later and the larger the refund value the sooner the return is expected to be filed returns which are completed by professional tax preparers do not exhibit these last two characteristics finally cross year analysis demonstrates that filing late is habitual suggesting that households have persistently different values of time or propensities to procrastinate we conclude by speculating on the objectives and constraints which might generate early filing by individuals with taxes due and by considering the implications of our findings we believe that our investigation of the timing of tax return filing informs us about other examples of apparently non optimal timing of economic behavior

congressional influence on u s monetary policy abstract congressional influence is generally discounted or ignored in political models of federal reserve behavior here i show that changes in the leadership of the senate banking committee are significantly correlated with monetary base growth more liberal committee leaders are associated with significantly higher base growth other factors held constant the result is shown to hold across several econometric specifications and different definitions of the congressional preference variable

variation in central bank independence across countries some provisional empirical evidence in this paper seven hypotheses to explain variation in central bank independence across countries are tested the predictions based upon the theory that delegation of authority by politicians to the central bank is used as a commitment device are not supported central bank independence is not higher the larger the employment motivated inflationary bias the higher political instability or the larger the government debt central bank independence is positively related to historical inflation experience and negatively with political instability we do only find limited support for the view that countries with a universal banking system and countries whose central banks do not regulate financial institutions have more independent central banks

credibility of optimal monetary delegation while optimal monetary policy is subject to a credibility problem it is often argued that the government should appoint a central banker whose incentives differ from the government s the author argues however that such delegation does not overcome credibility problems given that delegation is discretionary and without costs reappointment costs of delegation are shown to improve suboptimal outcomes but credibility of optimal monetary policy turns out be worsened at best delegation therefore has no effects on credibility but only if reappointment has no costs copyright 1997 by american economic association

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

the political economy of american monetary policy preface 1 introduction thomas mayer 2 studying the fed towards a broader public choice perspective thomas willett 3 the federal reserve reaction function a specification search salwa khouri 4 corporate profitability as a determinant of restrictive monetary policy estimates for the post war united states gerald epstein and juliet schor 5 federal reserve behavior since 1980 a financial market perspective william melton and v vance roley 6 the federal reserve and its institutional environment a review michael munger and brian roberts 7 the political economy of monetary policy robert hetzel 8 political monetary cycles nathaniel beck 9 congress and the fed why the dog does not bark in the night nathaniel beck 10 the federal reserve as a political power james pierce 11 monetary policy and political economy the federal reserve and the bank of japan thomas cargill and michael hutchinson 12 a positive analysis of the policymaking process at the federal reserve raymond lombra and nicholas karamouzis 13 a theory of fomc dissent voting with evidence from the time series thomas havrilesky and robert schweitzer 14 explaining fomc members votes john gildea 15 fed behaviour and x efficiency theory toward a general framework harinder singh and roger frantz 16 minimizing regret cognitive dissonance as an explanation of fomc behavior thomas mayer 17 the discount window william poole 18 leaning against the wind the behavior of the money stock in recession and recovery 1953 8 elmus wicker 19 bureaucratic self interest as an obstacle to monetary reform edward kane index

central bank independence an update of theory and evidence this paper reviews recent research on central bank independence cbi after we have distinguished between independence and conservativeness research in which the inflationary bias is endogenised is reviewed finally the various challenges that have been raised against previous empirical findings on cbi are discussed we conclude that the negative relationship between cbi and inflation is quite robust

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

does inequality cause inflation the political economy of inflation taxation and government debt a democratic society in which the distribution of wealth is unequal elects political parties that are likely to represent the interests of poor people it is in the interests of the clientele of the resulting governments to attempt to levy inflation taxes in order to erode the real value of debt service and redistribute from the rich to the poor consequently inequality and high levels of nominal government debt sow the seeds for inflation some cross country evidence for this proposition is provided

the disadvantage of tying their hands on the political economy of policy commitments incumbents are more likely to be re elected if they have a comparative advantage in the eyes of voters on some central issue this paper argues that incumbents have an incentive to avoid reforms that reduce the government s role in deciding these issues in order to increase their chances of re election this point is illustrated in the context of the choice of an exchange rate regime in an economy characterized by an inflation bias a flexible exchange rate allows the government to use monetary policy as a stabilization tool while fixed exchange rates remove the inflation bias of the economy on the one hand it is shown that a more inflation averse government may refrain from choosing fixed exchange rates in order to capitalize on the inflationary reputation of its opponent this incentive is contrasted with the opposite incentive to tie the hands of the future government should be incumbent be defeated on the other hand it is shown that electoral considerations may reinforce the incentive of the more inflationary government to tie its own hands with fixed exchange rates

checks and balances and the supply of central bank independence abstract the paper analyzes the institutional conditions under which policymakers can credibly commit to an independent central bank and thereby mitigate the well known time consistency problem in monetary policy it is shown theoretically that granting independence via a statute is only credible for legislative systems with at least two heterogeneous decision making bodies which both have veto rights for example bicameral systems this thesis is supported by empirical evidence the legal independence of central banks is significantly higher in those oecd countries whose legislative processes are characterized by extensive checks and balances furthermore the negative relation between legal independence and inflation is larger in countries with checks and balances than in countries without checks and balances

central bank behavior a positive empirical analysis abstract the central bank is analyzed as a utility maximizing unit acting in the framework of a politico economic model it derives utility from keeping the price level stable and is constrained by government the structure of the economy and the political commitment to stable exchange rates it uses a satisficing strategy concentrating on keeping conflicts with government below a certain level in the case of serious conflict the central bank follows the policy directions undertaken by government but with a time lag the complete model comprising endogenous consumer voters government and central bank is econometrically tested for germany with good results

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

time consistent monetary policy under output persistence this note merges the fact that real activity is persistent with a barro gordon type model of endogenous monetary policy it shows that persistence crucially affects policy choices this applies in non cooperative games with a finite horizon and in games with an infinite horizon always enforceable inflation announcements move higher when output persistence increases policymakers who discount future utility by 10 annually produce about ten times as much inflation under near hysteresis as in a natural rate scenario a change in the policymaker s time preference may affect inflation both ways depending on present time preference and persistence

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

is new zealand s reserve bank act of 1989 an optimal central bank contract this paper evaluates the reserve bank of new zealand act of 1989 from a principal agent perspective arguing that the act represents a dismissal rule the optimal dismissal rule requires that the central banker be dismissed whenever inflation exceeds a critical level that depends on aggregate supply disturbances and measurement error in the inflation index this is essentially the structure established by the act the scope for renegotiating the target rate however creates an incentive for the government to set the critical rate too high consequently the inflation bias of discretion is reduced but not completely eliminated copyright 1995 by ohio state university press

money and monetary stability in europe 1300 1914 abstract this paper investigates the determinants of monetary stability in europe from the late medieval era until world war i through this period the anchor for monetary policy was the silver or gold value of the monetary unit states however frequently abandoned this anchor some depreciating their monetary units against silver and gold less than 10 fold and others more than 10 000 fold between 1500 and 1914 to understand the determinants of these differences we compile a new and comprehensive monetary history dataset for all major states in europe and test alternative theories we find strong evidence that political factors and in particular fiscal capacity political regime and warfare explain patterns of monetary stability this finding is robust to addressing endogeneity controlling for the instability induced by the mechanics of the monetary system and accounting for the impacts of new monetary technologies and the advent of fiat standard