to confirmation by the senate. once a full term has been served, no reappointment is possible. the average actual tenure of governors has been between five and six years over the last twenty - five years. however, the term of the chairman and the vice chairman of the board of governors is only four years and both can be reappointed for additional terms as chairman and vice chairman for as long as they remain on the board. such short and renewable terms reduce independence but facilitate accountability. in addition, they provide an important opportunity for the president to try to influence monetary policy decisions by pressures exerted on the chairman subsequent to appointment. to a lesser degree, appointment of governors and direct pressure on them are further avenues of political influence that have been employed, at least on occasion. the authors of the banking act of 1935, which established the fomc in its modern form, implemented the system of long overlapping terms for governors and shorter renewable terms for the chairman and vice chairman. it seems to me they made a conscious effort to balance independence and accountability. the short, renewable term for the chairman would enhance accountability and encourage a strong working relationship between the chairman and the executive and legislative branches. on the other hand, the long and effectively non - renewable terms for governors would protect the fundamental independence of monetary policy. so the federal reserve loses points in some indices of independence because of the short term of the chairman, but the resulting balance between independence and accountability has, in my view, contributed over the years to a successful relationship between the central bank and the rest of government. transparency and disclosure transparency and disclosure are also essential to accountability. transparency refers to being easily understood. with respect to monetary policy, it refers to the immediacy with which the public learns of policy decisions and the amount of information provided about the rationale for policy actions and the assessment of how possible future developments bear on policy. the legislature, for example, needs information about the policy actions and an understanding of the rationale for the policy if it is to be able to hold the central bank accountable. in addition, it is generally agreed that markets work better with more complete information, although some worry that a continuous flow of information on the leanings of members of the policy committee can result in excessive volatility in financial markets. the congress has, over time, made efforts to increase the transparency of the monetary policy process and widen the scope of disclosures of monetary policy decisions and of the discussions leading up to those decisions

. thus : ( nx = −ηe − α d − d ∗ ) where η is the elasticity of net exports with respect to the exchange rate, and α is the elasticity of net exports to the differential between home and foreign absorption. the real exchange rate is expressed in percent deviation from the steady state. the exchange rate is determined according to an interest rate parity condition which implies that the exchange rate appreciates when domestic interest rates are higher - 14 than foreign interest rates, with elasticities ( φc and φu ) that can differ depending on whether interest rate movements are driven by conventional or unconventional policy : ( ) ( ) e = φc rc − rc ∗ + φu ru − ru ∗. the model is closed by specifying the behavior of the monetary authority. we assume that the monetary authority can adjust either the interest rate associated with conventional policy ( rc ), or the interest rate linked to balance sheet actions ( ru ), or both, to affect output ( its goal variable ). the conventional feedback rule is thus : rc = γ c y, rc ∗ = γ c∗ y ∗, whereas the unconventional feedback rule is : ru = γ u y ru ∗ = γ u∗ y ∗. the system above contains 10 equations in 10 endogenous variables ( y, y *, d, d *, nx, e, rc, rc *, ru, ru * ), as well two shocks, u and u *, that can move gdp, its components, exchange rates, and interest rates. b. simulation results figures 1 and 2 show the results of simulating the model under alternative assumptions about the shocks and monetary policy reaction. in each case, the economy starts in steady state with all variables at zero and experiences a demand shock in period 1 that dies out with an autocorrelation ρ of 0. 95. all parameter values are reported in table 1. - 15 figure 1. home demand shock figure 1 illustrates the case of a favorable demand shock in the home country. the solid lines illustrate the case when home uses the short - term interest rate as its active policy tool, and keeps its balance sheet on hold, consistent with a desire to delay balance sheet normalization. the policy reaction is calibrated to be sufficiently aggressive that home gdp always remains at baseline ( see column 2 of table 1 ). the higher policy rate path ( that is, higher rc ) causes the long - term interest rate ( panel a ) to