Bureaucracy,altruism, and monetary policy

It has recently been argued that the fiscal relationship between the Federal Reserve and the Treasury, by which the Fed keeps a portion of its earnings, imparts an inflationary bias to monetary policy because that relationship gives the Fed an incentive to increase its earnings by increasing the monetary base. This hypothesis is tested within the framework of a Federal Reserve objective function incorporating bureaucratic and social goals, and no evidence is found to support it.     

Targeting inflation targeting: the influence of interest groups

Public Choice - We examine whether sectional interest groups influence monetary policy goals in a manner consistent with their interests as distributive coalitions. In particular, we explore...     

Federal Reserve transparency: The more things change, the more they stay the same?

The calculus of electoral politics and the central bank’s bureaucratic objectives can explain the recent trend toward greater Federal Reserve transparency and can shed light on the likelihood that this trend will continue. If incumbent politicians see no electoral advantage in pressuring the Fed to become still more transparent, and if the Fed sees no benefit to greater transparancy, then further changes in current practice are unlikely. Private sector agents will continue to face a significant degree of uncertainty about the Fed’s policy objectives and about the information that policymakers consider in the monetary policy decision process.     

Party incumbency and economic growth in the United States: 1929 to 1984

This paper investigates the relationship between Democratic presidential incumbency and economic growth in the United States in the long run. The analysis shows the Democrats have stimulated growth beyond trends when two conditions are met: first, when an incoming administration is formally committed to promoting growth and employment, and second, when that administration has at least two terms of office to implement those goals. The transmission mechanisms linking incumbency and growth are explored by means of a standard Keynesian IS-LM model, which is augmented by additional relevant variables. The transmissions process works via monetary policy, fiscal policy, and welfare expenditure. It also seems likely that changing expectations of consumers and investors stimulated the economy beyond trends for some Democratic administrations.     

China’s consumer credit sector expansion and monetary transmission mechanism: What should China’s central bank do?

In this paper, we argue that as China’s consumer credit sector is expanding, the central bank’s role in smoothing economic fluctuation and promoting economic growth becomes more important. We build a general equilibrium model with durable and nondurable goods to analyze how the consumer credit sector affects the transmission mechanism of monetary policy. The model finds that an expanding consumer credit sector improves the efficiency of the monetary transmission mechanism. Two policy implications derived suggest China’s central bank should encourage the development of the consumer credit sector and liberalize market-based monetary policy tools such as interest rate tools. Her fields of interest are international economics, monetary policies and economic growth. Guofeng Sun is the deputy director of open market operation office of monetary policy department at People’s Bank of China. His research focus is the transmission mechanism of monetary policy. The authors thank two anonymous referees for their helpful comments and suggestions. The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the People’s Bank of China.     

Trustee strategies,politicization and de-delegation: The case of the European Central Bank

This article shows how the European Central Bank (ECB) reduced the risk of politicization and de facto de-delegation despite experiencing contestation. During the euro area crisis and the coronavirus emergency the ECB's monetary policy measures have been widely praised for their effectiveness. Even though the ECB is an independent trustee that cannot be easily sanctioned, it needs to engage with its principals to receive their political backing for common projects and in order to reaffirm its own centrality in governance. This article identifies different trustee strategies to reduce politicization and thereby to decrease the risk of de facto de-delegation: (i) dualism, (ii) voluntary self-restraint, and (iii) changing the yard stick. It concludes by showing that the ECB has expanded its monetary policy toolbox without triggering neither formal nor de facto de-delegation.     

Fear of Floating and the External Effects of Currency Unions

The introduction of the Euro has considerably affected the de facto monetary policy autonomy—defined as independence from monetary policy in the key currency areas—in countries outside the European Currency Union (ECU). Using a standard open economy framework, we argue that de facto monetary policy autonomy has significantly declined for countries that dominantly trade with the ECU and slightly increased for countries that dominantly trade with the Dollar zone. The predictions of our model find support in the data. We estimate the influence of the Bundesbank's/ECB's and the Fed's monetary policies on various country groups. The de facto monetary policy autonomy of both non-Euro EU members and EFTA countries declined with the introduction of the Euro. This effect was slightly stronger for the EU member countries than for EFTA countries as our theory predicts. At the same time, the de facto monetary policy autonomy of Australia and New Zealand vis-à-vis the US Dollar has (moderately) increased.     

Monetary Sovereignty: Nature,Implementation, and Implications

Monetary sovereignty is a central concept of Modern Money Theory (MMT). The paper explores the characteristics of monetary sovereignty, the means used to implement it, and some of its theoretical and policy implications. Herein, it is shown that monetary sovereignty involves a high degree of coordination between the central bank and the national treasury. The paper also argues that monetary sovereignty is not special to the United States, does not require direct monetary financing of the treasury, does not tell us anything about the optimal size of the fiscal balance, and is not dependent on the willingness of foreigners to hold the domestic currency.     

Central Bank Independence and Deflation

Deflation presents special challenges to central banking, as traditional monetary policy tools are highly inefficient in dealing with deflationary pressures. In this case, the Federal Reserve must use alternative monetary policy tools that are specially designed to artificially boost asset prices through “printing press” or currency manipulation. Unfortunately, these alternative monetary policy tools create unintended political, geopolitical, and social consequences that overreach into the direct responsibilities of other branches of government. Thus, the government must be able to influence Federal Open Market Committee decisions that potentially affect (or contradict) U.S. foreign policy, U.S. trade policy, U.S. dollar policy, and deliberate domestic/global wealth distribution policies.     

When Are Monetary Policy Preferences Egocentric? Evidence from American Surveys and an Experiment

This article enters the international/comparative political economy debate about whether individual‐level macroeconomic policy preferences are egocentric and, if so, on what basis (factors, sectors, or firms). It argues that contextual information may function as a precondition for the emergence of egocentric preferences. With a focus on the trade‐off between using monetary policy for a domestic or an international goal, it presents evidence from three original American surveys using informative vignettes to show how monetary policy preferences exhibit firm‐based egocentric variation: Individuals whose employer does most of its business in overseas markets have a lesser preference for domestic monetary autonomy. It also presents evidence from a survey experiment to show how the strength of this egocentric relationship depends on the informative power of the vignette: A more contextually informative vignette produces a stronger relationship between overseas business activity and a preference against domestic monetary autonomy.     

Chairman reappointments,presidential elections and policy actions of the federal reserve

A number of recent studies have analyzed whether there is a political influence on monetary policy, focusing primarily on whether monetary policy becomes easier just prior to elections. In addition to exploring whether there exists an election period cycle in monetary policy, this article explores the existence of another political influence on policy. Following up on some recent anecdotal evidence provided by John T. Woolley, this article explores whether incumbent FED chairmen have succeeded in influencing monetary policy in order to improve their reappointment chances. The analysis, which spans the administrations of seven U.S. presidents and four FED chairmen, finds no conclusive evidence that FED policy changes systematically either before elections or chairman reappointment dates. The analysis has implications for the issue of rules versus discretion in monetary policy.     

Governance for Sustainability

Environmental policies and responses are strongly influenced by a government's knowledge and understanding of environmental problems, its assessment of their severity, the expert opinions available to it on the size of the response needed, its understanding of the driving forces leading to environmental deterioration and the influence of prevailing theories and paradigms. Environmental policy cannot furthermore exist in a policy vacuum. Environmental goals may or may not be strongly weighted compared to other societal goals especially economic goals. All these influences have major bearing on the approach taken by governments to environmental policy.     

Transparency, Democratic Accountability, and the Economic Consequences of Monetary Institutions

Debates about the appropriate mix between autonomy and accountability of bureaucrats are relevant to numerous areas of government action. I examine whether there is evidence of a tradeoff between transparency, democratic accountability, and the gains from monetary delegation. I begin by presenting a simple theoretical model which suggests that central banks that are transparent, in the sense of publishing their macroeconomic forecasts, will find it easier to acquire a reputation. Despite making central banks more subject to outside scrutiny then, monetary transparency can lead to improved economic outcomes. I also consider arguments about the effect of accountability provisions involving parliamentary oversight and control over central bankers. The article then uses a new data set to examine these issues empirically, focusing on a natural experiment involving disinflation costs under different central banking institutions during the 1990s. Results suggest that countries with more transparent central banks face lower costs of disinflation while accountability provisions have no clear effect on disinflation costs. My results also concord with earlier findings that the effect of monetary institutions is conditional on other features of the political environment.     

USING PRODUCER INCENTIVES TO ACHIEVE SOCIAL OBJECTIVES: AN ASSESSMENT OF THE MARKETPLACE AND PUBLIC POLICIES

The purpose of this paper is to recast the light in which we have come to evaluate public policy initiatives and open the door for a more careful examination o f the effects markets have on the course of public policies employing producer incentives to achieve policy goals. Specifically, the paper will review the past experience of urban renewal to show the relationship between policy objectives and outcomes when policy is designed to work through the marketplace. By arguing that market incentives cons train policy outcomes, it is maintained that policies which are judged to have failed in its goals may in reality have succeeded when viewed in terms of normal market operations.     

Seigniorage,Delegation and Common Currency: Why Monetary Unions May Fail?

We provide a parable that can explain why monetary unions havehistorically been dissolved following political separation.Using a simple model of government finance in a commoncurrency area, it is shown that delegation to an``inflationary'' central banker is an optimal policy whencountries struggle for seigniorage revenues, whether delegatescoordinate monetary policy or not. Furthermore, a commoncentral bank, in which representatives coordinate monetarypolicy, will reach an outcome that is Pareto-inferior to thatproduced by a non-cooperative seigniorage war. Accordingly,without political dialogue regarding the designation of therepresentatives, a monetary union can fail.     

When the Interest Rate on the National Debt Is a Policy Variable (and “Printing Money” Does Not Apply)

Modern Monetary Theory (MMT) argues that the interest rate on the national debt for a monetary sovereign is a policy variable, not subject to whether bond markets “accept” or “reject” it. This paper defines measures of the components of the standard analysis of fiscal sustainability. It then methodically describes the Federal Reserve's operations relevant for understanding why interest rates on government debt in the United States have been and continue to be driven by monetary policy. A corollary that emerges—“printing money,” as economists usually understand it—is not applicable and has never been advocated by MMT.     

Partisanship in the setting and coordination of fiscal and monetary policies

Abstract. The principal concerns of this paper are with the roles partisan politics have played in the making of fiscal and monetary policies within OECD countries as well as the extent to which these policies have complemented each other. It is argued that parties of the left pursue fiscal policies that are distinctly different from those pursued by the right. The critical difference is in the way these parties use fiscal policy as a corrective mechanism for dealing with macroeconomic problems: leftist parties adopt counter–cyclical fiscal policies while rightwing parties adhere to pro–cyclical fiscal stances. The paper also examines two arguments regarding monetary policy and how partisan politics affect this policy area. The first and most conventional argument sees the formal independence of the central bank from government as a means of negating partisan influences on monetary policy; the second advances the proposition that, regardless of central bank independence, monetary authorities are not politically neutral but instead share views similar to those of parties on the right–hand side of the political spectrum. Empirical analysis, using a pooled cross–section time–series design with data from 14 countries between 1961 and 1994, produces evidence in favor of the argument concerning the role of partisanship in fiscal policy; it also shows little support for the view that central bank independence inhibits partisan influences while at the same time provides support for the thesis that central banks are politically non–neutral. Thus, coordination between fiscal and monetary policies is far less likely to occur when left–wing parties are in power.     

Partisanship in the setting and coordination of fiscal and monetary policies

The principal concerns of this paper are with the roles partisan politics have played in the making of fiscal and monetary policies within OECD countries as well as the extent to which these policies have complemented each other. It is argued that parties of the left pursue fiscal policies that are distinctly different from those pursued by the right. The critical difference is in the way these parties use fiscal policy as a corrective mechanism for dealing with macroeconomic problems: leftist parties adopt counter–cyclical fiscal policies while rightwing parties adhere to pro–cyclical fiscal stances. The paper also examines two arguments regarding monetary policy and how partisan politics affect this policy area. The first and most conventional argument sees the formal independence of the central bank from government as a means of negating partisan influences on monetary policy; the second advances the proposition that, regardless of central bank independence, monetary authorities are not politically neutral but instead share views similar to those of parties on the right–hand side of the political spectrum. Empirical analysis, using a pooled cross–section time–series design with data from 14 countries between 1961 and 1994, produces evidence in favor of the argument concerning the role of partisanship in fiscal policy; it also shows little support for the view that central bank independence inhibits partisan influences while at the same time provides support for the thesis that central banks are politically non–neutral. Thus, coordination between fiscal and monetary policies is far less likely to occur when left–wing parties are in power.     

关于宏观调控若干问题的思考

宏观调控既不等同于扩张,也不等同于紧缩,而是一个具有双重性的中性概念.宏观调控的立足点是为了发展,为了更好的发展.宏观调控也没有停止和结束的时候,只有依据治理波动情况之不同而有阶段性之分,有采取不同的措施和不同力度之分.1993年到2003年,中国经济进行过两轮正相反的宏观调控,都成功地对经济过热和经济偏冷进行了治理.自2003年下半年,中央开始实施新一轮宏观调控措施,2004年中央经济工作会议又明确提出了"双稳健"的宏观经济政策--稳健的财政政策和稳健的货币政策,表明我国的宏观调控全面转向"中性"政策.这是一种有保有压、有紧有缩、上下微调、松紧适度的政策,是松紧结合的组合式的宏观调控.我国目前经济增长率和物价上涨率都在正常区间,不存在什么"软着陆"的问题.     

The evaluation of climate policy: theory and emerging practice in Europe

Climate policy is a relatively young and dynamic area of public policy making. However, its development has attracted far more attention than the results it delivers in practice, which of course are the concern of policy evaluators. This article attempts to provide the first systematic cataloging of the emerging patterns of policy evaluation undertaken in different parts of the European Union. Theories of policy evaluation suggest that these evaluation practices should acknowledge the inherent complexity of climate policy making, be reflexive by questioning official policy goals, and be participatory. A meta-analysis of 259 climate policy evaluations suggests that current practice engages with some but not all of these issues. This article concludes by analyzing the implications of this finding for those in the academic and practitioner community who are keen to understand the extent to which climate policy evaluation is delivering on its promises.