Central Bank Behavior Research Articles

Establishing central bank independence: recent experiences in developing countries

The continued interest in evaluating the behaviour and performance of central banks, particularly those in industrialized countries can, in part, be explained as a reaction to the stagflation of the 1970s and early 1980s. This paper is concerned with the foregoing issues as they pertain to the developing countries, an area largely neglected in the relevant literature. Reaction functions are estimated for a cross-section of developing countries around the world. Among the findings are that there is little difference in monetary policies between the reform and non-reform group of countries, where monetary policy is measured via money growth. However, Asian economies have, on average, performed better in terms of inflation than Latin and South American countries despite having more dependent central banks. The results suggest that the latter set of countries instituted changes in central banking legislation in order to buy credibility whereas Asian countries do not require this precondition to generate relat...

Strapped to the mast: EC central bankers between global financial markets and regional integration1

Abstract Paradoxically, though the Treaty on European Union underlines the power of EC central bankers, they have been neglected in the literature on European integration. Central bank independence provides the key connection between changes in global financial markets and the new Treaty provisions on economic and monetary union (EMU). In recent years EC central bankers have been subjected to ever more volatile and competitive markets and new political pressures related to EMU. Central bank independence has offered a means of reconciling these twin changes. This article seeks to explain why central bank independence has strengthened its grip in Europe and the nature of the role of central bankers in European integration. The adequacy of existing theories of central bank behaviour is examined ‐ public interest, personality, public choice and bargaining theories. Emphasis is given to explanations that focus on external factors: the structural power of the ‘anchor’ currency in the exchange rate mechanism (ER...

Modeling central bank behavior: What have we learned?

Within the literature on monetary and fiscal policy there exists a wide range of results on the role and effects of policy, both domestically and internationally. This article focuses on various inadequacies associated with the modeling of central bank behavior as an important source of the disparities. The role of policy procedures and regulations in influencing causal relationships and the dynamic adjustment of the financial system to disturbances is highlighted. At the practical level, the evolution of monetary policy in the United States is reviewed and compared to policy procedures in other major countries, with special emphasis on the implications for empirical studies. Finally, the various ramifications for contemporary policy analysis within the across interdependent nations are explored with an eye towards enhancing the reliability, robustness, and predective power of our models.

Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: Comment

Previous articleNext article Free[Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: CommentJohn B. TaylorJohn B. Taylor Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by NBER Macroeconomics Annual Volume 71992 Sponsored by the National Bureau of Economic Research (NBER) Article DOIhttps://doi.org/10.1086/654197 Views: 119Total views on this site Citations: 2Citations are reported from Crossref Copyright 1992 The National Bureau of Economic Research and The Massachusetts Institute of TechnologyPDF download Crossref reports the following articles citing this article: John B. Taylor Macroeconomic Lessons from the Great Deviation, NBER Macroeconomics Annual 25 (Jul 2015): 387–395.https://doi.org/10.1086/657553Pier Francesco Asso, George A. Kahn, Robert Leeson The Taylor Rule and the Practice of Central Banking, SSRN Electronic Journal (Jan 2010).https://doi.org/10.2139/ssrn.1553978

Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: Comment

Previous articleNext article Free[Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: CommentMartin EichenbaumMartin Eichenbaum Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by NBER Macroeconomics Annual Volume 71992 Sponsored by the National Bureau of Economic Research (NBER) Article DOIhttps://doi.org/10.1086/654196 Views: 50 Copyright 1992 The National Bureau of Economic Research and The Massachusetts Institute of TechnologyPDF download Crossref reports no articles citing this article.

Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: Discussion

Previous articleNext article Free[Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: DiscussionPDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by NBER Macroeconomics Annual Volume 71992 Sponsored by the National Bureau of Economic Research (NBER) Article DOIhttps://doi.org/10.1086/654198 Views: 99Total views on this site Copyright 1992 The National Bureau of Economic Research and The Massachusetts Institute of TechnologyPDF download Crossref reports no articles citing this article.

Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: Comment

Previous articleNext article Free[Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: CommentMartin EichenbaumMartin Eichenbaum Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by NBER Macroeconomics Annual Volume 71992 Sponsored by the National Bureau of Economic Research (NBER) Article DOIhttps://doi.org/10.1086/654196 Views: 125Total views on this site Copyright 1992 The National Bureau of Economic Research and The Massachusetts Institute of TechnologyPDF download Crossref reports no articles citing this article.

Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries

Using a simple case study approach, this paper compares the conduct and performance of monetary policy in six industrialized countries since the breakup of the Bretton Woods system. Our purpose is to develop fruitful hypotheses that might usefully be explored in subsequent, more formal research. From a positive perspective, a frequently observed pattern in the case studies is that central banks adopt money growth targets when inflation threatens to get out of control. Central banks appear to use money growth targets both as guideposts for assessing the stance of policy and as a means of signaling their intentions to the public; however, no central bank adheres strictly to targets in the short run. More normatively, the case studies also suggest that money growth targets might be useful in providing a medium-term framework for monetary policy, if the targeting is done in a clear and straightforward manner and if targets can be adjusted for changes in the link between target and goal variables. It appears that rigid adherence to money growth targets in the short run is not necessary to gain some benefits of targeting, as long as there is some commitment by the central bank ultimately to reverse short-term deviations from target. Finally, the choice of operating procedure seems to have little bearing on the success of policy.

Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: Comment

Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: Comment

Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries

Using a simple case study approach, this paper compares the conduct and performance of monetary policy in six industrialized countries since the breakup of the Bretton Woods system. Our purpose is to develop fruitful hypotheses that might usefully be explored in subsequent, more formal research. From a positive perspective, a frequently observed pattern in the case studies is that central banks adopt money growth targets when inflation threatens to get out of control. Central banks appear to use money growth targets both as guideposts for assessing the stance of policy and as a means of signaling their intentions to the public; however, no central bank adheres strictly to targets in the short run. More normatively, the case studies also suggest that money growth targets might be useful in providing a medium-term framework for monetary policy, if the targeting is done in a clear and straightforward manner and if targets can be adjusted for changes in the link between target and goal variables. It appears that rigid adherence to money growth targets in the short run is not necessary to gain some benefits of targeting, as long as there is some commitment by the central bank ultimately to reverse short-term deviations from target. Finally, the choice of operating procedure seems to have little bearing on the success of policy.

Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: Discussion

Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries]: Discussion

Interaction between central bank behaviour and fiscal policy: the US case

Federal Reserve behaviour is analysed using a model which incorporates an effect an effect of iscal pressure on monetary policy formulation. Incentive structures are hypothesized to be such that the central bank plans over a longer horizan than that relevant to the administration. With the cyclically adjusted deficit proxying for fiscal pressure from the administration, the response to the deficit then plays an interactive role in affecting the trade-off weights applied to the competing goals of monetary policy. The model performs well for the USA, and provides a pattern of policy that is stable over the full 1961ndash;83 period.

Cross-country evidence on the relationship between central banks and governments

The influence of government pressure on central bank behavior is examined for Canada, France, the U.K., and West Germany. With the budget deficit proxying for this pressure, there is evidence of an overall expansionary effect of the deficit on monetary policy response to stabilization objectives. Despite there otherwise being little consistency in the reaction functions estimated across the four countries, the marked tendency is for policy to become more accommodative at higher levels of the deficit. Hence, the results point to a potentially important regularity in the relationship between central banks and governments.

A Retrospective on the Classical Gold Standard, 1821-1931.

This is a timely review of the gold standard covering the 110 years of its operation until 1931, when Britain abandoned it in the midst of the Depression. Current dissatisfaction with floating rates of exchange has spurred interest in a return to a commodity standard. The studies in this volume were designed to gain a better understanding of the historical gold standard, but they also throw light on the question of whether restoring it today could help cure inflation, high interest rates, and low productivity growth. The volume includes a review of the literature on the classical gold standard; studies the experience with gold in England, Germany, Italy, Sweden, and Canada; and perspectives on international linkages and the stability of price-level trends under the gold standard. The articles and commentaries reflect strong, conflicting views among hte participants on issues of central bank behavior, purchasing-power an interest-rate parity, independent monetary policies, economic growth, the Atlantic economy, and trends in commodity prices and long-term interest rates. This is a thoughtful and provocative book.

Central Bank Behavior and Credibility: Some Recent Theoretical Developments

Recent theoretical literature on the behavior of monetary policymakers may be divided into two broad categones — positive and normative. The positive literature formulates hypotheses about the objectives and constraints fircing central bankers and derives implications for the behavior of both observable vanables (e.g., the rate of monetary growth amid the rate of inflation) and unobservable variables (e.g., policy credihilityi The normative literature focuses on the issue ofhow, given the behavior of central bankex-s, monetary institutions can he redesigned to improve social welfare. Both approaches use the same general analytic framework to model central bank behavior.

Monetary instruments and policy rules in a rational expectations environment

This paper explores the implications of rational expectations and the aggregate supply theory advanced by Lucas (1973) and Barro (1976) for analysis of optimal monetary policy under uncertainty along the lines of Poole (1970), returning to a topic initially treated by Sargent and Wallace (1975). Not surprisingly, these two ‘classical’ concepts alter both the menu of feasible policy choice and the desirability of certain policy actions. In our setup, unlike that of Sargent and Wallace (1975), the systematic component of monetary policy is a relevant determinant of the magnitude of ‘business fluctuations’ that arise from shocks to the system. Central bank behavior — both the selection of monetary instruments and the framing of overall policy response to economic conditions — can work to diminish or increase the magnitude of business fluctuations. However, the ‘activist’ policies stressed by the present discussion bear little (if any) relationship to the policy options rationalized by the conventional analysis of monetary policy under uncertainty. In particular, in contrast to Poole's analysis, money supply responses to the nominal interest rate are not important determinants of real economic activity. Rather, the central bank should focus on policies that make movements in the general price level readily identifiable by economic agents.

Is lagged reserve accounting responsible for a variable money supply?: A skeptical note

This paper shows that the introduction of optimal central bank behavior into a model of money supply determination largely eliminates the advantage of comtemporaneous over lagged reserve accounting in achieving monetary control.

Central bank behavior: A positive empirical analysis

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.

Financial capital movements and central bank behavior in a two-country, short-run portfolio balance model

This paper analyzes financial capital movements in a two-country, short-run, portfolio balance model which includes two securities that are imperfect substitutes. Following a disturbance, equilibrium is, in general, reattained, but the effects on interest rates, money supplies, and international reserve holdings depend on the monetary and reserve asset management policies of the two central banks. Special attention is focused on the case in which one central bank holds its international reserves in the form of ‘key currency’ securities, thereby sterilizing for the ‘key currency’ country. There are several applications of the central result that, for any disturbance, the less changes in international reserves are allowed to affect money supplies, the larger the change in reserves required to reestablish equilibrium.