Central bank independence, economic freedom, and inflation rates

Measures of central bank independence combine many attributes that may or may not affect inflation. Central bank attributes are chosen as a result of political calculations over the distribution of resources between competing interest groups. Simultaneity bias results from regressions of central bank independence or of economic and political freedom on inflation or growth. Our estimates demonstrate the connections between economic and political freedom and central bank attributes that lead to inflation. Countries showing high degrees of economic freedom adopt structures that lead to lower inflation; those that show high degrees of political freedom do not adopt inflation-reducing institutional structures.     

Central Bank Autonomy without Monetary Policy

The autonomy of a country’s central bank from political authorities has been advocated both as a remedy against the inflationary bias that would otherwise be present in the conduct of the government’s monetary policy and, more recently, on the basis of empirical evidence. However, both theoretical arguments and empirical findings have associated central bank autonomy with the conduct of monetary policy, while often failing to pay attention to those institutional cases where a central bank is in place but is not responsible for the conduct of monetary policy. These cases are particularly relevant for those countries which do not possess their own currency, or where extreme monetary regimes such as dollarization, currency boards, or monetary unions are present. These institutional settings, where a central bank exists, but there is no monetary policy to be conducted, raise the issue of central bank autonomy in a framework where the inflation bias is no longer pertinent. In other words: Is central bank autonomy still a relevant objective when a country does not run its own monetary policy? The present paper addresses this question, discusses dimensions of autonomy and accountability and maintains that central bank autonomy still does matter, particularly if the central bank is responsible for bank supervision and financial regulation.     

2011年：宽松货币政策实施与退出的“滞胀”效应——来自2002～2010年货币存量变动研究的见解

通过对2002～2010年我国货币存量、价格波动与产出增长关系的实证研究,有两个重要的发现：一是一个高的货币存量增长率会带来物价上涨的趋势,而抑制物价上涨的根本之策是降低货币增长率;二是2009～2010年实施的宽松货币政策对产出增长的短期效应开始消褪,而价格则进入了一个上升通道,＂滞胀＂风险已经出现,因而中央银行转向降低通胀的一个明确的货币政策规则应是优选的政策目标。     

A CRITICAL ASSESSMENT OF MEASURES OF CENTRAL BANK INDEPENDENCE

The methodology of measuring central bank independence suggested by Bade and Parkin three decades ago and inverse correlations between the measures and inflation have been widely accepted. The measurement literature has made important contributions identifying elements of institutional design that establish the relationship between the central bank and the government and the measurements from an ordinal perspective provide some useful insights about the major institutional redesigns of central banks during the past several decades. At the same time, the measurement literature is problematic. First, a dummy variable bifurcating central banks into groups of independent and less independent central banks can duplicate the standard correlations suggesting the information content of the specific measures is limited; second, the correlations between inflation and measures of independence are not as stable as claimed; and most important, the measurements are subject to classification problems that have not been fully appreciated. Review of the institutional design and history of the Bank of Korea, Bank of Japan, and the Federal Reserve provide evidence the classification problems are important. The measures of independence are more appropriately regarded as ordinal rankings of central bank independence rather than considered cardinal measures suitable for econometric modeling. (JEL E50, E58, E65)     

Micro-structural foundations of network inequality: Evidence from a field experiment in professional networking

Sociological accounts of network inequality typically rely on the logic of preferential attachment, holding that individuals in a social network prefer to form ties with central rather than peripheral actors. We develop an alternative explanation for the growth of network inequality that does not require actors to have knowledge about the social position of others or to hold explicit preferences for partners based on such knowledge. Instead, we theorize that central actors benefit from being exposed to more opportunities for triadic closure, which confounds a quality- or popularity-based signal that their greater connectedness might also send. We test this prediction an observational study and a field experiment across multiple professional conferences. In the field experiment, we test whether network centrality is predictive of tie formation if the benefits that central actors receive through their disproportional exposure to second-order network neighbors are randomly suppressed. The findings demonstrate that for the same level of exposure to opportunities for triadic closure, central actors and less central actors are equally likely to be selected as network partners. We discuss how the proposed mechanism may be used to rectify social capital disadvantages among disadvantaged groups.     

WHO IS AFRAID OF THE FRIEDMAN RULE?

We explore the connection between optimal monetary policy and heterogeneity among agents in a standard monetary economy with two types of agents where the stationary distribution of money holdings is nondegenerate. Sans type-specific fiscal policy, we show that the zero-nominal-interest rate policy (the Friedman rule) does not maximize type-specific welfare; it may not maximize aggregate ex ante social welfare either. Indeed, one or, more surprisingly, both types may benefit if the central bank deviates from the Friedman rule. ( JEL E31, E51, E58)     

THE CREDIT‐CHANNEL TRANSMISSION MECHANISM AND THE NONLINEAR GROWTH AND WELFARE EFFECTS OF INFLATION AND TAXES

With the credit‐channel effect driven by the central bank's open market operations, this paper's model easily gives rise to the nonlinear inflation‐growth nexus, which is evidenced by a number of cross‐country empirical studies. The threshold level of the inflation rate is found to be lower when tax rates are higher. The presence of the credit‐channel effect also provides the rationale for setting positive (and smaller than 1) tax rates on consumption, labor income, and capital income. The optimal tax rates rise as the inflation target declines. Under a fiscal policy rule where labor and capital income taxes move proportionally to each other, the optimal capital income tax rate could be higher than the optimal labor income tax rate. Under a sufficiently large central bank balance sheet, the credit‐channel effect will be so weak that inflation and all kinds of taxes are growth and welfare repressing. This provides a rationale for central banks that have implemented quantitative easing policies to shrink their balance sheets. (JEL E58, E62, O42)     

How does inequality aversion affect inequality and redistribution?

We investigate the effects of inequality aversion on equilibrium labor supply, tax revenue, income inequality, and median voter outcomes in a society where agents have heterogeneous skill levels. These outcomes are compared to those which result from the behavior of selfish agents. A variant of Fehr-Schmidt preferences is employed that allows the externality from agents who are “ahead” to differ in magnitude from the externality from those who are “behind” in the income distribution. We find first, that inequality-averse preferences yield distributional outcomes that are analogous to tax-transfer schemes with selfish agents, and may either increase or decrease average consumption. Second, in a society of inequality-averse agents, a linear income tax can be welfare-enhancing. Third, inequality-averse preferences can lead to less redistribution at any given tax, with low-wage agents receiving smaller net subsidies and/or high-wage individuals paying less in net taxes. Finally, an inequality-averse median voter may prefer higher redistribution even if it means less utility from own consumption and leisure.     

CENTRAL BANKING AS A POLITICAL PRINCIPAL-AGENT PROBLEM

Due to their ties with elected leaders, central bankers may pursue policies that are not in society's best interests. Consequently, the relationship between the public and the central bank can be characterized as a principal-agent problem. An inflation and stabilization bias arise as a result of this agency problem and the magnitudes of these biases depend on the political environment. Various institutional proposals for eliminating these biases are examined, and we find that central bank independence and performance contracts work best. However, we argue that central bank independence is preferable for resolving the agency problem.     

Expectations of inflation: The biasing effect of thoughts about specific prices

National surveys follow consumers’ expectations of future inflation, because these may directly affect the economic choices they make, indirectly affect macro-economic outcomes, and are considered in monetary policy. Yet, relatively little is known about how individuals form the inflation expectations they report on consumer surveys. Medians of reported inflation expectations tend to track official estimates of realized inflation, but show large heterogeneity between respondents, due to some expecting seemingly extreme inflation. We present two studies to examine whether individuals who consider specific price changes when forming their inflation expectations report more extreme and disagreeing inflation expectations due to focusing on specific extreme price changes. In Study 1, participants who were instructed to recall any price changes or to recall the largest price changes both thought of items for which price changes were perceived to have been extreme. Moreover, they reported more extreme year-ahead inflation expectations and showed more disagreement than did a third group that had been asked to recall the average change in price changes. Study 2 asked participants to report their year-ahead expectations of inflation, without first prompting them to recall specific price changes. Half of participants nevertheless thought of specific prices when generating their inflation expectations. Those who thought of specific prices reported more extreme and more disagreeing inflation expectations, because they were biased towards various items associated with more extreme perceived price changes. Our findings provide new insights into expectation formation processes and have implications for the design of survey-based measures of inflation.     

POLITICAL AND ECONOMIC DETERMINANTS OF INTEREST RATE BEHAVIOR: ARE CENTRAL BANKS DIFFERENT?

Political influences on short-term interest rates in seventeen OECD countries from 1960–1990 are measured. After controlling for unexpected changes in inflation and unemployment, as well as changes in the world interest rate, short-term interest rates in most countries do not respond to political events, neither the timing of elections nor changes in the governing party. Thus, on this criterion, the central banks in this sample do not reveal large differences in their degree of independence from political influence. The small differences are not closely related to rankings of central bank independence based on quantification of central bank laws.     

WHY DOESN'T SOCIETY MINIMIZE CENTRAL BANK SECRECY?

Societies have incentives to design institutions that allow central bank secrecy. This paper illustrates two of these incentives . First, if society tries to constrain secrecy in one way, central bankers will try to regain lost effectiveness by building up secrecy in other ways. Therefore, we may wind up accepting types of secrecy that appear preventable because reducing them would lead to higher costs . Second, if the social trade-offs between policy objectives change over time, the public may directly prefer greater central bank secrecy so that it will be surprised with expansionary policies when it most desires them.     

CENTRAL BANK INDEPENDENCE AND INFLATION: A NOTE

We document increased central bank independence within the set of industrialized nations. This increased independence can account for nearly two-thirds of the improved inflation performance of these nations over the past two decades. ( JEL E42, E58)     

SURVEY EVIDENCE ON EXCESSIVE PUBLIC PESSIMISM ABOUT THE FUTURE BEHAVIOR OF UNEMPLOYMENT

Two of the questions in the Surveys of Consumer Attitudes undertakenby the Survey Research Center of the University of Michigandeal with households' expectations about inflation and the changein unemployment. We compare quarterly time series of the meanresponses with the actual behavior of inflation and unemploymentto see whether households are overly optimistic or pessimisticabout the future behavior of inflation and unemployment. Wefind an asymmetry. Over the 21 years of our analysis, on averagethe public is neither overly optimistic nor overly pessimisticabout future inflation. However, the public has been significantlytoo pessimistic about the future behavior of unemployment. Theseresults have an important implication for macroeconomic policy.If politicians respond to complaints from the public about inflationand unemployment they will target policy instruments at unemploymentto a greater extent than if the public was not so pessimisticabout the behavior of unemployment. The result may be a higherrate of inflation than if the public were not mistakenly pessimisticabout the behavior of unemployment.     

Policy diffusion as empowerment: domestic agency and the institutional dynamics of monetary policy diffusion in China

ABSTRACT

The policy diffusion literature has often focused on external pressures on domestic policy. However, by analysing the evolution of China’s monetary policy regime, we demonstrate a pattern of highly selective diffusion that is largely shaped by domestic political and institutional dynamics. We use an historical institutionalist approach to probe how the most relevant institutionally embedded agents, in this case, those within the Chinese central bank, have strategically engaged with this process. We show how selective diffusion has been shaped by epistemic policy learning through international engagement by China’s central bankers, and, in particular, how they have strategically used imported policy ideas as an institutional empowerment strategy, furthering the interests and agenda of the People’s Bank of China.     

BASHING AND COERCION IN MONETARY POLICY

Political pressure, or "bashing," by the administration is typically believed to be one way that the administration can coerce an otherwise independent central bank into following the administration's preferred monetary policy path. This paper develops a model for analyzing this type of policy "cooperation" and demonstrates that bashing the central bank creates uncertainty on the part of private agents with regard to future policy actions, which translates into real wage and output variability. Hence, although beneficial to the administration, political pressure creates uncertainty and thus economic instability.     

我国保障房资金缺口问题及其解决途径

面对保障性安居工程巨额的资金需求,各地政府纷纷尝试多种保障房建设融资模式,其融资途径涵盖银行贷款、地方债、私募债、公积金甚至是企业债,保障房发展的资金困境似乎正在化解。但这又产生了新的问题：一是发债资金使用流向的监管,二是保障房债券的偿还。保障房项目利润率低,建设周期长,单纯依靠财政投入难以为保障房建设提供长期稳定的资金来源。应该发挥政府动员社会资源的能力,构建以地方政府为主体、多方参与、风险共担与风险规避的保障房投融资平台,吸引民间资本、住房公积金增值收益、银行信贷、信托、保险、社保等具有不同风险偏好的资本参与保障房建设,使建设资金来源多元化,从源头上解决融资难的问题。     

Temporal Vertigo: The Paradoxes of Ageing

“I don’t feel old,” most older informants proclaim. That affirmation tells us much about the stigma surrounding old age. It tells us also about the temporal vertigo we face as we age if contemplating the multiplicity of continuities and discontinuities over time. Ageing is of interest to those who have always been skeptical about any notion of the “true self,” allowing us to puzzle over how the account the old give of themselves—if anyone is still listening—will rely upon their ability to incorporate differing versions of the self, woven into the volatilities of memory and fantasy. I explore some of the radical ambiguities in the speech or writing of those thinking about ageing. While pondering the fluctuating ties between younger and older selves, I also venture into the hazards of desire in old age and the apparently contrasting situation of ageing men compared with ageing women. Old age may no longer be the condition that dare not speak its name, but it remains the identity about which most prefer to stay silent.     

Economic satisfaction as a function of inflation,raise and economic knowledge

A study was carried out to investigate how individuals who very in levels of economics knowledge and experience form evaluations of utility or economic satisfaction as a function of the economic Variables of inflation and raise. As predicted, the main effects of inflation and raise were significant, with no main effect for groups. However a significant interaction between inflation and raise, and between inflation and groups supported the use of a more sophisticated psychological interaction model, where both group differences and discontinuities in the processing of complex economic information must be considered.