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.     

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.     

A Disinflation Trade-Off: Speed Versus Final Destination

When introducing a new monetary regime designed to reduce inflation, does a central bank prefer more or fewer economic agents who form informed forecasts of inflation? The relevance of the question arises because the central bank can make a decision about how much information to disseminate about the nature of the new regime. We find that the central bank will prefer a higher proportion of agents who form rational expectations if it disinflates from a high level of inflation, but not so if it disinflates from a moderate or low inflation level.     

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)     

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)     

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.     

Decision interactions of the monetary and fiscal authorities in the choice of policy mix

Abstract

This article presents an analysis of the states of equilibrium and Pareto optimality of the solutions in the monetary-fiscal games between the fiscal and monetary authorities each having either two or three qualitatively different strategies: expansive, neutral and restrictive. Two sets of assumptions about the influence, exerted by the instruments of the monetary policy (real interest rate) and by those of the fiscal policy (budgetary deficit related to the GDP), on the state of economy (rate of economic growth and inflation) are considered. The results obtained indicate that, along with the case of the prisoner's dilemma, to which the discussion in the major publications on the subject is limited, other situations may also occur, where the independent decisions of the central bank and the government do not necessarily lead to the choice of a Pareto non-optimal solution.     

INSTITUTIONS, INVESTMENT, AND GROWTH: NEW CROSS-COUNTRY AND PANEL DATA EVIDENCE

This paper outlines the alternative channels through which institutions affect growth, and studies the empirical relationship between institutions, investment, and growth. The empirical results indicate that (i) free-market institutions have a positive effect on growth; (ii) economic freedom affects growth through both a direct effect on total factor productivity and an indirect effect on investment; (iii) political and civil liberties may stimulate investment; (iv) an important interaction exists between freedom and human capital investment; (v) Milton Friedman's conjectures on the relation between political and economic freedom are correct; (vi) promoting economic freedom is an effective policy toward facilitating growth and other types of freedom. ( JEL O17, O40, P51)     

From communist control to glasnost and back?: Media freedom and control in the former Soviet Union

The last decade has seen dramatic changes in Eastern Europe and the former Soviet Union: the end of the Cold War with the West; the loosening of the Soviet Union's hold on part of Germany; movements for independence by regions in the USSR; and the public rejection of Communism by Czechoslovakia, Hungary, and Poland, as well as by key leaders within the Soviet Union. Radical changes in political philosophy have been accompanied by transformations in mass media communication.These changes are inextricably linked to how public relations is practiced in these nations, many of which are attempting, to varying degrees, to adopt a democratic system of government. This article frames the role of public relations in a self-governing society; discusses three environmental factors that affect the practice of socially responsible public relations, reviews the historical media philosophy of Eastern Europe and the former Soviet Union; and examines examples of media practice that have occurred during the region's transformation and their implications for media freedom and independence, and for the practice of public relations.     

AN EQUILIBRIUM POLITICO-ECONOMIC MODEL

A politico-economic model is developed in which rationally formed forecasts are available to all traders. Systematic government policy is neutral, but a large majority of the electorate, those who adopt rationally formed forecasts but do not know the model, hold the government responsible for the economy's performance. Real and political shocks generate novel feedback effects due to anticipated regime changes. These feedback effects may amplify or dampen the initial shocks; this depends on whether the government follows a high or low monetary growth rate rule and whether inflation or unemployment is the main concern of the electorate.     

The Contentious Roots of the Egyptian Revolution

Although real socio-economic injustices may have been the justification for the Egyptian revolution of 2011, it was not the cause of Egypt's politicization. Demonstrators peacefully toppled a strong Western ally on the premise of high unemployment, lack of opportunity, lack of free elections, food inflation, corruption, and lack of democracy, among other factors. Why did social mobilization lead to a social movement against a state that is highly dependent on coercion? Considering that access to social networks, high unemployment, systematic corruption, and economic stagnation are all commonplace throughout the world, the Egyptian revolution is an anomaly. This article argues that an analysis of the possible roots of the modern era of contentious politics in Egypt and its subsequent politicization will help demystify and decipher how this anomaly occurred. Focusing on the transnationally inspired dynamics of historically unprecedented protest events in relation to Egypt's political and social context will shed light upon the central question that this article aims analyze: how and when did politics make the shift from internal social relations to contentious street politics?     

Breaking the taboo: a history of monetary financing in Canada, 1930–1975

Monetary financing – the funding of state expenditure via the creation of new money rather than through taxation or borrowing – has become a taboo policy instrument in advanced economies. It is generally associated with dangerously high inflation and/or war. Relatedly, a key institutional feature of modern independent central banks is that they are not obligated to support government expenditure via money creation. Since the financial crisis of 2007–2008, however, unorthodox monetary policies, in particular quantitative easing, coupled with stagnant growth and high levels of public and private debt have led to questions over the monetary financing taboo. Debates on the topic have so far been mainly theoretical with little attention to the social and political dynamics of historical instances of monetary financing. This paper analyses one of the most significant twentieth‐century cases: Canada from the period after the Great Depression up until the monetarist revolution of the 1970s. The period was a successful one for the Canadian economy, with high growth and employment and manageable inflation. It offers some interesting insights into the relationship between states and central banks and present‐day discussions around the governance of money creation.     

THE DEMAND FOR EXCESS RESERVES, LIABILITY MANAGEMENT, AND THE MONEY SUPPLY PROCESS

Commercial bank behavior is not adequately dealt with in existing macro models of the financial sector. The central role of a demand for excess reserves (or free reserves) function in models of the money supply process is particularly suspect. In this paper, it is argued that changes in commercial bank behavior induced by alterations in economic and financial conditions and various banking regulations, along with the central bank's approach to policy, have combined to alter the excess reserve function and the relationship between bank reserves and the money supply. Empirical work presented suggests that the "demand" for excess reserves has indeed undergone structural change. Thus, the study indicates that conventional approaches to commercial bank behavior and the demand for excess reserves need to be reworked.     

RULES AND DISCRETION WITH NONCOORDINATED MONETARY AND FISCAL POLICIES

The time inconsistency of optimal monetary policy is due to the effects of tax distortions. Thus the issue of how to improve upon the time-consistent suboptimal monetary policy is related to that of the coordination of monetary and fiscal policy. We present a model with three players (the central bark, the fiscal authority, and wage setters) in which distortionary taxes are explicitly modelled. We show that binding commitments to monetary rules are not necessarily welfare improving if monetary and fiscal policy are not coordinated. We also examine the effects of different degrees of independence of the central bank.     

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.     

Mediennutzung und Politische Partizipation

A central topic of empirical social research is the problem of unobserved heterogeneity. To solve this problem at least partially, a new statistical model is presented, the finite mixture of conditional mean and covariance structures. The model and the estimation procedures are then applied covering use of media and political participation to identify heterogeneous types of behavior. Since different LISREL models may be used for each type, it is not only possible to identify different degrees of political participation and use of media, but also different types of relationships between the use of media and political participation.     

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。     

Proxies in the New Political Economy: Caveat Emptor

Some common professional criteria for evaluating econometric tests that use proxies for political, social, and institutional variables as regressors may lull scholars into a false sense of security about specious results. The highly publicized correlations between income and economic freedom based on the economic freedom indexes supplied by the Fraser Institute, Heritage Foundation, and Freedom House are used as illustrations. Because these correlations bear strong resemblances to one another, most economists would consider them mutually supportive. Yet this is not so, implying that mutual resemblance and consistency are not criteria for judging econometric results. (JEL B49 , C19 )     

Technology,slavery and the Falmouth Water Company of Jamaica, 1799–1805

Slave societies such as Jamaica were among the earliest regions to adopt new technologies, suggesting that slavery was not synonymous with economic backwardness. This article uses the efforts of the Falmouth Water Company to adopt the new hydraulic ram between 1799 and 1805 to show that this process was also not restricted to the plantation sector and that the island possessed an unexpected capacity for technological adaption. This was based on local skills in mechanical and civil engineering derived from the plantation sector, and a wider political and financial background that supported innovation when the right conditions were in place.     

MACROECONOMIC STABILITY AND THE SHORT RUN FEDERAL RESERVE REACTION FUNCTION, 1969–1979

This paper examines the dynamic stability of a situation in which monetary policy is implemented by means of short-run control of interest rates. Using a simple dynamic model it is shown that such procedures may lead to instability unless the central bank allows the controlled interest rate to adjust sufficiently to economic developments. The theoretical model is then used to guide an empirical examination and evaluation of Federal Reserve behavior for the period 1969–1979. Evidence is presented that on average over this period the Federal Reserve's control of the Federal funds rate could have been a destabilizing factor.