Central bank independence--conceptual clarifications and interim assessment

It is argued that credibility problems in macroeconomics hardlyexist, and certainly do not motivate central bank independence.The Rogoff banker, and much work which follows should be interpretedas blueprints for good policy, not institutional reforms. Thereare likely to be significant but at present unquantified costsassociated with central bank independence once the interactionof monetary and other policymakers is recognised. The evidencethat central bank independence reduces inflation or brings otherbenefits is questioned     

Comment on 'Market discipline and monetary policy' by Carl Walsh

This paper shows that the results Walsh (2000, Market disciplineand monetary policy, Oxford Economic Papers, 52, 249–71)obtains are highly sensitive to the assumption that differentwage contracts are based on different information sets eventhough they are negotiated simultaneously. In particular, thepower of future expectations to discipline an opportunisticcentral banker is much weaker when homogeneous information setsare used.     

Making monetary policy: objectives and rules

What is it that monetary policy-makers do and how do they doit? The simple answer is that a central banker moves interestrates in order to maintain steady real growth and stable prices.In this essay, I examine the issues that arise in framing theproblem faced by monetary policy-makers. I begin with a discussionof how, over the past decade or so, central banks have beenmade more independent and more accountable. The result has beenthe virtual elimination of the inflation bias problem that iscaused by political interference in the monetary policy process,and better overall macroeconomic performance. The essay proceedswith an example of a formal version of the policy-makers' problem,describing their objectives and the information they need toformulate a policy rule. I conclude with a discussion of a simpleversus complex policy rules, the impact of uncertainty on policy-making,and how central bankers use formal modelling in making theirday-to-day decisions.     

Fiscal-monetary Interactions: The Effect of Fiscal Restraint and Public Monitoring on Central Bank Credibility

This paper offers new insights into the interactions between private agents, the government, and a central bank, and their effect on the outcomes of monetary policy. In a simple game theoretic model we show that, unless there is public monitoring, impatient governments will be tempted to override or outmaneuver the central bank and create surprise inflation to boost output. This both undermines the government’s reputation for sound fiscal policies and reduces the central bank’s credibility. The result is not only higher and more volatile inflation but also sub-optimal output. More importantly, it is also shown that this is likely to occur even if the central banker is fully independent and the government is always patient. In contrast, if the public monitors sufficiently carefully, the central bank is never overridden and monetary policy can be credible even under an impatient government. We derive the general conditions under which each scenario occurs and then relate them to the developments in central banking over the past two decades, most notably to the trends towards greater independence, explicit inflation targeting, clearer communication and transparency. Interestingly, transparency is shown to reduce the variability of both inflation and output (by reducing the monitoring cost and making public monitoring more likely) which is in contrast to the usual transparency literature with a single policymaker which supposes a transparency-volatility trade-off.

Market discipline and monetary policy

The effects of forward looking expectations of future inflationon equilibrium inflation and interest rates are examined withinan imperfect information framework. Expectations of future inflationaffect equilibrium in a manner similar to an increase in thecentral bank's weight on future social welfare, making it morelikely an opportunistic central bank will actually deliver onits announced inflation targets, and output expansions can ariseeven if the central banker is revealed to be a low inflationtype. The model also illustrates the channels through whichinflation scares raise current real interest rates.     

Partial credibility and policy announcements: The problem of time inconsistency in macroeconomics revisited

This paper studies the credibility of policy announcements in macroeconomics. This issue is exemplified by the problem of monetary policy design in light of an expectations-augmented Phillips curve. In contrast to reputational models of the repeated games literature, the credibility problem between the central bank and the private sector, which results from the policymaker's temptation to create surprise inflation to raise employment, cannot be eliminated. The paper shows that credibility in any sequential equilibrium is generally only partial, in that market participants do not fully believe policy announcements of low inflation rates, even if forthright policies have been implemented in all periods. Indicating reputation-building, credibility improves over time. The example is then used to show the policy implications of partial credibility.     

Central banking with the benefit of hindsight

Summary From his experience as a central banker during more than 14 years, the author gives some thoughts to three problems, viz. the exchange rates system, international reserves and monetary policy in theory and practice. As to the exchange rate system the relative merits of fixed parities and fluctuating rates are discussed on the basis of the experiences after August 1971. In the section on international reserves, attention is paid to the role of gold with the advice to introduce a form of flexible management of the gold price by the main gold-holding central banks. In the last section the monetary elements of what is called monetarism are shown with a certain accent on techniques of monetary policy. Address by Dr. J. Zijlstra, President of the Netherlands Bank, for the Per Jacobsson Foundation in Washington on Sunday, September 27, 1981, reprinted here through the courtesy of the Board of the Per Jacobsson Foundation     

The Reform of Intergovernmental Fiscal Relations in China*

This paper looks at the impact of China's fiscal decentralization on the central government's ability to use fiscal policy to achieve macroeconomic objectives. It is argued that, under the fiscal contract system introduced in the early 1980s. the localities effectively controlled the tax rates and tax bases. Due to the lack of fiscal resources and policy instruments, the central government found it increasingly difficult to achieve its goals of macroeconomic stabilization and regional equalization. The adoption of the tax-assignment system in the 1994 fiscal reform was an important step taken by the central government to address these difficulties. Nevertheless, a number of elements in the current tax-assignment system may work to make this system unsustainable in the long run.     

Public investment and food security: Evidence from the Hundred Billion Plan in China

This paper examines the causal effect of public investment on food output by exploiting a panel dataset covering a large central government program (Hundred Billion Plan) in China from 2007 to 2013. Based on an event study methodology, we find that public investment significantly increases food output by 4.34%. We find that the sources of the policy effect come mainly through improving productivity, which is driven by increases in fertilizer inputs by households and by the crowding in local government agricultural investments. Further, an ad-hoc benefit-cost analysis shows that the internal return rate (IRR) is 0.23% over a 20-year period. Our results are robust in terms of the assumption of parallel trends, the confounding effect from an alternative policy, the nonrandom selection issue of policy implementation, the inclusion of alternative sets of control variables, the treatment of outliers and the omitted variable biases.     

Auditing quality,signaling, and underwriting contracts*

Abstract. This paper examines the interaction between the signaling and agency aspects of a new issue process, The issuing firm can signal its private information by the choice of an auditor. It also employs an investment banker who is better informed about the market demand for the issue and whose actions in selling the new equity securities are unobservable, In this framework the firm's benefits from signaling depend greatly on the time at which its investment banker acquires his private information, If the banker receives a private signal after signing a binding underwriting contract all asymmetric information problems are resolved via a first best agreement that facilitates a separating equilibrium, Under this scenario the issuer's choice of a higher quality auditor induces the banker to exert more effort in selling the issue and to set a higher offer price. The issuer's signaling opportunities are limited when the banker possesses private information prior to contracting. In this case an inefficient underwriting contract is signed in which the offer price is set below the first-best level. While a choice of a higher quality auditor induces a higher offer price and greater proceeds, it also results in a larger informational premium for the investment banker. Considering the incentive effect and the cost of a high quality auditor the issuer may decide not to signal if the latter is too high. Résumé. L'auteur étudie l'interaction entre l'aspect indicatif et l'aspect relatif au mandat d'une nouvelle émission de titres. L'entreprise qui procède à une émission de titres peut livrer certaines indications relatives à l'information privilégiée qu'elle détient par le choix d'un vérificateur. Elle a également recours à un preneur ferme qui est mieux renseigné sur l'accueil que le marché est susceptible de faire à l'émission et dont les agissements dans la vente des nouveaux titres ne sont pas observables. Dans ce cadre de référence, les avantages que l'éntreprise retire des indications qu'elle livre dépendent largement du moment auquel le preneur ferme acquiert son information privilégiée. Si le preneur ferme prend connaissance de l'information privilégiée après avoir signé une convention de prise ferme irrévocable, le fait que l'éntreprise émettrice choisisse un vérificateur de qualité supérieure incite le preneur ferme à déployer davantage d'efforts dans la vente des titres et à fixer un prix d'émission plus élevé par suite de l'équilibre distinctif qui se produit. Les possibilités qu'a l'entreprise émettrice de livrer des indications sont limitées lorsque le preneur ferme possède de l'information privilégiée avant la signature de la convention. Dans ce cas, la convention de prise ferme prévoit un prix d'émission inférieur au meilleur prix possible. Bien que le choix d'un vérificateur de qualité supérieure entraîne un prix d'émission et des recettes plus élevés, il donne lieu également à une prime à l'information plus importante pour le preneur ferme. Compte tenu de l'effet incitatif et du coût d'un vérificateur de qualité supérieure, l'entreprise émettrice peut choisir de ne livrer aucune indication si elle juge ce prix trop élevé.     

Optimal R&D Policy and Managerial Delegation Under Vertically Differentiated Duopoly

The paper investigates the optimal research and development (R&D) policy in a vertically differentiated market with managerial delegation. We consider not only discriminatory R&D policy but uniform R&D policy as well. It shows that R&D policy can vary depending on the regulator's objective: social welfare, consumer surplus or producer surplus; however, the outcomes are invariant to the nature of market competition. Undoubtedly, the relative‐performance contract plays a crucial role for elaborating policy effects. The government prefers discriminatory R&D policy to uniform policy under a consumer‐oriented objective. On the contrary, under a producer‐oriented objective, the government would prefer to choose uniform R&D policy rather than discriminatory policy.     

中国区域经济差距的测度与分解

文章利用泰尔指数,并将中国区域划分为东部、中部、西部和东北部四大区域,对1978-2005年间的中国区域经济差距进行了测度和分解.通过考察中国区域经济差距整体变动情况,以及四大区域内部及四大区域间差距对总差距贡献率的变动情况,以期为缩小中国区域经济差距带来一些政策上的启示.     

人民币国际化对货币政策有效性的影响

人民币国际化是否影响货币政策有效性?是人民币国际化程度提高之后货币大规模跨境流动而引起的担忧。文章研究发现,在给定其他因素不变的情况下,人民币国际化程度的提高放大了境外汇率变动对国内经济产出和价格的影响。因此,人民币国际化背景下,中央银行应将境外汇率失衡纳入货币政策的反应函数,反应系数取决于境外利率、产出和价格对境外货币需求的决定系数。理论分析还表明,人民币国际化程度不影响货币政策对国内价格的有效性,而是否影响货币政策对国内经济产出的有效性,则取决于经济结构特征。实证结果表明,目前人民币国际化未对国内利率、产出和价格带来明显冲击,且无论是在M0层次,还是在M2层次,人民币国际化均未明显影响国内货币政策有效性。     

农户地租契约选择的经济逻辑:预期效用抑或损失规避

随着收入水平和社会保障水平的提高,农户的经济决策动机逐渐从风险(成本)最低转变为收益最大。但是,地租契约的不完全性等因素,可能使农户在选择地租契约时,需要在收益(租金)的可靠性和收益最大化之间进行权衡。文章理论分析表明,农户在选择地租契约时,其经济逻辑是损失规避而非预期效用理论。进而,文章利用中国家庭金融2015年调查数据,通过probit、IVprobit和似无相关回归模型检验了这一理论假说。研究结果显示,租金水平越高,农户越倾向于选择固定地租契约;消除内生性后的边际效应显示,租金提高每万元,农户选择固定租金契约的概率提高28.3%。机制分析发现,土地流转契约期限的增加会强化租金对农地转出户选择固定租金契约的影响。运用工具变量估计、交叉项和费舍尔组合检验三种方法进行稳健性检验后,该结论仍然成立。进一步的异质性分析结果表明,租金对固定地租契约的促进效应,在低收入农户中相对更高;在低收入农户中,契约期限不具有调节作用。研究结果为地租领域农户财产性收入的增加与政策预期的不一致,提供了理论解释与经验证据。基于此,文章提出为使农户通过地租获得更多的财产性收入,需要进一步完善农地流转契约治理机制等政策建议。     

Does Central Bank Capital Matter for Monetary Policy?

This paper examines empirically whether central bank capital influences the conduct of monetary policy. To this end, we estimate interest rate rules for a sample of 41 countries and employ linear and non-linear regression methods to test if a measure of central bank financial strength can explain deviations of actual interest rates from those predicted by the estimated interest rate (Taylor-like) rules. Our results suggest that central bank capital is indeed a relevant factor behind interest rate policy decisions.     

Implications of a negatively sloped LM curve

Conclusion This paper has shown that the LM curve could be downward sloped if the rate of interest on money (specifically liquid deposits) is sufficiently flexible. If so, the momentary equilibrium could be unstable, especially if the LM curve is far from the vertical (i.e., if the interest rate on money is very flexible). Prospects for instability are enhanced if output adjusts slowly or if the central bank varies the money supply strongly over time in response to the general interest rate. If stability obtains with a downward sloped LM curve, fiscal policy has an unconventional direction of effect on income. Three policy implications follow directly. (1) The rate of interest on deposits which are part of the money supply used as the central bank control tool, should not be allowed to be too flexible (to avoid instability). (2) If the monetary deposit rate is quite flexible, the central bank should not have the money supply react too strongly to the general interest rate—i.e., should not come too close to a pure interest rate policy (again, to avoid instability). (3) If the monetary deposit rate is very flexible, fiscal policy should be used with caution (due to the unconventional direction of effect in the event LM is downward sloped).     

货币从紧政策下央行票据的货币调控效果探析

我国目前的货币政策工具中占主要地位的是央行票据。它的发行引起了社会的广泛关注。它代表了中央银行对目前宏观经济的调控方向。本文从它收缩市场上流动货币的能力及它与各项经济指标的关联性入手,分析它在货币政策调控中的效果。     

The Effect of Investment Banking Relationships on Financial Analysts' Earnings Forecasts and Investment Recommendations*

Abstract. This study shows that financial analysts of brokerage firms that provide investment banking services to a company (investment banker analysts) are optimistic, relative to other (noninvestment banker) analysts, in their earnings forecasts and investment recommendations. Returns earned by following the investment recommendations of investment banker analysts, however, are not significantly different from those of non-investment banker analysts. Given that information regarding the investment banking relationships of brokerage firms is publicly available, we find evidence that capital market participants rely relatively less on the investment banker analysts in forming their earnings expectations. Although we find a significant capital market reaction around the noninvestment banker analysts' research report dates and not around the investment banker analysts' research report dates, the difference between the two market reactions is not statistically significant. Finally, we find that investment banker analysts' earnings forecasts are, on average, as accurate as those of noninvestment banker analysts. Résumé. Les auteurs mettent en évidence le fait que les analystes financiers des maisons de courtage qui offrent des services de prise ferme aux entreprises (les analystes de courtiers preneurs ferme) sont optimistes dans leurs prévisions de bénéfices et leurs recommandations de placements, par comparaison aux autres analystes (c'est-à-dire aux analystes de courtiers qui ne sont pas preneurs ferme). Les rendements obtenus par les investisseurs qui observent les recommandations de placements des analystes de courtiers preneurs ferme ne sont cependant pas sensiblement différents de ceux qu'obtiennent les investisseurs qui se fient aux analystes des courtiers qui ne sont pas preneurs ferme. Compte tenu du fait que l'information relative aux relations qu'entretiennent les maisons de courtage en matière de prise ferme est du domaine public, les constatations des auteurs confirment que les participants au marché financier s'appuient relativement moins sur le verdict des analystes des courtiers preneurs ferme dans le calcul de leur espérance de gains. Bien que les auteurs observent une réaction marquée du marché financier à proximité des dates de publication des rapports de recherche des analystes des courtiers qui ne sont pas preneurs ferme, ce qui n'est pas le cas à proximité des dates de publication des rapports de recherche des analystes des courtiers preneurs ferme, la différence entre ces deux réactions n'est pas statistiquement significative. Enfin, les auteurs constatent que les prévisions de bénéfices des analystes des courtiers preneurs ferme sont, en moyenne, aussi exactes que celles des analystes des courtiers qui ne sont pas preneurs ferme.     

Which Method Should the Central Bank Choose to Estimate the Model Economy? A Korean Monetary Policy Example

Abstract

To understand how the macro economy evolves, the central bank has two options in choosing how to estimate the economic model against actual data: one is to estimate each sector of the model piece-by-piece, and the other is to estimate the whole model altogether. This paper demonstrates the advantage for the central bank of estimating the whole model in terms of the estimation accuracy and the robustness of the resulting policy recommendations. For that aim, we construct a macro model for the monetary policy analysis of the Korean economy and estimate the model via the system approach and single-equation approach. We evaluate the data fits of the two estimation results and show that the fit of the system approach is far better than the other and comparable to other methods such as vector autoregressions. It is also shown that, if the two estimated models are equally likely, conducting the policy tailored for the model estimated by the system approach delivers better stabilization results for the Korean economy.     

中国对外开放模式亟须转变

国际账户分析表明,中国对外开放存在较为严重的效益低下问题,直接原因是对外资产负债结构扭曲,深层次原因在于对外开放方式和路径选择,在新的国内和国际经济环境下传统对外开放模式亟须转变,以完成在全球经济分工中由储蓄者和存款者向投资者和银行家的角色转变。