Monetary policy towards E(M)U accession: A central banker's view

This paper gives a brief overview of the main economic issues related to the forthcoming integration of the new EU member countries into the euro area. Subsequently, it will discuss in more detail three broad issues concerning the monetary side of EU enlargement. First addressed is the timing of euro area enlargement and monetary policy regimes in the run up to the EMU. The next focus is on the ERM II as an interim step towards the euro area. Third, the author expresses his views on the future of the ECB and the euro area, which the Czech Republic will have an opportunity to co-determine after its entry. The paper is based on the author's Distinguished Address, as well as the symposium's panel discussion on the topic at the International Atlantic Economic Conference in Vienna, 14 March 2003.     

Macroeconomic stabilization through monetary and fiscal policy coordination: Implications for European Monetary Union

In a two-country model, we consider the implications of monetary and fiscal policy coordination for macroeconomic stabilization. We show that the optimal regime is one of monetary and fiscal policy coordination under flexible exchange rates. In the context of the European Community, this suggests that the desire to fix exchange rates may not be costless. In addition, we show that fiscal coordination requires a relatively high degree of flexibility in fiscal policy. This result suggests that limits on the flexibility of fiscal policies, as suggested in the Delors Report, may hinder macroeconomic stabilization.     

Uncertainty and monetary policy

The experience of monetary policy making in an uncertain environmenthas encouraged increased attention to the concept of model uncertainty,that is, uncertainty as to which is the best model. A particulardifficulty has been the need to operationalise the concept inorder to yield definitive policy recommendations. If this typeof uncertainty is unquantifiable, then a policy rule determinedby a single model may not in fact be the best approach; pluralismof method and the exercise of judgement offer a potential solution.A rigorous foundation for such an approach is available in Keynes'sphilosophical analysis of decision making under uncertainty.It is concluded that more analytical attention needs to be devotedto agents’ own model uncertainty, and to judgement. Butultimately the scope for synthesis between the model uncertaintyand Keynes uncertainty approaches rests on whether or not thesubject matter is such that knowledge of it is best representedby one formal model.     

Postwar monetary policy

Summary Monetary policy has played an active role in Dutch postwar economic policy. Essentially, it has sought to contribute to balanced economic growth by controlling the money supplyM ₂ in relation to national income. Policy measures extend to all sources of money creation-viz. bank credit, public sector finance and the balance of payments - and are predominantly of the quantitative type. This is reflected, among other things, in medium-term targets for the structure and outcome of the balance of payments and the size and coverage of the public sector's borrowing requirement. Internationally, the Netherlands favour and participate in stable exchange rate systems. This has not led to serious conflicts with domestic monetary objectives until the seventies, when excessive easing of monetary conditions had to be accepted temporarily.     

Bank competition and monetary policy

There is an apparent theoretical discrepancy between the effects of monetary policy shocks on economies with differently competitive banking sectors. We employ cross-country data to investigate this hypothesis with two different approaches. First, using aggregate data we analyze the correlation between two indices: (i) a cumulative impulse response function providing an index of the effect of monetary policy shocks; and (ii) Panzar and Rosse's H-statistic as an index of the state of bank competition. Second, using disaggregated data we regress bank lending on the interaction of bank competition and monetary policy shocks. The first approach does not provide any evidence of a relationship between monetary policy shocks and bank competition. However, the second approach suggests that competition in the banking industry leads to smaller monetary policy effects on bank lending.     

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.     

Domestication of monetary policy

The article touches upon the issue of the independence of monetary policy, the impossible trinity, and the exchange-rate policy. It has been shown that independent monetary policy is possible and estimates of the limits of its independency have been given.     

Transparency in monetary policy

The paper examines different aspects of transparency. Transparency serves democratic accountability by promoting public control. Specifically, the degree of transparency conditions inflation expectations, hence the central bank's scope for stabilization. Recent studies have put doubt on the notion that complete transparency is socially desirable. Here it is pointed out that the conclusion critically depends on an asymmetric modelling of stochastic preferences. The paper also reviews the pros and cons of revealing individual voting. A conclusion is that secrecy is to be prefered in monetary unions in order to shield governors from pressure by home governments. Presidential Address presented at the Fifty-Third International Atlantic Economic Conference, March 13–17, 2002, Paris, France.     

Credibility and monetary policy in a model with growth

We examine the implications for monetary policy design of includinglearning-by-doing effects in a macroeconomic model. We showthat an inflation bias arises because monetary surprises maybe exploited to maximise potential output by temporarily raisingthe rate of human capital accumulation. Our model also providesan alternative explanation for the empirical evidence linkinginflation and growth, where the causal link goes from slow growthto high inflation. Unlike traditional credibility models, aninflationary bias can persist even when the authorities do notwish to offset labour market distortions through monetary surpriseswhich undercut the median voter's income.     

货币政策是迎风挥舞的魔杖

今年上半年,中国宏观经济似乎又出现了2003年6月“非典”疫情结束后的偏热增长势头:投资增速偏高、生产资料价格上扬、房地产投资过快、银行信贷和货币供应量超速增加。还有一个新的     

Asset price inflation and monetary policy

It is crucial that central banks and regulatory authorities be aware of effects of asset price inflation on the stability of the financial system. Lending activity based on asset collateral during the boom is hazardous to the health of lenders when the boom collapses. One way that authorities can curb the distortion of lenders' portfolios during asset price booms is to have in place capital requirements that increase with the growth of credit extensions collateralized by assets whose prices have escalated. If financial institutions avoid this pitfall, their soundness will not be impaired when assets backing loans fall in value. Rather than trying to gauge the effects of asset prices on core inflation, central banks may be better advised to be alert to the weakening of financial balance sheets in the aftermath of a fall in value of asset collateral backing loans.William S. Vickery Distinguished Address presented at the Fifty-Fourth International Atlantic Economic Conference, Washington, D.C., October 10–13, 2002.     

Microfoundations and Hicksian monetary theory

Summary John Hicks was the first economist to use a general equilibrium framework as a foundation for a dynamic macroeconomic analysis. A critical assessment of his work in this area is used to evaluate the contributions of the ‘micro-foundations’ discussions of the 1970’s. It is noted that Hicks’s starting point, the question of the role of money in a general equilibrium framework, is precisely where the current debate has arrived some fifty years later. This delay, and the foundations debate, were due in large part to Hicks’s own attempts to interpret Keynes’s theory in terms of his own, original framework. Suggestions and comments from P. Davidson, O. Steiger, and the editor, as well as the participants of seminars in the University of Bremen and the Economics Institute of the Faculty of Statistics of the University of Rome are acknowledged without implication of responsibility.     

Monetary policy, central bank objectives, and social welfare with strategic wage setting

The paper examines the implications of strategic wage-settingbehaviour by an inflation-averse monopoly union for the appropriatespecification of central bank objectives. Our principal findingsare as follows. First, the optimal setting of the parametersof the central bank's objective function differ in a significantway according to the relative timing of monetary policy andwage determination. Second, the ability of the central bankto precommit to a particular setting of monetary policy doesnot confer any welfare benefits. Third, we find little supportin this context for the notion that placing monetary policyin the hands of a conservative central bank will improve socialwelfare.