Implications for the Desirability of a "Stage Two" in European Monetary Unification p. 107

Transcription

1 Preface Motives for Monetary Expansion under Perfect Information Overview of Part I p. 15 Why Do Governments Inflate? - Alternative Aspects of Dynamic Inconsistency p. 16 Why Do Central Banks Smooth Interest Rates? p. 22 Seigniorage, Political Instability, and the Structure of the Economy p. 23 Adjustable Pegs as a Partial Commitment Device and European Monetary Unification p. 24 The Employment Motive for Monetary Expansion p. 27 The Inflationary Bias of Monetary Policy - A Basic Model p. 28 Commitment as a Device to Eliminate the Inflationary Bias p. 32 A Multiperiod Extension p. 33 A Critical Look at the Economic Structure Underlying the Inflationary Bias Result p. 34 Alternative Foundations for the Employment-Motivated Inflationary Bias p. 38 The Social Welfare versus the Political Approach to Central Bank Behavior p. 43 The Revenue Motive for Monetary Expansion p. 47 The Cagan-Bailey Analysis and the Seemingly Irrational Behavior of High-Inflation Governments A Seigniorage-Related Dynamic Inconsistency of Monetary Policy under Discretion and the Effect of Precommitments p. 50 p. 53 Nominal Debt and Dynamic Inconsistency p. 56 Seigniorage, Political Instability, and the Structure of the Economy p. 59 Determination of the Efficiency of the Tax System and Its Effect on Seigniorage p. 64 Evidence on Seigniorage, Economic Structure, and Political Instability p. 67 The Mercantilistic or Balance-of-Payments Motive for Monetary Expansion p. 83 A Simple Game between the Central Bank and a Union in the Presence of a Balance-of-Payments Motive p. 84 Factors Affecting the Size of the Devaluation Bias p. 90 Precommitments versus Discretion p. 92 Applicability of the Model p. 93 Extensions and Qualifications p. 94 Comparison of Policy Outcomes under a System of Adjustable Pegs with Outcomes under p. a 97 Commonly Managed Currency System and Its Consequences for European Monetary Unification Policy Outcomes under an Adjustable Peg System p. 99 Policy Outcomes under a Commonly Managed Currency System p. 102 Comparison of the Probability of Reneging under a CMCS with This Probability under an AP p. 106 System Implications for the Desirability of a "Stage Two" in European Monetary Unification p. 107 Comparison of Mean Inflation under an AP System and a CMCS p. 108 The Financial Stability Motive, Interest Rate Smoothing, and the Theory of Optimal Seigniorage p. 117 The Financial Stability Motive as an Explanation for Interest Rate Smoothing p. 118

2 Central Bank Behavior and the Structure of the Financial Sector p. 121 The Trade-off between Financial Stability and Price Stability as an Inducement for Interest Rate Smoothing The Theory of Optimal Seigniorage and Its Implications for the Behavior of Interest Rates The Financial Stability Motive versus the Optimal Seigniorage Hypothesis as Positive Theories of Interest Rate Behavior Asymmetric Information and Changing Objectives under Discretion p. 125 p. 130 p. 132 Overview of Models of Monetary Policy with Private Information p. 139 Private Information about the Ability to Commit p. 143 Private Information about the Relative Emphasis on Employment versus Price Stability with Fixed Types p. 144 Changing Emphasis on Alternative Objectives - A Basic Framework p. 145 Mandatory Announcements and the Interaction of Private Information with Central Bank p. 149 Private Information about Money Demand and Changing Objectives p. 152 Private Forecasts about the State of the Economy and the Persistence of Inflation p. 154 Alternative Notions of Credibility and Reputation p. 156 Ambiguity in Monetary Policy p. 157 The Employment Motive in the Presence of a Minimal Information Advantage about Objectives p. 161 Shifting Objectives and the Structure of Information p. 165 Timing of Moves, Public's Beliefs, and the Equilibrium Concept p. 167 Derivation of the Policymakers' Decision Rule and Proof of the Rationality of Beliefs p. 170 A Benchmark - The Policymakers' Strategy under Symmetric Information p. 172 Comparison of the Distributions of Inflation with and without Asymmetric Information p. 174 A Measure of Credibility under Asymmetric Information p. 176 The Confusion between Persistent Changes in Objectives and Transitory Control Errors p. 178 The Distribution of Monetary Growth under Asymmetric Information p. 179 An Extended Information Advantage about Central Bank Objectives p. 185 Central Bank Objectives and Its Extended Information Advantage p. 186 The Equilibrium Concept p. 187 The Public's Beliefs and the Expected Rate of Monetary Expansion p. 187 Derivation of Government's Decision Rule and Proof of the Rationality of Expectations p. 189 Speed of Learning, Activism, Credibility, and Their Determinants p. 191 The Distribution of Monetary Inflation and Its Determinants with and without Asymmetric Information p. 195 Reputation and Its Determinants p. 197 Alternative Notions of Credibility and Reputation p. 205 Alternative Notions of Credibility p. 205

3 Establishing Credibility through Deterrence p. 207 A Critical Look at Deterrence via Trigger Strategies as a Model of Reputation p. 209 Reputation as Learning versus Reputation as a Deterrence Mechanism p. 210 Private Information about Revenue and Balance-of-Payments Objectives p. 211 The Politically Optimal Level of Ambiguity p. 213 The Politically Optimal Level of Ambiguity in the Presence of a Minimal Information Advantage p. 215 The Magnitude of Common Knowledge and the Inclination for Ambiguity p. 219 Friedman's Rule and the Political Value of an Information Advantage p. 219 Velocity Shocks, Politics, Signaling, Inflation Persistence, and Accommodation Private Information about Money Demand and Credibility p. 225 Central Bank's Objectives, Instruments, and Information p. 226 The Public's Information Set and the Timing of Moves p. 227 The Equilibrium Concept and the Behavior of the Money Supply p. 228 Derivation of the Public's Expectation and of the Central Bank's Decision Rule p. 229 Characterization and Discussion of the Solution and of the Public's Inference Problem p. 231 The Value of Private Information to the Central Bank p. 232 Reputation and the Deterring Effect of Learning p. 233 Determinants of the Degree of Activism p. 234 Determinants of the Speed of Learning about Large Changes in Objectives p. 236 Inflation Uncertainty and Its Determinants p. 237 Credibility and Its Determinants p. 238 Partial Disclosure of Policy and Its Effect on Policy Outcomes p. 245 Monetary Targets, Central Bank Objectives, and the Formation of Expectations p. 247 The Policymakers' Decision Rule and Proof of the Rationality of Expectations p. 250 The Effects of the Precision of Disclosure on Activism and the Distribution of Inflation p. 252 The Credibility of Preannounced Policy Plans p. 255 Partial Disclosure, Friedman's Rule, and Monetary Uncertainty p. 257 Concluding Remarks and Applications p. 262 Why Does Inflation Persist? - Theories of Monetary Accommodation and of Inflation Cyclicality under Discretion p. 273 A Minimal Information Advantage about Natural Employment p. 275 Persistent Unemployment and Asymmetric Information as Causes for Inflationary Persistence Does a Countercyclical Behavior of Inflation Imply That Employment-Motivated Monetary Temptations Are Unimportant? p. 281 p. 284 Determinants of Inflation, the Speed of Learning, and Activism p. 288 Inflation Persistence due to Overlapping Wage Contracts under Discretion p. 290 Concluding Reflections and Some Evidence p. 295 Signaling and Private Information about the Ability to Commit and about Objectives with Time-Invariant Types p. 309 Private Information about the Ability to Precommit p. 310

4 Private Information about Objectives - Vickers' Model p. 315 "Strength" as Commitment Ability versus "Strength" as High Concern about Price Stability p. 323 Political Parties and Monetary Policy p. 333 The Alesina-Sachs Political Monetary Cycle p. 335 The Havrilesky Partisan "Offset" Theory of Monetary Policy p. 341 Empirical Evidence on Partisanship Effects in Monetary Policy p. 343 Central Bank and Policy Outcomes: Theory and Evidence Aspects of Central Bank and Their Impact on Policy Outcomes and the Distribution of Inflation p. 349 Central Bank, Political Time Preference, and Policy Outcomes p. 351 Central Bank in the Presence of Differences in Emphasis on Alternative Objectives p. 355 Private Information about Central Bank p. 359 The Measurement of Central Bank p. 369 Measures of Legal Central Bank and Their Coding p. 371 Aggregation of Legal Variables and Ranking of Central Banks by Legal p. 378 The Turnover Rate of Central Bank Governors as a Proxy for Actual p. 383 Characterization of Central Bank by Answers to a Questionnaire p. 386 Interrelationships between Alternative Indices of Central Bank p. 391 Additional Dimensions of Central Bank p. 393 Inflation and Central Bank p. 415 Inflation and Disaggregated Measures of Central Bank p. 416 Inflation, Aggregate Measures of Legal, Compliance, and Turnover p. 419 Comparison with Previous Evidence p. 422 Inflation and Central Bank as Proxied by Questionnaire Variables during the 1980s Instrumental Variables Estimation and the Issue of Two-Way Causality between Inflation and Central Bank Granger Causality between Inflation and Central Bank as Proxied by Turnover Ranking of Central Banks by an Overall Index of Inflation-Based Central Bank p. 425 p. 427 p. 429 p. 433 Ranking by Overall p. 433 Outliers and Rule Countries p. 436 The Mean and the Variance of Inflation, Central Bank Credit, and Central Bank The Cross-sectional and Cross Period Distribution of Inflation and of Its Variance and Their Relation to Central Bank p. 439 p. 439 Central Bank Credit to the Public Sector and Central Bank p. 441 The Determinants of Central Bank p. 445 Political Instability and Legal Central Bank p. 445 The Effect of Inflation on Central Bank p. 448 Other Determinants of Central Bank p. 449

5 Rules versus Central Bank as Alternative Methods for the Achievement of Price Stability p. 452 The Different Meanings of Legal in Developed and in Developing Countriesp. 453 The Effect of Successful Stabilizations on Central Bank p. 454 Notes p. 457 References p. 473 Index p. 485 Table of Contents provided by Blackwell's Book Services and R.R. Bowker. Used with permission.