Evolution and Procedures in Central Banking

Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Contributors......Page 9
Acknowledgments......Page 11
In Memoriam......Page 12
Introduction......Page 15
DO WE NEED CENTRAL BANKS?......Page 19
WHY HAS THE INFLATION RATE FALLEN?......Page 24
AND SO, ON TO THE FUTURE......Page 30
REFERENCES......Page 31
PART I OPERATIONAL ISSUES IN MODERN CENTRAL BANKING......Page 35
1. INTRODUCTION......Page 37
2.1. Nash and Ramsey Equilibria and Outcomes......Page 39
3. REPETITION......Page 40
4.1. Design......Page 41
4.4. Stopping Rule......Page 42
4.5. Earnings......Page 43
5.1. Patterns......Page 44
6.2. Phelps Problem......Page 47
9. CONCLUDING DISCUSSION......Page 52
APPENDIX A: INSTRUCTIONS FOR POLICYMAKERS......Page 53
Earnings......Page 54
APPENDIX B: INSTRUCTIONS FOR FORECASTERS......Page 56
Earnings......Page 57
ACKNOWLEDGMENTS......Page 58
REFERENCES......Page 59
APPENDIX C......Page 60
1. LABORATORY EXPERIMENTS IN MACROECONOMIC ENVIRONMENTS......Page 70
3. RESULTS......Page 71
4. SOME ALTERNATIVE EXPERIMENTS......Page 72
REFERENCES......Page 73
2.2. Learning by Policymakers......Page 74
2.4. Dynamic Game Theory with Reputation......Page 75
3. DESCRIPTIVE REALISM OF LEAST SQUARES LEARNING......Page 76
REFERENCES......Page 77
1. INTRODUCTION......Page 79
2. WHY DELEGATE?......Page 80
3.1. The Short-Run Balance between Inflation and Output......Page 82
3.2. Open Economy Issues......Page 83
3.3. Other Asset Prices......Page 88
4. THE CENTRAL BANK’S ROLE IN REGULATION AND SUPERVISION......Page 90
5. CONCLUSION: WHERE WILL CENTRAL BANKS BE IN 10 YEARS’ TIME?......Page 92
REFERENCES......Page 94
2. THE IMPLICATIONS OF NUMERICAL INFLATION TARGETS......Page 96
3. POLICYMAKING UNDER UNCERTAINTY......Page 97
4. THE ROLE OF ASSET PRICES IN POLICY......Page 98
5. THE IMPLICATIONS OF POLICYMAKING BY COMMITTEE......Page 100
REFERENCES......Page 102
Commentary......Page 103
REFERENCES......Page 106
PART II MONETARY UNION......Page 107
1. INTRODUCTION......Page 109
2. THE ECB AND THE EURO SYSTEM: INSTITUTIONAL BACKGROUND......Page 111
3.1. The ECB’s Monetary Policy Strategy......Page 113
3.1.1. Price Stability......Page 114
3.1.2. The First Pillar......Page 116
3.1.3. The Second Pillar......Page 117
3.1.4. Reconciling the Two Pillars......Page 118
3.2. The Strategy at Work: Monetary Policy Decisions, 1999–2001......Page 122
4.1. Money Demand......Page 129
4.2. Money Growth......Page 130
4.3. Money Growth and Inflation in the Euro Area......Page 133
ACKNOWLEDGMENTS......Page 136
REFERENCES......Page 137
2. INSTITUTIONAL STRUCTURE......Page 141
3. POLICY STRATEGY......Page 142
4. COMMUNICATION AND TRANSPARENCY......Page 144
5. PERFORMANCE......Page 146
6. FUTURE CHALLENGES......Page 147
REFERENCES......Page 148
1. INTRODUCTION......Page 149
2. INDIVISIBILITY OF MONETARY POLICY AND THE EARLY EXPERIENCE OF THE FED......Page 151
3. THE ESCB IS GOVERNED BY THE DECISIONMAKING BODIES OF THE ECB......Page 152
4. PREPARING THE GOVERNING COUNCIL: THE ECB AND THE NATIONAL CENTRAL BANKS......Page 155
5. CONCLUSIONS......Page 156
REFERENCES......Page 157
1. INTRODUCTION......Page 161
2. THE MODEL......Page 163
3. PROS AND CONS OF DOLLARIZATION IN LATIN AMERICA......Page 172
4. CONCLUSIONS......Page 180
REFERENCES......Page 181
2. THE MODEL......Page 182
3. LIMITATIONS OF THE MODEL......Page 183
4. OTHER WORK ON DOLLARIZATION......Page 184
5. DOLLARIZATION IN LATIN AMERICA......Page 185
6. ON OPTIMAL EXCHANGE RATE SYSTEMS......Page 187
REFERENCES......Page 189
2. REVIEW OF THE MAJOR THEMES IN DOLLARIZATION......Page 190
3. THE INEVITABILITY OF DOLLARIZATION......Page 191
REFERENCES......Page 192
PART III PRIVATE ALTERNATIVES TO CENTRAL BANKS......Page 193
1. INTRODUCTION......Page 195
2. PANICS AND THE INDUSTRIAL ORGANIZATION OF BANKING: HISTORICAL AND CROSS-COUNTRY EVIDENCE......Page 198
2.1. Some Empirical Regularities about Panics......Page 199
2.2. The Canadian and U.S.Banking Experiences......Page 201
2.3. Bank Coalitions in the United States and Other Countries......Page 202
2.4. The “Currency Famine” during Panics......Page 204
3.1. The Gorton and Huang Model......Page 206
3.2. Summary of the Results on Different Types of Banking Systems......Page 209
3.3. The Setting with Bank Coalitions......Page 211
3.4. Summary......Page 214
4.1. Bank Liabilities as a Medium of Exchange......Page 215
4.2. The Private Bank Coalition......Page 219
4.3. A Government-Required Reserve Level......Page 220
4.4. Deposit Insurance......Page 222
5. CONCLUSION......Page 224
APPENDIX......Page 225
ACKNOWLEDGMENTS......Page 229
REFERENCES......Page 230
Commentary......Page 234
REFERENCES......Page 236
Commentary......Page 237
REFERENCES......Page 240
1. INTRODUCTION......Page 241
2.1. Three Conditions for Monetary Exchange with Private Note Issuers......Page 243
2.2. Necessary and Sufficient Conditions for Uniformity of the Currency......Page 244
2.3. What Limits Private Note Issue?......Page 245
2.4. Why Wasn’t Note Redemption Costless?......Page 246
3.1. Its Beginnings......Page 247
3.2. How the Suffolk System Operated......Page 248
3.3. Evidence on Currency Uniformity......Page 249
4.1. Banknote Discounts before the Second Bank......Page 251
4.2. Biddle’s Banknote Redemption Policy......Page 259
4.3. Evidence on Currency Uniformity......Page 261
5. A SEIGNIORAGE INCENTIVE PROBLEM WITHIN THE SECOND BANK......Page 262
6. CONCLUSIONS......Page 266
ACKNOWLEDGMENTS......Page 267
REFERENCES......Page 268
1. INTRODUCTION......Page 270
2. THE CAVALCANTI–WALLACE MODEL......Page 271
3. SYMMETRIC, STATIONARY, PURE STRATEGY, IMPLEMENTABLE ALLOCATIONS......Page 272
5. SHOULD ISSUE, CIRCULATION, AND REDEMPTION VALUES BE IDENTICAL?......Page 274
7. CONCLUSION......Page 275
REFERENCES......Page 276
1. THE ELUSIVE GOAL: ESTABLISHMENT OF A UNIFORM CURRENCY......Page 277
3. DISCOUNTS ON NOTES......Page 278
4. SEIGNIORAGE INCENTIVE PROBLEM......Page 279
5.2. Second Bank of the United States (1816–36)......Page 280
7.1. Can Private Markets Provide a Uniform Currency?......Page 283
7.2 The Importance of Denomination Restrictions in Privately Issued Currencies......Page 285
8. CONCLUSION......Page 286
REFERENCES......Page 287
2. THE RISE AND DECLINE OF INFLATION AROUND THE WORLD SINCE 1960......Page 289
3.1. Central Bank Independence......Page 295
3.2. Fixed Exchange Rates as a Disciplinary Device......Page 296
3.3. Reductions in Transactions Costs and Currency Competition......Page 299
3.4. Rapid Growth of International Currency Holdings of Dollars and Deutschmarks......Page 301
4.1. Concerns about the Feasibility of Currency Competition and the Role of Transactions Costs......Page 304
4.2. Alternative Approaches to Currency Competition and “Free Banking”......Page 305
ACKNOWLEDGMENTS......Page 308
REFERENCES......Page 309
Commentary......Page 311
Commentary......Page 314
REFERENCES......Page 318
Index......Page 319