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Creator: Atkeson, Andrew, Chari, V. V., and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 394 Abstract:
The optimal choice of a monetary policy instrument depends on how tight and transparent the available instruments are and on whether policymakers can commit to future policies. Tightness is always desirable; transparency is only if policymakers cannot commit. Interest rates, which can be made endogenously tight, have a natural advantage over money growth and exchange rates, which cannot. As prices, interest and exchange rates are more transparent than money growth. All else equal, the best instrument is interest rates and the next-best, exchange rates. These findings are consistent with the observed instrument choices of developed and less-developed economies.
Assujettir: E40 - Money and Interest Rates: General, E58 - Central Banks and Their Policies, E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems, E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data), E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General, E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination, E51 - Money Supply; Credit; Money Multipliers, E52 - Monetary Policy, and E31 - Price Level; Inflation; Deflation
Creator: Chari, V. V. and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 308 Abstract:
We analyze the setting of monetary and nonmonetary policies in monetary unions. We show that in these unions a time inconsistency problem in monetary policy leads to a novel type of free-rider problem in the setting of nonmonetary policies, such as labor market policy, fiscal policy, and bank regulation. The free-rider problem leads the union’s members to pursue lax nonmonetary policies that induce the monetary authority to generate high inflation. The free-rider problem can be mitigated by imposing constraints on the nonmonetary policies, like unionwide rules on labor market policy, debt constraints on members’ fiscal policy, and unionwide regulation of banks. When there is no time inconsistency problem, there is no free-rider problem, and constraints on nonmonetary policies are unnecessary and possibly harmful.
Mot-clé: Fixed exchange rates, European Union, Maastricht Treaty, Dollarization, and Monetary regime Assujettir: F41 - Open Economy Macroeconomics, E58 - Central Banks and Their Policies, E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems, F30 - International Finance: General, E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination, F33 - International Monetary Arrangements and Institutions, E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy, and F42 - International Policy Coordination and Transmission
Creator: Ayres, João, Garcia, Márcio Gomes Pinto, Guillen, Diogo, and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 575 Abstract:
Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-inflation period (1960-1994) was characterized by a combination of fiscal deficits, passive monetary policy, and constraints on debt financing. The transition to the low-inflation period (1995-2016) was characterized by improvements in all of these features, but it did not lead to significant improvements in economic growth. In addition, we document a strong positive correlation between inflation rates and seigniorage revenues, although inflation rates are relatively high for modest levels of seigniorage revenues. Finally, we discuss the role of the weak institutional framework surrounding the fiscal and monetary authorities and the role of monetary passiveness and inflation indexation in accounting for the unique features of inflation dynamics in Brazil.
Mot-clé: Brazil's stagnation, Brazil's hyperinflation, Fiscal deficit, Stabilization plans, and Debt accounting Assujettir: E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems, H62 - National Deficit; Surplus, E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy, and H63 - National Debt; Debt Management; Sovereign Debt