Central Banking in Theory and Practice (Lionel Robbins by Alan S. Blinder

By Alan S. Blinder

Alan S. Blinder deals the twin point of view of a number one educational macroeconomist who served a stint as Vice-Chairman of the Federal Reserve Board -- one that practiced what he had lengthy preached after which back to academia to put in writing approximately it. He tells critical bankers how they may greater comprise educational wisdom and considering into the behavior of economic coverage, and he tells students how they may reorient their study to be extra attuned to truth and hence extra precious to primary bankers.

Based at the 1996 Lionel Robbins Lectures, this readable ebook offers succinctly, in a nontechnical demeanour, with a wide selection of matters in financial coverage. The publication additionally contains the author's recommended technique to an age-old challenge in financial conception: what it ability for financial coverage to be "neutral."

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Life imitated art. In the case of the modern incarnation of the rules versus discretion debate, based on time inconsistency, I have argued that things are starkly different. In my view, the academic literature has focused on either the wrong problem or a nonproblem and has proposed a variety of solutions (excluding Rogoff's conservative central bankers) that make little sense in the real world. Unsurprisingly, they have had little influence on central banking practice. Here art would be well advised to imitate life a bit more.

Friedman's famous k-percent rule is the best-known example, although holding money growth to a constant rate is no mean trick in the short run. Pegging the exchange rate is another realistic example. Holding the real short-term interest rate at its neutral level, no matter what, would be a third. There is, however, another case that has gained prominence in the theoretical literature: assigning the central bank a rule based on outcomes, rather than one (like Friedman's) based on instruments. The two most obvious such rules are targeting inflation and targeting nominal GDP growth.

2. Principal-agent contracts: A second proposed cure for the alleged inflationary bias of monetary policy that has attracted the recent attention of theorists is drawing up a contract between the central bank as agent and the political authorities (which I shall parochially call "Congress") as principal. The genesis of the idea is simple. The Kydland-Prescott analysis suggests that the incentives of decisionmakers are distorted toward excessive inflation. Say the word "distortion" and economists reflexively think of taxes Page 45 and subsidies.

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