We argue that the question of whether and when policy reform works should be investigated together with the political economy factors responsible for distortionary policies in the first place. These not only determine the initial distortions, but also often shape policy in the post-reform...

A central bank is insolvent if its plans imply a Ponzi scheme on reserves so the price level becomes infinity. If the central bank enjoys fiscal support, in the form of a dividend rule that pays out net income every period, including when it is negative, it can never become insolvent...

An independent central bank can manage its balance sheet and its capital so as to commit itself to a depreciation of its currency and an exchange-rate peg. This way, the central bank can implement the optimal escape from a liquidity trap, which involves a commitment to higher future inflation....

This paper argues, first, that it is inappropriate to presume that central banks will, in the absence of any tangible precommitment technology, inevitably behave in a `discretionary' fashion that implies an inflationary bias. Furthermore, there is no necessary tradeoff between `flexibility and...

This paper takes issue with two basic conclusions prevalent in the literature on central bank behavior. First, the paper argues that it is inappropriate to presume that central banks will, in the absence of any precommitment technology, necessarily behave in a 'discretionary' fashion that...

This paper develops the view that monetary policy operates within a set of basic constraints that limit the set of outcomes that it can achieve.These include constraints on aggregate supply behavior that determine how a given path of nominal income growth will be divided between inflation and...

We propose a simple measure of de facto financial market integration based on a factor model of monthly equity returns, which can be computed back to the first era of financial globalization for 17 countries. Global financial market integration follows a “swoosh” shape – i.e. high...

This paper shows that the inability to use monetary policy for macroeconomic stabilization leaves a government more vulnerable to a rollover crisis. We study a sovereign default model with self-fulfilling rollover crises, foreign currency debt, and nominal rigidities. When the government lacks...

The process of central bank (CB) evolution by emerging market economies (EMEs), including central bank independence (CBI) and transparency (CBT), converged towards that of the advanced economies (AEs) before the Global Financial Crisis (GFC) of 2007-2008. It was greatly aided by the adoption of...