Credibility of Policies Versus Credibility of Policymakers

Credibility of Policies Versus Credibility of Policymakers PDF

Author: Mr.Paul R. Masson

Publisher: International Monetary Fund

Published: 1994-05-01

Total Pages: 28

ISBN-13: 1451971818

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Standard models of policy credibility, defined as the expectation that an announced policy will be carried out, emphasize the preferences of the policymaker, and the role of tough policies in signalling toughness and raising credibility. Whether a policy is carried out, however, will also reflect the state of the economy. We present a model in which a policymaker maintains a fixed parity in good times, but devalues if the unemployment rate gets too high. Our main conclusion is that if there is persistence in unemployment, observing a tough policy in a given period may lower rather than raise the credibility of a no-devaluation pledge in subsequent periods. We test this implication on data for the interest rate differential between France and Germany and find support for our hypothesis.

Testing for Credibility Effects

Testing for Credibility Effects PDF

Author: Mr.Mark P. Taylor

Publisher: International Monetary Fund

Published: 1991-11-01

Total Pages: 33

ISBN-13: 1451853254

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This paper examines some recent techniques designed to draw inferences about the credibility of changes in macroeconomic policy regimes. An alternative two-step approach, based on the decomposition between permanent and transitory components of a "credibility variable" is proposed. The methodology is then used to test for the existence of a credibility effect in the Cruzado stabilization plan implemented in Brazil in 1986.

Monetary and Fiscal Policy, Volume 1

Monetary and Fiscal Policy, Volume 1 PDF

Author: Torsten Persson

Publisher: National Geographic Books

Published: 1994-06-29

Total Pages: 0

ISBN-13: 0262660873

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How will the private sector react to different governmental policies? What policies will produce the most desirable outcomes? These two volumes bring together major contributions to a new theory of macroeconomic policy that analyzes which policies are credible or politically feasible, topics that are central to the practical policy debate but that traditional theory cannot address. Instead of looking at policy as an end product, the contributors approach policy as an ongoing process of revised goals, changes in tactics, and political pressures. They consider what kinds of incentives, within different institutional settings, drive policymaking and the behavior of policymakers. This approach allows more informed answers to questions of which policies are credible and which are politically feasible. It explains why certain monetary and fiscal policies get implemented, and provides insights into situations that occur repeatedly in macroeconomic policy such as the bias toward government deficits, partisan competition, and central bank independence. Volume 1 examines problems of policy credibility caused by incentives to deviate from announced policy. Volume 2 looks at feasibility problems caused by political pressures generated by the electoral process, the politics of the public debt, issues of the redistribution of wealth, and conflict over the need for economic reforms. Sections are arranged so that the first chapter introduces a topic while those that follow expand on it. The editors provide substantial introductions to each volume as well as short comments at the beginning of each section within the volumes.

When Tight Policy Weakens Credibility

When Tight Policy Weakens Credibility PDF

Author: Kevin Carey

Publisher:

Published: 2001

Total Pages: 0

ISBN-13:

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Drazen and Masson (DM) propose that the credibility of policies is often determined by their perceived effect on the future incentive of policymakers to deviate from them. Tight policy that would otherwise improve credibility via reputation effects might be expected to worsen economic conditions, making the exercise of an "escape clause" more likely. DM present supporting evidence from French monetary policy experiences. I highlight some weaknesses in this evidence, most notably the need to ensure that policy is exogenous with respect to credibility; many empirical episodes capture policy tightening in response to declining credibility, making it more difficult to isolate the effect of policy on credibility. I present evidence from a comparison of Australia and New Zealand's response to the 1997 Asian crisis that overcomes these concerns.

Borrowing Credibility

Borrowing Credibility PDF

Author: Jana Grittersová

Publisher: University of Michigan Press

Published: 2017-07-28

Total Pages: 310

ISBN-13: 0472123084

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Nations with credible monetary regimes borrow at lower interest rates in international markets and are less likely to suffer speculative attacks and currency crises. While scholars typically attribute credibility to domestic institutions or international agreements, Jana Grittersová argues that when reputable multinational banks headquartered in Western Europe or North America open branches and subsidiaries within a nation, they enhance that nation’s monetary credibility. These banks enhance credibility by promoting financial transparency in the local system, improving the quality of banking regulation and supervision, and by serving as private lenders of last resort. Reputable multinational banks provide an enforcement mechanism for publicized economic policies, signaling to international financial markets that the host government is committed to low inflation and stable currency. Grittersová examines actual changes in government behavior of nations trying to gain legitimacy in international financial markets, and the ways in which perceptions of these nations change in relation to multinational banks. In addition to quantitative analysis of over 80 emerging-market countries, she offers extensive case studies of credibility building in the transition countries of Eastern Europe, Argentina in 2001, and the global financial crisis of 2008. Grittersová illuminates the complex interactions between multinational banks and national policymaking that characterize the process of financial globalization to reveal the importance of market confidence in a world of mobile capital.

Mastering 'Metrics

Mastering 'Metrics PDF

Author: Joshua D. Angrist

Publisher: Princeton University Press

Published: 2014-12-21

Total Pages: 300

ISBN-13: 0691152845

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An accessible and fun guide to the essential tools of econometric research Applied econometrics, known to aficionados as 'metrics, is the original data science. 'Metrics encompasses the statistical methods economists use to untangle cause and effect in human affairs. Through accessible discussion and with a dose of kung fu–themed humor, Mastering 'Metrics presents the essential tools of econometric research and demonstrates why econometrics is exciting and useful. The five most valuable econometric methods, or what the authors call the Furious Five--random assignment, regression, instrumental variables, regression discontinuity designs, and differences in differences--are illustrated through well-crafted real-world examples (vetted for awesomeness by Kung Fu Panda's Jade Palace). Does health insurance make you healthier? Randomized experiments provide answers. Are expensive private colleges and selective public high schools better than more pedestrian institutions? Regression analysis and a regression discontinuity design reveal the surprising truth. When private banks teeter, and depositors take their money and run, should central banks step in to save them? Differences-in-differences analysis of a Depression-era banking crisis offers a response. Could arresting O. J. Simpson have saved his ex-wife's life? Instrumental variables methods instruct law enforcement authorities in how best to respond to domestic abuse. Wielding econometric tools with skill and confidence, Mastering 'Metrics uses data and statistics to illuminate the path from cause to effect. Shows why econometrics is important Explains econometric research through humorous and accessible discussion Outlines empirical methods central to modern econometric practice Works through interesting and relevant real-world examples

Macroeconomic Policy, Credibility and Politics

Macroeconomic Policy, Credibility and Politics PDF

Author: T. Persson

Publisher: Routledge

Published: 2012-11-12

Total Pages: 200

ISBN-13: 1135645590

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Uses a game theoretic approach to explore which economic policies are 'credible' and 'politically feasible', questions that had eluded traditional macroeconomic approaches.

Central Bank Policy

Central Bank Policy PDF

Author: Perry Warjiyo

Publisher: Emerald Group Publishing

Published: 2019-07-25

Total Pages: 592

ISBN-13: 1789737516

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Central Bank Policy: Theory and Practice analyses various policies, theories and practices adopted by central banks, as well as the institutional arrangements underlying the principles of good governance in policy-making. It is the first book to comprehensively discuss the latest theories and practices of central bank policy.

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