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We do two things in this paper. First, we look at some simple models of monetary decision making in a monetary union and ask how much more variable a country's output and inflation is likely to be if it joins the union. We answer this analytically and then go on to 'calibrate' the simple model. The model has few structural equations, but it is useful in allowing us to examine how the variability of output and inflation are likely to change as key parameters change. Our conclusions on this front are likely to be sensitive to model specification. However, we also identify a second best issue concerning the optimal make–up of the monetary union which is likely to be more robust: namely that only when all members of the union have the same structural parameter values (and shocks are perfectly correlated) will it be optimal for a new member to have these same structural parameter values.

We do two things in this paper. First, we look at some simple models of monetary decision making in a monetary union & ask how much more variable a country's output & inflation is likely to be if it joins the union. We answer this analytically & then go on to "calibrate" the simple model. The model has few structural equations, but it is useful in allowing us to examine how the variability of output & inflation are likely to change as key parameters change. Our conclusions on this front are likely to be sensitive to model specification. However, we also identify a second best issue concerning the optimal make-up of the monetary union that is likely to be more robust: namely that only when all members of the union have the same structural parameter values (& shocks are perfectly correlated) will it be optimal for a new member to have these same structural parameter values. 1 Table, 1 Figure, 1 Appendix, 36 References. Adapted from the source document.

AbstractAdam Smith promoted free banking—private, competitive, convertible banknotes. He also supported restrictions on banks. We study Smith's views and the era in which they developed, suggesting his 'regulations' were a backstop against banks' risks to depositors but primarily monetary stability. In modern parlance, Smith supported macroprudential regulations to underpin monetary stability, as did Friedman and Schwartz the US FDIC. We discuss why Smith's vision for banking went unrealised. Bank regulation became microprudential and ran aground in 2008/2009. The prominence of macroprudential regulation now provides a chance to reorientate regulation to support monetary stability. Early signs are not promising.

AbstractWe argue that: The FPC should have a wider remit; a much broader membership (covering many specialisms); should be wholly independent of Government and outside the Bank of England; its aim should be to comment publicly and authoritatively on any possible areas of risk to financial stability while itself controlling few, if any, levers of policy. The rationale for these conclusions is that: Macroprudential/financial risks come from many sources; many of these sources are structural and outside of the Bank's regulatory purview/competence; in a sense, the Bank gets to mark its own homework as regards issues such as the SMR, resolution, appropriateness of capital, effectiveness of ring‐fencing etc.; many aspects of macroprudential actions have distributional implications, and hence, politicians, not the Bank or any other body, should take and justify, or not, these decisions.

AbstractThis paper proposes a simple model for understanding transaction costs – their composition, size and policy implications. We distinguish between investments in institutions that facilitate exchange and the cost of conducting exchange itself. Institutional quality and market size are determined by the decisions of risk adverse agents and conditions are discussed under which the efficient allocation may be decentralized. We highlight a number of differences with models where transaction costs are exogenous, including the implications for taxation and measurement issues.

In this paper we examine the implication of a simple class of fiscal rules for long‐run economic growth and welfare. The Golden Rule of Public Finance that we examine is motivated by institutional arrangements in countries such as Germany and the UK. We find that rules that seek to limit government borrowing to productive investment spending have a clear justification in terms of growth and welfare when government‐provided goods are otherwise excessively provided. Even in the case where it is private consumption that is excessive, the Golden Rule of Public Finance is likely to be good from a growth perspective, but the welfare effects are more ambiguous.

ABSTRACTIn this paper we review and extend some of the key lessons that seem to be emerging from the Ramsey‐inspired theory of dynamic optimal monetary and fiscal policies. We construct measures of the key distortions in our economy; we label these 'dynamic wedges'. Inflation, actual or anticipated, distorts these wedges in the present period, shrinks the tax base and increases the deadweight loss. We show that, if possible, labour as well as capital ought to be subsidised in steady state. We point to a number of extensions to the Ramsey literature that may help in the formulation of actual policy.