Search results

We study the delegation of monetary policy to independent central bankers in a two-country world with monetary spillovers. It is shown that, under the hypotheses of imperfect commitment & private information, the equilibrium degree of commitment depends on the correlation structure of the shocks hitting the economies. When the correlation is negative (as when the variance of output depends mainly on shocks to the terms of trade) there is strategic complementarity in the degree of commitment in the two countries. When the correlation is positive (common technological or demand shocks) there is strategic substitutability. In this latter case, the degree of commitment is shown to be increasing in the correlation among shocks. Common components in the international business cycle have been shown in several studies to be relatively more relevant in developed countries. Therefore, our results may contribute to explaining why the institutional solution to the inflationary bias has been adopted in the most advanced countries. Figures, Appendixes, References. [Copyright 2005 Elsevier B.V.]

Different authors have argued the importance of central banker's secrecy over alternative targets of monetary policy. One of the argument is based on the welfare results in a well known signalling game of monetary policy by Vickers (1986). This work aims to show how this argument crucially depends on the cost of separation and the specification of the prior beliefs held by private agents about the preferences of central banker. This is performed by solving a model similar to that solved by Vickers (1986) under a different assumption (a continuum of types) about the support of the distribution of prior beliefs. Welfare analysis shows that the result underlying the argument by Persson and Tabellini (1990) about the convenience of Central Banker's secrecy is upturned when the priors are skewed towards high inflation and alternative devices like credible pegging of a nominal variable, delegation and (negotiated) wage controls may be welfare enhancing. Furthermore, we show that if an appointed central banker has to incurr signalling costs a Rogoff (1985) type result can not be obtained and secrecy may be a bad substitute for commitment.

Different authors have argued the importance of central banker's secrecy over alternative targets of monetary policy. One of the argument is based on the welfare results in a well known signalling game of monetary policy by Vickers (1986). This work aims to show how this argument crucially depends on the cost of separation and the specification of the prior beliefs held by private agents about the preferences of central banker. This is performed by solving a model similar to that solved by Vickers (1986) under a different assumption (a continuum of types) about the support of the distribution of prior beliefs. Welfare analysis shows that the result underlying the argument by Persson and Tabellini (1990) about the convenience of Central Banker's secrecy is upturned when the priors are skewed towards high inflation and alternative devices like credible pegging of a nominal variable, delegation and (negotiated) wage controls may be welfare enhancing. Furthermore, we show that if an appointed central banker has to incurr signalling costs a Rogoff (1985) type result can not be obtained and secrecy may be a bad substitute for commitment.

AbstractIn a novel experimental design, we investigate the impact of exogenous variation in economic growth and inequality on trusting behaviour. In addition to a control with uniform endowment, three treatments were implemented where the initial endowment is exogenously changed to produce inequality and three growth scenarios where average endowments increase (boom), decrease (recession) or remain unaltered (steady state). We find that aggregate trust and trustworthiness both decrease due to the induced heterogeneity in endowments. Also, trust (but not trustworthiness) decreases (increases) due to recessions (booms). The impact of inequality on trust is greatest in a recession and absent in a boom. These aggregate effects are driven mainly by the reactions of those who, after treatment, end up at the bottom of the endowment distribution. These findings are close in sign and in the order of magnitude to those reported in observational studies on the relationship between growth, inequality and trust.

We consider a simple economy where self interested taxpayers have incentives to evade taxes and to escape sanctions by bribing public officials in charge of tax collection. However, tax collectors may be monitored by second-level inspectors whose incentives to exert detection activity are endogenously determined. In this framework, it is shown that the effects of classical deterrence instruments, such as fines, may be perverse; in particular, larger fines for corruption directly reduce corruption and indirectly reduce incentives to monitor it determining, as an overall effect, an increase in the underlying offence, that is tax evasion. Nevertheless, on the normative side, we show that, even if the Government cannot commit to a given level of deterrence, the maximal fine principle still holds.

Abstract
Non-profit organizations (NPOs), such as financial cooperatives, have a longstanding tradition in advanced market economies. We develop a model of 'mixed credit markets' where pure for-profit institutions (e.g. commercial banks) can coexist with financial NPOs which feature a concern for inter-member surplus redistribution (e.g. credit cooperatives) and enjoy privileged borrower-specific information vis-à-vis their for-profit peers, while facing higher funding costs. We formally investigate market competition between the two alternative financial organizations both offering contracts whose terms entail cross subsidization. We argue that heterogeneity in organizational models can explain stable coexistence under competitive conditions, and also help us interpret the variety of market outcomes — in terms of e.g. overall coverage and market shares — as documented in modern financial systems. Importantly, the viability of redistribution-oriented NPOs is shown not to rest on under-investment issues or concerns about market power, for they can successfully operate in markets where credit rationing never arises.