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AbstractThis paper studies the effect of the governance of modern central banks on the ratings assigned by the credit rating agencies Standard and Poor's and Moody's. Until recently, the rating process was not public. Even still, the factors or precise methodologies used by the agencies remain uncertain and analyst judgment remains important. We argue that, given uncertainty over the future paths of countries, the quality of the central bank governance serves as a useful heuristic for a stable and favorable country trajectory. In particular, the central bank's independence signals that the government is committed to general macroeconomic stability, including debt repayment. Additionally, central bank transparency clarifies who is the principal of the bank and provides information about how the central bank understands the economy and monetary policy. Finally, tensions between the central bank and the government, as reflected by irregular turnover of central bank governors, raise doubts about countries' future prospects. Empirically, we use a variety of models, including mediation analysis, to ensure that the effect we identify stems from the central bank governance itself, as a heuristic for the future paths of countries, and not the central bank's direct contribution to the macroeconomy, as reflected in the available data.

It seems obvious that agreements to cut tariffs will raise trade between their signatories. But recent studies show that some agreements widely considered to be landmarks in economic history had either a remarkably small impact on trade or none at all. Among those agreements are the Cobden-Chevalier Treaties and the long series of tariff accords concluded under the auspices of the GATT/WTO. Both sets of agreements cut import duties on many goods that applied to all trading partners entitled to most-favored-nation treatment, but neither increased aggregate trade between their members. This article examines the agreements concluded by the United States under the 1934 Reciprocal Trade Agreements Act (RTAA). The authors use an original data set that records changes in tariffs and US imports at the product-line level for each of the twenty-seven bilateral agreements. No comparable data exist either for the nineteenth-century trade network or for the postwar trade regime. The results show that the RTAA treaties failed to raise aggregate US imports from its treaty partners. They also show that these agreements did lead to a large and significant rise in US imports of specific products from specific countries. Because the same bargaining protocol that produced the RTAA agreements also governed the European treaty network and the GATT/WTO, the argument advanced in this article can also help to explain why neither treaty exerted a significant impact on aggregate trade between their signatories.

The First World War is often cited as proof par excellence of the flaws in the liberal peace argument because the adversaries it engaged had been each other's major pre-war trading partners. Although commonly assumed to have wreaked havoc on the trade of the states it engaged, the war's impact on commerce has rarely been rigorously examined. Using an original dataset, this study shows that the Great War triggered substitution processes that reduced its trade-related costs. Although recourse to second-best alternatives always induces efficiency losses, the costs of adjustment were small relative to the other costs that states incurred during the war. The analysis shows that the Great War is not the egregious exception to the theory that conventional wisdom has long assumed it to be. At the same time, it makes clear that the deterrent power of trade varies inversely with belligerents' ability to access the markets of alternative trading partners.

Despite mixed empirical evidence, in the past two decades central bank independence (CBI) has been on the rise under the assumption that it ensures price stability. Using an encompassing theoretical approach and new yearly data for de jure CBI (seventy-eight countries, 1973-2008), we reexamine this relationship, distinguishing the role of printing less money (discipline) from the public's beliefs about the central bank's likely actions (credibility). Democracies differ from dictatorships in the likelihood of political interference and changes to the law because of the presence of political opposition and the freedom to expose government actions. CBI in democracies should be directly reflected in lower money supply growth. Besides being more disciplinarian, it also ensures a more robust money demand by reducing inflation expectations and, therefore, inflation. Empirical results are robust and support a discipline effect conditioned by political institutions, as well as a credibility effect. Adapted from the source document.

AbstractDespite mixed empirical evidence, in the past two decades central bank independence (CBI) has been on the rise under the assumption that it ensures price stability. Using an encompassing theoretical approach and new yearly data for de jure CBI (seventy-eight countries, 1973–2008), we reexamine this relationship, distinguishing the role of printing less money (discipline) from the public's beliefs about the central bank's likely actions (credibility). Democracies differ from dictatorships in the likelihood of political interference and changes to the law because of the presence of political opposition and the freedom to expose government actions. CBI in democracies should be directly reflected in lower money supply growth. Besides being more disciplinarian, it also ensures a more robust money demand by reducing inflation expectations and, therefore, inflation. Empirical results are robust and support a discipline effect conditioned by political institutions, as well as a credibility effect.

AbstractRecent studies cast doubt on the value added of international trade agreements and institutions. Using a new data set that consists of about 35,000 observations on the trade of fifty-four nations between 1919 and 1938, we examine whether this skepticism also applies to the infamous interwar trade blocs. Traditional historical accounts attribute to them a large drop in international trade and a rise in the political tensions that would later erupt in World War II. In this study, we show that no bloc raised trade among its members as a whole or decreased trade between members and nonmembers. However, our findings are not wholly consistent with the skepticism recent studies express. We argue that conflicts of interest among the great powers encouraged the emergence of the bloc system and also gave rise to intrabloc trade shifts consistent with the political interests of their great-power hubs. The political-military alliances these conflicts created also reduced trade between their signatories, and we argue more generally that the causal chain runs from politics to trade. As a result, measuring only the effect of agreements and institutions on aggregate trade between their members can generate inaccurate estimates of their value added.