Christopher Crowe

Central Bank Independence and Transparency: Evolution and Effectiveness

Over the past two decades, the pace of central bank reforms in terms of institutional independence and transparency has been particularly brisk. This paper examines the current level of central bank independence (CBI) and transparency in a broad sample of countries using newly constructed measures, and looks at the evolution in both measures from an earlier time period. The legal independence of central banks has increased markedly since the 1980s, while the rise in transparency since the late 1990s has been less impressive. Exploiting the time dimension of our data to eliminate country fixed effects and using instrumental variable estimation to overcome endogeneity concerns, we present robust evidence that greater CBI is associated with lower inflation. We also find that enhanced transparency practices are associated with the private sector making greater use of information provided by the central bank.

Policies for Macrofinancial Stability : Options to Deal with Real Estate Booms

DISCLAIMER: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

Coping with the Crisis; Policy Options for Emerging Market Countries

This chapter outlines policies to help solve the debt overhang and bring about recovery in both groups of countries. The current financial turmoil is confronting emerging market economies with two shocks: a ‘sudden stop’ of capital inflows resulting from the global deleveraging process, and a collapse in export demand associated with the global slump. A key ingredient appears to be greater official financing to expand the ‘policy space’ available to emerging market economies (EME) to pursue supportive macroeconomic policies—including, in countries with large debt overhangs, by helping to meet the fiscal outlays associated with the resolution of that overhang. An important first step is to ensure an adequate framework to facilitate rapid debt workouts. Debt restructuring mechanisms can provide greater scope for monetary easing by reducing the negative repercussions of exchange rate depreciation on unhedged balance sheets. Depending on the available fiscal space, expansionary fiscal policy should also be deployed to support economic activity.

The Impact of House Prices on Consumer Credit: Evidence from an Internet Bank

This paper shows that house price fluctuations can have a significant impact on credit markets well beyond the mortgage segment. Using new data from Prosper.com, a peer to peer lending site that matches borrowers and lenders to provide unsecured consumer loans, we find evidence that home owners in states with declining house prices face higher interest rates and greater rationing of credit, while also becoming delinquent faster. Investigating the mechanism, we find separate supply and demand effects, and especially large effects for those subprime borrowers whose balance sheets are likely to be most exposed to asset price declines. This evidence suggests that asset price fluctuations can play an important part in determining credit conditions and are thus a potentially significant mechanism for propagating macroeconomic shocks.

Monetary Policy Matters; New Evidence Basedon a New Shock Measure

Conventional VAR and non-VAR methods of identifying the effects of monetary policy shocks on the economy have found a negative output response to monetary tightening using U.S. data over the 1960s-1990s. However, we show that these methods fail to find this contractionary effect when the sample is restricted to the period since the 1980s, apparently due to changes in the policymaking environment that reduce their effectiveness. Identifying policy shocks using Fed Funds futures data, we recover the contractionary effect of monetary tightening on output and find that almost half of output variation over the period appears due to policy shocks.

Consensus Forecasts and Inefficient Information Aggregation

Consensus forecasts are inefficient, over-weighting older information already in the public domain at the expense of new private information, when individual forecasters have different information sets. Using a cross-country panel of growth forecasts and new methodological insights, this paper finds that: consensus forecasts are inefficient as predicted; this is not due to individual forecaster irrationality; forecasters appear unaware of this inefficiency; and a simple adjustment reduces forecast errors by 5 percent. Similar results are found using US nominal GDP forecasts. The paper also discusses the result’s implications for users of forecaster surveys and for the literature on information aggregation.

Macrofinancial Linkages : Trends, Crises, and Policies

Macro-financial linkages have long been at the core of the IMFs mandate to oversee the stability of the global financial system. With the advent of the economic crisis, the Fund has drawn on this research in order to contribute to critical debates on the nature of appropriate policy responses at both the national and multilateral levels. This volume brings together some of the best writing by IMF economists on macro-financial issues, and highlights the issues and approaches that have guided IMF thinking in an area that makes up an increasingly important component of the IMFs overall remit. The chapters in the volume fit into three broad themes: financial crises and boom-bust cycles; financial integrations, financial liberalization, and economic performance; and policy issues relating to macroeconomic policy and the corporate and financial sectors - including domestic and external financial liberalization.