Ellen E. Meade

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.

Regional Influences on FOMC Voting Patterns

This paper looks at the monetary policy decisions of the U.S. Federal Reserve and asks whether observed voting patterns have been driven entirely by national concerns, or whether regional factors have also played a role. We find that Fed policymakers take into account developments in regional unemployment when casting votes on monetary policy. These results are robust to different specifications of the voting equation. This research is relevant for the Fed, and it may also be relevant for Europes fledgling central bank in Frankfurt in light of regional differences within the euro area.

Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve

When central banks are transparent about their decision making, there may be clear benefits in terms of credibility, policy effectiveness, and improved democratic accountability. While recent literature has focused on all of these advantages of transparency, in this paper we consider one potential cost: the possibility that publishing detailed records of deliberations will make members of a monetary policy committee more reluctant to offer dissenting opinions. Drawing on the recent literature on expert advisors with ?career concerns?, we construct a model that compares incentives for members of a monetary policy committee to voice dissent when deliberations occur in public, and when they occur in private. We then test the implications of the model using an original dataset based on deliberations of the Federal Reserve?s Federal Open Market Committee, asking whether the FOMC?s decision in 1993 to begin releasing full transcripts of its meetings has altered incentives for participants to voice dissenting opinions. We find this to be the case with regard to both opinions on shortterm interest rates and on the ?bias? for future policy.

Home Bias, Transactions Costs, and Prospects For the Euro: A More Detailed Analysis

This paper brings together the literature on determination of home bias in equity holdings and the portfolio balance model of exchange rates to consider whether the dollar might be affected by a change in transactions costs that alters international portfolio allocations. The empirical findings lend support to the view that transactions costs have a significant influence on US portfolio holdings, even after accounting for float market share. In addition, new survey evidence on the equity holdings of European firms indicates home bias for European investors, and points to a reduction in the magnitude of this home bias since 1997.

The Dynamic Voting Patterns of the Bank of England's MPC

The literature on the behavior of the Bank of Englands Monetary Policy Committee (MPC) has focused on static voting patterns. We find statistical support for a dynamic pattern using a panel reaction function to analyze MPC votes over the 1997-2008 period. We find that internal and external members do not behave differently in their first year on the MPC. In their third year of tenure, internal members prefer higher policy rates, placing a higher weight on price stability and a lower weight on the output gap than external members.

International Aspects of Central Banking: Diplomacy and Coordination

In this paper, we discuss the evolution of central bank interactions since the early 1970s following the breakdown of the managed exchange-rate system that was negotiated at Bretton Woods. We review the most important forums or organizations through which central banks have engaged in diplomacy. We then discuss the mobilization of coordination through diplomacy using three examples over the past 30 years: the Plaza Accord in 1985 negotiated by the G-5; the response to the Asian financial crisis in 1997-98, led by the International Monetary Fund (IMF) with heavy participation from G-7 finance ministries and central banks; and the response to the global financial crisis that began in 2007. For each of these examples, we provide the economic circumstances at the time, discuss how the response was mobilized, and evaluate its success. Our main conclusion is that the relationship-building that is inherent in multilateral interaction has provided a springboard for coordination in times of stress or crisis. Moreover, crises matter in that they can be turning points in terms of the actions taken and the countries included in the dialogue; thus, the groupings themselves are to some extent endogenous to events. Finally, we use the lens of diplomacy and coordination to trace out the path for central bank diplomacy going forward.