Jürgen von Hagen

Budget processes : theory and experimental evidence

This paper studies budget processes, both theoretically and experimentally. We compare the outcomes of bottom-up and top-down budget processes. It is often presumed that a top-down budget process leads to a smaller overall budget than a bottom-up budget process. Ferejohn and Krehbiel (1987) showed theoretically that this need not be the case. We test experimentally the theoretical predictions of their work. The evidence from these experiments lends strong support to their theory, both at the aggregate and the individual subject level.

Regional aspects of monetary policy in Europe

Introduction. Part I: Regional Effects of a Common Monetary Policy. 1. Empirical Evidence on Common Money and Uncommon Regions in the United States M. Horvath. 2. Monetary Policy and the US States and Regions: Some Implications for European Monetary Union G.A. Carlino, R. DeFina. 3. Intranational Financial Integration: Evidence from the Canadian Banking Industry S.H. McPherson, C.J. Waller. 4. On the Asymmetric Impacts of a Common Monetary Policy in Europe A.J.H. Hallett, et al. 5. Industry Effects of Monetary Policy in Germany B. Hayo, B. Uhlenbrock. 6. An EMU with Different Transmission Mechanisms? G. Giovannetti, R. Marimon. 7. Endogenous Financial Structure and the Transmission of ECB Policy I.J.M. Arnold, C.G. de Vries. Part II: Monetary Policymaking for Heterogenous Regions. 8. The Composition of Bank Councils for Heterogeneous Monetary Union J. von Hagen. 9. National Monetary Policy by Regional Design: The Evolving Role of the Federal Reserve Banks in Federal Reserve System Policy D.C. Wheelock. 10. Achieving Consistency in Policy While Encouraging Open Debate R.L. Hetzel. 11. The Future of the Canadian Currency Union: NAFTA and Quebec Independence T.J. Courchene, M.-A. Laberge. Index.

Testing the Satisficing Version of the Political Business Cycle: 1905-1984

This paper develops a test of the satisficing version of the political business cycle. Previous tests have focused on maximizing models of political behavior and are not sufficiently general to test for satisficing behavior. Using annual U.S. data for the period 1905 to 1984, we find evidence supporting the satisficing version of the political business cycle model, but we reject the maximizing version. In accordance with the satisficing hypothesis, we find that increasing inflation or unemployment and decreasing monetary base growth in the third year of a presidential term are followed typically by reversals during the election year.

Testing for political business cycles

Abstract This paper presents a new test of political business cycle and partisan theories of politico-economic interaction. It builds on the hypothesis that model dynamics and not just the intercept of a time-series model vary over electoral periods and party regimes. Using long-run data for the United States, we find evidence that Presidential elections and the political party of incumbent Presidents influence the behavior of economic targets and instruments. However, these outcomes do not arise independently of recent economic performance. Therefore, our results support the satisficing model of Frey and Schneider and reject the traditional version of the theory.

Policy Coordination in the EMS with Stochastic Asymmetries

Publisher Summary This chapter presents the policy coordination in the European Monetary System (EMS) with stochastic asymmetries. When the EMS was created in 1978, it was generally met with great skepticism by economists on both sides of the Atlantic. The earlier view of the EMS interpreted the system mainly as a cooperative arrangement, in which exchange rate management serves as a surrogate for more complete monetary policy coordination. A recent interpretation of the EMS stresses instead the disinflationary character of the system. The chapter presents an alternative approach that is similar in spirit to the analysis of Basevi et al. By focusing on a relatively simple model, more precisely the importance of different kinds of stochastic asymmetries can be accessed. The simulations are helpful because the closed-form solutions of the model are too complex to provide any straightforward insights.

The Konstanz Seminar on Monetary Theory and Policy at Thirty

Founded by the late Karl Brunner in 1970, the Konstanz Seminar celebrated its thirtieth anniversary in 1999. Brunner started the Seminar with two objectives, to close the gap in the quality of research and teaching of economics between the United States and Europe, Germany and Switzerland in particular, and to provide an alternative to the dominant Keynesian paradigm to European monetary policy makers. Thirty years ago the Konstanz Seminar was at the fringe of the economics profession; today it is part of the mainstream. This paper reviews the academic and policy accomplishments of the Konstanz Seminar.

The Composition of Bank Councils for Heterogeneous Monetary Unions

A principal task of a central bank constitution for monetary unions is to distribute the power over monetary policy between the center and the individual member states. The balance of power between the center and the states matters because, even in the absence of a central government, two different perspectives of monetary policy exist in a monetary union: One that takes union-wide aggregates of output, employment, and prices as the relevant targets of union monetary policy, and one that takes regional or national aggregates as targets and makes monetary policy actions dependent on regional or national idiosyncrasies and country-specific shocks. Furthermore, the balance matters because monetary policy makers from different regions may have different views regarding monetary policy as well as views that differ from those of the central administration. For examples, voting patterns of FOMC members (Chappell et al 1993, Havrilesky et al 1990, 1993) and members of the German Bundesbank Council (Lohmann, 1994; Vaubel, 1991) suggest that the views on optimal policy actions can differ widely between council members appointed by the federal government and those representing the district or state central banks, as well as among the district or state representatives.

Sequencing and the Size of the Budget Experimental Evidence

We present the results of an experiment designed to test the proposition that sequencing budget decisions has systematic influence on the size of the budget. The results suggest that individuals vote strategically, leading to the subgame perfect equilibrium of the underlying voting game. The evidence yields no support for the claim that top-down budgeting provides for more fiscal discipline than bottom-up budgeting.

Relative price risk in an open economy with fixed and flexible exchange rates

We analyze the choice between fixed and flexible exchange rates in the context of an open economy version of a multimarkets equilibrium model. In contrast to previous analysis, we separate the information and the shock-absorbing aspects of the two regimes. Under a relative price risk criterion, flexible exchange rates are preferable for a relatively open economy, the more so the less stable are domestic output demand and supply conditions. Fixed exchange rates are preferable for a relatively closed economy, especially so if domestic output demand and supply functions are relatively stable, and if the real balance effect in domestic output demand functions is strong.