The Federal Design of a Central Bank in a Monetary Union: The Case of the European System of Central Banks

In this paper we analyze the European System of Central Banks (ESCB) as a federal central bank system. First, the degree of decentralization of the ESCB will be briefly compared with its predecessor, the Deutsche Bundesbank, and its counterweight in the US, the Federal Reserve System. Moreover, the development during the period 1990-99 of the total, economics and research staffing of the ECB and the national central banks in the EU will be investigated and also the staff ratios of the national central banks in 1999. Furthermore, the research activities of the central banks in the European Union over the period 1990-99 will be analyzed both in terms of input (economics and research staff) and output (quality-weighted number of articles in scientific journals). The share of economics research staff in total staff of the national central banks varies between 0.02 and 0.17. The ECB has the highest ratio between economists and researchers and other staff. A ranking of research performance based on the quality-weighted number of scientific articles per economics and research employee reveals that the Bank of Finland has the best research performance of European central banks, followed by De Nederlandsche Bank, the Banco de Portugal and the Oesterreichische Nationalbank. There is only a weak relationship between the research performance and the share of research staff. The conclusion "small is beautiful" also seems to hold for the economics and research departments of the European central banks.

Taxation if Capital is not Perfectly Mobile: Tax Competition versus Tax Exportation.

This paper analyzes the tax competition and tax exporting effect of financial integration. On the one hand, financial integration increases capital mobility and thus the incentive for countries to compete for capital. On the other hand, financial integration increases foreign ownership of firms and capital and allows for exportation of source taxes. Both effects have contrary implications for capital taxes. Allowing for imperfectly mobile capital, our analysis suggests that currently the tax exportation effect is dominating, which implies excessive capital taxation. From studying the benchmark of full financial integration we find that capital taxes are likely to increase from current levels. We further examine the tax exportation effect empirically and find that is significant as well as quantitatively important for the U.S.

The Politics of Central Bank Independence

This chapter reviews recent research on the political economy of monetary policymaking, both by economists and by political scientists. The traditional argument for central bank independence is the desire to counter inflationary biases. However, studies in political science suggest that governments may delegate monetary policy in order to detach it from political debates and power struggles. The recent financial crisis has changed the role of central banks, as evidenced by unconventional monetary and macro-prudential policy measures. Financial stability and unconventional monetary policies have stronger distributional consequences than conventional monetary policies, with implications for central bank independence. However, the authors’ results do not suggest that that has happened in the wake of the Great Financial Crisis, nor has there been higher turnover of central bank governors

Eurozone government bond spreads:A tale of different ECB policy regimes

We aim to determine Eurozone sovereign bond spreads and the ECB's influence through a generalised model. In a multidimensional structure we regress an extensive set of variables for different factors on spreads, and empirically identify the best-fit through a general-to-specific process. We cannot identify a satisfactory specification with macro fundamental factors. Different regimes in the spreads’ structure explains this. Spreads are after 2012/2013 well explained by market risk-based factors, and our specification is robust for earlier periods. When we add EMU-specific factors, it is shown that Target2 balances reduce spread as they increase convertibility risk costs until 2012/2013, and that the ECB's asset purchases subsequently reduce spreads, especially in the periphery. The break between these two periods coincides with an alteration of policy over two sets of Presidencies: Duisenberg – Trichet in the first period and Draghi-Lagarde in the second. Either set has interpreted and implemented the mandate of the central bank in a very different way. While under Duisenberg-Trichet the ECB has only acted in the Eurozone money market, under Draghi-Lagarde the central bank has increasingly been involved in the capital market.</p

How transparent are central banks?

Central bank transparency has become the topic of a lively public and academic debate on monetary policy. However, this has been complicated by the fact that transparency is a qualitative concept that is hard to measure. This paper proposes an index for the transparency of monetary policy that comprises the political, economic, procedural, policy and operational aspects of central banking. The index is compiled for nine major central banks. It is based on a detailed analysis of actual information disclosure and reveals a rich variety in the degree and dynamics of central bank transparency

The Federal Design of a Central Bank in Monetary Union: The Case of the European System of Central Banks

In this paper we analyse the ESCB as a federal central bank system. First, the degree of decentralization of the ESCB will be briefly compared with its predecessor, the Deutsche Bundesbank, and its counterweight in the US, the Federal Reserve System. Moreover, the development during the period 1990-99 of the total, economics and research staffing of the ECB and the national central banks in the EU will be investigated and also the staff ratios of the national central banks in 1999. Furthermore, the research activities of the central banks in the European Union over the period 1990-99 will be analysed both in terms of input (economics and research staff) and output (quaility-weighted number of articles in scientific journals). The share of economics research staff in total staff of the national central banks varies between 0.02 and 0.17. The ECB has the highest ratio between economists and researchers and other staff. A ranking of research performance based on the quality-weighted number of scientific articles per economics and research employee reveals that the Bank of Finland has the best research performance of European central banks, followed by De Nederlandsche Bank, the Banco de Portugal and the Oesterreichische Nationalbank. There is only a weak relationship between the research performance and the share of research staff. The conclusion small is beautiful also seems to hold for the economics and research departments of the European central banks

The Federal Design of a Central Bank in Monetary Union: The Case of the European System of Central Banks

In this paper we analyse the ESCB as a federal central bank system. First, the degree of decentralization of the ESCB will be briefly compared with its predecessor, the Deutsche Bundesbank, and its counterweight in the US, the Federal Reserve System. Moreover, the development during the period 1990-99 of the total, economics and research staffing of the ECB and the national central banks in the EU will be investigated and also the staff ratios of the national central banks in 1999. Furthermore, the research activities of the central banks in the European Union over the period 1990-99 will be analysed both in terms of input (economics and research staff) and output (quaility-weighted number of articles in scientific journals). The share of economics research staff in total staff of the national central banks varies between 0.02 and 0.17. The ECB has the highest ratio between economists and researchers and other staff. A ranking of research performance based on the quality-weighted number of scientific articles per economics and research employee reveals that the Bank of Finland has the best research performance of European central banks, followed by De Nederlandsche Bank, the Banco de Portugal and the Oesterreichische Nationalbank. There is only a weak relationship between the research performance and the share of research staff. The conclusion small is beautiful also seems to hold for the economics and research departments of the European central banks.

The trade-off between central bank independence and conservatism in a New Keynesian framework

The purpose of this paper is to discuss the issue of Treaty reform and its consequences for monetary policy. Inter alia, the changes include that the institutional set-up will be subtly changed and the European Central Bank (ECB) will be grouped in the first part of the Treaty as one of the "other institutions and advisory bodies". Possibly more importantly, the euro area as such will be in the position to act legally as itself within the European Union (EU) legal structures. The Eurogroup also will be officially recognized ("Euro-Ecofin-Council"). President Jean-Claude Trichet's concern about the status of the ECB under the new Treaty and fear that by including the bank in a list of EU institutions implies a risk that EU member states could formulate policy recommendations to the ECB, but may also lead to more central bank conservatism with the ECB as explained in our analysis. In this paper we analyze the trade-off between central bank independence and conservatism with New Keynesian framework following Woodford [Woodford, M., 2003. Interest and prices: foundations of a theory of monetary policy. Princeton University Press, Princeton.] and others. Our conclusion is that the trade-off between central bank independence and conservatism still holds within the New Keynesian framework. Politicians should therefore realize that their attempts to downgrade ECB's independence legally and verbally will only increase its conservatism in order to maintain the same inflationary bias and limit the ECB's degrees of freedom with respect to its interest rate policy.Monetary policy Transparency Central bank independence Conservatism

Daily Bundesbank and Federal Reserve intervention and the conditional variance tale in DM/$-returns

This paper reports on the results of an empirical investigation into the objectives of daily foreign exchange market intervention by the Deutsche Bundesbank and the Federal Reserve System in the U.S. dollar-deutsche mark market. Tobit analysis is implemented to estimate the intervention reaction functions consistently. It is found that an increase in the conditional variance in daily exchange rate returns derived from a GARCH model estimated in the paper, led the Bundesbank and the Federal Reserve to increase the volume of intervention, both in case of dollar-sales and purchases on account of their leaning against the wind policy.Foreign exchange - Law and legislation ; Germany