2019-04-21 10:07:54 Sun ET
federal reserve monetary policy treasury dollar employment inflation interest rate exchange rate macrofinance recession systemic risk economic growth central bank fomc greenback forward guidance euro capital global financial cycle credit cycle yield curve
Central bank independence remains important for core inflation containment in the current age of political populism. In accordance with the dual mandate of both price stability and maximum sustainable employment, most central banks seek to solve the dynamic consistency problem on the basis of a key desire to insulate monetary policy decisions from political influence.
A landmark empirical study of cross-country comparisons by Alberto Alesina and Lawrence Summers confirms that countries with better central bank independence experience lower inflation without suffering any real economic output or labor force penalty. An independent central bank can enhance fiscal discipline by reducing the relative likelihood of fiscal dominance and monetization of perennial budget deficits.
Historical experience and economic theory teach us an informative lesson. When monetary policy is subject to political control, people expect dovish expansionary interest rate adjustments and so anticipate higher wages and prices in response. The undesirable economic outcome is stagflation (or the worst-case scenario of both high inflation and high unemployment). It can cost prohibitive welfare losses for the central bank to bring down inflation with subsequent interest rate hikes. Key credible apolitical monetary policy decisions would thus promote price stability with minimal real impact on economic growth, employment, and capital investment.
If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.
2022-11-30 09:26:00 Wednesday ET
Climate change and ESG woke capitalism In recent times, the Biden administration has signed into law a $375 billion program to better balance the economi
2025-06-13 08:23:00 Friday ET
What are the mainstream legal origins of President Trump’s new tariff policies? We delve into the mainstream legal origins of President Trump&rsquo
2023-08-31 10:22:00 Thursday ET
Government intervention remains a major influence over global trade, finance, and technology. Nowadays, many governments tend to eschew common ownership
2018-01-13 08:39:00 Saturday ET
The Economist digs deep into the political economy of U.S. government shutdown over 3 days in January 2018. In more than 4 years since 2014, U.S. government
2023-08-07 12:29:00 Monday ET
Oxford macro professor Stephen Nickell and his co-authors delve into the trade-off between inflation and unemployment in the dual mandate of price stability
2018-09-19 12:38:00 Wednesday ET
The Trump administration imposes 10% tariffs on $200 billion Chinese imports and expects to raise these tariffs to 25% additional duties toward the end of t