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The first of its kind, this book is entirely dedicated to the implementation of monetary policy: how central banks go about achieving their monetary policy targets. Monetary policy implementation has gone through tremendous changes over the last twenty years, which have witnessed the quiet end of 'reserve position doctrine' and the return of an explicit focus on short-term interest rates.Enthusiastically supported by Keynes and later by the monetarist school, reserve position doctrine was developed mainly by US central bankers and academics during the early 1920s, and at least in the US became the unchallenged dogma of monetary policy implementation for sixty years. This book argues that reserve position doctrine has never, and could never, be seriously put into practice, and that it was born out of a war time lie and the Fed's lack of experience in its early years. The fall of reserve position doctrine and the return of interest rate targeting also corresponds largely to the restoration of central banking principles established in the late nineteenth century. Providing a simple theory of monetary policy implementation, Bindseil goes on to explain the role of the three main instruments (open market operations, standing facilities, and reserve requirements) and reviews their use in the twentieth century. In doing so he offers an empirical, historical account of the workings of the central banks of the US, Japan, and the UK in particular. In closing, he summarizes current views on monetary policy implementation: a short-term interest rate as an operational target should be the focus; the steering of interest rates should be transparent, unpretentious, and efficient; and monetary policy implementation should not impair the liquidity of the inter-bank market. ... Read more

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Details the evolution of the monetary standard from the start of the Federal Reserve through the end of the Greenspan era. The book places that evolution in the context of the intellectual and political environment of the time. By understanding the fitful process of replacing a gold standard with a paper money standard, the conduct of monetary policy becomes a series of experiments useful for understanding the fundamental issues concerning money and prices. How did the recurrent monetary instability of the 20th century relate to the economic instability and to the associated political and social turbulence? After the detour in policy represented by FOMC chairmen Arthur Burns and G. William Miller, Paul Volcker and Alan Greenspan established the monetary standard originally foreshadowed by William McChesney Martin, who became chairman in 1951. The Monetary Policy of the Federal Reserve explains in a straightforward way the emergence and nature of the modern, inflation-targeting central bank. ... Read more

Customer Reviews (2)

Challenging, but ever so educational book
This is an extremely educational book about the development of Federal Reserve policy as well as about the development of the Central Bank.What I most enjoy reading is the interplay between the monetary policymakers and the political policymakers.The vocabulary is a bit specific, even for an economist, and one will have to work a bit to follow the discussion.

A rigorous analysis of the Fed's triumphs and failures
This book is a 21st century version of Friedman and Schwartz's classic Monetary History of the United States. The monetarist-leaning author shows how the Fed won the battle over inflation in some decades but lost the battle in others.Citing hundreds of FOMC transcipts and interviews with key decisionmakers, the author provides an almost anthropological account of what it means to be "soft on inflation" or "tough on inflation."

I didn't agree with everything in the book, and that's a sign of just how good it is: Hetzel takes strong positions and argues them with statistical and archival evidence. I wrote an enormous amount in the margins--the hints of future lecture notes from when I (surely) teach with this book in the near future.

One of the great services Hetzel performs is dragging into the light quotes from old-line Keynesians (including some Nobel Laureates) who said it was impossible or impractical to bring inflation down from 6% to 1% (sic), as well as quotes from famous Keynesians who argued that inflation-fighting wasn't even the Fed's business.

Those guys had it wrong, wrong, wrong.Nowadays, almost all macroeconomists seem to agree that long-lasting "inflation is always and everywhere a monetary phenomenon," as Milton Friedman used to say, but elite economists in the 50's, 60's, and 70's mocked such views.Hetzel has the goods on those who mocked the monetarists, one of the many little treasures in this fascinating volume. ... Read more

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Learn about Monetary Policy with iMinds Money's insightful fast knowledge series.

Monetary Policy refers to the branch of economic policy handled by a country’s central bank. It is concerned with the management of the money supply, interest rates and financial conditions. It attempts to achieve the central bank’s and the government’s broad economic objectives of achieving high employment, stable economic growth and low inflation. Specifically, monetary theory focuses on the effect of money and interest rates on aggregate demand, inflation, employment and economic growth.

In America, the Federal Reserve System (known as the Fed) is the nation’s central bank. It was established in 1913 and structured to be independent within the government.Although the Fed is accountable to the Congress and its goals are set by law, it conduct of monetary policy is insulated from day-to-day political pressures.


iMinds will hone your financial knowledge with its insightful series looking at topics related to Money, Investment and Finance.. whether an amateur or specialist in the field, iMinds targeted fast knowledge series will whet your mental appetite and broaden your mind.
iMinds unique fast-learning modules as seen in the Financial Times, Wired, Vogue, Robb Report, Sky News, LA Times, Mashable and many others.. the future of general knowledge acquisition. ... Read more

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Wednesday October 23, 1985 - U. S. Senate, Committee on Banking, Houses, and Urban Affairs, Subcommittee on International Finance and Monetary Policy, Washington, D. C. - The subcommittee met at 9: 30 a. M. In room SD-538, Dirksen Senate office buliding, Senator John Heinz (chairman of the subcommittee) presiding Present: Senators Heinz, Horton, Mattingly, D'Amato, Proxmire, Dixon, Sasser, Riegle, and Cranston. Details of these Hearings follows in 105 pages. ... Read more

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The creation of a single monetary currency and a single monetary policy in the euro area has faced extraordinary challenges, among them the design of suitable monetary policy instruments. This book evaluates monetary policy instruments of the Eurosystem against a number of requirements. To do so, a theoretical model framework is developed which brings together the monetary policy activities of a central bank and the liquidity management of banks considering the main characteristics and institutional features of the euro area.

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The book focuses on the recent experience of Latin America economies with designing, announcing, and implementing monetary policies with different internal and external anchors. Given the often dismal track record of monetary stabilization in Latin America, it deals primarily with the conditions of the economies such as their exposure to real exogenous shocks, high dollarization, regulated and segmented labor markets, lack of reputation of past policies and monetary institutions, and turbulences from deep financial and currency crises. Lessons from European monetary integration are taken into consideration as well as regimes between the extremes of full exchange rate flexibility and fixed exchange rates applied in other emerging markets. Finally, the role which regional integration in Latin America can play to reduce the extent of asymmetric shocks is discussed as a companion piece to joint efforts to fight monetary instability. ... Read more

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The launch of European Monetary Union (EMU) marked thebeginning of a new era, and its establishment has proved an impressivesuccess at the technical, legal, and procedural level. After all, EMUhas accelerated economic and political integration in the EuropeanUnion and tied the economies of the Member States closer together.However, the performance of the euro, high unemployment rates, unevenoutput and investment growth, and the issue of structural reforms thathave yet to be tackled have raised questions about the performance ofEMU in practice. There is a general consensus on the justification for economic policycoordination. The existing literature on economic policy coordination,however, seems far from able to provide robust conclusions about howto organize the necessary interaction of institutions and policies.Therefore, there seems to be a case for re-examining the subject underthe new framework set by EMU. The objective of such a reassessment is to enhance the understandingof what type of coordination and what institutional setting for policycoordination can be expected to be most favorable. Challengesfor Economic Policy Coordination within European MonetaryUnion provides an intellectually stimulating contribution to theongoing debate. ... Read more

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Hong Kong's Link to the US Dollar covers the origins of the city's currency crisis in 1983, the initial resolution of the crisis by creation of a currency board, the subsequent problems leading to the Asian financial crisis of 1997-98, and the later reforms. The epilogue traces Hong Kong's monetary developments between 1990 and 2005.

This valuable compendium of articles, originally written in the bimonthly journal Asian Monetary Monitor during the years 1981-89, includes the key article that formed the basis for the Hong Kong government's decision in 1983 to peg the currency to the US$, as well as other important documents of historical record. The main contribution of the book is its detailed monetary analysis of Hong Kong's unique financial system before and after the currency crisis of 1983. The book explains the collapse of the floating HK$ under the pressure of capital outflows during the Sino-British negotiations (1982-84) over the future of Hong Kong, the fascinating story of the introduction of the linked rate system pegging the Hong Kong dollar to the US dollar, and the subsequent gradual process of reform and refinement of the currency board mechanism (1988-2005). Each chapter is preceded by an introductory narrative that puts the analysis in its historical context and places the economic argument in perspective. Hong Kong's Link to the US Dollar will enable readers to obtain a comprehensive picture of why the linked rate system was put in place, how it works, and why it has been strengthened over the years. ... Read more

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The contributions to this prestigious volume describe important developments in monetary economics andmonetary policy during the past half century and to draw lessons from this for the future with chapters from Charles Goodhart and Olivier Blanchard. ... Read more

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In this book, Jrg Bibow illustrates how Keynes- methodology inspired his economic theorizing and how this led to fundamental insights concerning the role of money that contrasted with orthodox closed-system modelling. ... Read more

Customer Reviews (1)

Completely overlooks Keynes's upper-lower interval estimate approach to non additive and nonlinear probabilities
The author is correct that Keynes'stheory of liquidity preference in the General Theory (1936;GT) is built on Keynes's theory of decision making in the A Treatise on Probability(TP;1921.See also Keynes's 1908 fellowship dissertation since practically the same material thatforms the foundation of Keynes's approach in 1921 appears in 1908).The author is also correct that Keynes's theory of decision making combines his theory of probability and his theory of evidential weight.Unfortunately,the author does not know what Keynes's theory of probabiity entailed or what Keynes theory of evidential weight entailed.This review will thus concentrate on chapterfour and especiallypp.77-85.It is these pages that form the foundation for the authors's misbeliefs concerning the analysis contained in the TP as it relates to the GT's theory of liquidity preference.Nowhere in the book does the author demonstrate how Keynes operationalized his approach.He can't.The reason he can't is because he believes that Keynes did not make use of any numbers in his theoretical approach.This is due to his misbelief that Keynes's theories of probability/weight of the evidence were ordinal at best.Furthermore,the author follows the standard Post Keynesian belief that Keynes's theory could only be applied some of the time.This is, of course,identical to the Ramsey critique .Contrary to the author,Keynes's theory of probability primarily involved intervals using upper-lower probabilities .Keynes's approach ,based on the original Boolean logic contained in Boole's 1854 The Laws of Thoughtthat Keynes modified and used in the TP,has been rediscovered unknowingly by Gilboa and Schmeidler.They use Choquet integration and inequality constraints ,formed using upper(concave) and lower(convex)capacities to demonstrate that nonlinear and non additive capacities are the general case.Keynes would agree while gentlely pointing out that he had already accomplished this feat in great mathematical detail in 1908 andin chapters 15,17,20 and 22 of the TP.The capacities approach is thus a footnote to the work of Keynes.

A specific example of Keynes's nomlinear and non additive approach of chapters 15,17,20,and 22 of the TP was worked out in great detail by Keynes in chapter 26 using his conventional coefficient of risk and weight ,c, on p.314 and in Footnote 2 on p.314.Edgeworth, in his 1922 article on " The Philosophy of Chance " in Mind ,was certainly correct for asking for the help of Mind readers to figure outthe what and the why's involved in the applicationof Keynes's c coefficient.THis will be provided for the author below .

The foundation of Neoclassical economics is merely the mathematical development of a theoretical approach first proposed by Jeremy Bentham in 1787.Bentham claimed that all individuals have the capability to calculate the odds and outcomes and act on the expected value (the probability times the outcome) in a rational way.This can be expressed by the following ,where p is the probability of success and A is the outcome:
Maximize pA.

The modern version of this is to Maximize pU(A),where p is a subjective probability that is additive,linear,precise,and exact.U(A) is a Von Neumannn-Morgenstern Utility function.The goal is to

Maximize pU(A).




The modern name for Benthamite Utilitarianism in neoclassical economics is SEU theory(Subjective Expected Utility).Therefore,a microeconomic foundation based on Utility Maximization is just Benthamite Utilitarianism updated with modern mathematical techniques.

BIbow is completely unaware about the reasons why Keynes rejected Benthamite Utilitarianism as a very special case that would only hold under the special assumptions of the subjectivist,Bayesian model-that all probabilities were additive,linear,precise,single number answers that obeyed the mathematical laws of the probabiity calculus.

Keynes specifies his conventional coefficient of risk and weight,c, model in chapter 26 of the TP on p.314 and fotnote 2 on p.314.Keynes then integrated his c coefficient into the elasticity analysis in chapter 21 of the GT,pp.304-306, in order to show that the standard Equation of Exchange was a special case of his generalized equation of exchange.The crucial elasticities,which play the role of w in Keynes's analysis in the GT,are e and ed subscript.These must equal 1 in neoclassical theory in the same manner that w must equal 1 in neoclassical theory.

Essentially, Keynes's generalized model is given by



c=2pw/(1+q)(1+w),

where w is Keynes's weight of the evidence variable that measures the completeness of the relevant available evidence upon which the probabilities p and q are calculated.(Benthamite Utilitarians assume that the value of w is 1.)It is an index defined on the unit interval between 0 and 1,p is the probability of success,and q is the probability of failure.p+q sum to 1 if they are additive.This requires w=1.Keynes's c coefficient can be rewritten as

c=p [1/(1+q)][2w/(1+w)].

Now multiply by A or U(A).One obtains


cA= p[1/(1+q)][2w/(1+w)]A.

The goal is to maximuze cA or cU(A).The weight 1/(1+q) deals with non linearity.The weight 2w/(1+w) deals with non additivity.



It is now straightforward to see that the neoclassical microfoundations assume that all probabilities are additive and linear.This is nothing but a special case of Keynes's generalized decision rule to maximize cA,or cU(A),as opposed to the neoclassical pA or pU(A).It is now clear that Keynes had created general theories of macroeconomics,probability,and decision making.Keynes's accomplishments,if understood,place him as the only rival to Einstein for the title of the greatest scientist of the 20th century. However,Bibow understands none of this.

It was technically impossible for Bibow to accept Keynes's theories because Bibow, like Ramsey,Davidson ,and Runde ,accepted the standard frequency interpretation of probability view that all probabilities were linear,additive,precise,single number answers which were subject to the addition and multiplication rules of the probability calculus.It is impossible for Bibow to try to develop Keynes's approach because Bibowlacks a basic ,fundamental understanding of the nature of Keynesian probability.Keynes's views on subjective expectations , which were based on a w < 1 and probabilities that were non linear and sub or super additive,can makeno sense to Bibow.

Reasoning very similar to Bibow's accounts ,for example,for the Joan Robinson-G C Harcourt attack on Keynes's theory of investment and marginal efficiency of capital (MEC)as presented in chapter 11 of the GT and the Gay MeeksRamseyian claims about Keynes's"Ordinal " theory of probability. Keynes's analysis was ultimately based on the c coefficient analysis of non additive,non -linear probabilities which Keynes presented in modified form in chapter 21 of the General Theory (1936) on pp.304-306 in the form of the elasticiites e and ed subscript.

Bibow's book does present a number of correct conclusions about Keynes'sliquidity preference theory.He does demonstate the severe errors in the various loanable funds theories that he discusses in the book.However,NONE of his conclusions follow from his analysis,which fails abysmally to illustrate or show a single application of Keynes's decision theory.All loanable funds theories require the assumption of additivity and linearity to make sense because they must be premised onrisk,as opposed to uncertainty and ambiguity ( D.Ellsberg's term for Keynes's different degrees of uncertainty where Ellsberg's rho index plays the same role as Keynes's weight of the evidence index,w.).Nowhere does BIbowdraw this fundamentally important conclusion.All loanable funds theories REQUIRE that there be NO UNCERTAINTYabout the future rate of interest.
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Macesich argues that the poor performance of monetary policy can be attributed to the ease with which "money" slips into the political arena. Discretionary authority facilitates monetary manipulation for political ends, thereby increasing uncertainty and casting doubt on money, the monetary system, and indeed the monetary authority itself. The author traces the evolution of the debate over rules versus discretionary authority and discusses various methods that economists have proposed for constraining the monetary authority. He concludes that if monetary policy is to be credible and thus successful, the hands of monetary policy makers are better tied than left free. ... Read more

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Based on lectures given as part of The Stone Lectures in Economics, this book discusses the problem of formulating monetary policy in practice, under the uncertain circumstances which characterize the real world. How should central banks set monetary policy? In which way should they take uncertainty into account when designing a monetary policy strategy? Should they respond to shocks aggressively or cautiously? These questions are discussed both with reference to the experience of the Bundesbank and of the European Central Bank and in relation to a simple stylized economic model. ... Read more

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How and for whose benefit the European Central Bank (ECB) will work is one of the most important issues facing Europe, and has been the subject of vast media and academic interest. Much of this discussion has been of an increasingly emotional and political nature and has served to blur rather than inform. Written by a team at the ECB, including Otmar Issing, its Chief Economist, this study provides the first comprehensive, inside, non-technical analysis of the monetary policy strategy, institutional features and operational procedures of the Eurosystem. ... Read more

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Warning! Monetarist madness!
When the ECB's Chief Economist, Otmar Issing, wrote a book on the Bank's monetary policy, he made no mention at all of the policy's impact on jobs or industry.He larded the book with praise for the monetarist economist Milton Friedman, whose well-known and disastrous impact on Chile's economy was, oddly, not referred to in the book.
Thatcher's monetarist fallacy was that the battle against inflation was the overriding economic aim, because low or zero inflation would produce higher growth.But in the real world, other things being equal, low inflation was not the cause of high growth but the effect of low growth, and high inflation was not the cause of low growth but the effect of high growth.Monetarism's battle against inflation was a policy of deflation, forcing unemployment and low wages on the working class. So, just as Thatcher therefore became the deadly enemy of the working class, so now joining the euro has become the main threat to us. ... Read more

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Having the high unemployment in Germany in mind, this book discusses how macroeconomic theory has evolved over the past forty years. It shows that in recent years a convergence has taken place, with modern models embodying a Keynesian transmission mechanism, monetarist policy implication, and modeling techniques inspired by new classical economics and real business cycle theory. It also probes in which direction models may be extended from here. Empirically, the book uses different econometric techniques to investigate the relevance and implications of different macroeconomic theories for German data. A key question this book investigates is the role of demand and supply side conditions for the increase in the German unemployment rate. On a policy level, the book relates the implications of the different theories to the ongoing debate on the appropriate roles of demand and supply side policies for curing the German unemployment problem. ... Read more

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This volume reviews the new rules needed for the conduct of monetary policy and actual operating procedures. ... Read more

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The basic motivation underlying this book is the relationshipbetween political processes and macroeconomic consequences, especiallyin the area of monetary policy. Monetary policy is an area wherepolitical considerations regularly impact upon economic results.
In the politically and economically turbulent period from the late1960s through the early 1980s, it became clear that the directionstaken by monetary policy were changing with some frequency. By thelate 1970s it became obvious that monetary policy's reactions to thestate of the economy shifted in a rather irregular pattern. Moreover,it was equally apparent that since 1970 many of the impulses for theseshifts appeared to come from the executive branch of government. Inthe mid 1980s evidence demonstrated realistically how monetary policyis related to political phenomena.
The author has spent the last thirty years investigating and measuringthe political and private sector pressures on monetary policy andshowing how the monetary authority assimilates and responds to thesepressures. This book is the first and most comprehensive study ofoutside, political and private, influences on Federal Reserve policy.
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Error in publication date
This is not a review. I want to point out that you have the publication date wrong. It is NOT 1899.
ES ... Read more

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With the final phase of the European Monetary Union underway concern has been raised over the regional implications of the European Central Bank (ECB) Monetary Policy. Departing from the standard approach utilized by the ECB, this book provides a comprehensive theoretical framework to explore the ways through which money and monetary policy may affect regions.

Regional Monetary Policy examines the role that the banking system and the liquidity preference of economic agents play in the transmission of central banks monetary policy decisions to regions within a country or countries within a currency union. This book utilizes a unique framework built upon the basic principle of the Post-Keynsian monetary theory which enables the identification of a new way for money and monetary policy to have a regional impact; the behavioral effect. ... Read more

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The business surveys of the Ifo Institute (short for Information and Forschung) are internationally renowned. Every month close to 7,000 enterprises are questioned on their short-term planning and their appraisals of the actual and future business situation. The confidence indicator frequently referred to as the Ifo Business Climate Index is derived from the responses to this Ifo Business Survey. While the Index attracts a lot of attention by practitioners (especially financial market analysts), the use and empirical exploitation of this and other components of Ifo business surveys is - amongst academics - still relatively scarce. The present volume, based on a conference entitled ... Read more