scholarly journals MENGUKUR TIME INCONSISTENCY KEBIJAKAN MONETER DI INDONESIA

2013 ◽  
Vol 15 (4) ◽  
pp. 335-366
Author(s):  
Rini Rahmahdian ◽  
Perry Warjiyo
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Central Bank Independence ◽  
Time Inconsistency ◽  
Reduced Form ◽  
Policy Preference ◽  
Output Gap ◽  
Conditional Mean ◽  
Before And After ◽  
Asymmetric Preferences

This study measured the time inconsistency of monetary policy in Indonesia using the asymmetric preference parameter in linear exponential loss function of the central bank. Asymmetric central bank preference becomes an important issue since many of the results on the time inconsistency problem under symmetric preferences may no longer hold under asymmetric preferences. Using two sub-samples, i.e. before and after the implementation of central bank independence act, the conditional mean and the conditional variance of the output gap were estimated and then proceed to estimate the reduced form of the model. The results showed the existence of an asymmetric preference parameter before the Bank Indonesia independence act, which indicated the presence of a time inconsistency problem of monetary policy. This finding implies Bank Indonesia put a negative weight instead of positive weight on the output gap prior to its independency. However, after the implementation of central bank independence, the monetary policy of Bank Indonesia has been consistent with symmetric policy preference over price stability and output. Keywords: Time inconsistency, discretionary, monetary policy, asymmetric central bank preference, output gap, inflation bias.JEL Classification : E52, E58

scholarly journals Measuring the Time Inconsistency of Monetary Policy in Indonesia

2013 ◽  
Vol 15 (4) ◽  
pp. 321-352
Author(s):  
Rini Rahmahdian ◽  
Perry Warjiyo
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Central Bank Independence ◽  
Time Inconsistency ◽  
Reduced Form ◽  
Policy Preference ◽  
Output Gap ◽  
Conditional Mean ◽  
Before And After ◽  
Asymmetric Preferences

This study measured the time inconsistency of monetary policy in Indonesia using the asymmetric preference parameter in linear exponential loss function of the central bank. Asymmetric central bank preference becomes an important issue since many of the results on the time inconsistency problem under symmetric preferences may no longer hold under asymmetric preferences. Using two sub-samples, i.e. before and after the implementation of central bank independence act, the conditional mean and the conditional variance of the output gap were estimated and then proceed to estimate the reduced form of the model. The results showed the existence of an asymmetric preference parameter before the Bank Indonesia independence act, which indicated the presence of a time inconsistency problem of monetary policy. This finding implies Bank Indonesia put a negative weight instead of positive weight on the output gap prior to its independency. However, after the implementation of central bank independence, the monetary policy of Bank Indonesia has been consistent with symmetric policy preference over price stability and output. Keywords: Time inconsistency, discretionary, monetary policy, asymmetric central bank preference, output gap, inflation bias.JEL Classification : E52, E58

Partisan and Electoral Motivations and the Choice of Monetary Institutions Under Fully Mobile Capital

2002 ◽  
Vol 56 (4) ◽  
pp. 725-749 ◽  
Author(s):  
William Roberts Clark
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Exchange Rates ◽  
Central Bank Independence ◽  
Time Inconsistency ◽  
Social Planner ◽  
Fixed Exchange Rates ◽  
Mobile Capital ◽  
Wide Range ◽  
Institutional Solution

Central bank independence and pegged exchange rates have each been viewed as solutions to the inflationary bias resulting from the time inconsistency of discretionary monetary policy. While it is obvious that a benevolent social planner would opt for such an institutional solution, it is less obvious that a real-world incumbent facing short-term partisan or electoral pressures would do so. In this article, I model the choice of monetary institutions from the standpoint of a survival-maximizing incumbent. It turns out that a wide range of survival-maximizing incumbents do best by forfeiting control over monetary policy. While political pressures do not, in general, discourage monetary commitments, they can influence the choice between fixed exchange rates and central bank independence. I highlight the importance of viewing fiscal policy and monetary policy as substitutes and identify the conditions under which survival-maximizing incumbents will view fixed exchange rates and central bank independence as substitutes. In so doing, I provide a framework for integrating other contributions to this volume.

A Post-Keynesian Perspective on the Rise of Central Bank Independence

2013 ◽  
pp. 264-289
Author(s):  
Joerg Bibow
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Monetary Economics ◽  
Central Banks ◽  
Central Bank Independence ◽  
Time Inconsistency ◽  
Economic And Monetary Union ◽  
Wide Range ◽  
Historical Role ◽  
The One

Central bank independence (CBI) refers to the relation between the central bank and the state, the legislature and executive. In practice, central banks typically engage in a wide range of activities related to the currency sphere and the financial system. The mainstream literature popularizing CBI features a “narrow central bank” approach that concentrates on central banks’ monetary policy functions only, ignoring important interdependencies between monetary policy on the one hand, and central banks’ historical role as government’s banker (as one link to fiscal policy) and their role in safeguarding the financial system’s stability on the other. This chapter investigates the rise in CBI as an apparent success story in modern monetary economics. The worldwide rise in CBI is partly due to the advent of Economic and Monetary Union (EMU) in Europe. This chapter also discusses the time-inconsistency argument for CBI, post-Keynesian criticisms of CBI, and whether John Maynard Keynes’s model of CBI strikes a sound balance between democracy and efficiency.

scholarly journals Testing for Asymmetric Central Bank Preferences

2018 ◽  
Vol 10 (4) ◽  
pp. 25
Author(s):  
Felix S. Nyumuah
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Developed Countries ◽  
Central Banks ◽  
Policy Implications ◽  
Less Developed Countries ◽  
Reaction Function ◽  
Policy Rule ◽  
Asymmetric Preferences ◽  
Policy Reaction Function

The linear specification of the ideal monetary policy reaction function has been questioned in recent times by researchers. They have suggested a nonlinear framework where central banks exhibit asymmetric behaviours. Despite the important policy implications of having asymmetric central bank preferences, studies have been on single-country basis focusing almost entirely on advanced economies. The aim of this study is to check the existence of asymmetric preferences on the part of central banks in the context of a panel of countries and not just a single a country. The study derives and estimates a nonlinear flexible optimal monetary policy rule, which permits zone-like as well as asymmetric behaviours using panel data from a range of countries both developed and less developed. Although the findings indicate the presence of asymmetric preferences on the output gap across less developed countries, generally, the evidence is in favour of a linear policy reaction function and symmetric central bank preferences. These findings mean that monetary policy is characterised by a linear policy rule and symmetric central bank preferences. The results also indicate that interest rate ‘smoothing’ reaction by monetary authorities is more pronounced in less developed countries than in developed ones.

scholarly journals Monetary Policy in Turkey after Central Bank Independence

2015 ◽  
Author(s):  
Refet S. Gürkaynak ◽  
Zeynep Kantur ◽  
M. Anıl Taş ◽  
Seçil Yıldırım
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Central Bank Independence

scholarly journals Warehousing: A Historical Lesson in Central Bank Independence

2017 ◽  
pp. 1-4 ◽  
Author(s):  
Owen F. Humpage
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Foreign Exchange ◽  
Federal Reserve ◽  
Institutional Arrangement ◽  
Central Bank Independence ◽  
The Us ◽  
Foreign Exchange Exposure

This Economic Commentary explains how warehousing—a seemingly innocuous institutional arrangement between the Federal Reserve and the US Treasury—came to threaten the Fed’s independence. Warehousing began as an arcane procedure designed to help the Treasury cover a specific type of foreign-exchange exposure. It then grew into a supplemental source of funding for the Treasury's foreign-exchange interventions. Eventually the procedure morphed into a sizeable off-budget source of funding for other Treasury activities and seemed an inappropriate subversion of the congressional appropriations process, a development that raised concerns within the Fed about its ability to conduct monetary policy free from political concerns.

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