Monetary Policy

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.

This book combines the institutional approach to understanding monetary policy with the theories and principles involved in applying that knowledge to investing. A review of the origins of the Federal Reserve is followed by an historical progression of the Fed into the powerful arbiter of U.S. economic policy today. The actual conduct and effects of monetary policy are then explained with an eye toward developing the skills necessary to identify changes in policy that can be applied to the investment world. The effects of monetary policies on financial markets and on particular industries are then discussed followed by a description of the investment instruments that will be impacted by different policies. In conclusion, a chapter of suggestions for hedging against changes in monetary policy and another chapter describing the tools that can be used for this purpose are offered.

Written especially for portfolio managers, financial analysts, and corporate economists, this volume considers the practical implications of government economic policies. The contributors illustrate how incentives and disincentives affect economic behavior and the performance of the economy through an in-depth discussion of monetary, fiscal, and international economic issues. In addition, the authors present a unique top-down approach that enables the reader to trace the impact of government policies through the economy and thereby discover the investment strategies most likely to be successful within a given policy context.

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.

Foreword by Robert A. Mundell, Winner of the 1999 Nobel Prize in Economics Contents: Foreword 1. Introduction 2. Problems of the US Economy 3. Taxation, Employment and the Federal Reserve 4. European Monetary Union, the Dollar and the International Monetary System 5. The Outlook for Economic Growth in the Developed World 6. The Monetary Crisis in Mexico 7. Policies to Combat Monetary Crises in Developing Countries 8. A Poll and Closing Remarks 9. The Lord Robbins Memorial Lecture: European Monetary Union: What can we Learn from the United States? Index Contributors: S. Arndt, R.L. Bartley, R.N. Cooper, W.M. Corden, B.J. Eichengreen, R.H. Evans, M. Friedman, R. Friedman, R. Hinshaw, C. Johnson, F. Modigliani, R.A. Mundell, M.J.M. Neumann, P.A. Samuelson, J. Shelton, R. Solomon, J. Tobin, T.D. Willett, P.J. Zak.