macroecon - Deanna Boone Central Banking in Theory and...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Deanna Boone Central Banking in Theory and Practice is a short book encompassing a series of three lectures given by Alan S. Blinder. Since he previously served as Vice-President of the Federal Reserve Board and is also a leading academic economist, Blinder provides a great perspective into the practices of central bank as well as those they should employ. Blinder encourages both economists and central bankers to essentially work in greater coordination with each other by examining the practices of central banks as well as the theories of economists. The first lecture, concerns itself with the practices of central banks by examining their goals and methods of policy satisfaction. Practical central bankers employ methods of policy satisfaction such as trade-off in order to obtain multiple goals. This leads in to the Tinbergen and Theil objective function which grants policymakers the ability to obtain certain objectives, with the inclusion of complications. Complications include model uncertainty, lags, need for forecasts, choice of instrument, and objective functions. The Tinbergen-Theil program is the first instance where Blinder is able to make use of dual perspective of the economic world. Blinder, as a central banker is able to explain that the Tinbergen-Theil program is necessary, including all of its complications, especially considering the alternative is to literally do nothing until problems arise. While there are many arguments against the use of macroeconomic models, like the Tinbergen-Theil, in order to determine policies, a bigger concern is the uncertainty factors. Uncertainties about such factors like forecasts, parameters, and model selection make it ever more difficult for central bankers to utilize macroeconomic models. Due to the exogenous variables calculated into the models, uncertainty factors are present. The fact that the models are also estimated provides even greater uncertainty. Issues over uncertainty cause mistrust of the
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
models by central bankers. However, Blinder use of many models and using each of them minimally presents itself as a solution to the problem of uncertainty between the academia and practicing monetary policy. Using many models, and minimally at that, is reminiscent of the mathematical average, is a safe way for a central banker to determine an efficient model. The uncertainty of forecasts is an example of how there is a sufficient differences between theories of forecasting and practicing these theories. The inability to create honest forecasts is the main reason that forecasting is such a major problem. It is also another reason why forecasting is not used. Leaving beyond uncertainties, there is a principle demonstrated by William Brainard that central bankers can use. After realizing the direction of optimal policy, bankers can compute the difference between the direction and magnitude of this policy while utilizing the Tinbergen- Theil. Bankers should then do less than the theory suggests. This principle applies Blinders'
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/18/2008 for the course BUS 2343 taught by Professor Ryan during the Spring '08 term at Palm Beach Atlantic University.

Page1 / 7

macroecon - Deanna Boone Central Banking in Theory and...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online