Money Matters: Essay in Honour of Alan Walters

367 Pages·2004·2.85 MB·English

by  Patrick Minford

Money Matters
Sir Alan Walters
Money Matters
Essays in Honour of Alan Walters
Edited by Patrick Minford
Professor of Economics
Cardi¤ Business School
Cardi¤ University, UK
Edward Elgar
Cheltenham, UK Northampton, MA, USA
[copyright page here]
Contents
Contributors vii
Preface and Acknowledgments ix
Introduction x
1 Taking on the Economics Establishment: An
Appreciation of Alan Walters the Political Economist 1
Kent Matthews
2 ConsistentExpectations,RationalExpectations,Multiple-
Solution Indeterminacies, and Least-Squares
Learnability 11
Bennett T. McCallum
3 TheE¢cacy of Monetary Policy in a Multi Sector, Two
Country Model 35
MatthewB.Canzoneri,RobertE.CumbyandBehzadT.Diba
4 Model Misspeci…cation, Robustness and Monetary
Policy 62
Juha Kilponen and Mark Salmon
5 The Case for Monetary Union in Mercosur 79
Michele Fratianni
6 De Facto Exchange Rate Regimes in Transition
Economies: Identi…cation and Determination 104
Jürgen von Hagen and Jizhong Zhou
7 News-Magazine Monetarism 123
Edward Nelson
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vi Contents
8 Alan Walters and the Demand for Money: An Empirical
Retrospective 148
Kent Matthews, Ivan Paya and David A. Peel
9 The Interaction of Monetary and Fiscal Policy: Solvency
and Stabilisation Issues 169
Jagjit S. Chadha and Charles Nolan
10 Monetary Policy under Banking Oligopoly 211
Michael Beenstock
11 Money Targeting 228
Harris Dellas
12 Credit Value-at-Risk Constraints, Credit Rationing and
Monetary Policy 243
Jan Frederik Slijkerman, David J.C. Smant and
Casper G. de Vries
13 Policy Games and the Optimal Design of Central
Banks 251
Andrew Hughes Hallett and Diana N. Weymark
14 Policy Evaluation with a Forward-Looking Model 280
Rouben V. Atoian, Gregory E. Givens and Michael K. Salemi
15 Policy Panel Contributions 306
Appendix: European Monetary Forum Conference in hon-
our of Alan Walters, May 2002 345
Contributors
Rouben V. Atoian, University of North Carolina
Michael Beenstock, Hebrew University of Jerusalem
Matthew B. Canzoneri, Georgetown University
Jagjit S. Chadha, Clare College, Cambridge
Bernard Connolly, AIG Trading Ltd.
Robert E. Cumby, Georgetown University
Harris Dellas, University of Bern, CEPR and IMOP
Behzad T. Diba, Georgetown University
Michele Fratianni, Indiana University
Gregory E. Givens, University of North Carolina
Jürgen von Hagen, Center for European Integration Studies,
University of Bonn, Indiana University and CEPR
Dale Henderson, Federal Reserve Board, Washington DC
Andrew Hughes Hallett, Cardi¤ Business School, Cardi¤ University
Juha Kilponen, Bank of Finland
Kent Matthews, Cardi¤ Business School, Cardi¤ University
Bennett T. McCallum, Carnegie Mellon University and NBER
Jacques Melitz, University of Strathclyde
Edward Nelson, Federal Reserve Bank of St. Louis
Charles Nolan, University of Durham
Ivan Paya, Cardi¤ Business School, Cardi¤ University
David A. Peel, Cardi¤ Business School, Cardi¤ University
Gordon Pepper, Cass Business School, City of London
Michael K. Salemi, University of North Carolina
Mark Salmon, Cass Business School, City of London
Jan Frederik Slijkerman, Erasmus University Rotterdam and
Tinbergen Institute
David J.C. Smant, Erasmus University Rotterdam and Tinbergen
Institute
Casper G. de Vries, Erasmus University Rotterdam and Tinbergen
Institute
Sir Alan Walters, AIG Trading Ltd, and Emeritus Professor, Johns
Hopkins University, Baltimore
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viii Contributors
Diana N. Weymark, Vanderbilt University
Jizhong Zhou, Center for European Integration Studies, University of
Bonn
Preface and Acknowledgments
This book is the revised and edited proceedings of a European Mon-
etary Forum conference held in Cardi¤ in May 2002. The European
Monetary Forum is a group of academic monetary economists mainly
based in northern Europe which meets every nine months or so. This
conferencewasmadepossiblebysupportfromseveralpeopleandbodies
to whom I extend my warmest thanks. Sir Julian Hodge provided the
funding through the Carlyle Trust to set up the Julian Hodge Institute
in Applied Macroeconomics within Cardi¤ Business School and Cardi¤
University; the conference was organised under its auspices. Cardi¤
County Council, its leader Russell Goodway and chief executive Byron
Davieskindlysponsoredtheopeningpolicypanelanddinner,andmade
available the Council’s meeting facilities for the conference sessions and
Je¤ Andrews, the Council’s chief o¢cer for European A¤airs, ensured
their smooth functioning. Sir Rocco Forte and the St. David’s Hotel
sponsored the conference dinner. The Centre for European Integration
Studies at the University of Bonn and its Director of Economic Studies,
JürgenvonHagen,supportedthetravelexpensesofanumberoftransat-
lantic participants. Detailsof the conference and itsparticipants can be
found in the Conference Appendix at the end of the book.
ThebookwastypesetbyBruceWebb,myBusinessSchoolcolleague,
in LATEX; I am most grateful to him and also to Edward Elgar, Luke
Adams and the other sta¤ of Edward Elgar Publishing for their help in
realising this project.
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Introduction
I organized the conference, of which this volume is the product, to pay
tribute to someone — my old mentor at the LSE — who was not only
an important UKacademic economist but alsoa major in‡uence on the
policy thinking of a whole generation of UK economists and politicians.
Alan Walters was an innovative academic economist and an exciting
teacher of micro and monetary economics; and then as a policy adviser
in the 1970s and 1980s he also helped Margaret Thatcher change the
course of British history. This volume is devoted particularly to mone-
tary economics which was the main strand in this revolution.
Kent Matthews writes an introduction to Alan’s academic work in
the following chapter — as he says, it had an astonishingly wide span,
from the Econometrica article on cost functions all the way to the …rst
macroeconomic application of rational expectations in a 1970 Economic
Journal article. Though Alan was well-known as a policy adviser, even
notorious in some circles especially over the issue of the ERM, his cru-
cial role in establishing the success of the 1980s monetary policy rev-
olution has not perhaps been widely appreciated. When he arrived to
be Thatcher’s personal economic adviser in very early 1981 Britain was
in the grip of a severe recession; the ‘wide money’ targets were being
greatlyovershot,yetshort-andlong-runinterestrateswereinmiddleto
high double digits and there was talk of raising the …scal de…cit above
6 per cent of GDP to counteract their strongly restrictionary e¤ect. He
diagnosedtheproblemasoneoflackofcon…dencecombinedwithatech-
nically over-restrictive monetary policy as indicated by the collapse in
narrow money growth. His suggested policy cure was radical in terms
of macroeconomic thinking of the time: the budget de…cit must be cut
sharplytorevivecon…dencethatmoneysupplygrowthwouldbeperma-
nentlycurbedandatthesametimemoneyconditionsmustbeloosened.
Thelogicwasthatofrationalexpectations: in‡ation expectationscould
notbebroughtdownwithoutcon…denceinthenewpolicies’permanency,
beingunderminedbyfearsof apolicyU-turnfedbythepoor…scalsitu-
ation, itself aggravated by the monetary squeeze which had already had
its e¤ect in cutting in‡ation sharply.
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