Monetary Policy and Central Bank Design

2016. “Rethinking Central Bank Design.” Inaugural Karl Brunner Distinguished Lecture: Swiss National Bank, September 22. Brunner Lecture
Rogoff, Kenneth S. 2015. “Costs and Benefits to Phasing Out Paper Currency.” NBER Macroeconomics Annual 2014, Vol. 29: 445-456. Macro Annual Abstract

Despite advances in transactions technologies, paper currency still constitutes a notable percentage of the money supply in most countries. For example, it constitutes roughly 10% of the US Federal Reserve’s main monetary aggregate, M2. Yet, it has important drawbacks. First, it can help facilitate activity in the underground (tax-evading) and illegal economy. Second, its existence creates the artifact of the zero bound on the nominal interest rate. On the other hand, the enduring popularity of paper currency generates many benefits, including substantial seigniorage revenue. This paper explores some of the issues associated with phasing out paper currency, especially large-denomination notes.

NBER Working Paper 20126
Reinhart, Carmen M, and Kenneth S Rogoff. 2013. “Shifting Mandates: The Federal Reserve's First Centennial.” American Economic Review 103 (3): 48-54. Online Data. Abstract

The Federal Reserve's mandate has evolved considerably over the organization's hundred-year history. It was changed from an initial focus in 1913 on financial stability, to fiscal financing in World War II and its aftermath, to a strong anti-inflation focus from the late 1970s, and then back to greater emphasis on financial stability since the Great Contraction. Yet, as the Fed's mandate has expanded in recent years, its range of instruments has narrowed, partly based on a misguided belief in the inherent stability of financial markets. We argue for a return to multiple instruments, including a more active role for reserve requirements.

Rogoff, Kenneth. 2007. “Impact of Globalization on Monetary Policy.” The New Economic Geography: Effects and Policy Implications, 265-305. Kansas City: Federal Reserve Bank of Kansas City. New Economic Geography conference
Rogoff, Kenneth. 2004. “Globalization and Global Disinflation.” Monetary Policy and Uncertainity: Adapting to a Changing Economy, 77-112. Federal Reserve Bank of Kansas City. Monetary Policy and Uncertainty conference
Rogoff, Kenneth. 1998. “Blessing or Curse? Foreign and Underground Demand for Euro Notes.” Economic Policy 13 (26): 263-303.
Rogoff, Kenneth. 1987. “Reputational Constraints on Monetary Policy.” Carnegie-Rochester Conference Series on Public Policy (Supplement to the Journal of Monetary Economics) 26: 141-181.
Obstfeld, Maurice, and Kenneth Rogoff. 1986. “Ruling Out Divergent Speculative Bubbles.” Journal of Monetary Economics 17: 349-362.
Rogoff, Kenneth. 1985. “The Optimal Degree of Commitment to an Intermediate Monetary Target.” Quarterly Journal of Economics 100: 1169-1189. Abstract

Society can sometimes make itself better off by appointing a central banker who does not share the social objective function, but instead places "too large" a weight on inflation-rate stabilization relative to employment stabilization. Although having such an agent head the central bank reduces the time-consistent rate of inflation, it suboptimally raises the variance of employment when supply shocks are large. Using an envelope theorem, we show that the ideal agent places a large, but finite, weight on inflation. The analysis also provides a new framework for choosing among alternate intermediate monetary targets.

Article See also
Obstfeld, Maurice, and Kenneth Rogoff. 1983. “Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?” Journal of Political Economy 91: 675-687.
Canzoneri, Matthew, Dale Henderson, and Kenneth Rogoff. 1983. “The Information Content of the Interest Rate and Optimal Monetary Policy.” Quarterly Journal of Economics 98: 545-566. Abstract

Optimal monetary policy rules are derived in a rational expectations cum contracting framework. Monetary policy is redundant if wage setters exploit the incomplete current information embodied in today's nominal interest rate. However, the monetary authorities can save wage setters the costs of "indexing" to the interest rate. A contemporaneous money supply feedback rule is as effective as wage indexation. A lagged rule, relevant under a regime of money supply targeting, is also as effective if investors use the interest rate. Both rules have the same implications for the real interest rate as Poole's combination policy. However, the two rules have strikingly different implications for the nominal interest rate.