Macroeconomic performance and efficiency of monetary policy

by Stefan Krause

Institution: The Ohio State University
Department: Economics
Degree: PhD
Year: 2002
Record ID: 1725886
Full text PDF: http://rave.ohiolink.edu/etdc/view?acc_num=osu1285066104


Since its inception, macroeconomics has been the study of the causes and consequences of business-cycle fluctuations. Delivering low, predictable inflation and high, steady output growth is the primary goal of every economic policymaker in the world. As a result, we can assess the macroeconomic performance of any country by looking at the stability of prices and growth. By most accounts, these measures have shown improvement over the last few decades. A broad cross-section of both industrialized and developing countries shows more stable prices and more stable growth during the 1990s than during the 1980s. The goal of my dissertation research is to develop a theoretical framework within which to study this observed general improvement in macroeconomic performance. In particular, my research concentrates on the role of monetary policy, asking whether improved policymaking by central bankers can account for the lower observed inflation and output growth fluctuations, or inflation and output variability. To accomplish my objectives I develop a theoretical framework to explain how the monetary authority can successfully reduce the variability of inflation and output, which results in an optimal policy rule . As an empirical application of the model, I look at different ways to measure improvements in the policymaking process. These measures quantify the changes in the efficiency with which monetary policymakers accomplish their jobs. Each measure has its advantages, and so I examine their relative merits. With the development and appraisal of these measures I expect to provide tools that central bankers could use to evaluate monetary policy implementation. The conclusion from studying the changes in the macroeconomic performance for 24 countries is that a better, or more efficient, monetary policy has been the driving force behind improved macroeconomic performance for most of the analyzed countries.