Approaching monetary policy as a principal agent problem provides a useful framework for interpreting alternative delegation schemes. In this paper, we consider the effectiveness of central banker incentive schemes when the principal delegates monetary policy through contracts but remains...

We examine the effects of the terms of trade and the expected real interest rate differential on the real exchange rate in a sample of small open developed economies. We employ cointegration analysis to search for possible long-term linkages. We find that while both the terms of trade and the...

This paper considers the contacting approach to central banking in the context of a simple common agency model. The recent literature on optimal contracts suggests that the political principal of the central bank can design the appropriate incentive schemes that remedy for time-inconsistency...

We reconsider the optimal central banker contract derived in Walsh (1995). We show that if the government's objective function places weight (value) on the cost of the contract, then the optimal inflation contract does not completely neutralize the inflation bias. That is, a fraction of the...

We reconsider the optimal central banker contract derived in Walsh (1995). We show that if the government"s objective function places weight (value) on the cost of the contract, then the optimal inflation contract does not completely neutralize the inflation bias. Furthermore, the more concerned...

We examine the effects of the terms of trade and the expected real interest rate differential on the real exchange rate in small, open, developed economies. We employ cointegration analysis to search for long-term linkages. We find that while both the terms of trade and the expected real...

Financial intermediation in Latin America has experienced profound changes due to financial liberalization, which also resulted in further financial deepening. The bulk of the literature on financial deepening focuses on its macroeconomic dimension and its implications for growth. In this paper,...

High interest rate spreads and low credit availability to the private sector have been persistent problems in Latin American banking in spite of the recent financial sector reforms. This paper considers the determinants of interest rate margins focusing on their relationship with structural and...

This paper investigates the dynamics between the financial freedom counterparts of the economic freedom index drawn from the Heritage Foundation database and bank efficiency levels. We rely on a large sample of commercial banks operating in the 27 European Union member states over the 2000s....