1. Copyright © 2000 Addison Wesley Longman Slide #7-1 Chapter Seven THE STRUCTURE OF CENTRAL BANKS AND THE FEDERAL RESERVE SYSTEM Part III Central Banking and the Conduct of Monetary Policy

2. Copyright © 2000 Addison Wesley Longman Slide #7-2 Formal Structure of the Fed

3. Copyright © 2000 Addison Wesley Longman Slide #7-3 Federal Reserve Districts

4. Copyright © 2000 Addison Wesley Longman Slide #7-4 Informal Structure of the Fed

5. Copyright © 2000 Addison Wesley Longman Slide #7-5 Central Bank Independence Factors making Fed independent 1. Members of Board have long terms 2. Fed is financially independent: This is most important Factors making Fed dependent 1.Congress can amend Fed legislation 2.President appoints Chairmen and Board members and can influence legislation Overall: Fed is quite independent

6. Copyright © 2000 Addison Wesley Longman Slide #7-6 Central Bank Independence Other Central Banks 1. Bank of Canada and Bank of Japan: fair degree of independence, but not all on paper 2. Bank of England and Bank of Japan made more independent in 1997 and 1998, respectively. 3. European Central Bank most independent 4. Trend to greater independence 它和歐洲各國之中央銀行的關係， 就如同美國 Fed 的架構

7. Copyright © 2000 Addison Wesley Longman Slide #7-7 Explaining Central Bank Behavior Theory of Bureaucratic Behavior 1. Is an example of principal-agent problem 2. Bureaucracy often acts in own interest Implications for Central Bank Behavior: 1. Act to preserve independence ：如預算不讓國會控制 2. Try to avoid controversy: often plays games 3. Seek additional power over banks With 總統與國會 如 report 最有利之 M 指 標，或常修正 M 目標 或不願意將 FOMC report 公布 如： 1987 將 reserve requirement 擴及至 non-member bank

8. Copyright © 2000 Addison Wesley Longman Slide #7-8 Explaining Central Bank Behavior Should Fed Be Independent? Case For: 1. Independent Fed likely has longer run objectives, politicians don't: evidence is that get better policy outcomes 2. Avoids political business cycle 3. Less likely budget deficits will be inflationary 如：  通膨 短期目標：失業率、利率  選前採寬鬆政策 Budget deficit  政府發債  叫央行買公債  通膨

9. Copyright © 2000 Addison Wesley Longman Slide #7-9 Explaining Central Bank Behavior Case Against: 1. Fed may not be accountable 2. Hinders coordination of monetary and fiscal policy 3. Fed has often performed badly 外交、國防是否也該獨立 ? 誰來監督 Fed?

10. Copyright © 2000 Addison Wesley Longman Slide #7-10 Central Bank Independence and Macro Performance in 17 Countries