New Economics Papers
on Business, Economic and Financial History
Issue of 2007‒05‒19
24 papers chosen by

  1. Operationalising Closure in a Colonial Context: The Association of Accountants in East Africa, 1949-1963 By Sian, Suki
  2. When did Ownership Separate from Control? Corporate Governance in the Early Nineteenth Century By Eric Hilt
  3. The formation of the efficient market in Tokugawa Japan By Yasuo Takatsuki
  4. Accounting Regulation in the UK: One nation, Two sectors By Hodges, Ron; Mellett, Howard
  5. Trade, Knowledge, and the Industrial Revolution By O'Rourke, Kevin H; Rahman, Ahmed; Taylor, Alan M
  6. The Role of the Real Interest Rate in US Macroeconomic History By Ernst Juerg Weber
  7. A Tale of Two Monetary Reforms: Argentinean Convertibility in Historical Perspective By Esteban Pérez-Caldentey; Matías Vernengo
  8. The Market for Lemmas By Philip R. P. Coelho; James E. McClure
  9. The Spanish savings banks and the competitive cooperation model (1928-2002) By Francisco Comín
  10. Regulatory reform and labour earnings in Portuguese banking By Natália Pimenta Monteiro
  11. Recursos Naturales y Humanos de Angola: Un abordaje introductorio By Ariel González
  12. Impulse or Propagation? How the Tides turned in Business Cycle Theory By Jan Reijnders
  13. El peligro de utilizar betas calculadas By Fernandez, Pablo; Carabias, Jose M.
  14. Money-based interest rate rules: lessons from German data By Gerberding, Christina; Seitz, Franz; Worms, Andreas
  15. La monnaie comme projet politique : restauration monétaire et currency board en Lituanie, 1988-1994 By Jérôme Blanc
  16. Economic Liberalization and the Causal Relations among Money, Income, and Prices: The Case of Pakistan By Husain, Fazal; Rashid, Abdul
  17. Rôles de l'Etat dans la construction et la restructuration des filières cotonnières en Afrique : analyse par la théorie des réseaux By Michel Fok
  18. Testing for Convergence in Carbon Dioxide Emissions Using a Century of Panel Data By Westerlund, Joakim; Basher, Syed A.
  19. The contribution of multinational corporations to U.S. productivity growth, 1977-2000 By Carol Corrado; Paul Lengermann; Larry Slifman
  20. Breakout from Bollywood? Internationalization of Indian Film Industry By Mark Lorenzen; Florian Arun Taeube
  21. Innovation studies-an emerging discipline (or what)? A study of the global network of innovation scholars By Jan Fagerberg; Bart Verspagen
  22. Education inequalities and the Kuznets curves: a global perspective since 1870 By Christian Morrisson; Fabrice Murtin
  23. Once Again: Ten years after the Asian Crisis By Beja, Jr., Edsel
  24. Seigniorage By Buiter, Willem H.

  1. By: Sian, Suki (Cardiff Business School)
    Abstract: The migration of British accounting professionals to both settler and non-settler colonies in the late nineteenth and early twentieth centuries bequeathed an enduring legacy for the professionalisation process in these countries. This study sets out to trace the rise of professional accountancy in colonial Kenya, a racially diversified and hierarchical colonial society where non-whites were marginalized and the minority white population ruled. Drawing from archival sources and some oral history data, the study traces the formation and operation of a colonial professional body, the Association of Accountants in East Africa (AAEA), comprised mainly of British expatriate accountants. In particular, it shows how traditional, formal closure devices, such as the restrictive use of designations, examinations and training requirements and the registration of accountants were employed by AAEA in its attempts to exclude unqualified practitioners and control the market for accounting services in the colony. It also presents evidence that attests to the use of more informal closure devices, taking advantage of the socio-cultural conditions specific to this colony, to exclude on the basis of race.
    Date: 2006–01
  2. By: Eric Hilt
    Abstract: This paper analyzes the ownership and governance of the business corporations of New York State in the 1820s. Using a new dataset collected from the manuscript records of New York's 1823 capital tax, and from the charters of the corporations, I analyze the ownership structures of the firms, and investigate the degree to which ownership was separated from control at the time. In contrast to Berle and Means's account of the development of the corporation, the results indicate that many of the firms were dominated by large shareholders, who were represented on the firms' boards, and held sweeping power to utilize the firms' resources for their own benefit. The oppression of minority shareholders was a significant problem in early corporate governance, and many of the firms configured their voting rights in a way that curtailed the power of large investors. A positive relationship between firm value and these voting rights configurations is found among the publicly-traded firms in the sample.
    JEL: G3 K22 M2 N21 N81
    Date: 2007–05
  3. By: Yasuo Takatsuki (Graduate School of Economics, Tokyo University)
    Abstract: The first modern futures market is said to date back to the Chicago Board of Trade established in 1848. However, there existed an older precedent; the Dojima Rice Market established in 1730 in Osaka. The past literature on Dojima has made it clear that Dojima had well-established trading systems. However, a important question remains unanswered: whether the first well-established futures market efficient or not? This paper first constructs the daily price index from the original historical document, and applies the test of unbiasedness hypothesis and the classic measure of market efficiency; "weak-form efficiency" to Dojima Rice Market, and shows that there existed these types of efficiency.
    Keywords: Tokugawa Period Japan, Futures Market, Informational E}ciency
    JEL: G14 L11 N25
    Date: 2007–05
  4. By: Hodges, Ron; Mellett, Howard (Cardiff Business School)
    Abstract: This paper draws on the work of Streeck and Schmitter (1985) and its subsequent use by Puxty, et al (1987) to analyse the development of accounting regulation in the U.K. public sector. It provides an extension to prior literature through the application of a framework, based on modes of social order, to investigate divergence in the approaches to accounting regulation between the public and private sectors within a single nation state. Despite the advent of 'New Public Management', a different balance of the principles of regulation was established and continues to exist in the public sector when compared with that applied in the private sector, reflected by their respective approaches to due process. The conclusion is that the UK public sector accounting regulatory structure remains rooted in the state mode of social order and hence is different from that found in the private sector, despite the rhetoric of modernisation through the adoption of private sector management practices.
    Keywords: accounting standard setting; public sector; due process; modes of social order
    Date: 2006–01
  5. By: O'Rourke, Kevin H; Rahman, Ahmed; Taylor, Alan M
    Abstract: Technological change was unskilled-labour-biased during the early Industrial Revolution of the late eighteenth and early nineteenth centuries, but is skill-biased today. This fact is not embedded in extant unified growth models. We develop a model of the transition to sustained economic growth which can endogenously account for both these facts, by allowing the factor bias of technological innovations to reflect the profit-maximising decisions of innovators. Endowments dictated that the initial stages of the Industrial Revolution be unskilled-labour biased. The transition to skill-biased technological change was due to a growth in ``Baconian knowledge'' and international trade. Simulations show that the model does a good job of tracking reality, at least until the mass education reforms of the late nineteenth century.
    Keywords: demography; endogenous growth; trade
    JEL: F15 J13 J24 N10 O31 O33
    Date: 2007–05
  6. By: Ernst Juerg Weber (UWA Business School, The University of Western Australia)
    Abstract: A negative real interest rate has guaranteed macroeconomic equilibrium during every national emergency in the United States since the early 19th century, except the Great Depression in the 1930s when deflation interfered with the interest rate mechanism. During the Great Depression, the interest rate mechanism failed because the zero bound on the nominal interest rate implies that the real interest rate cannot be negative if there is deflation. This points to a monetary explanation of the Great Depression, and it suggests that central banks should suspend monetary policy rules that target inflation if there is an adverse political or economic shock that creates consumer pessimism.
    JEL: D91 E21 E52 G12 N21
    Date: 2007
  7. By: Esteban Pérez-Caldentey; Matías Vernengo
    Abstract: Argentina adopted currency type board arrangements to put an end to monetary instability in the nineteenth and the twentieth centuries under very different historical circumstances and contexts with very different results. The first currency board functioned within an international system that functioned in manner similar to a closed economy. The second currency board experiment the historical conditions. The poor export performance, and the unsustainable trade and current account deficits, resulting from the process of external liberalization, and the process of international financial liberalization eventually led to the collapse of the Convertibility experiment. The role of economic ideas – in particular, the incorrect lessons taken from the first globalization period – in furthering the economic imbalances were central to the failure of the 1991 Convertibility experiment.
    Keywords: Globalization, Monetary Reform, Argentina
    JEL: F33 N26 O54
    Date: 2007–01
  8. By: Philip R. P. Coelho (Department of Economics, Ball State University); James E. McClure (Department of Economics, Ball State University)
    Abstract: We consider the use of complex mathematics in economics. The evidence suggests that the usage of complex mathematics has escalated significantly over the past half century. The empirical evidence indicates that complex mathematical models in economic theory have generated few operational propositions. However, with only one exception, none of the economics articles that were published in a set of prestigious journals and had 500 or more citations in the journal literature could be considered highly complex using our metrics. In contrast articles in econometrics/statistics that had 500 or more citations in the literature were frequently complex by our metrics. The usage of complex mathematics in the most highly cited articles in economics versus econometrics/statistics was significantly different, both statistically and quantitatively.
    Date: 2007–04
  9. By: Francisco Comín
    Abstract: This paper explores the relationship between the nature of Spanish Savings banks and the extent of their market success during the twentieth century. It deals with the key factors that have made so good a performance possible, such as: their ability to promote private saving, to cooperate with government economic policy, to adapt to changing circumstances, to operate in particular geographical areas, and to cooperate with one another. Finally, the paper deals with this last factor in depth. The competitive cooperation model is used to explain the outstanding role of the Spanish Confederation of Savings Banks in making the strategic alliance among the Spanish savings banks possible.
    Date: 2007–04
  10. By: Natália Pimenta Monteiro (Universidade do Minho - NIPE)
    Abstract: this study exemines changes union contracts and wage structure during and after the introduction of regukatory reforms (deregulation and privatisation) in the Portuguese banking sector. The main finding is that, despite a relative wage erosion detected in the contract dada, banking workers were able to enjoy an increasing wage premium in the period 1985-2000, probably reflecting the increasing profitability of the industry and the rise in labour productivity. The evidence also shows that some specific groups benefited relatively more than others: the least skilled and educated workforce and male workers gained more from the regulatory reforms. However, this unequal sharing of the wage premium did not raise wage inequality across ownership groups in the industry.
    Keywords: Deregulation, privatisation, wage structure, Portuguese banking industry
    JEL: J31 J45 L33
    Date: 2007
  11. By: Ariel González
    Abstract: Angola refleja al África Subsahariana en varias de sus facetas, es una tierra de grandes riquezas y también de grandes desigualdades, que sufrió durante más de 40 años una guerra continua. En los primeros 14 años (desde 1961 a 1975) se desató una guerra de liberación nacional, mientras que los siguientes 27 años dieron lugar a un guerra civil con ingredientes varios como intervención directa de países extranjeros y la intervención indirecta de las superpotencias de la Guerra Fría, Estados Unidos y Rusia. Durante más de 40 años se discutió quien poseía el poder formal y real; dando a una lógica siniestra de suma cero. Angola retrasó el desarrollo nacional y dio entrada a la participación de fuerzas foráneas en su territorio que minaron su margen de maniobra y su soberanía nacional.
    Keywords: angola, natural resources, human resources, civil war, economic growth
  12. By: Jan Reijnders
    Abstract: This paper contains a short history of business cycle theory. It is argued that in the course of time the emphasis shifted from a mainly exogenous to a mainly endogenous explanation of the cycle. After the integration of the two approaches in the so-called impulse and propagation theory, the balance kept shifting between an emphasis on endogenous propagation mechanism (Keynesians), the exogenous impulse mechanism (New Classicals) and back again to the propagation mechanism (New Keynesians). The shifts in emphasis in theory are accompanied by changes in the perceived window of opportunity for economic policy.
    Keywords: Business Cycles, History of Economic Thought, Economic Policy
    JEL: B22 B23 E12 E13 E32 E63 E65
    Date: 2007–01
  13. By: Fernandez, Pablo (IESE Business School); Carabias, Jose M. (IESE Business School)
    Abstract: En este artículo se muestra que es un error enorme utilizar las betas calculadas con datos históricos para calcular la rentabilidad exigida a las acciones o para medir la gestión de una cartera de valores. Por 7 razones: porque cambian mucho de un día para otro; porque dependen de qué índice bursátil se tome como referencia. porque dependen mucho de qué periodo histórico (5 años, 3 años,…) y de qué rentabilidades (mensuales, anuales,…) se utilicen para su cálculo; porque con mucha frecuencia no sabemos si la beta de una empresa es superior o inferior a la beta de otra empresa; porque tienen muy poca relación con la rentabilidad posterior de las acciones; y porque la correlación (y la R2) de las regresiones que se utilizan para su cálculo son muy pequeñas. Debido a estas 7 razones podemos afirmar que o bien la beta calculada con datos históricos no es una buena aproximación al riesgo de la empresa, o bien el CAPM no funciona (hay más factores que afectan a su rentabilidad exigida, además de la covarianza de la rentabilidad de una empresa con la rentabilidad del mercado, la tasa sin riesgo y la prima de riesgo del mercado), o bien, ambas cosas a la vez.
    Keywords: beta; rentabilidad exigida a las acciones; rentabilidad para los accionistas;
    JEL: G12 G31 M21
    Date: 2007–03–17
  14. By: Gerberding, Christina; Seitz, Franz; Worms, Andreas
    Abstract: The paper derives the monetary policy reaction function implied by money growth targeting. It consists of an interest rate response to deviations of the inflation rate from target, to the change in the output gap, to money demand shocks and to the lagged interest rate. In the second part, it is shown that this type of inertial interest rate rule characterises the Bundesbank’s monetary policy from 1979 to 1998 quite well. This result is robust to the use of real-time or ex post data and to the consideration of serially correlated errors. The main lesson is that, in addition to anchoring long-term inflation expectations, monetary targeting introduces inertia and history-dependence into the monetary policy rule. This is advantageous when private agents have forward-looking expectations and when the level of the output gap is subject to persistent measurement errors.
    Keywords: Monetary policy, Taylor rule, money growth targets, history dependence
    JEL: E43 E52 E58
    Date: 2007
  15. By: Jérôme Blanc (LEFI - Laboratoire d'économie de la firme et des institutions - [Université Lumière - Lyon II])
    Abstract: Le point de départ de ce chapitre est une interrogation sur le paradoxe de la mise en œuvre d'un régime de currency board, éliminant en principe toute possibilité de politique monétaire, dans un pays nouvellement indépendant et ayant cherché en particulier à restaurer sa souveraineté monétaire. Il met en lumière les conditions socio-politiques de ces développements monétaires. Il distingue deux temps forts qui se chevauchent : celui de la restauration monétaire (1988- juin 1993) puis celui du projet de currency board (1990- avril 1994). Ces deux projets a priori antinomiques apparaissent en réalité articulés car ils ne procèdent pas des mêmes logiques et de mettent pas en jeu les mêmes formes de la confiance. <br />- La restauration monétaire apparaît comme projet politique dans la mesure où la monnaie à venir est porteuse de valeurs fortes qu'elle est censée valider collectivement. Elle recueille la confiance éthique qui émane de cette aspiration unanime à la restauration d'une monnaie historique. <br />- Le projet de currency board, quant à lui, ne contrevient pas à la restauration monétaire réalisée en juin 1993. Il n'engage pas la dimension éthique de la confiance mais sa dimension hiérarchique. La discipline monétaire et financière qu'il implique ne remet pas en cause la reconnexion opérée par la Lituanie avec son passé ; par certains traits, au contraire, elle l'approfondit. <br />Dans ces deux sens distincts, la monnaie apparaît, en Lituanie, comme projet fondamentalement politique.
    Keywords: Lituanie. Institutions monétaires. Monnaie nationale. Souveraineté. Currency board. Confiance.
    Date: 2007–05–07
  16. By: Husain, Fazal; Rashid, Abdul
    Abstract: This study re-examines the causal relations between money and the two variables, i.e., income and prices. Using annual data from 1959/60 to 2003/04, examining the stochastic properties of the variables used in the analysis, and taking care of the shifts in the series due to the start of the economic liberalization program in the early 1990s, we investigate the causal relations between real money and real income, between nominal money and nominal income, and between nominal money and prices. The analysis indicates, in general, the long run relationship among money, income, and prices. The analysis further suggests a one way causation from income to money in the long run implying that probably real factors rather than money supply has played a major role in increasing Pakistan’s national income. The study fails to find the active role of money in changing income even after taking care of possible shifts in these variables due to the economic reforms. As Regards the causal relationship between money and prices, the analysis suggests a unidirectional causality from money to prices implying monetary expansion increases inflation in Pakistan.
    Keywords: Money; Income; Prices; Economic Liberalization; Causal Relations; Pakistan
    JEL: E31 E3
    Date: 2006
  17. By: Michel Fok (UPR10 - Systèmes cotonniers en petits paysannats - [CIRAD])
    Abstract: Les filières cotonnières ont induit un début de développement rural en Afrique Zone Franc jusqu'à la fin des années 1980. Leurs difficultés financières, liées en grande partie aux crises sur le marché mondial, ont poussé les agences d'aide internationale à recommander leur restructuration avec réduction du rôle de l'Etat. La référence, au moins implicite, au modèle de concurrence pure et parfaite est cependant inadéquate, il n'est donc pas étonnant que les restructurations engagées à ce jour ont donné au mieux des résultats mitigés.<br />La théorie des réseaux de distribution de services s'appuie fondamentalement sur la concurrence imparfaite. Elle s'applique bien à l'analyse des filières cotonnières en Afrique et elle met en évidence l'efficacité économique d'associer la promotion d'une culture de rente avec la fourniture diversifiée de services d'appuis aux paysans. Les faits stylisés sur la dynamique des réseaux permettent de rappeler qu'il ne pourrait y avoir de développement cotonnier effectif sans l'intervention de l'Etat pour l'aider à atteindre une taille critique. La restructuration des filières cotonnières est assimilable à la déréglementation des grands réseaux de service. Comme telle, pour être efficace, elle doit préserver l'intégration verticale et être soumise à régulation.
    Keywords: Coton, Afrique, libéralisation, économie des réseaux, régulation, état
    Date: 2007–05–06
  18. By: Westerlund, Joakim; Basher, Syed A.
    Abstract: This paper tests the convergence in per-capita carbon dioxide emissions for a collection of developed and developing countries using data spanning the period 1870 to 2002. For this purpose, three recently developed panel unit root tests that permit for dependence among the individual countries are employed. The results lend strong support in favor of convergence for the panel as a whole. Estimates of the speed of this convergence is also provided.
    Keywords: Emissions convergence; Panel unit root tests; Common factors; Half-life.
    JEL: C32 C33 Q54 Q28
    Date: 2007–05–16
  19. By: Carol Corrado; Paul Lengermann; Larry Slifman
    Abstract: In this paper, we decompose aggregate labor productivity growth in order to gauge the relative importance of multinational corporations (MNCs) to the economic performance of the United States in the 1990s. As we define it, the MNC sector refers to the U.S. activities of multinational corporations operating in the United States. We develop productivity estimates for MNCs using (1) published and unpublished industry-level data from two surveys conducted by the Bureau of Economic Analysis and (2) productivity data for industries and major sectors from the FRB productivity system (Bartelsman and Beaulieu 2003, 2004). The resulting MNC sector accounted for about 40 percent of the gross product of all nonfinancial corporations and all of the pickup in nonfinancial corporate labor productivity in the late 1990s. Accordingly, the MNC sector accounted for more than half of the acceleration in labor productivity growth of all U.S. nonfarm private businesses.
    Date: 2007
  20. By: Mark Lorenzen; Florian Arun Taeube
    Abstract: In the context of an emerging economy, the paper analyzes indigenous growth and internationalization. Using novel and original data, the paper studies the Indian film cluster in Mumbai, Bollywood. It argues that as the world’s biggest commercial film cluster and a conspicuous growth phenomenon in an emerging economy context, Bollywood can be seen as a paradigmatic case for adding to our understanding of the development of film clusters outside the USA, as well as suggesting more general insights into the growth and internationalization of industries in emerging economies. The empirical analysis of the paper points to the importance of home market, government regulation, and industry structure for Bollywood’s recent export growth. The paper discusses how the existence of a well-defined and geographically centered social network among producers, directors and other key roles in filmmaking in Mumbai supports the development of a ‘Bollywood model’ of filmmaking with a industry structure remarkably different from Hollywood’s.
    Keywords: Film industry; India; Bollywood; networks; home market; industry structure; exports; institutional change; emerging economies
    Date: 2007
  21. By: Jan Fagerberg (Centre for Technology, Innovation and Culture, University of Oslo); Bart Verspagen (Centre for Technology, Innovation and Culture, University of Oslo)
    Abstract: Although innovation is not a new topic for scholarly research, the academic literature on innovation was, for a long time, not very voluminous. However, more recently innovation has become a major focus among scholars of different backgrounds, and this change is also reflected in an increasing number of academic publications in this area. In parallel with this we have seen the emergence of a number of new journals and professional associations devoted to the subject. The research reported in this paper is motivated by these trends. We wish to find an answer to the question to what extent it now exists a unified community of innovation scholars that identify themselves with innovation studies as a field rather than particular sub-fields within other, more traditional disciplines. Moreover, we want to explore the factors (sources of inspiration, academic leadership, professional societies, publishing outlets etc.) that bind scholars together or - alternatively - continue to keep them divided. The research reported in this paper is based on a web-survey carried out in during 2004 and 2005. The results suggest that a global innovation studies community exists as a collection of a large number of relatively small groups (characterized dense internal relationships) defined along geographical and disciplinary lines. Although the field has spread over many countries and disciplines, it is particularly developed in Europe and among scholars with a background in economics. These smaller groups, however, are embedded in larger transnational groups or clusters that are kept together by what is commonly referred to as "weak ties". Leading scholars, professional associations and journals all play an important role in keeping these larger groups together (as well as distinguishing them from each other).
    Keywords: Innovation, Networks
    JEL: O10
    Date: 2006–09
  22. By: Christian Morrisson; Fabrice Murtin
    Abstract: This paper presents a new dataset on educational attainment (primary, secondary and tertiary schooling) at the world level since 1870. Inequality in years of schooling is found to be rapidly decreasing, but we show that this result is completely driven by the decline in illiteracy. Then, we turn to inequality in human capital and focus on a Mincerian production function that accounts for diminishing returns to schooling. It explains the negative cross-country correlation between Mincerian returns to schooling and average schooling contrary to other functional forms. As a result, we show that world human capital inequality has increased since 1870, but does not exceed 10% of world income inequality. Next, we analyse the relationships between the national distributions of income and schooling. We show that human capital within countries exhibits an inverted U-shaped curve with respect to average schooling, namely a "Kuznets curve of education". We find that the usual Kuznets curve of income inequality is significant both in pooled and fixed-effects regressions over the period 1870-2000, and is robust to the inclusion of other variables in the regression such as schooling and human capital inequality. However, the "Kuznets effect" associated to GDP per capita is 4 times smaller in magnitude than the externality of average schooling favouring the decrease of income inequality within countries since 1870.
    Date: 2007
  23. By: Beja, Jr., Edsel
    Abstract: A review of the economic performances of Indonesia, Malaysia, Philippines, South Korea, and Thailand in the past decade reveals that the countries have not fully recouped their losses from the 1997 Asian Crisis. It is important to understand how the crisis has affected these economies to appreciate the importance of dealing with the present challenges. Unless GDP per capita growth is higher than the current trend, the crisis-affected economies will continue to face the economic and social costs. A positive combination of policies is needed: taking up the useful components of the past arrangements and putting in the missing instruments for macroeconomic management and international cooperation.
    Keywords: Asian Crisis; Indonesia; Malaysia; Philippines; South Korea; Thailand
    JEL: B50 E60 E10 N10 O50 F40
    Date: 2007–05–15
  24. By: Buiter, Willem H.
    Abstract: Governments through the ages have appropriated real resources through the monopoly of the ‘coinage’. In modern fiat money economies, the monopoly of the issue of legal tender is generally assigned to an agency of the state, the Central Bank, which may have varying degrees of operational and target independence from the government of the day. In this paper I analyse four different but related concepts, each of which highlights some aspect of the way in which the state acquires command over real resources through its ability to issue fiat money. They are (1) seigniorage (the change in the monetary base), (2) Central Bank revenue (the interest bill saved by the authorities on the outstanding stock of base money liabilities), (3) the inflation tax (the reduction in the real value of the stock of base money due to inflation and (4) the operating profits of the central bank, or the taxes paid by the Central Bank to the Treasury. To understand the relationship between these four concepts, an explicitly intertemporal approach is required, which focuses on the present discounted value of the current and future resource transfers between the private sector and the state. Furthermore, when the Central Bank is operationally independent, it is essential to decompose the familiar consolidated ‘government budget constraint’ and consolidated ‘government intertemporal budget constraint’ into the separate accounts and budget constraints of the Central Bank and the Treasury. Only by doing this can we appreciate the financial constraints on the Central Bank’s ability to pursue and achieve an inflation target, and the importance of cooperation and coordination between the Treasury and the Central Bank when faced with financial sector crises involving the need for long-term recapitalisation or when confronted with the need to mimick Milton Friedman’s helicopter drop of money in an economy faced with a liquidity trap.
    Keywords: inflation tax, central bank budget constraint, coordination of monetary and fiscal policy
    JEL: E4 E5 E6 H6
    Date: 2007

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