At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.

Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.

We would like to thank Akos Valentinyi and Mark Schaffer for their advice on various stages of this research project. We also would like to thank our col leagues at the Department of Economics of the University of Milan - Bicocca for their advice and support. This book is the result of a long term project financed by various research grants: in particular the Phare-Ace programme (Project P-96-6151-R) and a research grant from the Italian Ministry of Education under the young researchers scheme. Milan, March 2005 Emilio Colombo Luca Stanca Contents Introduction 1 Financial market imperfections and corporate decisions: theory and evidence 7 2. 1 Introduction 7 2. 2 Financial market imperfections, investment and cycles 9 2. 2. 1 The Stiglitz view 9 2. 2. 2 Agency costs and macroeconomic fluctuations 15 2. 2. 3 Assessing the differences 18 2. 2. 4 Further developments 20 2. 2. 5 Empirical evidence 22 2. 3 Financial market imperfections and corporate capital structure 24 2. 3. 1 Asymmetric information and capital structure choice . . 25 2. 3. 2 Agency costs and capital structure choice 30 2. 3. 3 Empirical evidence 32 The transformation of the Hungarian financial system 35 3. 1 Introduction 35 3. 2 Macroeconomic background 36 3. 3 Liberalisation, privatisation and financial development 44 3. 3. 1 Banking and credit 45 3. 3. 2 Equity market 48 3. 3. 3 Foreign direct investment 49 3. 4 Financial sector reform 50 3. 4.

The first of its kind, this book is entirely dedicated to the implementation of monetary policy. Monetary policy implementation has gone through tremendous changes over the last twenty years, which have witnessed the quiet end of 'reserve position doctrine' and the return of an explicit focus on short-term interest rates. Enthusiastically supported by Keynes and later by the monetarist school, reserve position doctrine was developed mainly by US central bankers and academics during the early 1920s, and at least in the US became the unchallenged dogma of monetary policy implementation for sixty years. The return of interest rate targeting also corresponds largely to the restoration of central banking principles established in the late 19th century. Providing a simple theory of monetary policy implementation, Bindseil goes on to explain the role of the three main instruments (open market operations, standing facilities, and reserve requirements) and reviews their use in the twentieth century. In closing, he summarizes current views on efficient monetary policy implementation.