Comparing Fed, BoJ and ECB

I have pointed to number of papers comparing monetary policy between Fed and ECB ( See this, this, this and this).

I came across another paper from the trio Dieter Gerdesmeier, Francesco Paolo Mongelli and Barbara Roffia which compares Fed, ECB and Bank of Japan.

Key Findings:

This paper has analysed the similarities and the differences among the  Eurosystem, the Fed and the BoJ. It finds that, while several of their tasks and their respective legal statuses differ somewhat, there are fewer differences in their institutional structures and monetary frameworks, as well as the use of instruments. Central banking practices around the world have also evolved in the di rection of greater independence, transparency and the adoption of monetary policy committees, among other developments. This has contributed to reducing the differences among the three institutions, a trend that can also be observed among other central banks.

There are, however, some de facto differences in the way monetary policy committees operate.  For example, when taking monetary policy decisions, both the Governing Council of the ECB and the Board of Governors of the Fed officially act by simple majority voting. In practice, both the Governing Council and the FOMC operate as collegial committees. Yet, while the former functions as a genuinely collegial committee practising consensus voting, in the latter the chairman has scope to steer the agenda very tightly. The Policy Board of the BoJ, by contrast, operates in a much more individualistic manner than the other two.

There are also some differences in terms of communication strategie s, although, overall, the  responsiveness of the financial market seems high for both the Eurosystem (concerning monetary policy inclinations) and the Fed (regarding monetary policy inclinations and views on the economic outlook). However, the Fed does not quantify its definition of price stability, whereas the ECB and the BoJ do. Nor does it spell out a fully fledged monetary policy (again in contrast to the ECB and the BoJ). The ECB does not publish the minutes of its Governing Council meetings, unlike the Fed and the BoJ.

As for the economic and financial environment, over the past two decades all three central banks have faced a series of diverse challenges, some of them country-specific (as in the case of Japan), and others more global in nature. Early in the sample period, conditions differed considerably in the three currency areas, with a much higher dispersion among euro area.

A comparison based on a very simplistic policy reaction function framework à-la-Taylor shows no striking differences in the implementation of monetary policy. It can, therefore, be concluded that, in practice, the monetary policies of the Eurosystem, the Fed and the BoJ(if we exclude the more recent challenging period) fundamentally do not differ that much.

Excellent stuff.

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