The Evolution of Central Banking and Monetary Policy in the Asia-Pacific
Author: Akhand Akhtar Hossain
Publisher: Edward Elgar
Pages: xviii + 636 pp
ISBN: 978 0 85793 780 3
Reviewed by Dr. Markus Heckel, Goethe University Frankfurt, Germany, Department of Management and Applied Microeconomics
This volume is a supplementary companion book of Hossain’s (2009) work, Central Banking and Monetary Policy in the Asia-Pacific, which surveyed major theories, models and approaches to inflation and monetary policy. In this volume, the author examines 12 case studies from developed and developing countries of the Asia-Pacific region. The book focuses on the evolution of central banking by reviewing country-specific experiences regarding the history of inflation and monetary policy.
The book’s strength lies in its summaries and applications of modern literature of monetary economics in empirical case studies. While this format has its advantages, the book is also held back by its overly ambitious aim: it examines many case studies and covers additional topics of central banking, monetary policy, central bank independence, central bank transparency, institutional designs of the central banks, decision-making process, political economy, geography, history and even ventures on the difficult task of policy recommendations. The author claims that the 12 “judiciously” elected countries are all at different stages of development and operate under varying monetary policy frameworks (viii). As a consequence, comparisons or general conclusions prove to be rather difficult to reach. Instead of listing the case studies in alphabetic order (perhaps this was the intention of the publisher), a method of classification that perhaps considers case studies by monetary policy regime or level of development would have better illustrated a comparative analysis of the countries. This book covers various well-known central banks including the Federal Reserve System, Bank of Japan, Reserve Bank of Australia, Reserve Bank of New Zealand and some less known central banks such as the Central Bank of Sri Lanka, Central Bank of the Philippines, Bank of Thailand.
This volume follows a rather simple structure after an introduction, the book directly jumps to the analyses of the case studies which are, with the exception of Australia, 30 to 45 pages long. Most case studies follow the structure of (1) recent economic and political history (2) organization and activities of the central bank (3) evolution of monetary policy (4) macroeconomic developments and inflation performance. At the beginning of each case study, some general, economic, geographical, political, and sometimes ethnical information are given. In some cases, the chapter starts with a historic “overview” until most recent events, followed by an analysis of monetary policy in which the author frequently refers to the past. The numerous redundancies of historic events prevent a smooth reading for the reader. A historical reading of monetary policy can be delicate in that it requires multiple additional explanations. Another viable structure would have been to write a short introduction of the central banks that provides data on both its economic and political developments. In addition, a more systematic way would have been to provide a table of all countries with general data concerning monetary policy regime, the central bank (founding year), the Policy Board, including data on the number of members, frequency of monetary policy meetings, and form of decision-making.
Wachtel (2010) writes in his book review on Hossain’s Central Banking and Monetary Policy of the Asia-Pacific (2009) that it “is simply hard to cover so much ground and provide both textbook explanations and the history of monetary thought at the same time. I would have liked the author to go out on a limb at times in order to tell the reader what is more important, where monetary thinking has evolved, and which theories matter for policy and which do not.” This evaluation holds true for this volume as well, because too many topics are covered. The author mentions important issues way too briefly, possibly due to space limits. However, in that case, the mention of issues might not only rendered meaningless but also cumbersome to the overall progression of the book.
Experts on certain central banks might find mistakes and inaccuracies in every chapter. This review in particular takes the Bank of Japan as an example. In this case study, the author employed stereotypes when, for example, he referred to the structure of keiretsu and lifetime employment as “considered pillows of strength” and now as a “major constraint” for the recovery of the economy (p. 233). However, the existence and role of these institutions are controversial and thus demand a more nuanced approach. Hossain’s book certainly moves into a dangerous terrain when the author refers to Japan’s “ethnic homogeneity” and “cultural customs” such as “social conformity.” A book on monetary policy should avoid such stereotypes and it is questionable whether these topics are truly helpful for an analysis on central bank and monetary policy.
Hossain claims that the BoJ has not conducted a sustained expansionary monetary policy since the late 1990s implying the argument that the “Zero Interest Rate Policy” (ZIRP) (1999-2000) and the “Quantitative Easing Policy” (QEP) (2001-2006) has not been sustainable enough. However, the Bank of Japan, acting as a role model for many other major central banks after the financial crisis, was the first major central bank to try these unconventional measures. The usage of sources in this book can be sometimes puzzling. For example, the author cites an IMF paper from 1988 when he states that Japan suffered from a “two decade-long deflation trap. ”
Bold statements such as “with the acquisition of policy independence, the BoJ has become more conservative” (p. 245) need to go in more depth about the institutional design of central banks and a more detailed analysis. Fiscal issues such as Japan’s debt-GDP ratio are important, but a totally different topic. In addition, it feels that the author should be more reluctant during his discussion of policy recommendations (e.g., p. 259). In the introduction of the case studies, the author does not hide his preference towards rule-based monetary policy (p. 23-24; 527). As a result, he suggests the introduction of an inflation target for Japan in order to overcome deflation. However, even the introduction of an inflation target in 2013 has not raised inflation expectations in Japan to a high extent, and the BoJ postpones permanently its achievement of the price stability target of 2%, most recently to end-2018 or beginning-2019 clearly at the risk of losing credibility. Not surprisingly, the author presents a solution: greater exchange rate flexibility. However, the assumption that other countries would accept such a policy (beggar thy neighbor) without conflict is very doubtful.
Regarding the political economy of the Bank of Japan, the author neglects to mention the relationship amongst the main actors (government, Ministry of Finance and the Bank of Japan) in his summary of the Bank of Japan Law revision. In an attempt to weaken the Ministry, the Japanese government had initiated central bank reform by cutting the influence of the Ministry over the central bank while simultaneously trying to broaden the government’s power over the Bank of Japan. The author also claims that the two government representatives had voting rights in the Policy Board, which, according to the reviewer, is not true.
While monetary economists may already be aware of most of the literature and the history of the major central banks, non-specialists may want to skip the parts on economic and econometric analyses. However, this book is recommended for those who desire a brief overview of the central banks.
Overall, this comprehensive volume is an ambiguous contribution to the monetary economics literature with a summary of the monetary policies of 12 selected countries in the Asia-Pacific region. Admittedly, conducting case studies in 12 different countries is a challenging task and leaves less room for details. To avoid mistakes and inaccuracies, it would have been recommendable to stick to the author’s area of expertise—analyses of monetary policy and inflation. The “excursions” to geography (quite frequently, the author uses Wikipedia as a source), cultural studies, history, and the political economy of central banks are doubtful in that they might lack nuanced knowledge on the institutional design of the various central banks.
Hossain, A. (2009) Central Banking and Monetary Policy in the Asia-Pacific, Cheltenham, UK and Northampton, MA, USA Edward Elgar.
Wachtel, P. (2010): Book Review on “Central Banking and Monetary Policy in the Asia-Pacific” by Akhand Akhtar Hossain. Asia-Pacific Economic Literature. Volume 24, Issue 2, 181-182.