Three Essays on Monetary and Political Economics

Bryan P Cutsinger

Advisor: Lawrence H White, PhD, Department of Economics

Committee Members: Peter J Boettke, Peter T Leeson

Buchanan Hall, #D135
April 18, 2019, 03:30 PM to 04:00 PM


My dissertation consists of three chapters on monetary and political economics. The first chapter asks whether the notion of instrument independence is compatible with a rules-based monetary policy. While monetary and constitutional political economists have long recognized the importance of rules in the realm of monetary policy, they have tended to ignore political considerations when evaluating the merits of alternative rules. In consequence, little research exists examining the robustness of monetary policy rules under less than ideal assumptions regarding the objectives of monetary policymakers and political officials. In this chapter, I demonstrate that once the assumption of benevolence regarding the objectives of monetary policymakers and political officials is relaxed, a monetary rule that leaves the monetary authority free to select policy instruments can reintroduce the same types of problems that monetary rules are intended to mitigate. My analysis suggests that comparative analysis of alternative monetary rules should focus on the potential margins that can be exploited by policymakers when rules are underspecified.

The second chapter of my dissertation examines the role of certain political institutions in enforcing agreements between interest  groups and politicians. Absent effective enforcement mechanisms, bargains between interest groups and politicians would be worth little. If political exchange is to be feasible, some mechanism, or set of mechanisms must exist to enforce agreements between interest groups and politicians. While the literature on the durability of politically-created benefits has analyzed the role of the government’s structure in securing these benefits, there has been little analysis of institutions that compensate interest groups on the losing side of reforms to the status quo. In this chapter, I consider the role of the Department of Justice’s settlement authority in facilitating this type of indemnification. In particular, I argue that the Department of Justice’s broad discretion over the terms of the settlements to which it agrees enables the Department of Justice to extract substantial amounts of financial resources that it can then allocate to politically-important groups. To illustrate how the settlement authority can be used to indemnify interest groups whose legislatively-created benefits have been terminated, I use the recent settlements with Citigroup and Bank of America as examples.

The third chapter of my dissertation evaluates the feasibility of returning to the gold standard. The gold standard is a rule, and like any other monetary rule has both costs and benefits. While there is an extensive literature on the merits and demerits of the gold standard, comparatively little evidence exists evaluating the feasibility of returning to such a regime. In this chapter, I examine the feasibility of returning to a gold standard by estimating the resource costs required to implement it effectively. Specifically, I estimate the amount of gold, and the size of the one-time outlay necessary to acquire it, that would be required for the central banks in the world’s largest economies to reach their levels of currently required reserves and compare these estimates to their official gold holdings. Next, I estimate the share of output that these countries would need to dedicate each year to sustain the gold standard. This chapter has three principle findings. First, the current stock of above-ground gold is sufficient to facilitate a return to the gold standard. Second, doing so would cost approximately $3 trillion at the current market price of gold. Finally, in order to sustain the  gold standard, each economy would need to dedicate an average of 0.45 percent of output per year to acquiring the necessary amount of gold.