1. First edition Global Economic Issues and Policies PowerPoint Presentation by Charlie Cook Copyright © 2004 South-Western/Thomson Learning. All rights reserved. Chapter 13 Rules versus Discretion— Can Policymakers Stick to Their Promises?

2. Copyright © 2004 South-Western/Thomson Learning. All rights reserved.13–2 Table 13-1 The Costs of Inflation and Inflation Variability

3. Copyright © 2004 South-Western/Thomson Learning. All rights reserved.13–3 Figure 13-1 Inflation in Selected Nations Source: International Monetary Fund, World Outlook, various issues; IMF and authors’ estimates for 2001 and 2002.

4. Copyright © 2004 South-Western/Thomson Learning. All rights reserved.13–4 Figure 13-2 The Inflation Bias of Discretionary Monetary Policy A = Commitment Policy Equilibrium C = Discretionary Policy Equilibrium

5. Copyright © 2004 South-Western/Thomson Learning. All rights reserved.13–5 Figure 13-3 Inflation Rates and Unemployment Benefit Levels in Selected Nations Source: Rafael Di Tella and Robert MacCulloch, “Unemployment Benefits as a Substitute for a Conservative Central Banker,” Harvard Business School and London School of Economics, May 2000.

6. Copyright © 2004 South-Western/Thomson Learning. All rights reserved.13–6 Figure 13-4 Central Bank Independence, Average Inflation, and Inflation Variability Source: Alberto Alesina and Lawrence Summers, “Central Bank Independence and Macroeconomic Performance,” Journal of Money, Credit, and Banking (May 1993), pp. 151–162.

7. Copyright © 2004 South-Western/Thomson Learning. All rights reserved.13–7 Figure 13-5 Hypothetical Welfare Levels for Two Nations with and without Policy Coordination