First Quarter 1999
Federal Reserve Bank of Dallas

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The European System of Central Banks
Mark A. Wynne

On January 1, 1999, the European System of Central Banks (ESCB) began conducting monetary policy for eleven of the fifteen nations of the European Union, formally creating an economic and monetary union. The ESCB is governed by the decision-making bodies of the European Central Bank (ECB) and manages Europe’s new currency, the euro. The structure of the ESCB is in many ways similar to that of the Federal Reserve System, with the ECB playing a role similar to that of the Board of Governors and the various national central banks occupying positions not unlike those of the regional Reserve Banks.

In this article, Mark Wynne compares the two central banks, drawing on the insights of economic theory to shed light on how monetary policy is likely to be made in Europe under monetary union. He documents two key differences between the ESCB and the Federal Reserve System. First, the ESCB has a much stronger price stability mandate. Second, power is much more diffusely distributed in the ESCB. The strong mandate for price stability will enhance the euro’s credibility. But the diffuse power structure may make it difficult to resolve conflicts, which will undermine credibility. The monetary union’s fate depends on which of these two features of the monetary policy process dominates.

Government’s Role in Primary and Secondary Education
Lori L. Taylor

Traditionally, economists offer three broad rationales for government participation in education—market failure, externalities, and altruism. In this article, Lori Taylor describes the three rationales, discusses the economic evidence in their support, and examines their major implications for the role of government in primary and secondary education. She concludes that there is a significant public interest in education. However, the government’s role is clearly a subordinate one; families should remain the primary educational decision makers--and the primary educational financiers. Finally, her analysis of the economic evidence suggests that while government has an interest in ensuring that schools produce desirable social outcomes, it does not necessarily have a role in providing educational services or in regulating the way in which private schools provide such services.