IS BANK SUPERVISION CENTRAL TO CENTRAL BANKING?

Recently, several central hanks have lost their hank supervisory responsibilities, in part because it has not been shown that supervisory authority improves the conduct of monetary policy. This paper finds that confidential bank supervisory information could help the Board staff more accurately forecast important macroeconomic variables and is used by FOMC members to guide monetary policy. These findings suggest that the complementarity between supervisory responsibilities and monetary policy should he an important consideration when evaluating the structure of the central hank. [ABSTRACT FROM AUTHOR]