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Central Bank Accountability and Transparency: Theory and Some Evidence

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  • Eijffinger, Sylvester C W
  • Hoeberichts, Marco

Abstract

The first part of this paper outlines the concept of democratic accountability of central banks, and compares the legal accountability of the European Central Bank (ECB) with some other central banks (Bank of Canada, Bank of Japan, Bank of England and the Federal Reserve System). The second part presents a theory of central bank accountability. Two aspects of accountability are considered: transparency of actual monetary policy and the question of who bears final responsibility for monetary policy. The paper shows that accountability through transparency leads to a lower expected rate of inflation and less stabilization of supply shocks. Accountability through shifting final responsibility in the direction of the government leads to higher inflationary expectations and more stabilization of supply shocks. Copyright 2002 by Blackwell Publishers Ltd.

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Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 5 (2002)
Issue (Month): 1 (Spring)
Pages: 73-96

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Handle: RePEc:bla:intfin:v:5:y:2002:i:1:p:73-96

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  1. Eijffinger, Sylvester C W & Hoeberichts, Marco & Schaling, Eric, 2000. "A Theory of Central Bank Accountability," CEPR Discussion Papers 2354, C.E.P.R. Discussion Papers.
  2. L. Bini-Smaghi, 1998. "The democratic accountability of the European Central Bank," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 51(205), pages 119-143.
  3. Geraats, Petra M, 2000. "Why Adopt Transparency? The Publication of Central Bank Forecasts," CEPR Discussion Papers 2582, C.E.P.R. Discussion Papers.
  4. W.H. Buiter, 1999. "Alice in Euroland," CEP Discussion Papers dp0423, Centre for Economic Performance, LSE.
  5. Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
  6. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  7. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
  8. Clive Briault & Andrew Haldane & Mervyn King, 1996. "Independence and Accountability," Bank of England working papers 49, Bank of England.
  9. L. Bini-Smaghi, 1998. "The democratic accountability of the European Central Bank," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 51(205), pages 119-143.
  10. J. De Haan & F. Amtenbrink & S.C.W. Eijffinger, 1999. "Accountability of central banks: aspects and quantification," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 52(209), pages 169-193.
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