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Dependent and Accountable: Evidence from the Modern Theory of Central Banking

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  • Piga, Gustavo

Abstract

In this paper we take another look at the literature on central bank independence. We show that the representative-agent approach to monetary policy is seriously flawed and does not provide a sound basis for deriving institutional solutions to the inflationary-bias. We then argue that the political approach to monetary policy provides a better account of the inflationary-bias and that this has important implications for the set-up of institutional arrangements, like central-bank independence, and the role of contractual arrangements, like indexation. Central bank independence, if appropriately modeled, can fail to reduce inflationary pressures in plausible circumstances. We then identify some issues in the theory of central banking that have not been clearly resolved and we offer some intuition as to the way they could be studied. We conclude by showing some potentially worrisome implications for the future of the European Monetary Union. Copyright 2000 by Blackwell Publishers Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economic Surveys.

Volume (Year): 14 (2000)
Issue (Month): 5 (December)
Pages: 563-95

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Handle: RePEc:bla:jecsur:v:14:y:2000:i:5:p:563-95

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Cited by:
  1. Lilia Cavallari, 2001. "Macroeconomic Performance and Wage Bargaining in a Monetary Union," Empirica, Springer, vol. 28(4), pages 419-433, December.
  2. Goyal, Ashima, 2002. "Coordinating monetary and fiscal policies: a role for rules?," MPRA Paper 29200, University Library of Munich, Germany.
  3. Maier, Philipp & Bezoen, Saskia, 2004. "Bashing and supporting central banks: the Bundesbank and the European Central Bank," European Journal of Political Economy, Elsevier, vol. 20(4), pages 923-939, November.
  4. Cuciniello Vincenzo, 2007. "Optimal monetary policy in a monetary union with non-atomistic wage setters," wp.comunite 0014, Department of Communication, University of Teramo.
  5. Christoph Moser & Axel Dreher, 2010. "Do Markets Care about Central Bank Governor Changes? Evidence from Emerging Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1589-1612, December.
  6. Gustavo Piga, 2005. "On the Sources of the Inflation Bias and Output Variability," CEIS Research Paper 66, Tor Vergata University, CEIS.
  7. Cuciniello, Vincenzo, 2007. "Strategic monetary policy in a monetary union with non-atomistic wage setters," MPRA Paper 3789, University Library of Munich, Germany, revised Jun 2007.
  8. Becchetti, Leonardo & Hasan, Iftekhar & Mavrotas, George, 2005. "Education, Financial Institutions, Inflation and Growth," Working Paper Series RP2005/72, World Institute for Development Economic Research (UNU-WIDER).
  9. Debora Di Gioacchino & Sergio Ginebri & Laura Sabani, 2004. "Political support for anti-inflationary monetary policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 187-200.
  10. Vincenzo Cuciniello, 2007. "Optimal monetary policy under a floating regime with non-atomistic wage setters," IHEID Working Papers 12-2007, Economics Section, The Graduate Institute of International Studies.
  11. Philipp Maier & Saskia Bezoen, 2002. "Central bank bashing: The case of the European Central Bank," MEB Series (discontinued) 2002-18, Netherlands Central Bank, Monetary and Economic Policy Department.
  12. Salomón Kalmanovitz, 2002. "Debates nacionales," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 4(7), pages 262-266, July-Dece.

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