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Independent and Accountable Central Banks and the European Central Bank

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  • Sousa, Pedro A. B. de

Abstract

This paper begins with the concept of central bank independence and focuses its argument around one of its major drawbacks � the potential absence of accountability by the monetary authority. Then, beyond defining an alternative legal central bank independence index, we analyse the current Statutes of thirty-two central banks, and we quantify their legal independence and accountability degrees. With that data, we confirm previous studies, showing evidence of a de jure negative relationship between central bank independence and democratic accountability, though not as strong as it is usually argued. Still, we remain aware that some very independent central banks are also very low accountable � the European Central Bank (ECB) is a good example. Finally, we discuss the advantages and disadvantages of a contract à la Walsh between the ECB and a European Community organ, and we ask for a more in-depth analysis and understanding of these subjects, in order to improve the EMU institutional picture.

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Bibliographic Info

Article provided by European Community Studies Association Austria (ECSA-A) in its journal European Integration online Papers (EIoP).

Volume (Year): 5 (2001)
Issue (Month): (07)
Pages:

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Handle: RePEc:erp:eiopxx:p0069

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Related research

Keywords: European Central Bank; accountability; democracy; EMU; European Parliament; institutions; legitimacy; transparency; political economy; Treaty on European Union; economics;

References

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  1. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
  2. Anne Sibert, 1999. "Monetary Policy Committees: Individual and Collective Reputations," CESifo Working Paper Series 226, CESifo Group Munich.
  3. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  4. Randzio-Plath, Christa, 2000. "A new political culture in the EU - democratic accountability of the ECB," ZEI Working Papers B 04-2000, ZEI - Center for European Integration Studies, University of Bonn.
  5. Charles Goodhart & Haizhou Huang, 1995. "What is the Central Banks Game?," FMG Discussion Papers dp222, Financial Markets Group.
  6. Haan, J. de & Amtenbrink, F. & Eijffinger, S.C.W., 1998. "Accountability of Central Banks: Aspects and Quantification," Discussion Paper 1998-54, Tilburg University, Center for Economic Research.
  7. Hayo, Bernd, 1998. "Inflation culture, central bank independence and price stability," European Journal of Political Economy, Elsevier, vol. 14(2), pages 241-263, May.
  8. Miguel A. Savastano & Paul R. Masson & Sunil Sharma, 1997. "The Scope for Inflation Targeting in Developing Countries," IMF Working Papers 97/130, International Monetary Fund.
  9. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  10. Stefania Albanesi & V.V. Chari & Lawrence J. Christiano, 2001. "How Severe is the Time Inconsistency Problem in Monetary Policy?," NBER Working Papers 8139, National Bureau of Economic Research, Inc.
  11. Avinash Dixit & Henrik Jensen, 2000. "Equilibrium Contracts for the Central Bank of a Monetary Union," CESifo Working Paper Series 400, CESifo Group Munich.
  12. Paul De Grauwe & Hans Dewachter & Yunus Aksoy, 1999. "Effectiveness of Monetary Policy in Euroland," Empirica, Springer, vol. 26(4), pages 299-318, December.
  13. 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.
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Cited by:
  1. Rao, Nasir Hamid & Bukhari, Syed Kalim Hyder, 2010. "Asymmetric Shocks and Co-movement of Price Indices," MPRA Paper 28723, University Library of Munich, Germany.
  2. Libich, Jan & Stehlík, Petr, 2010. "Incorporating rigidity and commitment in the timing structure of macroeconomic games," Economic Modelling, Elsevier, vol. 27(3), pages 767-781, May.

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