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Median Voter Preferences, Central Bank Independence and Conservatism

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 Lippi, Francesco

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Abstract

This paper studies how the independence and the conservatism of a central bank relate to the structure and stability of the median voter preferences. This is done by means of a model of endogenous delegation where an opportunistic policy maker chooses the monetary regime (independence and conservatism) to maximise the welfare of the median voter. The results show that a high degree of inflation aversion of monetary policy is not necessarily associated with a high degree of central bank independence. A high and stable degree of inflation aversion of society (i.e. of the median voter) may lead to establish a dependent central bank that is highly inflation averse. This suggests that the negative correlation between inflation and central bank independence indices detected by several empirical studies may reflect a link between inflation and some deep features of social preferences. Copyright 2000 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Public Choice.

Volume (Year): 105 (2000)
Issue (Month): 3-4 (December)
Pages: 323-38
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Handle: RePEc:kap:pubcho:v:105:y:2000:i:3-4:p:323-38

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
  2. Hayo, Bernd, 1998. "Inflation culture, central bank independence and price stability," European Journal of Political Economy, Elsevier, vol. 14(2), pages 241-263, May. [Downloadable!] (restricted)
  3. Lippi, Francesco & Swank, Otto H., 1999. "Rational Voters, Elections, and Central Banks: Do Representative Democracies Need Nonrepresentative Institutions?," Journal of Policy Modeling, Elsevier, vol. 21(4), pages 515-525, July. [Downloadable!] (restricted)
  4. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
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  5. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March. [Downloadable!] (restricted)
  6. Lippi, Francesco, 1998. " On Central Bank Independence and the Stability of Policy Targets," Scandinavian Journal of Economics, Blackwell Publishing, vol. 100(2), pages 495-512, June. [Downloadable!] (restricted)
  7. Waller, Christopher J & Walsh, Carl E, 1996. "Central-Bank Independence, Economic Behavior, and Optimal Term Lengths," American Economic Review, American Economic Association, vol. 86(5), pages 1139-53, December. [Downloadable!] (restricted)
  8. Robert J. Shiller, 1996. "Why Do People Dislike Inflation?," Cowles Foundation Discussion Papers 1115, Cowles Foundation, Yale University. [Downloadable!]
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  9. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Working Papers in Applied Economic Theory 94-05, Federal Reserve Bank of San Francisco.
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  10. Muscatelli, Anton, 1998. "Optimal Inflation Contracts and Inflation Targets with Uncertain Central Bank Preferences: Accountability through Independence?," Economic Journal, Royal Economic Society, vol. 108(447), pages 529-42, March. [Downloadable!] (restricted)
  11. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, Oxford University Press, vol. 6(3), pages 353-98, September.
  12. Swank, O.T., 1992. "Rational Voters in Partisanship Model," Papers 9222-p, Erasmus University of Rotterdam - Institute for Economic Research.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bernd Hayo & Carsten Hefeker, 2001. "Do We Really Need Central Bank Independence? A Critical Re- examination," Macroeconomics 0103006, EconWPA. [Downloadable!]
  2. Dario Focarelli & Fabio Panetta & Carmelo Salleo, 1999. "Why Do Banks Merge?," Temi di discussione (Economic working papers) 361, Bank of Italy, Economic Research Department. [Downloadable!]
  3. Leonardo Gambacorta, 1999. "What is the Optimal Institutional Arrangement for a Monetary Union?," Temi di discussione (Economic working papers) 356, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  4. Stefano Siviero & Daniele Terlizzese & Ignazio Visco, 1999. "Are model-based inflation forecasts used in monetary policymaking? A case study," Temi di discussione (Economic working papers) 357, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
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