Institutions and Monetary Policy

After introducing and surveying the rules versus discretion debate in monetary policy, Eric Schaling then investigates the relationship between domestic monetary institutions and macroeconomic performance. The author compares central bank independence in twelve industrial countries – Australia, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, the United States, Sweden and Switzerland – and prepares an index of his results. The relationship between central bank independence, inflation and output growth is extensively discussed and a series of propositions tested for the same set of countries over the period from 1972 to 1991. Normative issues are investigated in the later part of the book including the optimal degree of central bank independence in relation to, first, the inflation rate and, second, wage formation in a totally unionized economy.