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Central Bank Independence and Monetary Policymaking Institutions - Past Present and Future

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Cukierman, Alex

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Abstract

This is an extensive survey of worldwide developments in the area of monetary policymaking institutions during the second half of the twentieth century and beyond. In addition the last section discusses current open issues and future challenges. Section 2 reviews the changes that have occurred in the area of central bank independence (CBI) during the last twenty years, discusses reasons for those developments and provides an overview of accumulated empirical evidence on the relation between CBI and the performance of the economy. Section 3 discusses lessons from stabilization of inflation, reviews the evidence and implications of asymmetric central bank objectives and considers the issue of CBI within the broader context of choosing a nominal anchor. Section 4 reviews the impact of effective conservativeness (or independence) on economic performance in the presence of labour unions. A main insight is that, in the presence of large wage setters, CBI affects real variables like the rate of unemployment implying that conservativeness affects economic performance even in the long run. Section 5 considers future challenges facing modern central banks. The discussion presumes that CBI and price stability are here to stay and focuses on issues relating to the conduct of monetary policy by independent central banks in an era of price stability. The section discusses the risks associated with flexible inflation targeting, issues of accountability and transparency and the impact of central bank capital and finances on its independence.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6441.

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Date of creation: Aug 2007
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Handle: RePEc:cpr:ceprdp:6441

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Keywords: central bank independence economic performance monetary institutions and future challenges nominal anchors

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  4. Cukierman, Alex & Kalaitzidakis, Pantelis & Summers, Lawrence H. & Webb, Steven B., 1993. "Central bank independence, growth, investment, and real rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39, pages 95-140, December. [Downloadable!] (restricted)
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  21. Cukierman, Alex & Spiegel, Yossi & Leiderman, Leonardo, 2004. "The choice of exchange rate bands: balancing credibility and flexibility," Journal of International Economics, Elsevier, vol. 62(2), pages 379-408, March. [Downloadable!] (restricted)
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  22. Cukierman, Alex & Lippi, Francesco, 2005. "Endogenous monetary policy with unobserved potential output," Journal of Economic Dynamics and Control, Elsevier, vol. 29(11), pages 1951-1983, November. [Downloadable!] (restricted)
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  23. Barro, Robert J., 1986. "Reputation in a model of monetary policy with incomplete information," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 3-20, January. [Downloadable!] (restricted)
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  30. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May. [Downloadable!] (restricted)
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  37. 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. [Downloadable!] (restricted)
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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. Felipe R. Varela Gana, 2007. "Mercados de Derivados: Swap de Tasas Promedio Cámara y Seguro Inflación," Economic Statistics Series 56, Central Bank of Chile. [Downloadable!]
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