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A Model of Central Bank's Accountability

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  • francesca castellani

    ()
    (IUHEI)

Abstract

This paper describes a mechanism by which the government manages to hold the appointed monetary authorities accountable for their policies. Asymmetric information about central bank's preferences proxies the "democratic deficit", evoked to justify the call for accountability. Three main results emerge from the model. First, a clear distinction is drawn between accountability and transparency. Accountability is modelled as an ex-post political intervention, relating to the scrutiny of monetary policy decisions by the government, and transparency is described as an ex-ante decision of the CB about its own communication strategy.Second, accountability requirements imposed by the government help mitigate the shortcomings of asymmetric information (uncertain CB's preferences), thereby moderating the "democratic deficit". Third, the "optimal" stringency of the accountability requirements is investigated.

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File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP02-2002.pdf
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Bibliographic Info

Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 04-2002.

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Length: 32
Date of creation: 05 Jun 2002
Date of revision:
Handle: RePEc:gii:giihei:heiwp04-2002

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Keywords: central bank accountability; transparency;

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Cited by:
  1. Xavier Debrun & Manmohan S. Kumar, 2007. "The Discipline-Enhancing Role of Fiscal Institutions," IMF Working Papers 07/171, International Monetary Fund.
  2. Katrin Ullrich, 2007. "Introducing Instruments of Central Bank Accountability in a Monetary Union," Open Economies Review, Springer, vol. 18(3), pages 239-262, July.
  3. Mihailov, Alexander & Ullrich, Katrin, 2007. "Independence and Accountability of Monetary and Fiscal Policy Committees," ZEW Discussion Papers 07-044, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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