A Post-Keynesian View of Central Bank Independence, Policy Targets, and the Rules-versus-Discretion Debate
AbstractThis paper addresses three issues surrounding monetary policy formation: policy independence, choice of operating targets, and rules versus discretion. According to the New Monetary Consensus, the central bank needs policy independence to build credibility; the operating target is the overnight interbank lending rate, and the ultimate goal is price stability. This paper provides an alternative view, arguing that an effective central bank cannot be independent as conventionally defined, where effectiveness is indicated by ability to hit an overnight nominal interest rate target. Discretionary policy is rejected, as are conventional views of the central bank's ability to achieve traditional goals such as robust growth, low inflation, and high employment. Thus, the paper returns to Keynes's call for low interest rates and euthanasia of the rentier.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Levy Economics Institute, The in its series Economics Working Paper Archive with number wp_510.
Date of creation: Aug 2007
Date of revision:
Contact details of provider:
Web page: http://www.levyinstitute.org
Other versions of this item:
- L. Randall Wray, 2007. "A Post Keynesian view of central bank independence, policy targets, and the rules versus discretion debate," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(1), pages 119-141, October.
- NEP-ALL-2007-08-18 (All new papers)
- NEP-CBA-2007-08-18 (Central Banking)
- NEP-MAC-2007-08-18 (Macroeconomics)
- NEP-MON-2007-08-18 (Monetary Economics)
- NEP-PKE-2007-08-18 (Post Keynesian Economics)
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.:
- Dimitri B. Papadimitriou & L. Randall Wray, . "Targeting Inflation, The Effects of Monetary Policy on the CPI and Its Housing Component," Economics Public Policy Brief Archive ppb_27, Levy Economics Institute, The.
- Marc Lavoie, 2002. "Interest parity, risk premia, and Post Keynesian analysis," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 25(2), pages 237-249, December.
- Cottrell, Allin, 1994. "Keynes and the Keynesians on the Fisher Effect," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(4), pages 416-33, November.
- Angel Asensio, 2009. "Between the cup and the lip," Working Papers halshs-00496911, HAL.
- Jairo Parada Corrales & Cristina Albor Cepeda, 2011. "La mitología del banco central independiente," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 13(24), pages 465-472, January-J.
- Emiliano Brancaccio & Giuseppe Fontana, 2013. "'Solvency rule' versus 'Taylor rule': an alternative interpretation of the relation between monetary policy and the economic crisis," Cambridge Journal of Economics, Oxford University Press, vol. 37(1), pages 17-33.
- Hein, Eckhard & Schoder, Christian, 2009.
"Interest rates, distribution and capital accumulation: A Post-Kaleckian perspective on the US and Germany,"
IPE Working Papers
04/2009, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
- Eckhard Hein & Christian Schoder, 2011. "Interest rates, distribution and capital accumulation -- A post-Kaleckian perspective on the US and Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 693-723, November.
- Hein, Eckhard & Schoder, Christian, 2009. "Interest rates, distribution and capital accumulation – A Post-Kaleckian perspective on the US and Germany," MPRA Paper 18223, University Library of Munich, Germany.
- Hiroshi Nishi, 2012. "Varieties of Economic Growth Regimes, Types of Macroeconomic Policies, and Policy Regime: A Post-Keynesian Analysis," Discussion papers e-12-008, Graduate School of Economics Project Center, Kyoto University.
- Mark Setterfield, 2013. "Using Interest Rates as the Instrument of Monetary Policy: Beware Real effects, Positive Feedbacks, and Discontinuities," Working Papers 1320, Trinity College, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards).
If references are entirely missing, you can add them using this form.