The trade-off between central bank independence and conservatism in a new Keynesian framework
AbstractThe purpose of this paper is to discuss the issue of Treaty reform and its consequences for monetary policy. Inter alia, the changes include that the institutional set-up will be subtly changed and the European Central Bank (ECB) will be grouped in the first part of the Treaty as one of the "other institutions and advisory bodies". Possibly more importantly, the euro area as such will be in the position to act legally as itself within the European Union (EU) legal structures. The Eurogroup also will be officially recognized ("Euro-Ecofin-Council"). President Jean-Claude Trichet's concern about the status of the ECB under the new Treaty and fear that by including the bank in a list of EU institutions implies a risk that EU member states could formulate policy recommendations to the ECB, but may also lead to more central bank conservatism with the ECB as explained in our analysis. In this paper we analyze the trade-off between central bank independence and conservatism with New Keynesian framework following Woodford [Woodford, M., 2003. Interest and prices: foundations of a theory of monetary policy. Princeton University Press, Princeton.] and others. Our conclusion is that the trade-off between central bank independence and conservatism still holds within the New Keynesian framework. Politicians should therefore realize that their attempts to downgrade ECB's independence legally and verbally will only increase its conservatism in order to maintain the same inflationary bias and limit the ECB's degrees of freedom with respect to its interest rate policy.
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 Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-3106392.
Date of creation: 2008
Date of revision:
Publication status: Published in European Journal of Political Economy (2008) v.24, p.742-747
Contact details of provider:
Web page: http://www.tilburguniversity.edu/
Other versions of this item:
- Eijffinger, Sylvester C.W. & Hoeberichts, Macro M., 2008. "The trade-off between central bank independence and conservatism in a New Keynesian framework," European Journal of Political Economy, Elsevier, vol. 24(4), pages 742-747, December.
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.:
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999.
"The Science of Monetary Policy: A New Keynesian Perspective,"
CEPR Discussion Papers
2139, C.E.P.R. Discussion Papers.
- Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
- Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
- Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University.
- Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
- N. G. Mankiw., 2009.
"The Macroeconomist as Scientist and Engineer,"
N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
- N. Gregory Mankiw, 2006. "The Macroeconomist as Scientist and Engineer," NBER Working Papers 12349, National Bureau of Economic Research, Inc.
- N. Gregory Mankiw, 2006. "The Macroeconomist as Scientist and Engineer," Harvard Institute of Economic Research Working Papers 2121, Harvard - Institute of Economic Research.
- Eijffinger, S.C.W. & Hoeberichts, M.M., 1996.
"The Trade Off Between Central Bank Independence and Conservativeness,"
1996-44, Tilburg University, Center for Economic Research.
- Eijffinger, Sylvester C W & Hoeberichts, Marco, 1998. "The Trade off between Central Bank Independence and Conservativeness," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 397-411, July.
- Eijffinger, S.C.W. & Hoeberichts, M.M., 1998. "The trade off between central bank independence and conservativeness," Open Access publications from Tilburg University urn:nbn:nl:ui:12-76576, Tilburg University.
- 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.
- Marc P. Giannoni & Michael Woodford, 2003.
"Optimal Interest-Rate Rules: II. Applications,"
506439000000000394, UCLA Department of Economics.
- Eijffinger, S.C.W., 1993. "Central bank independence in twelve industrial countries," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152908, Tilburg University.
- Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, June.
- 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.
- Berdiev, Aziz N. & Kim, Yoonbai & Chang, Chun Ping, 2012. "The political economy of exchange rate regimes in developed and developing countries," European Journal of Political Economy, Elsevier, vol. 28(1), pages 38-53.
- Esteban Colla De Robertis & Last: Colla De Robertis, 2010. "Monetary Committee Size and Special Interest Influence," Documentos de InvestigaciÃ³n - Research Papers 2, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Economists Online Support).
If references are entirely missing, you can add them using this form.