Central Banks as Agents of Economic Development
AbstractIn the last two decades, there has been a global sea change in the theory and practice of central banking. The currently dominant “best practice” approach to central banking consists of the following: (1) central bank independence (2) a focus on inflation fighting (including adopting formal “inflation targeting”) and (3) the use of indirect methods of monetary policy (i.e., short-term interest rates as opposed to direct methods such as credit ceilings). This paper argues that this neo-liberal approach to central banking is highly idiosyncratic in that, as a package, it is dramatically different from the historically dominant theory and practice of central banking, not only in the developing world, but, notably, in the now developed countries themselves. Throughout the early and recent history of central banking in the U.S., England, Europe, and elsewhere, financing governments, managing exchange rates, and supporting economic sectors by using “direct methods” of intervention have been among the most important tasks of central banking and, indeed, in many cases, were among the reasons for their existence. The neoliberal central bank policy package, then, is drastically out of step with the history and dominant practice of central banking throughout most of its history.
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Bibliographic InfoPaper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp104.
Date of creation: 2005
Date of revision:
Find related papers by JEL classification:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
- N2 - Economic History - - Financial Markets and Institutions
- O2 - Economic Development, Technological Change, and Growth - - Development Planning and Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-05 (All new papers)
- NEP-CBA-2005-11-05 (Central Banking)
- NEP-FMK-2005-11-05 (Financial Markets)
- NEP-HIS-2005-11-05 (Business, Economic & Financial History)
- NEP-MAC-2005-11-05 (Macroeconomics)
- NEP-MON-2005-11-05 (Monetary Economics)
- NEP-PKE-2005-11-05 (Post Keynesian Economics)
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