The political economy of monetary policy conduct and central bank design
AbstractThis paper provides a concise overview of the state of the art on monetary policy and central banking from a public choice perspective. It starts with a brief look at the roots of today’s view of monetary policy conduct and the design of pertinent institutions in early work on political business cycles, and then proceeds to a discussion of the inflationstabilization dilemma along with proposed solutions in the form of central bank independence and conservativeness, incentive contracts, and inflation policy targets. The last section addresses current developments. These include the proper choice of monetary policy targets, the role of New Keynesian and sticky-information aggregate-supply curves and the quest for simple and efficient rules for monetary policy that has been triggered by the proposal and widespread polularity of the Taylor rule.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2006 with number 2006-25.
Length: 36 pages
Date of creation: Oct 2006
Date of revision:
Monetary policy; central banking; rules; discretion; stabilization; inflation; bias; public choice;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-04 (All new papers)
- NEP-CBA-2006-11-04 (Central Banking)
- NEP-MAC-2006-11-04 (Macroeconomics)
- NEP-MON-2006-11-04 (Monetary Economics)
- NEP-POL-2006-11-04 (Positive Political Economics)
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