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Who Wants an Independent Central Bank? Monetary Policy-Making and Politics

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  • Ozkan, F Gulcin

Abstract

The costs and benefits of cooperative monetary and fiscal policy are analysed in the framework of a partisan business-cycles model. It is shown that political parties with different ideologies prefer to choose different arrangements for macroeconomic policy-making. More specifically, right-wing parties favour independent central banks more than left-wing parties. An independent central bank is also the generally preferred option from a social welfare point of view. In addition, the form of policy-making arrangements between the fiscal and monetary authorities is shown to influence the extent of partisan cycles. Copyright 2000 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Ozkan, F Gulcin, 2000. " Who Wants an Independent Central Bank? Monetary Policy-Making and Politics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 621-643, December.
  • Handle: RePEc:bla:scandj:v:102:y:2000:i:4:p:621-43
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. Ozkan, F Gulcin, 1998. "Partisan Business and Budget Cycles with Separate Fiscal and Monetary Authorities," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(2), pages 178-195, March.
    3. Sachs, Jeffrey & Alesina, Alberto, 1988. "Political Parties and the Business Cycle in the United States, 1948-1984," Scholarly Articles 4553026, Harvard University Department of Economics.
    4. Ohlsson, Henry & Vredin, Anders, 1996. " Political Cycles and Cyclical Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 203-218, June.
    5. repec:cup:apsrev:v:71:y:1977:i:04:p:1467-1487_26 is not listed on IDEAS
    6. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters,in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
    7. Douglas A. Hibbs, 1994. "The Partisan Model Of Macroeconomic Cycles: More Theory And Evidence For The United States," Economics and Politics, Wiley Blackwell, vol. 6(1), pages 1-23, March.
    8. Beetsma, Roel M. W. J. & Bovenberg, A. Lans, 1997. "Central bank independence and public debt policy," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 873-894, May.
    9. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
    10. Alberto Alesina, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 651-678.
    11. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-630, October.
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    Citations

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    Cited by:

    1. Michael Bleaney & F. Gulcin Ozkan, "undated". "Foreign Debt and Fear of Floating: A Theoretical Exploration," Discussion Papers 08/03, University of Nottingham, School of Economics.
    2. repec:ebl:ecbull:v:5:y:2005:i:2:p:1-12 is not listed on IDEAS
    3. F. Gulcin Ozkan & Ahmet Kipici & Mustafa Ismihan, 2010. "The Banking Sector, Government Bonds, and Financial Intermediation: The Case of Emerging Market Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(4), pages 55-70, January.
    4. Moïse Sidiropoulos & Blandine Zimmer, 2009. "Monetary Union Enlargement, Fiscal Policy, and Strategic Wage Setting," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 631-649, August.
    5. Ismihan, Mustafa & Ozkan, F Gulcin, 2007. "Public investment: a remedy or a curse? Examining the Role of Public Investment for Macroeconomic Performance," CEPR Discussion Papers 6139, C.E.P.R. Discussion Papers.
    6. Buiter, Willem H., 2006. "How Robust is the New Conventional Wisdom? The Surprising Fragility of the Theoretical Foundations of Inflation Targeting and Central Bank Independence," CEPR Discussion Papers 5772, C.E.P.R. Discussion Papers.
    7. Mohammad Abdul Munim Joarder & A. K. M. Nurul Hossain & Monir Uddin Ahmed, 2016. "Does the central bank contribute to the political monetary cycles in Bangladesh?," Economic Change and Restructuring, Springer, vol. 49(4), pages 365-394, November.
    8. Michael Bleaney & F. Gulcin Ozkan, 2011. "The structure of public debt and the choice of exchange rate regime," Canadian Journal of Economics, Canadian Economics Association, vol. 44(1), pages 325-339, February.
    9. Beetsma, Roel M.W.J. & Lans Bovenberg, A., 2006. "Political shocks and public debt: The case for a conservative central bank revisited," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 1857-1883, November.
    10. Fracasso, Andrea & Ozkan, F. Gulcin, 2004. "Fiscal policy, labor market structure and macroeconomic performance," Economics Letters, Elsevier, vol. 83(2), pages 205-210, May.
    11. Ismihan, Mustafa & Ozkan, F. Gulcin, 2011. "A Note On Public Investment, Public Debt, And Macroeconomic Performance," Macroeconomic Dynamics, Cambridge University Press, vol. 15(02), pages 265-278, April.

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