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Debt Spillovers in a Monetary Union: A Novel Rationale for Central Bank Independence

Author

Listed:
  • Campoy Juan Cristóbal
  • Negrete Juan Carlos

    (Department of Economics Analysis, Universidad de Murcia, Facultad de Economía y Empresa, Campus de Espinardo, 30100, Espinardo, Murcia, Spain)

Abstract

Central bank independence has been championed on the grounds that it avoids political business cycles, the time-inconsistency problem of discretionary monetary policy, and political conflicts. However, after the financial crisis, central banks have resorted to unconventional monetary policies and embraced additional tasks, making monetary authorities more exposed to political interference. This new reality has put into question the long-lasting consensus on the desirability of central bank independence. We add to this debate a new argument in support of that independence, namely, it internalizes the fiscal spillovers that arise in a monetary union, which is not a full fiscal union.

Suggested Citation

  • Campoy Juan Cristóbal & Negrete Juan Carlos, 2022. "Debt Spillovers in a Monetary Union: A Novel Rationale for Central Bank Independence," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 123-136, January.
    • Handle: RePEc:bpj:econoa:v:16:y:2022:i:1:p:123-136:n:10
    DOI: 10.1515/econ-2022-0017
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    More about this item

    Keywords

    Central Bank design; monetary union; fiscal policies; international fiscal spillovers;
    All these keywords.

    JEL classification:

    • 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

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