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The Trade off between Central Bank Independence and Conservativeness

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  • Eijffinger, Sylvester C W
  • Hoeberichts, Marco

Abstract

This paper introduces a parameter for central bank independence in a monetary policy game with a conservative central banker. It tries to explain the optimal degree of central bank independence and conservativeness by four economic and political determinants, both theoretically and empirically. There appears to be a trade-off between central bank independence and conservativeness. Then, by comparing the optimal degree of conservativeness and independence with the actual degree of independence, the authors want to identify the optimal degree of conservativeness for twelve member states of the European Union. Copyright 1998 by Royal Economic Society.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:oxecpp:v:50:y:1998:i:3:p:397-411
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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. Eijffinger, S.C.W. & de Haan, J., 1995. "The political economy of central bank independence (Second, revised version)," Discussion Paper 1995-87, Tilburg University, Center for Economic Research.
    3. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-286, March.
    4. Eijffinger, S.C.W. & Schaling, E., 1992. "Central bank independence : Criteria and indices," Other publications TiSEM 739426b2-dc3c-40b2-ae90-8, Tilburg University, School of Economics and Management.
    5. Manfred Neumann, 1991. "Precommitment by central bank independence," Open Economies Review, Springer, vol. 2(2), pages 95-112, June.
    6. Eijffinger, S.C.W., 1993. "Central bank independence in twelve industrial countries," Other publications TiSEM 0401b17a-e2c7-4179-ace9-a, Tilburg University, School of Economics and Management.
    7. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981.
    8. Haizhou Huang & Michele Fratianni, 1995. "Central Bank Reputation and Conservativeness," FMG Discussion Papers dp216, Financial Markets Group.
    9. Eijffinger, S.C.W. & Schaling, E., 1993. "Central bank independence : Theory and evidence (Revised version)," Discussion Paper 1993-25, Tilburg University, Center for Economic Research.
    10. Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
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