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How Can Central Banks Deliver Credible Commitment and Be “Emergency Institutions†?

In: Central Bank Governance & Oversight Reform

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Abstract

A central bank needs authority and a sphere of independent action. But a central bank cannot become an unelected czar with sweeping, unaccountable discretionary power. How can we balance the central bank’s authority and independence with needed accountability and constraints? Drawn from a 2015 Hoover Institution conference, this book features distinguished scholars and policy makers’ discussing this and other key questions about the Fed. Going beyond the widely talked about decision of whether to raise interest rates, they focus on a deeper set of questions, including, among others, How should the Fed make decisions? How should the Fed govern its internal decision-making processes? What is the trade-off between greater Fed power and less Fed independence? And how should Congress, from which the Fed ultimately receives its authority, oversee the Fed? The contributors discuss whether central banks can both follow rule-based policy in normal times but then implement a discretionary do-what-it-takes approach to stopping financial crises. They evaluate legislation, recently proposed in the US House and Senate, that would require the Fed to describe its monetary policy rule and, if and when it changed or deviated from its rule, explain the reasons. And they discuss to best ways to structure a committee—like the Federal Open Market Committee, which sets interest rates—to make good decisions, as well as offer historical reflections on the governance of the Fed and much more.

Suggested Citation

  • Paul Tucker, 2016. "How Can Central Banks Deliver Credible Commitment and Be “Emergency Institutions†?," Book Chapters,in: Paul Tucker (ed.), Central Bank Governance & Oversight Reform, chapter 1 Hoover Institution, Stanford University.
  • Handle: RePEc:hoo:bookch:4-1
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    Cited by:

    1. Lena Huldén & Ross McKitrick & Larry Huldén, 2014. "Average household size and the eradication of malaria," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 177(3), pages 725-742, June.
    2. Gruen, David & Pagan, Adrian & Thompson, Christopher, 1999. "The Phillips curve in Australia," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 223-258, October.
    3. Luis Eduardo Arango & Wilmar Cabrera & Esteban Gómez & Juan Carlos Mendoza, 2013. "Tasa de interés de largo plazo, interés técnico y pasivo pensional," Borradores de Economia 796, Banco de la Republica de Colombia.

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