What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years

The aim of this paper is to review the historical development of monetary policy theory since the 1980s using as focal point the nexus among central bank governance, central banker preferences and monetary policy effectiveness. Assuming a positive perspective the review highlights three subsequent but overlapping stages: modern economics, advanced political economy and behavioural economics. First, the central bank emerged as an independent institution. Second, conservative central bankers were viewed as bureaucrats who used committees to make monetary policy decisions, where the differentiation between hawks and doves gained momentum. Third, more recent research focused on the fact that psychology can matter for explaining how central bankers reach their decisions. The traditional distinction has been enriched with pigeons and swingers.