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A Model of Central Bank's Accountability

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  • francesca castellani

    () (IUHEI)

Abstract

This paper describes a mechanism by which the government manages to hold the appointed monetary authorities accountable for their policies. Asymmetric information about central bank's preferences proxies the "democratic deficit", evoked to justify the call for accountability. Three main results emerge from the model. First, a clear distinction is drawn between accountability and transparency. Accountability is modelled as an ex-post political intervention, relating to the scrutiny of monetary policy decisions by the government, and transparency is described as an ex-ante decision of the CB about its own communication strategy.Second, accountability requirements imposed by the government help mitigate the shortcomings of asymmetric information (uncertain CB's preferences), thereby moderating the "democratic deficit". Third, the "optimal" stringency of the accountability requirements is investigated.

Suggested Citation

  • francesca castellani, 2002. "A Model of Central Bank's Accountability," IHEID Working Papers 04-2002, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heiwp04-2002
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    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP02-2002.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Xavier Debrun, 2006. "Tying hands is not commitment: can fiscal rules and institutions really enhance fiscal discipline?," Working Papers 48, Bruegel.
    2. Mihailov, Alexander & Ullrich, Katrin, 2007. "Independence and Accountability of Monetary and Fiscal Policy Committees," ZEW Discussion Papers 07-044, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Katrin Ullrich, 2007. "Introducing Instruments of Central Bank Accountability in a Monetary Union," Open Economies Review, Springer, pages 239-262.
    4. Xavier Debrun & Manmohan S. Kumar, 2007. "The Discipline-Enhancing Role of Fiscal Institutions; Theory and Empirical Evidence," IMF Working Papers 07/171, International Monetary Fund.
    5. Kambhampati, Uma S. & Rajan, Raji, 2006. "Economic growth: A panacea for child labor?," World Development, Elsevier, pages 426-445.

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    Keywords

    central bank accountability; transparency;

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