A Model of Central Bank's Accountability
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.
|Date of creation:||05 Jun 2002|
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