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Political Consensus, Uncertain Preferences and Central Bank Independence

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  • Anton Muscatelli

Abstract

Models where monetary policy is delegated to an independent central bank using contracts or targets usually assume that the preferences of the principal and the agent are known with certainty. However, if there is no consensus in society about the relative costs of inflation and output stabilization, the delegation solution may not produce a better outcome for the median voter than discretion. This paper examines the robustness of the institutional solutions to the credibility problem with uncertain preferences. The author also examines the related issue of whether political parties have an interest in moving towards central bank independence. Copyright 1998 by Royal Economic Society.
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  • Anton Muscatelli, 1996. "Political Consensus, Uncertain Preferences and Central Bank Independence," Working Papers 9615, Business School - Economics, University of Glasgow, revised Nov 1996.
  • Handle: RePEc:gla:glaewp:9615
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    Cited by:

    1. Darby, Julia & Li, Chol-Won & Muscatelli, V. Anton, 2004. "Political uncertainty, public expenditure and growth," European Journal of Political Economy, Elsevier, vol. 20(1), pages 153-179, March.
    2. Beetsma, Roel M.W.J. & Lans Bovenberg, A., 2006. "Political shocks and public debt: The case for a conservative central bank revisited," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 1857-1883, November.
    3. Anton Muscatelli & Carmine Trecroci, 2000. "Monetary Policy Rules, Policy Preferences, and Uncertainty: Recent Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 14(5), pages 597-627, December.

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