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The Politics of Monetary Policy

  • Alberto F. Alesina
  • Andrea Stella

In this paper we critically review the literature on the political economy of monetary policy, with an eye on the questions raised by the recent financial crisis. We begin with a discussion of rules versus discretion. We then examine the issue of Central Banks independence both in normal times, in times of crisis. Then we review the literature of electoral manipulation of policies. Finally we address international institutional issues concerning the feasibility, optimality and political sustainability of currency unions in which more than one country share the same currency. A brief review of the Euro experience concludes the paper.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15856.

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Date of creation: Apr 2010
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Publication status: published as Alesina, Alberto, Andrea Stella, B Friedman, and M Woodford. 2011. The Politics of Monetary Policy. In Handbook of Monetary Economics, Ch. 8 1000-1054. Amsterdam: North Holland.
Handle: RePEc:nbr:nberwo:15856
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