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Modern Approaches to Central Banking

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  • Stanley Fischer

Abstract

Modern theory has delivered both the conservative central banker and the principal-agent approaches as rationales for the independence of the central bank. The principal-agent approach directs attention to the importance of both clearly defining the goals of the central bank and its command in order to meet the targets assigned to it. The empirical evidence shows not only that greater independence is associated with lower inflation, but also that the central bank's rights not to finance the government and to set interest rates independently increase its effectiveness. The role of inflation targeting and the distinction between price level and inflation targeting are also analyzed.

Suggested Citation

  • Stanley Fischer, 1995. "Modern Approaches to Central Banking," NBER Working Papers 5064, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5064
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    File URL: http://www.nber.org/papers/w5064.pdf
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    Cited by:

    1. Gartner, Manfred, 2000. " Political Macroeconomics: A Survey of Recent Developments," Journal of Economic Surveys, Wiley Blackwell, vol. 14(5), pages 527-561, December.
    2. Pekarski, Sergey, 2011. "Budget deficits and inflation feedback," Structural Change and Economic Dynamics, Elsevier, vol. 22(1), pages 1-11, February.
    3. repec:bor:iserev:v:10:y:2010:i:38:p:1-24 is not listed on IDEAS
    4. Guender, Alfred V. & Oh, Do Yoon, 2006. "Price stability through price-level targeting or inflation targeting? A tale of two experiments," Journal of Economics and Business, Elsevier, vol. 58(5-6), pages 373-391.
    5. Erwin Jericha & Martin Schürz, 2006. "A Deliberative Independent Central Bank," Working Papers 133, Oesterreichische Nationalbank (Austrian Central Bank).
    6. repec:bor:iserev:v:10:y:2010:i:38:p:43-62 is not listed on IDEAS
    7. repec:bor:iserev:v:10:y:2010:i:38:p:25-42 is not listed on IDEAS
    8. Berger, Helge & Jensen, Henrik & Schjelderup, Guttorm, 2001. "To peg or not to peg?: A simple model of exchange rate regime choice in small economies," Economics Letters, Elsevier, vol. 73(2), pages 161-167, November.
    9. Rousseau, Peter L. & Yilmazkuday, Hakan, 2009. "Inflation, financial development, and growth: A trilateral analysis," Economic Systems, Elsevier, vol. 33(4), pages 310-324, December.
    10. repec:sdb:social:v:6:y:2017:i:1:p:25-33 is not listed on IDEAS
    11. Beetsma, Roel M W J & Jensen, Henrik, 1998. "Inflation Targets and Contracts with Uncertain Central Banker Preferences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 384-403, August.
    12. McCallum, Bennett T., 1999. "Issues in the design of monetary policy rules," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 23, pages 1483-1530 Elsevier.
    13. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    14. Peter L. Rousseau & Hakan Yilmazkuday, 2009. "Inflation, Finance, and Growth: A Trilateral Analysis," Vanderbilt University Department of Economics Working Papers 0916, Vanderbilt University Department of Economics.
    15. Gurupdesh S. Pandher, 2007. "Modelling & Controlling Monetary and Economic Identities with Constrained State Space Models," International Statistical Review, International Statistical Institute, vol. 75(2), pages 150-169, August.
    16. Bryan Chapple, 2006. "Monetary policy strategies and credibility - theory and practice," DNB Occasional Studies 404, Netherlands Central Bank, Research Department.
    17. repec:onb:oenbwp:y::i:133:b:1 is not listed on IDEAS
    18. Kiyutsevskaya, Anna & Narkevich, Sergei & Trunin, Pavel, 2016. "The Transformation of the Role and Tasks of the Central Bank (Monetary Authorities) in the Modern Economy," Working Papers 2136, Russian Presidential Academy of National Economy and Public Administration.
    19. Anita Tuladhar, 2005. "Governance Structures and Decision-Making Roles in Inflation-Targeting Central Banks," IMF Working Papers 05/183, International Monetary Fund.

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