Central bank independence: monetary policies in selected jurisdictions (I)
Even though the Congress and the Administration are responsible for determining fiscal policy measures, these measures impact the Fed Reserve's monetary policy decisons. The indirect effect of fiscal policy on the conduct of monetary policy through its influence on the overall economy and the economic outlook and the impact of federal tax and spending programs on the Fed Reserve' s key macroeconomic objectives - maximum employment and price stability, is notable in several situations and instances. Hence, how independent is the Fed Reserve really from government and fiscal policy influences? Could it not be said that the Government really has a dual role in fiscal and monetary policy setting?Would it really be in the interest of accountability to delegate more powers to an already relatively powerful Fed Reserve? Recent changes in the delegation of supervisory responsibilities in the UK, namely the transfer of bank supervision from the Financial Services Authority back to the Bank of England, and the resulting increased scope of the Bank of England's powers, would appear to suggest that in certain cases, regulatory bodies as well as central banks, should assume greater functions in certain capacities. Accordingly, jurisdiction specific cases have to be viewed individually and based on prevailing circumstances. Whilst it is argued by some, that a reduction in central bank autonomy by subjecting its actions and decisions to legislative procedures and approvals, could result in more serious problems which would aggravate the stability of the economy and financial system, consequences of lack of close collaboration, coordination and timely exchange of information between tripartite authorities such as the relationship which exists between the UK's Financial Services Authority, the Bank of England and the Treasury were witnessed during the Northern Rock Crisis. Hence it could be argued that the problem does not necessarily relate to a subjection of actions and decisions for approvals, but how well the authorities involved are able to communicate and coordinate information between them effectively. Subjecting actions and decisions of the central bank to other authorities could actually incorporate greater accountability and transparency into the supervisory and regulatory framework. Through an investigation of selected jurisdictions, this paper aims to contribute to the extant literature in investigating the relationship between central bank independence and price stability, as well as how such a relationship varies between different jurisdictions – even though it is widely argued that political and legislative interference is often contributory to price instability.
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