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The Cost of Political Intervention in Monetary Policy

Author

Listed:
  • David Cobham
  • Athanasios Papadopoulos

    (Crete)

  • George Zis

    (Manchester Metropolitan)

Abstract

Data from a unique monetary 'experiment' conducted in the UK during the period 1994-97 are used to investigate the cost of political intervention in monetary policy. The paper finds that the difference between government bond yields in Germany (but not the US) and the UK was systematically related to an index of the credibility of monetary policy constructed on the basis of the frequency of agreements / disagreements between the Minister of Finance who took the decisions on interest rates and the Bank of England, whose recommendations were published with a lag, with disagreements causing an increase in the yield differential.

Suggested Citation

  • David Cobham & Athanasios Papadopoulos & George Zis, 2001. "The Cost of Political Intervention in Monetary Policy," Discussion Paper Series, Department of Economics 200114, Department of Economics, University of St. Andrews.
  • Handle: RePEc:san:wpecon:0114
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    File URL: http://www.st-andrews.ac.uk/~wwwecon/papers/dp0114.pdf
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    Keywords

    monetary policy; time-inconsistency; credibility.;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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