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A Theory of Central Bank Accountability

Author

Listed:
  • Eijffinger, S.C.W.

    (Tilburg University, Center For Economic Research)

  • Hoeberichts, M.M.

    (Tilburg University, Center For Economic Research)

  • Schaling, E.

Abstract

This paper develops a theory of central bank accountability. Two aspects of accountability are considered. The first one is transparency of actual monetary policy, the second aspect is the question of who bears final responsibility for monetary policy. Monetary policy is transparent if there is little uncertainty about the central bankers preferences. Transparency enhances the central bank’s accountability. Another way to make the central bank accountable is to shift final responsibility for monetary policy in the direction of the government. This can be achieved by making the cost of overriding the central bank lower. The paper shows that accountability through transparency leads to a lower expected rate of inflation and less stabilization of supply shocks. Accountability through shifting final responsibility in the direction of the government leads to higher inflationary expectations and more stabilization of supply shocks.

Suggested Citation

  • Eijffinger, S.C.W. & Hoeberichts, M.M. & Schaling, E., 1998. "A Theory of Central Bank Accountability," Discussion Paper 1998-103, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:5741a56f-3a69-41f4-b9fb-46107db2784f
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    References listed on IDEAS

    as
    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-286, March.
    3. Charles Nolan & Eric Schaling, 1996. "Monetary Policy Uncertainty and Central Bank Accountability," Bank of England working papers 54, Bank of England.
    4. J. De Haan & F. Amtenbrink & S.C.W. Eijffinger, 1999. "Accountability of central banks: aspects and quantification," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 52(209), pages 169-193.
    5. Clive Briault & Andrew Haldane & Mervyn King, 1996. "Independence and Accountability," Bank of England working papers 49, Bank of England.
    6. Helge Berger & Marcel Thum, 2000. "News Management in Monetary Policy: When Central Banks Should Talk to the Government," German Economic Review, Verein für Socialpolitik, vol. 1(4), pages 465-493, November.
    7. Stanley Fischer & Guy Debelle, 1994. "How independent should a central bank be?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 195-225.
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    Citations

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    Cited by:

    1. Winkler, Bernhard, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 0026, European Central Bank.
    2. Nergiz Dincer & Barry Eichengreen, 2009. "Central Bank Transparency: Causes, Consequences and Updates," NBER Working Papers 14791, National Bureau of Economic Research, Inc.
    3. Sousa, Pedro A. B. de, 2001. "Independent and Accountable Central Banks and the European Central Bank," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 5, July.
    4. Masciandaro, Donato & Quintyn, Marc & Taylor, Michael W., 2008. "Inside and outside the central bank: Independence and accountability in financial supervision: Trends and determinants," European Journal of Political Economy, Elsevier, vol. 24(4), pages 833-848, December.
    5. Helge Berger & Michael Ehrmann & Marcel Fratzscher, 2011. "Monetary Policy in the Media," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 689-709, June.
    6. Andrade, E., 2002. "Bacen e BCs Selecionados: Uma Analise Comparativa do Nivel de Transparencia," Insper Working Papers wpe_13, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    7. N. Nergiz Dincer & Barry Eichengreen, 2007. "Central Bank Transparency: Where, Why, and with What Effects?," NBER Working Papers 13003, National Bureau of Economic Research, Inc.
    8. Helge Berger & Marcel Thum, 2000. "News Management in Monetary Policy: When Central Banks Should Talk to the Government," German Economic Review, Verein für Socialpolitik, vol. 1(4), pages 465-493, November.
    9. Marc Quintyn, 2009. "Independent agencies: more than a cheap copy of independent central banks?," Constitutional Political Economy, Springer, vol. 20(3), pages 267-295, September.
    10. Alesina, Alberto & Wacziarg, Romain, 1999. "Is Europe going too far?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 1-42, December.
    11. Mike Artis, 2002. "The Performance of the European Central Bank," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(1), pages 19-29.
    12. Francesca Castellani, 2001. "Central Bank Independence and Accountability Under Complete Information," IHEID Working Papers 05-2001, Economics Section, The Graduate Institute of International Studies.
    13. Eijffinger, Sylvester C W & Hoeberichts, Marco, 2002. "Central Bank Accountability and Transparency: Theory and Some Evidence," International Finance, Wiley Blackwell, vol. 5(1), pages 73-96, Spring.
    14. Pierre L. Siklos, 2003. "Assessing the Impact of Changes in Transparency and Accountability at the Bank of Canada," Canadian Public Policy, University of Toronto Press, vol. 29(3), pages 279-299, September.
    15. Pierre-Richard Agénor, 2002. "Monetary Policy under Flexible Exchange Rates: An Introduction to Inflation Targeting," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 3, pages 079-170, Central Bank of Chile.
    16. Jan Libich, 2006. "Inflexibility Of Inflation Targeting Revisited: Modeling The "Anchoring" Effect," CAMA Working Papers 2006-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    17. Alessandro Gambini & Salim M. Darbar & Marco Arnone, 2007. "Banking Supervision; Quality and Governance," IMF Working Papers 07/82, International Monetary Fund.
    18. C.J.M. Kool & S. Rosenkranz & M. Middeldorp, 2007. "Listening Without Understanding : Central Bank Transparency, Financial Markets and the Crowding Out of Private Information," Working Papers 07-19, Utrecht School of Economics.
    19. Siklos, Pierre L., 2000. "Monetary policy transparency, public commentary, and market perceptions about monetary policy in Canada," Discussion Paper Series 1: Economic Studies 2000,08, Deutsche Bundesbank.
    20. Winkler, Bernhard, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 26, European Central Bank.
    21. Andrew Hallett & Jan Libich, 2012. "Explicit inflation targets and central bank independence: friends or foes?," Economic Change and Restructuring, Springer, vol. 45(4), pages 271-297, November.

    More about this item

    Keywords

    monetary policy; central banks; transparency; accountability;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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