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The political economy of monetary policy conduct and central bank design

  • Manfred Gärtner

    ()

This paper provides a concise overview of the state of the art on monetary policy and central banking from a public choice perspective. It starts with a brief look at the roots of today’s view of monetary policy conduct and the design of pertinent institutions in early work on political business cycles, and then proceeds to a discussion of the inflationstabilization dilemma along with proposed solutions in the form of central bank independence and conservativeness, incentive contracts, and inflation policy targets. The last section addresses current developments. These include the proper choice of monetary policy targets, the role of New Keynesian and sticky-information aggregate-supply curves and the quest for simple and efficient rules for monetary policy that has been triggered by the proposal and widespread polularity of the Taylor rule.

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File URL: http://ux-tauri.unisg.ch/RePEc/usg/dp2006/DP25_Ga.pdf
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2006 with number 2006-25.

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Length: 36 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:usg:dp2006:2006-25
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  18. MacRae, C Duncan, 1977. "A Political Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 239-63, April.
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  25. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
  26. 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.
  27. Demertzis, Maria & Hughes Hallett, Andrew, 1999. "An Independent Central Bank Faced With Elected Governments," CEPR Discussion Papers 2219, C.E.P.R. Discussion Papers.
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  29. Forder, James, 1998. "The case for an independent European central bank: A reassessment of evidence and sources," European Journal of Political Economy, Elsevier, vol. 14(1), pages 53-71, February.
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