The trade-off between central bank independence and conservatism in a New Keynesian frameworkSylvester Eijffinger () and Marco Hoeberichts () European Journal of Political Economy, 2008, vol. 24, issue 4, pages 742-747 Abstract: The purpose of this paper is to discuss the issue of Treaty reform and its consequences for monetary policy. Inter alia, the changes include that the institutional set-up will be subtly changed and the European Central Bank (ECB) will be grouped in the first part of the Treaty as one of the "other institutions and advisory bodies". Possibly more importantly, the euro area as such will be in the position to act legally as itself within the European Union (EU) legal structures. The Eurogroup also will be officially recognized ("Euro-Ecofin-Council"). President Jean-Claude Trichet's concern about the status of the ECB under the new Treaty and fear that by including the bank in a list of EU institutions implies a risk that EU member states could formulate policy recommendations to the ECB, but may also lead to more central bank conservatism with the ECB as explained in our analysis. In this paper we analyze the trade-off between central bank independence and conservatism with New Keynesian framework following Woodford [Woodford, M., 2003. Interest and prices: foundations of a theory of monetary policy. Princeton University Press, Princeton.] and others. Our conclusion is that the trade-off between central bank independence and conservatism still holds within the New Keynesian framework. Politicians should therefore realize that their attempts to downgrade ECB's independence legally and verbally will only increase its conservatism in order to maintain the same inflationary bias and limit the ECB's degrees of freedom with respect to its interest rate policy. Keywords: Monetary; policy; Transparency; Central; bank; independence; Conservatism (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:eee:poleco:v:24:y:2008:i:4:p:742-747 Access Statistics for this article European Journal of Political Economy is edited by J. De Haan, A. L. Hillman and H. W. Ursprung More articles in European Journal of Political Economy from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
Swedish Business School at Örebro University.