Bashing and Coercion in Monetary Policy

Christopher Waller

Economic Inquiry, 1991, vol. 29, issue 1, 1-13

Abstract: Political pressure, or "bashing," by the administration is typically believed to be one way that the administration can coerce an otherwise independent central bank into following the administration's preferred monetary policy path. This paper develops a model for analyzing this type of policy "cooperation" and demonstrates that bashing the central bank creates uncertainty on the part of private agents with regard to future policy actions, which translates into real wage and output variability. Hence, although beneficial to the administration, political pressure creates uncertainty and thus economic instability. Copyright 1991 by Oxford University Press.

Date: 1991
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