Independently Blue? Accountability and Independence in the New European Central Bank

Maria Demertzis and Andrew Hughes Hallett

No 1842, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Most of the literature on the independence of the Central Bank assumes only one policy instrument is available: monetary policy. If we introduce fiscal policy as well, when preferences may differ among policy-makers, the situation is radically different. In this case fiscal policy will weaken substantially the impact of the Central Bank’s actions, and may annihilate them altogether. The Stability Pact may then be a liability, instead of an asset, because it renders both policies impotent (even if credible). We examine whether there is any incentive to retain monetary policy independence; and whether accountability can and should be used to ensure fiscal and monetary policies support each other, rather than destroy each other.

Keywords: asymmetries; Cooperation; Fiscal-monetary interactions; incentives for independence; Monetary Union (search for similar items in EconPapers)
JEL-codes: E52 E63 F42 (search for similar items in EconPapers)
Date: 1998-03
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Citations: View citations in EconPapers (13)

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