An Independent Central Bank Faced With Elected Governments

Maria Demertzis and Andrew Hughes Hallett

No 2219, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The literature argues that the benefits of an independent Central Bank accrue at no cost to the real side. In this paper, we argue that the lack of correlation between monetary autonomy and output variability is due to the proactive role of fiscal policy when faced with rigid monetary objectives. None of the attempts in the literature to measure these correlations allow for a changing fiscal role. As monetary policy is handled by an independent authority, fiscal and wage/social protection policies remain an instrument in the hands of national governments. We find that so long as the two authorities pursue their goals independently of each other, a conflict arises which is exacerbated as preferences diverge. Further to that we find that the establishment of a conservative Central Bank encourages more left-wing preferences amongst the public (as reflected in the governments they elect). And the election of more left-wing governments makes it more difficult for each authority to reach their own preferred objectives, unless they are able to cooperate.

Keywords: Accountability; Central Bank Independence; Fiscal Policy; political uncertainty (search for similar items in EconPapers)
JEL-codes: E52 E63 F42 (search for similar items in EconPapers)
Date: 1999-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2219 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: An independent central bank faced with elected governments (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:2219

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=2219

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().