An Independent Central Bank faced with Elected Government: A Political Economy Conflict
Andrew Hughes Hallett and
Nicola Viegi ()
WO Research Memoranda (discontinued) from Netherlands Central Bank, Research Department
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. Few of the attempts to measure these correlations actually allow for a changing fiscal role. Yet, when monetary policy is handled by an independent authority, fiscal and wage/social protection policies remain as an instrument in the hands of elected governments. We find that, so long as the two authorities pursue their goals independently of each other, a conflict arises which becomes stronger as preferences diverge. Further to that, we find that the establishment of a conservative Central Bank encourages more divergent preferences amongst the public (as reflected in the governments they elect). The election of more interventionist governments then makes it harder for either authority to reach their own preferred objectives, unless they are able to co-operate.
Keywords: Central Bank Independence; Accountability; Fiscal policy; Political Uncertainty (search for similar items in EconPapers)
JEL-codes: E52 E63 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:dnb:wormem:686
Access Statistics for this paper
More papers in WO Research Memoranda (discontinued) from Netherlands Central Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Richard Heuver ().