A Political Agency Theory of Central Bank Independence
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Summary:
We propose a theory to explain why, and under what circumstances, a politician gives up rent and delegates policy tasks to an independent agency. We apply this theory to monetary policy by extending a standard dynamic "New-Keynesian" stochastic general equilibrium model. This model gives a new theory of central bank independence that is unrelated to the standard inflation bias problem. We derive several new predictions and show that they are consistent with the data. Finally, we show that while instrument independence of the central bank is desirable, goal independence is not.
Series:
Working Paper No. 2003/144
Subject:
Banking Central bank autonomy Central banks Human resources in revenue administration Inflation Monetary policy Monetary policy frameworks Output gap Prices Production Revenue administration Tax incentives
English
Publication Date:
July 1, 2003
ISBN/ISSN:
9781451856460/1018-5941
Stock No:
WPIEA1442003
Pages:
44
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