Bankers, Bureaucrats, and Central Bank Politics: The Myth of by Christopher Adolph

By Christopher Adolph

So much reports of the political financial system of cash specialise in the legislation conserving important banks from govt interference; this e-book turns to the missed those that really make financial coverage judgements. utilizing formal concept and statistical facts from dozens of relevant banks around the built and constructing worlds, this booklet exhibits that financial coverage brokers aren't the entire related. Molded via particular expert and sectoral backgrounds and pushed by way of profession matters, significant bankers with diverse profession trajectories opt for predictably diverse financial rules. those alterations undermine the common trust that vital financial institution independence is a impartial resolution for macroeconomic administration. in its place, via cautious choice and retention of critical bankers, partisan governments can and do impact financial coverage - protecting a political trade-off among inflation and genuine monetary functionality even in an age of legally self sufficient primary banks.

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For a study of “budget-maximizing” central bankers, see Toma (). However, there is little recent work on monetary policy in this vein. Because central banks usually have a (large) excess of cash to remit to the central government, the budget-maximizing bureaucrat of public choice analysis has little explanatory power, unless one makes hardto-justify assumptions (such as that central banks can keep only a small, constant proportion of their excess revenues).  That leaves four motives: technocracy, careers, policy, and socialization.

Monetary policy has real economic effects when wage bargainers have some wage-setting power. The central question of this literature is whether – and at what cost in unemployment – central banks can persuade or force unions to accept non-inflationary wage contracts. To date, empirical tests of this question have been impoverished by the lack of measures of central bank conservatism, which I remedy in Chapter . The real-world implications are potentially quite large: I find that in either highly decentralized labor markets like the United States, or in highly centralized labor markets like Sweden, increasing the career conservatism of central bankers can raise unemployment by two points or more, suggesting a return of the inflation–unemployment trade-off.

The Danish central bank was quite independent, but no more so in the early s than in the  Even central bankers occasionally lose their composure. To a group of state legislators complaining about the burden of high interest rates on farmers, Paul Volcker once said “Look, your constituents are unhappy, mine aren’t” (Greider, , ). But who did Volcker see as his constituents? Banks? The president? Congress? “The people”? 3. The limits of institutional explanations of inflation: an example.

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