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The institutional paradoxes of monetary orthodoxy: reflections on the political economy of central bank independence

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Watson, Matthew. (2002) The institutional paradoxes of monetary orthodoxy: reflections on the political economy of central bank independence. Review of International Political Economy, Vol.9 (No.1). pp. 183-196. ISSN 0969-2290

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Official URL: http://dx.doi.org/10.1080/09692290110101153

Abstract

There can be no doubting the increasing importance of central banks to processes of international economic management.1 Whilst the names of prominent central bankers may be less well known than those of politicians, and whilst the functions their banks perform receive scant public recognition, the decisions taken by central bankers have a significant bearing on the conduct of everyday life.

Item Type:

Journal Article

Subjects:

H Social Sciences > HG Finance

Divisions:

Faculty of Social Sciences > Politics and International Studies

Library of Congress Subject Headings (LCSH):

Banks and banking, Central -- Research, International economic relations, Inflation (Finance), Fiscal policy, Economic policy

Journal or Publication Title:

Review of International Political Economy

Publisher:

Routledge

ISSN:

0969-2290

Official Date:

March 2002

Dates:

Date	Event
March 2002	UNSPECIFIED

Volume:

Vol.9

Number:

No.1

Page Range:

pp. 183-196

Identification Number:

10.1080/09692290110101153

Status:

Peer Reviewed

Access rights to Published version:

Open Access

References:

* 1. See Alesina, Alberto and Summers, Lawrence (1993) 'Central bank independence and macroeconomic performance: some comparative evidence', Journal of Money, Credit, and Banking 25: 151-62.
* 2. Posen, Adam (1993) "Why central bank independence does not cause low inflation: there is no institutional fix for polities', in Richard O'Brien (ed.) Finance and the International Economy, 7, Oxford: Oxford University Press.
* 3. Kydland, Fynn and Prescott, Edward (1977) 'Rules rather than discretion: the inconsistency of optimal plans', Journal of Political Economy 82: 273-86.
* 4. Blinder, Alan (1999) Central Banking in Theory and Practice, paperback edition, Cambridge, MA: MIT Press, ch. 2, pp. 25-51.
* 5. See Blatt, John (1983) 'How economists misuse mathematics', in Alfred Eichner (ed.) Why Economics is Not Yet a Science, Macmillan: London, p. 171.
* 6. Persson, Torsten and Tabellini, Guido (1990) Macroeconomic policy, credibility and politics, London: Harwood Academic Publishers.
* 7. Bernanke, Ben; Laubach, Frederic; Mishkin, Thomas and Posen, Adam (1999) Inflation Targeting: Lessons from the International Experience, Princeton, NJ: Princeton University Press, p. 17.
* 8. Friedman, Milton (1968) "The role of monetary policy', American Economic Review 58: 1-17; Phelps, Edmund (1968) 'Money wage dynamics and labor market equilibrium'. Journal of Political Economy 76: 678-711.
* 9. Grilli, Vittorio, Masciandaro, Donate and Tabellini, Guido (1991) 'Political and monetary institutions and public financial policies in the industrial economies', Economic Policy 13: 342-92.
* 10. On which, see Pierson, Paul (1997) 'Increasing returns, path dependence and the study of polities', Jean Monnet Chair Papers 44, Florence: Robert Schuman Centre at the European University Institute.
* 11. For authoritative reviews of the relevant theoretical literature, see Cohen, Benjamin (1977) Organizing the World's Money: The Political Economy of International Monetary Relations, London: Macmillan; Aglietta, Michel (1979) A Theory of Capitalist Regulation, London: New Left Books.
* 12. While these were the prevalent assumptions about inflation during the 1970s, much of the authoritative academic analysis outlining the theoretical basis of such assumptions appeared in retrospective studies published some time later. See, for instance, Dreyer, Jacob, Haberler, Gottfried and Willett, Thomas (1982) The International Monetary System: A Time of Turbulence, Washington, DC: American Enterprise Institute for Public Policy Research; Bruno, Michael and Sachs, Jeffrey (1985) Economics of Worldwide Stagflation, Oxford: Blackwell.
* 13. For a recent review of this literature, see Ostmp, Finn (2000) Money and the Natural Rate of Unemployment, Cambridge: Cambridge University Press.
* 14. Much of what is now recognized as the seminal academic literature on this issue was written in the 1980s. See, for instance, Backus, David and Driffill, John (1985) 'Inflation and reputation', American Economic Review 75: 530-8; Minford, Patrick (1988) 'A political model of credibility', CEPR Working Paper 225. However, it was only in the 1990s that this became the standard explanation of inflation. See Persson, Torsten and Tabellini, Guido (1994) Monetary and Fiscal Policy -- Vol. 1: Credibility, Cambridge, MA: MIT Press.
* 15. Campillo, Marta and Miron, Jeffrey (1997) 'Why does inflation differ across countries?', in Christina Romer and David Romer (eds) Reducing Inflation, Chicago: University of Chicago Press, p. 336, 356.
* 16. For a similar account, see Taylor, John (1997) 'Comment', in Christina Romer and David Romer (eds) Reducing Inflation, Chicago: University of Chicago Press.
* 17. Tabb, William (1999) Reconstructing Political Economy: The Great Divide in Economic Thought, London: Routledge.
* 18. Blinder, A. (1999) Central Banking in Theory and Practice, p. 60.