Central Bank Strategy, Credibility, and Independence: Theory and Evidence
Alex Cukierman is well known for his work on central bank behavior. This book brings together a large body of Cukierman's research and integrates it with recent developments in the political economy of monetary policy. Filled with applications and carefully worked out technical detail, it provides a valuable comprehensive analysis of central bank decisions, of the various effects of policy on inflation, and of the feedback from inflationary expectations to policy choices.
Cukierman uncovers and analyzes the reasons for positive inflation and rates of monetary expansion. He shows that the money supply, and therefore inflation, are not exogenous. They are influenced by interactions involving distributional considerations, private information, personal motives, and the political environment. This point of view makes it possible to identify the institutional, political, and other features of a country that may be conducive to inflationary environments.
Cukierman presents new multidimensional evidence on both legal and actual central bank independence for a sample of up to 70 countries and uses it to investigate the interconnections between the distributions of inflation and of central bank independence. He takes up such issues as why some countries have more independent central banks than others and identifies reasons for the substantial cross country variation in seigniorage. He provides positive explanations for the tendency of central banks, like the US Federal Reserve, to smooth interest rates and to be secretive. Observing that it is likely that the European Economic Community will have a monetary union before the turn of the century, Cukierman applies the techniques of modern political economy to discuss the effect of this change on the commitment to price stability.
The book includes simple and advanced materials as well as informal summaries of the major technical results. The introduction contains a modular guide for reading and teaching the material.
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Overview of Part I
The Revenue Motive for Monetary Expansion
The Mercantilistic or BalanceofPayments Motive
Comparison of Policy Outcomes under a System
The Financial Stability Motive Interest Rate Smoothing
Overview of Models of Monetary Policy with Private
The Employment Motive in the Presence of a Minimal
Partial Disclosure of Policy and Its Effect on Policy
Why Does Inflation Persist?Theories of Monetary
Signaling and Private Information about the Ability
High Concern about Price Stability
Aspects of Central Bank Independence and Their Impact
The Measurement of Central Bank Independence
Inflation and Central Bank Independence
Ranking of Central Banks by an Overall Index
An Extended Information Advantage about Central Bank
Alternative Notions of Credibility and Reputation
Velocity Shocks Politics Signaling Inflation Persistence
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