Central Bank Strategy, Credibility, and Independence: Theory and Evidence

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Description

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 latest 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 more than a few 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 subsequently inflation, don’t seem to be exogenous. They’re influenced by interactions involving distributional considerations, private information, personal motives, and the political environment. This point of view makes it conceivable to identify the institutional, political, and other features of a country that can 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 america 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 speak about the effect of this change on the commitment to price stability.

The book includes simple and advanced materials in addition to informal summaries of the major technical results. The introduction contains a modular guide for reading and teaching the material.

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