Who Wants an Independent Central Bank? Monetary Policy-making and Politics

• Published in: The Scandinavian journal of economics Vol. 102; no. 4; pp. 621 - 643
• Main Author: Ozkan, F. Gulcin
• Format: Journal Article
• Language: English
• Published: Oxford, UK and Boston, USA Blackwell Publishers Ltd 01.12.2000; Blackwell Publishers; Wiley Blackwell; Basil Blackwell Ltd., etc; Blackwell Publishing Ltd
• Series: Scandinavian Journal of Economics
• Subjects: Banking system; Business cycles; Central banks; Conservatism; Cooperation; Economic conditions; Economic fluctuations; Economic models; Economic policy; Financial performance; Fiscal policy; Government spending; Independence; independent central banks; Labor unions; Liberalism; Macroeconomics; monetary and fiscal authorities; Monetary policy; partisan cycles; Policy making; Political behavior; Political parties; Political partisanship; Scandinavia; Studies; Taxes
• ISSN: 0347-0520; 1467-9442; 1467-9442
• DOI: 10.1111/1467-9442.00218

The costs and benefits of cooperative monetary and fiscal policy are analysed in the framework of a partisan business-cycles model. It is shown that political parties with different ideologies prefer to choose different arrangements for macroeconomic policy-making. More specifically, right-wing parties favour independent central banks more than left-wing parties. An independent central bank is also the generally preferred option from a social welfare point of view. In addition, the form of policy-making arrangements between the fiscal and monetary authorities is shown to influence the extent of partisan cycles.