Independently Blue? Accountability and Independence in the New European Central Bank

CEPR Discussion Paper Series Number 1842

Posted: 15 Jul 1998  

Maria Demertzis

De Nederlandsche Bank - Research Department

Andrew J. Hughes

Cardiff Business School; Centre for Economic Policy Research (CEPR); Vanderbilt University - College of Arts and Science - Department of Economics

Nicola Viegi

University of Pretoria - Department of Economics

Date Written: March 1998

Abstract

Most of the literature on the independence of the Central Bank assumes only one policy instrument is available: monetary policy. If we introduce fiscal policy as well, when preferences may differ among policy-makers, the situation is radically different. In this case fiscal policy will weaken substantially the impact of the Central Bank?s actions, and may annihilate them altogether. The Stability Pact may then be a liability, instead of an asset, because it renders both policies impotent (even if credible). We examine whether there is any incentive to retain monetary policy independence; and whether accountability can and should be used to ensure fiscal and monetary policies support each other, rather than destroy each other.

JEL Classification: E52, E63, F42

Suggested Citation

Demertzis, Maria and Hughes, Andrew J. and Viegi, Nicola, Independently Blue? Accountability and Independence in the New European Central Bank (March 1998). CEPR Discussion Paper Series Number 1842. Available at SSRN: https://ssrn.com/abstract=106386

Maria Demertzis (Contact Author)

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

HOME PAGE: http://www1.fee.uva.nl/toe/content/people/demertzis.shtm

Andrew J. Hughes Hallett

Cardiff Business School ( email )

Aberconway Building
Cardiff CF10 3EU
United Kingdom
+44 292 087 001 (Phone)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
615-322-8539 (Phone)
615-343-8495 (Fax)

Nicola Viegi

University of Pretoria - Department of Economics ( email )

Pretoria 0002
South Africa

HOME PAGE: http://www.nviegi.net

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