A Theory of Central Bank Accountability

CentER Discussion Paper Series No. 1998-103

Posted: 10 Aug 1999

See all articles by Sylvester C. W. Eijffinger

Sylvester C. W. Eijffinger

Tilburg University (CentER) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Marco Hoeberichts

De Nederlandsche Bank - Research Department

Eric Schaling

Rand Afrikaans University - Department of Economics; Bank of England

Multiple version iconThere are 2 versions of this paper

Date Written: 1998

Abstract

This paper develops a theory of central bank accountability. Two aspects of accountability are considered. The first one is transparency of actual monetary policy, the second aspect is the question of who bears final responsibility for monetary policy. Monetary policy is transparent if there is little uncertainty about the central bankers preferences. Transparency enhances the central bank's accountability. Another way to make the central bank accountable is to shift final responsibility for monetary policy in the direction of the government. This can be achieved by making the cost of overriding the central bank lower. The paper shows that accountability through transparency leads to a lower expected rate of inflation and less stabilization of supply shocks. Accountability through shifting final responsibility in the direction of the government leads to higher inflationary expectations and more stabilization of supply shocks.

JEL Classification: E52, E58

Suggested Citation

Eijffinger, Sylvester C. W. and Hoeberichts, Marco M. and Schaling, Eric, A Theory of Central Bank Accountability (1998). CentER Discussion Paper Series No. 1998-103. Available at SSRN: https://ssrn.com/abstract=165653

Sylvester C. W. Eijffinger (Contact Author)

Tilburg University (CentER) - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Marco M. Hoeberichts

De Nederlandsche Bank - Research Department ( email )

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Netherlands
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Eric Schaling

Rand Afrikaans University - Department of Economics ( email )

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South Africa
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Bank of England

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