Political Voice on Monetary Policy: Evidence from the Parliamentary Hearings of the European Central Bank

38 Pages Posted: 7 Apr 2021

See all articles by Donato Masciandaro

Donato Masciandaro

Bocconi University - Department of Economics

Federico Maria Ferrara

London School of Economics and Political Science

Manuela Moschella

Scuola Normale Superiore

Davide Romelli

Trinity College (Dublin) - Department of Economics; Trinity College (Dublin)

Date Written: April 6, 2021

Abstract

Previous scholarship on central bank accountability has generally focused on monetary authorities' deeds and words while largely ignoring the other side of the accountability relationship, namely politicians’ voice on monetary policy. This raises a fundamental question: what are central banks held accountable for by elected officials? To answer this question, we employ structural topic models on a new dataset of the Monetary Dialogues between the Members of the European Parliament (MEPs) and the President of the European Central Bank (ECB) from 1999 to 2019. Our findings are twofold. First, we uncover differences in how MEPs keep the ECB accountable for its primary, price stability objective. We show that European politicians also attempt to keep the central bank accountable for a broader set of issues that are connected with, but distinct from, the central bank's primary goal. Second, we show that unemployment is a key explanatory variable for the political voice articulated by individual MEPs in accountability settings. In particular, higher rates of domestic unemployment lead MEPs to devote less voice on issues related to the ECB’s price stability mission. These findings reveal the existence of a "political" Phillips curve reaction function, which enriches our understanding of the principal-agent accountability relationship between politicians and central bankers.

Keywords: Accountability, European Central Bank, politicians, European Parliament

JEL Classification: E50, E52, E58

Suggested Citation

Masciandaro, Donato and Ferrara, Federico Maria and Moschella, Manuela and Romelli, Davide, Political Voice on Monetary Policy: Evidence from the Parliamentary Hearings of the European Central Bank (April 6, 2021). BAFFI CAREFIN Centre Research Paper No. 2021-159, Available at SSRN: https://ssrn.com/abstract=3820745 or http://dx.doi.org/10.2139/ssrn.3820745

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Federico Maria Ferrara

London School of Economics and Political Science ( email )

Houghton St
Holborn
London, WC2A 2AE
United Kingdom

Manuela Moschella

Scuola Normale Superiore ( email )

Piazza dei Cavalieri, 7
Pisa, 56126
Italy

Davide Romelli

Trinity College (Dublin) - Department of Economics ( email )

Arts Building
Room 3014
Dublin
Ireland

Trinity College (Dublin) ( email )

2-3 College Green
Dublin, Leinster D2
Ireland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
37
Abstract Views
266
PlumX Metrics