The Politics Of Monetary Policy

Date Added: May 2010
Format: PDF

In this paper the authors critically review the literature on the political economy of monetary policy, with an eye on the questions raised by the recent financial crisis. They begin with a discussion of rules versus discretion. They then examine the issue of Central Banks' independence both in normal times and in times of crisis. They then review the literature of electoral manipulation of policies. Finally they address international institutional issues concerning the feasibility, optimality and political sustainability of currency unions in which more than one country share the same currency. A brief review of the Euro experience concludes the paper.