The Monetary Phoenix: Central Bank Independence from the Great Inflation to the Great Recession

35 Pages Posted: 21 Dec 2013 Last revised: 28 Nov 2014

See all articles by Donato Masciandaro

Donato Masciandaro

Bocconi University - Department of Economics; Bocconi University - Department of Economics (ECO)

Date Written: November 2014

Abstract

This paper analyzes the pillar of the modern central bank governance – independence – offering three contributions. After a systematic review of the economics of central bank independence, a principal agent model is used to design a political economy framework, which explains how the politicians can shape the central bank governance in addressing macroeconomic shocks, taking into account both the wishes of the citizens and their own personal interests. The framework is used to interpret the evolution of the central bank independence from the Great Inflation and during the Great Moderation – i.e. from the seventies to the first decade of the twenty-first century – and then to discuss how it can be shaken by the recent reforms of the central bank settings activated by the Great Recession, which are increasing the central bank involvement in banking supervision.

Keywords: Monetary Policy, Central bank Governance, Central Bank Independence, Banking Supervision, Global Financial Crisis, Political Cycle, Principal Agent

JEL Classification: E31, E52, E58, E62

Suggested Citation

Masciandaro, Donato, The Monetary Phoenix: Central Bank Independence from the Great Inflation to the Great Recession (November 2014). Baffi Center Research Paper No. 2013-147, Available at SSRN: https://ssrn.com/abstract=2370273 or http://dx.doi.org/10.2139/ssrn.2370273

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Bocconi University - Department of Economics (ECO) ( email )

Via Gobbi 5
Milan, 20136
Italy

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