Political Pressures and Monetary Mystique

32 Pages Posted: 12 Jun 2007

See all articles by Petra M. Geraats

Petra M. Geraats

University of Cambridge - Faculty of Economics and Politics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2007

Abstract

Central bank independence and transparency have become best practice in monetary policy. This paper cautions that transparency about economic information may not be beneficial in the absence of central bank independence. The reason is that it reduces monetary uncertainty, which could make the government less inhibited to interfere with monetary policy. In fact, a central bank could use monetary mystique to obtain greater insulation from political pressures, even if the government faces no direct cost of overriding. As a result, economic secrecy could be beneficial and provide the central bank greater political independence.

Keywords: transparency, monetary policy, political pressures

JEL Classification: E58, E52, D82

Suggested Citation

Geraats, Petra, Political Pressures and Monetary Mystique (May 2007). CESifo Working Paper Series, No. 1999, Available at SSRN: https://ssrn.com/abstract=993010 or http://dx.doi.org/10.2139/ssrn.993010

Petra Geraats (Contact Author)

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