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When should central bankers be fired?

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  • Carl E. Walsh

Abstract

In recent years, a number of countries have changed their central banking institutions. Often these reforms involve granting long terms of office to central bankers. This threatens to limit the extent to which the central bank can be held accountability. Dismissal rules can help ensure accountability, and, in the presence of inflation shocks, the socially optimal commitment policy is supported by a dismissal rule similar to a modified nominal income rule. The government's promise to follow the rule is shown to be credible in a trigger strategy equilibrium for reasonable parameter values. Copyright Springer-Verlag Berlin Heidelberg 2002

Suggested Citation

  • Carl E. Walsh, 2002. "When should central bankers be fired?," Economics of Governance, Springer, vol. 3(1), pages 1-21, March.
    • Handle: RePEc:spr:ecogov:v:3:y:2002:i:1:p:1-21
    DOI: 10.1007/s101010100037
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    Cited by:

    1. Saibal Ghosh, 2023. "Stability versus soundness: what matters for women central bank governors?," Economic Change and Restructuring, Springer, vol. 56(4), pages 2315-2338, August.
    2. Yang Lu & Ernesto Pasten & Robert King, 2013. "Policy design with private sector skepticism in the textbook New Keynesian model," 2013 Meeting Papers 241, Society for Economic Dynamics.
    3. Lu, Yang K. & King, Robert G. & Pasten, Ernesto, 2016. "Optimal reputation building in the New Keynesian model," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 233-249.
    4. Fregert, Klas, 2011. "Belling the cat: Eli F. Heckscher on the gold standard as a discipline device," Working Papers 2011:19, Lund University, Department of Economics.
    5. Ugo Panizza, 1997. "Optimal Contracts for Central Bankers: Inflation versus Money Supply and Exchange Rate Targets," Open Economies Review, Springer, vol. 8(1), pages 5-29, January.
    6. Frederic S. Mishkin & Niklas J. Westelius, 2008. "Inflation Band Targeting and Optimal Inflation Contracts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 557-582, June.
    7. Felipe Schwartzman, 2020. "Inflation Target Zones as a Commitment Mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 3, pages 115-132.
    8. Frisell, Lars & Roszbach, Kasper & spagnolo, giancarlo, 2008. "Governing the Governors: A Clinical Study of Central Banks," Working Paper Series 221, Sveriges Riksbank (Central Bank of Sweden).
    9. Arayssi, Mahmoud, 2015. "Transparent rules for deposing central bankers," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 1-17.
    10. St-Amant, Pierre & Tessier, David, 2008. "Déflation et politique monétaire," L'Actualité Economique, Société Canadienne de Science Economique, vol. 84(3), pages 307-323, septembre.
    11. Richard T. Freeman & Jonathan L. Willis, 1995. "Targeting inflation in the 1990s: recent challenges," International Finance Discussion Papers 525, Board of Governors of the Federal Reserve System (U.S.).
    12. Chortareas, Georgios E & Miller, Stephen M, 2003. "Central Banker Contracts, Incomplete Information, and Monetary Policy Surprises: In Search of a Selfish Central Banker?," Public Choice, Springer, vol. 116(3-4), pages 271-295, September.
    13. Poomjai Nacaskul & Kritchaya Janjaroen & Suparit Suwanik, 2012. "Economic Rationales for Central Banking: Historical Evolution, Policy Space, Institutional Integrity, and Paradigm Challenges," Working Papers 2012-04, Monetary Policy Group, Bank of Thailand.

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    More about this item

    Keywords

    Key words: Central bank accountability; monetary policy; stabilization policy; JEL Classification: E42; E52; E58;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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