Contested terrain

The question “Why do central banks do what they do?†seems like an obviously important question, especially considering that political straitjackets limit countercyclical fiscal policy, leaving central banks as the dominant macroeconomic policy- making institution in most countries. Yet, mainstream macroeconomics has given very little thought to analyzing the economic and political sources of central bank goals and conduct. Rather, the implicit assumption of most mainstream analysis is that central banks try to make policy in the general interests of society as a whole. From this perspective, “poor†monetary policy stems from failures of theory, judgment or forecasting rather than from a lack of concern for the public interest.