Citation

Discussion Paper Details

Please find the details for DP8143 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Politics and Monetary Policy

Author(s): Michael Ehrmann and Marcel Fratzscher

Publication Date: December 2010

Keyword(s): delegation, European Central Bank, interest rates, monetary policy and time inconsistency

Programme Area(s): International Macroeconomics

Abstract: How and why do politicians? preferences about monetary policy differ from the interest rates set by independent central banks? Looking at the European Central Bank, the paper shows that politicians, on average, favor significantly lower interest rates. Three factors explain the different preferences. First, politicians put relatively less weight on inflation (and more on output) in their preferred monetary policy reaction function. Second, politicians? preferences are affected by political economy motives. Third, different preferences are also, and largely, due to different constituencies, as politicians primarily focus on national economic objectives rather than the euro area as a whole.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8143

Bibliographic Reference

Ehrmann, M and Fratzscher, M. 2010. 'Politics and Monetary Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8143