Federalism and Central Bank Independence: The Politics of German Monetary Policy, 1957-92
- Creators
- Lohmann, Susanne
Abstract
Two channels of political control allow elected politicians to influence monetary policy. First, political threats to the status, structure, or very existence of the central bank may force central bankers to comply with politically motivated demands on monetary policy. Second, politicians may use their powers of appointment to ensure that central bank appointees share their electoral and party-political goals. This paper derives the monetary policy outcomes obtained as a function of the degree of central bank independence (zero, partial, or full) and central bankers' types (partisans or technocrats). Based on a case study of the 1957 and 1992 institutional changes to the German central banking system and a regression analysis covering the period in between, I argue that the formal independence of the system is protected by its embeddedness in the institutions of German federalism and by the federalist components of its decentralized organizational structure. The behavioral independence of the German central bank fluctuates over time with the party control of federalist veto points. The Bundesbank is staffed with nonpartisan technocrats who are partially insulated from political pressures.
Additional Information
© 1998 Trustees of Princeton University. Earlier drafts of this paper were presented at the Federal Reserve Board in Washington, D.C., the Federal Reserve Bank of New York, the Bank of England, the California Institute of Technology, Harvard University, Stanford University, the University of California, Santa Cruz, the Stockholm School of Economics, the Claremont Workshop on the Political Economy of European Monetary Integration, the Konstanz Seminar on Monetary Theory and Policy, the 1992 meetings of the Western Economic Association, the 1993 meetings of the American Economic Association and the Midwestern Political Science Association, and the Southern Californian Political Seminar ("Running Dogs"). Special thanks are due to James Alt, Kathleen Bawn, Jeffry Frieden, Geoff Garrett, Hans-Helmut Kotz, John Londregan, Manfred J. M. Neumann, Adam Posen, Roland Vaubel, Jügen von Hagen, and participants in UCLA's Political Economy Lunch. Bundesbank staff and former members of the Bundesbank Council generously provided background information and data. Financial support from the Graduate School of Business at Stanford University and the Center for German and European Studies at the University of California, Berkeley, is gratefully acknowledged. Throughout this article, German texts and expressions are translated by the author.Additional details
- Eprint ID
- 83055
- Resolver ID
- CaltechAUTHORS:20171108-081731663
- Stanford University
- University of California, Berkeley
- Created
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2017-11-08Created from EPrint's datestamp field
- Updated
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2019-10-03Created from EPrint's last_modified field