chapter  6
22 Pages

Macroeconomic Outcomes and Monetary Policy Institutions

The monetary policy institutions described in the preceding chapters are important and variable characteristics of the domestic political process that produces monetary policy outcomes. A number of monetary policy outcomes are potentially meaningful for elected officials. Macroeconomic outcomes and capital market outcomes have motivated supervision of monetary policy choices by both the White House and the Congress. In this chapter and in , I identify the incentives for supervision of monetary macroeconomic and capital market outcomes. mechanisms chosen by elected officials to inf activity. Finally, I assess the efficacy of these m given the institutional changes observed after chapter addresses macroeconomic outcomes. Cha availability and use of alternative programs an capital market outcomes in the absence of cent with political goals. In both chapters I conclude objectives and distributive goals dominate macroe selection of policy instruments by central banke literature on monetary politics the incentives for almost always linked to macroeconomic obje responses within the central bank are instead distributive conflict over monetary policy choices

Political conflict over central bank activity is types of outcomes related to monetary poli performance, the distribution of monetary restra

Chapter 7

policy created by I also specify the

luence central bank echanisms of control World War II. This pter 7 describes the

d agencies to affect ral bank compliance that capital market conomic goals in the rs. In the published political control are ctives. Institutional designed to control

associated with three cy: macroeconomic int across sectors of

126 Central Bank Autonomy

economy, and constraints on government finance. Each of these types of outcomes has at one time or another been the focus of observers of monetary politics. Kane (1980, 1988) concludes that the penultimate reason for the existence of Fed is the need for a macroeconomic policy scapegoat. Grier (1989) concludes that the Fed engineers monetary and macroeconomic outcomes that benefit incumbent presidents at election. Brennan and Buchanan (1981) argue that revenue constraints compel governments to rely on the central bank for inflation surprises to generate revenue in the short -term. Elected officials attempt to manipulate monetary policy instruments to achieve these political objectives. Monetary policy institutions chosen by central bankers have often frustrated these attempts. Macroeconomic outcomes and incentives for manipulating macroeconomic outcomes have been incorporated and developed in general models of the political economy. The mechanisms used to affect particular macroeconomic outcomes have received less attention, as have distributive incentives and capital market outcomes. In this chapter, I focus narrowly on the incentives for elected officials to manage macroeconomic outcomes and evaluate the extent to which postwar institutional changes have satisfied these objectives. How do monetary policy institutions abet or frustrate the manipulation of macroeconomic outcomes? Do monetary policy institutions create or reduce incentives for macroeconomic manipulation?