Central bank independence remains important for core inflation containment in the current age of political populism.

Jonah Whanau

2019-04-21 10:07:54 Sun ET

Central bank independence remains important for core inflation containment in the current age of political populism. In accordance with the dual mandate of both price stability and maximum sustainable employment, most central banks seek to solve the dynamic consistency problem on the basis of a key desire to insulate monetary policy decisions from political influence.

A landmark empirical study of cross-country comparisons by Alberto Alesina and Lawrence Summers confirms that countries with better central bank independence experience lower inflation without suffering any real economic output or labor force penalty. An independent central bank can enhance fiscal discipline by reducing the relative likelihood of fiscal dominance and monetization of perennial budget deficits.

Historical experience and economic theory teach us an informative lesson. When monetary policy is subject to political control, people expect dovish expansionary interest rate adjustments and so anticipate higher wages and prices in response. The undesirable economic outcome is stagflation (or the worst-case scenario of both high inflation and high unemployment). It can cost prohibitive welfare losses for the central bank to bring down inflation with subsequent interest rate hikes. Key credible apolitical monetary policy decisions would thus promote price stability with minimal real impact on economic growth, employment, and capital investment.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More
Snap cannot keep up with the Kardashians because its stock loses $1 billion market value after Kylie Jenner tweets about her decision to leave Snapchat.
Monica McNeil

2018-02-19 08:39:00 Monday ET

Snap cannot keep up with the Kardashians because its stock loses $1 billion market value after Kylie Jenner tweets about her decision to leave Snapchat.

Snap cannot keep up with the Kardashians because its stock loses market value 7% or $1 billion after Kylie Jenner tweets about her decision to leave Snapcha

+See More
American CEOs of about 200 corporations issue a joint statement in support of stakeholder value maximization.
Becky Berkman

2019-10-23 15:39:00 Wednesday ET

American CEOs of about 200 corporations issue a joint statement in support of stakeholder value maximization.

American CEOs of about 200 corporations issue a joint statement in support of stakeholder value maximization. The Business Roundtable offers this statement

+See More
McKinsey Global Institute analyzes 315 U.S. cities in terms of how tech automation affects their workers in the next 10 years.
Dan Rochefort

2019-08-10 21:44:00 Saturday ET

McKinsey Global Institute analyzes 315 U.S. cities in terms of how tech automation affects their workers in the next 10 years.

McKinsey Global Institute analyzes 315 U.S. cities and 3,000 counties in terms of how tech automation affects their workers in the next 5 to 10 years. This

+See More
Netflix stares at higher content costs as Disney and Fox hold merger talks.
Joseph Corr

2017-10-21 08:45:00 Saturday ET

Netflix stares at higher content costs as Disney and Fox hold merger talks.

Netflix stares at higher content costs as Disney and Fox hold merger talks. Disney has held talks to acquire most of 21st Century Fox's business equity.

+See More
Facebook, Apple, Microsoft, Google, and Amazon account for more than 15% of market capitalization of the U.S. stock market.
Jacob Miramar

2017-05-19 09:39:00 Friday ET

Facebook, Apple, Microsoft, Google, and Amazon account for more than 15% of market capitalization of the U.S. stock market.

FAMGA stands for Facebook, Apple, Microsoft, Google, and Amazon. These tech giants account for more than 15% of market capitalization of the American stock

+See More
Bill Gates and Warren Buffett shared their best business decisions in a 1998 panel discussion.
Laura Hermes

2017-11-13 07:42:00 Monday ET

Bill Gates and Warren Buffett shared their best business decisions in a 1998 panel discussion.

Top 2 wealthiest men Bill Gates and Warren Buffett shared their best business decisions in a 1998 panel discussion with students at the University of Washin

+See More