3 - Central Bank Personalities and Monetary Policy Performance

Summary

INTRODUCTION

Although the major theme of this book is the interaction between policies and institutions, monetary policies have often been interpreted as the outcome of a decision by the head of the central bank. Indeed, a widely accepted notion, popularized, if not originally formulated, by Friedman (1962), is the “extraordinary importance of accidents of personality” (op. cit.: p. 234). The spate of books published over the last few decades (for example, Greider 1987; Marsh 1992; Marshall 1999; Mayer 2001; von Furstenburg and Ulan 1998) to name but a very few) on the apparent symbiosis between personalities and policies certainly lends credence to Friedman's view. Examples from economic history, however, suggest that while personalities can at times matter more than the institutions they lead, it is the intersection of personalities with infrequent crises that gives rise to the hypothesis. Perhaps this is what Friedman intended by the term accidents.

This chapter begins by asking in what sense personalities can and do matter. The analysis is carried out at various levels. First, it is argued that Friedman's hypothesis is largely anecdotal and that it is difficult to find strong evidence in the series that matters to a central bank, or in the evaluation of the conduct of monetary policy, namely inflation, for the predominance of personalities in explaining central bank performance.

Of course, personalities can influence monetary policy performance in a manner that could not have been anticipated by Friedman.