Preface

Summary

Throughout much of my professional career I have investigated economic issues that affect central banks directly or indirectly. My earliest involvement in this area dealt with conditions that lead to a hyperinflation and their termination, an extreme illustration of total subjugation of a central bank to government demands. By the early 1990s I became interested in the relationship between central banks and governments and the monetary policy choices made by these same authorities. Parallel literatures, with important contributions by Canadians, had emerged wherein a central bank either was an optimizing agent that could fine-tune the economy or behaved as a bureaucratic institution determined to maintain its special role via obfuscation and secrecy. At the same time political economists, and political science, claimed that central banks were constantly pressured by the political authorities to change their policies to facilitate reelection prospects or support partisan economic programs. Throughout, these various strands of the literature continued to grow, though some floundered by the late 1980s due to a lack of empirical support or an inability to address the issues that were the concern of the day.

Little did I know that, in 1993, a topic that lay largely dormant in economists' minds (but not in the minds of political scientists) would get its second wind so to speak. The catalyst was, of course, the publication of John Taylor's article on the Fed and its interest rate setting behavior.