Interactions of monetary policy and central bank governance: Modern Monetary Policy and Central Bank Governance

Sylvester Eijffinger is a professor of economics in Tilburg University in The Netherlands and an associate of the Centre for Economic Policy Research in London. Donato Masciandaro is a professor of economics in Bocconi University in Italy and a member of the Société Universitaire Européenne de Recherches Financières. Together Eijffinger and Masciandaro (E&M) have compiled 25 articles by a variety of authors, in which E&M attempt “to present the evolution of both the economics and the political economy of monetary policy” (p. xi), the time and focus of their attention being the past two decades of the twentieth century and first decade of the twenty-first. All of the articles are well researched, being reprinted from highly regarded sources. E&M perceive academicians as offering advice on governance of money and interest rates in the short run; policymakers and central bankers, on the other hand, have been more concerned with the macroeconomic effects and with the long-run engineering and structure of the monetary settings. E&M analyze the two outlooks, or “tales” as E&M call them, as needing to come to the confluence which E&M offer in Modern Monetary Policy and Central Bank Governance, a tome in the series International Library of Critical Writings in Economics, the founding editor of which was the late Dutch-born British economist Mark Blaug (1927-2011).

The book has appeared in a time when the relationship between monetary policy and central bank governance has emerged as a topic of increasing significance, as indicated, for example, by Trabelsi (2012).

E&M’s book is in two parts, with each part having three sections. Part I, emphasizing the monetary-policy tale, is titled “Monetary Policy: How to Govern Money and Interest Rates”. The section presents articles by Thomas J. Sargent and Neil Wallace, Robert J. Barro and David B. Gordon, Kenneth Rogoff, Susanne Lohmann and Sylvester Eijffinger and Marco Hoeberichts. Part I’s Section B, “New Keynesian View: Market Imperfections, Monetary Policy and Real Effects”, has articles by these authors: Ben S. Bernanke and Mark Gertler; Richard Clarida, Jordi Galí, Mark Gertler; and Michael Woodford. Part I Section C attempts “Merging the Views: Monetary Policy and the Engineering of Rules and Institutions”, with articles by John B. Taylor, Dale W. Henderson and Warwick J. McKibbin, Torsten Persson and Guido Tabellini, Carl E. Walsh and Lars E.O. Svensson.

Part II, then, is about “Central Banking: How to Design the Monetary Architectures”. Section A, “Central Bank Independence”, offers articles by Vittorio Grilli, Donato Masciandaro and Guido Tabellini; Alex Cukierman, Steven B. Webb and Bilin Neyapti; Alberto Alesina and Lawrence H. Summers; Bennett T. McCallum; Adam S. Posen; and Charles Goodhart and Dirk Schoenmaker. Part II’s Section B is “Central Bank Accountability and Transparency”, containing articles by Clive Briault, Andrew Haldane and Mervyn King; Otmar Issing; and Sylvester Eijffinger and Petra M. Geraats. In Part II, Section C, “Central Bank Communication”, Alex Cukierman and Allan H. Meltzer, Marvin Goodfriend and Alan S. Blinder, Michael Ehrmann, Marcel Fratzscher, Jakob de Haan and David-Jan Jansen conclude the confluence which E&M seek between monetary policy and central banking. Thus, the book which started with the need to improve the interface between modern monetary policy and central bank governance now ends with studies of how central banks can enhance their communication of monetary policy – this type of communication being a need recognized beyond just economists (see e.g. Smart, 2006, reviewed by Andrews, 2006).

Modern Monetary Policy and Central Bank Governance is a truly impressive compilation. Throughout, the articles show careful research not only in experimental design and measurement (the quantitative concerns) but also in qualitative arenas such as familiarity with historical contexts and economics literature. Indeed, the prodigious references alone make the book valuable. The statistical and formula displays appear to fit the degree-holding audience of economists. The prose per se is accessible to a university-educated readership.

A couple of arenas where the book can improve: first, the articles have been reprinted from their original typography. The difficulty is not so much the difference in appearance between articles printed in two columns on the page among the more prevalent pattern of one wide column per page; rather, the difficulty is that in some articles the print has become so small as virtually to necessitate a magnifying glass. Second, an index would be useful for readers who want to read the book selectively.

Eijffinger and Masciandaro perform an informed, noble accomplishment in bringing together 25 articles for academicians and practitioners interested in improved symbiosis between modern monetary policy and central bank governance.