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Rulers of the game: central bank independence during the interwar years

Published online by Cambridge University Press:  22 May 2009

Beth A. Simmons
Beth A. Simmons
Affiliation:
Associate Professor in the Department of Political Science, Duke University, Durham, North Carolina.
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Abstract

Central bank independence is associated with restrictive monetary choices that can be deflationary within fixed exchange-rate regimes. Because central banks act to counteract domestic inflation, they put a premium on domestic price stability at the expense of international monetary stability. Evidence from fifteen countries between 1925 and 1938 shows that the more independent central banks took more deflationary policies than were necessary for external adjustment. Central banks in general were more restrictive under left-wing governments than they were under more conservative regimes and often were more restrictive than required for external equilibration. This suggests that policies of independent central banks designed to enhance domestic price stability may force deflationary pressures onto other states in the system and potentially destabilize a fixed exchange-rate regime.

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Articles
Information
International Organization , Volume 50 , Issue 3 , Summar 1996 , pp. 407 - 443
Copyright
Copyright © The IO Foundation 1996

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