The Political Economy of Central Banking
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The Political Economy of Central Banking

Contested Control and the Power of Finance, Selected Essays of Gerald Epstein

Gerald Epstein

Central banks are among the most powerful government economic institutions in the world. This volume explores the economic and political contours of the struggle for influence over the policies of central banks such as the Federal Reserve, and the implications of this struggle for economic performance and the distribution of wealth and power in society.
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Chapter 8: Contested terrain

Gerald Epstein


The question “Why do central banks do what they do?” seems like an obviously important question, especially considering that political straitjackets limit countercyclical fiscal policy, leaving central banks as the dominant macroeconomic policy- making institution in most countries. Yet, mainstream macroeconomics has given very little thought to analyzing the economic and political sources of central bank goals and conduct. Rather, the implicit assumption of most mainstream analysis is that central banks try to make policy in the general interests of society as a whole. From this perspective, “poor” monetary policy stems from failures of theory, judgment or forecasting rather than from a lack of concern for the public interest.

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