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 10: Political Economy and Comparative Central Banking

Gerald Epstein


This paper introduces a Marx-Keynes-Kalecki model of the political economy of comparative central banking which suggest that monetary policy is determined by four key factors: capital-labor relations; industry-finance relations; the degree of central bank independence; and the position of the economy in the world economy. The paper presents econometric evidence suggesting that large OECD countries that have more independent central banks, more speculative financial markets, and more conflictual capital-labor relations, have lower rates of capacity utilization. This evidence is consistent with the model's predictions about the relationship between political-economic structure and central bank policy.

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