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Federalism and Central Bank Autonomy: The Politics of German Monetary Policy, 1957-1992

Lohmann, Susanne (1996) Federalism and Central Bank Autonomy: The Politics of German Monetary Policy, 1957-1992. Social Science Working Paper, 994. California Institute of Technology , Pasadena, CA. (Unpublished)

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Two channels of political control allow elected politicians to influence monetary policy. First, central bankers may accommodate political pressures to ward off political threats to the status, the structure, or the very existence of the central bank. Second, politicians may use their powers of appointment to ensure that central bank appointees share their electoral and party-political goals. This paper derives the monetary policy outcomes obtained as a function of the degree of central bank independence (zero, partial, or full) and of central bankers' types (partisans or technocrats). Based on a case study of the 1957 and 1992 institutional changes to the German central banking system and a regression analysis covering the 1960- 1989 period, I argue that the formal autonomy of the system is protected by its embeddedness in the institutions of German federalism and by the federalist components of its decentralized organizational structure. I conclude that the behavioral autonomy of the German central bank fluctuates over time with the party control of federalist veto points. The evidence is consistent with the hypothesis that the Bundesbank is staffed with non-partisan technocrats who are partially insulated from political pressures.

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Additional Information:Revised version. Original dated to June 1992. Earlier drafts of this paper were presented at the California Institute of Technology, Claremont Graduate School, the Federal Reserve Bank in Washington, D. C., Stanford University, the University of California, Santa Cruz, the 1992 meetings of the Western Economic Association, the 1993 meetings of the Midwestern Political Science Association and of the American Economic Association, the 1993 Konstanz Seminar on Monetary Theory and Policy, and the Southern Californian Political Economy Seminar. I would like to thank the seminar and conference participants for their comments. Special thanks are due to Kathleen Bawn, Jeffrey Frieden, Hans-Helmut Kotz, John Londregan, Roland Vaubel, Jürgen von Hagen, and the participants in the UCLA Political Economy Lunch. Bundesbank staff and former members of the Bundesbank Council kindly provided background information and data. Financial support from the Graduate School of Business at Stanford University and the Center for German and European Studies at the University of California, Berkeley, is gratefully acknowledged. Throughout this article, German texts and expressions are translated by the author. Published as Lohmann, S. (1998). Federalism and central bank independence: the politics of German monetary policy, 1957–92. World Politics, 50(3), 401-446.
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:994
Record Number:CaltechAUTHORS:20170815-141352052
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80425
Deposited By: Jacquelyn Bussone
Deposited On:15 Aug 2017 21:36
Last Modified:03 Oct 2019 18:30

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