آیا ترجیحات عمومی منعکس شده در توابع عکس العمل سیاست پولی می باشد؟

In this paper, we test whether public preferences for price stability (obtained from the Eurobarometer survey) were actually reflected in the interest rates set by eight central banks. We estimate augmented Taylor (1993) rules for the period 1976Q2–1994Q1 using the dynamic GMM estimator. We find, first, that interest rates did reflect society’s preferences since the central banks raised rates when society’s inflation aversion was above its long-run trend. Second, the reaction to inflation is was non-linearly increasing in the degree of inflation aversion. Third, this emphasis on fighting inflation did not have a detrimental effect on output stabilization. We conclude with some implications concerning the democratic legitimation of central banks.

A fundamental principle of democratic societies is that power should not be concentrated in the hands of any single individual or held solely by a small group. However, the mainstream view in economics is that a society is better off if this principle is ignored. Central bank independence and the delegation of monetary policy to a conservative central banker (Barro and Gordon, 1983a and Rogoff, 1985) are considered to be the most appropriate ways of overcoming the so-called time-inconsistency problem in monetary economics (Kydland and Prescott, 1977). And, indeed, there is an increasing tendency around the world to devolve responsibility for managing monetary policy on an independent central bank. Supporting the wisdom of this trend, the vast majority of empirical literature on the topic finds a negative relationship between central bank independence and inflation (see the literature surveys by Eijffinger and de Haan, 1996, Berger et al., 2001 and Hayo and Hefeker, 2002). Delegating monetary policy to a small group of central bankers is not without its costs. Decisions made by the central bank involve trade-offs. Judgments have to be made about whether the risks of inflation are worth the benefits of boosting the real economy and vice versa. Typically, those who make the decisions are not representative of society as a whole (Stiglitz, 1998). For instance, according to Rogoff (1985), central bankers should be more conservative with respect to fighting inflation than the rest of society. As a consequence, it is often stressed that central banks lack democratic accountability. Ideally, in a democratic society, it is elected politicians who should be defining and ranking monetary policy objectives (de Haan and Eijffinger, 2000). Accordingly, it is up to the electorate to choose an appropriate institutional setting that fulfills its purposes. In short, in a democracy, monetary policy should reflect the public’s preferences. The fact that monetary policy involves trade-offs … has one clear implication in a democratic society. The way those decisions are made should be representative of the values of those that comprise society. At the very least, they [the monetary policy decision-makers] should see as their objective the application of their expertise to reflect broader societal values. The central bank should not be seen as a mechanism for the imposition of the values of a subset of the population on the whole. Stiglitz, 1998, 218 Therefore, it should be straightforward to test empirically if public values or preferences are reflected in monetary policy; however, the extant literature provides only indirect evidence, and not much of even that. For instance, Hayo (1998) shows that some sort of price stability culture exists in low inflation countries. Hayo and Hefeker (2002) model the choice of a certain degree of central bank independence as a two-step process. In the first step, society decides on the importance it attaches to fighting inflation. In the second step, society chooses the best institutional arrangement for achieving price stability. To date, there has been no direct test of whether public preferences are actually reflected in the interest rates set by central banks. We address this gap in the literature and ask the following research question: Are public preferences with regard to price stability reflected in monetary policy reaction functions (in addition to the reaction to inflation and output)? An affirmative answer should provide central banks with a certain degree of democratic legitimation. Reflecting the public’s values or preferences in everyday monetary policy should strengthen the authority of the central bank. We augment a standard Taylor (1993) rule by an indicator that captures public concern about inflation. This indicator is obtained from the Eurobarometer survey, which collects public opinion polls on how people in different countries of the European Community value price stability. It is available as a continuous time series for eight countries and the period 1976–1993. Econometrically, we use the dynamic panel GMM estimator.

In this paper, we test whether public preferences for price stability were actually reflected in the interest rates set by central banks. We use public preferences obtained from the Eurobarometer survey and augment a Taylor (1993) rule with a variable measuring the deviation of a society’s inflation aversion from its long-run trend. The sample covers eight countries and the period 1976Q2 to 1994Q1. Econometrically, we use the dynamic panel GMM estimator. Our results are as follows. First, central banks reflected the public’s preferences in their interest rate setting. They raised interest rates when society’s degree of inflation aversion was above its long-run trend—even when controlling for the actual inflation gap. Consequently, a central bank was more hawkish (in addition to inflation) in its interest rate setting when society’s current priorities favor such a policy. Our results also indicate that there is a positive (but not perfect) correlation between the preferences of central bankers and those of society. Second, the public’s preferences were also reflected in the significant additional non-linear reaction to inflation. If the degree of inflation aversion was above its long-run trend, the central banks put even more weight on the inflation gap (and vice versa). Third, this additional emphasis on fighting inflation did not come at the expense of stabilizing output. Finally, we acknowledge that there might be problems when interpreting Taylor rules in a new-Keynesian framework. Econometrically, we try to control for potential endogeneity as much as we can but we cannot definitely rule out an endogeneity bias. Our results have some implications for the debate about the democratic accountability of central banks. Economic theory and the empirical evidence clearly support the delegation of monetary policy to a small group. However, a fundamental principle in democratic societies is that power should not be concentrated in the hands of any single individual or held solely by a small group. Worse, central bankers as a group are not typically representative of society as a whole. Nevertheless, if the design of monetary policy and the actual interest rate course (as found in this paper) reflect society’s values and preferences, it is at least some indication of democratic legitimation for central banks. Indeed, one could view this way of legitimation for central banks as similar to that of fiscal authorities in regularly elections. Both authorities face trade-offs, the former between stable prices and economic growth, the latter between low public deficits and appropriate provision of public goods. In the end, both authorities should (and want to) reflect the public’s preferences and, therefore, conduct their policies accordingly. In addition, our results show that the movement towards lower inflation rates—which obviously was a pre-condition for setting up the European Central Bank with its current mandate—during the run-up to the European Monetary Union was a reflection of the public’s preferences for price stability. Therefore, this paper also provides indirect evidence that the European Central Bank today also reflects public preferences since its prior institutions did. During the recent financial crisis, Blanchard et al. (2010) proposed a deviation from the “consensus” 2 percent inflation target in favor of a higher value. Since, at the time of this writing, some euro area countries are still suffering from a slow recovery it would be interesting to see the public’s opinion with respect to such a proposal. However, we have to leave this as an open issue for further research since, as mentioned in Section 3, the database does not allow for such an extension of the analysis.