Kicking_Away_the_Ladder_Too_Inside_Centr

Kicking_Away_the_Ladder_Too_Inside_Centr - JOURNAL OF...

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Matías Vernengo is a professor of economics at Bucknell University. He served as a senior research manager at the Central Bank of Argentina (BCRA, in Spanish) at the time that some of the reforms discussed in this paper were carried out. These are the author’s personal views and do not reflect the opinions of any members of BCRA then or now. Previous versions of this paper have been presented at the central banks of Argentina and Ecuador, as well as at Bucknell University. The author thanks conference participants, Mercedes Marcó del Pont, and Arturo O’Connell for discussing the topics of the paper, without implicating any of them. 1 C.A.E. Goodhart (2011) suggests only three periods, disregarding the early period of central banking altogether. In part, his brief history of central banking is flawed, because that early history is fundamental to understanding what central banks can do in developing countries. 452 ©2016, Journal of Economic Issues / Association for Evolutionary Economics JOURNAL OF ECONOMIC ISSUES Vol. L No. 2 June 2016 DOI 10.1080/00213624.2016.1176509 Kicking Away the Ladder, Too: Inside Central Banks Matías Vernengo Abstract: Central banks are evolving institutions. In developed countries, particularly in Britain, central banks were used as instruments of the state to finance government and to promote economic development. However, once they went up the economic ladder, advanced economies kicked it to preclude developing countries from climbing it, too. It is in this context that the modern independent central bank, concerned with inflation targeting alone, which harkens back to the Victorian era, should be interpreted. This paper analyzes the recent evolution of the Argentine central bank in this broad historical perspective. Keywords: central banks, economic history, Latin America JEL Classification Codes: E58, N20, O54 The history of central banks can be roughly divided in four periods: (i) an initial era, starting in the sixteenth century, in which central banks were used as instruments for development, essentially in England; (ii) a second period, roughly from the mid-1840s to the Great Depression of the 1930s, in which Victorian sound finance principles and concerns with inflation dominated; (iii) a third period, between the Great Depression and the so-called Great Inflation of the 1970s, in which Keynesian views and the preoccupation with full employment were at center stage; and (iv) a fourth period, since the late 1970s, in which the rise of neoliberalism has led to the consolidation of the idea of independent central banks (ICBs), the increasing dominance of price stability as an objective of monetary policy, and inflation targeting (IT) as the main policy tool to achieve it. 1 The four periods are often seen as following
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453 Kicking Away the Ladder, Too: Inside Central Banks in a constructive progression, wherein central bankers have learned from the mistakes of the past and the central bank as an institution has adapted accordingly.
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