Yet some economists have developed a theory of

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Unformatted text preview: or that suggests other factors that inuence how bureaucracies operate The theory of bureaucratic behavior may be a useful guide to predicting what motivates the Fed and other central banks Explaining Central Bank Behavior (c'td) Theory of bureaucratic behavior:objective is to maximize its own welfare which is related to power and prestige Fight vigorously to preserve autonomy Avoid conict with more powerful groups Does not rule out altruism The European Central Bank Patterned after the Federal Reserve Central banks from each country play similar role as Fed banks Executive Board President, vice-president and four other members Eight year, nonrenewable terms Governing Council Dierences Between the ECB and the Fed National Central Banks control their own budgets and the budget of the ECB Monetary operations are not centralized Does not supervise and regulate nancial institutions Governing Council Monthly meetings at ECB in Frankfurt, Germany Twelve National Central Bank heads and six Executive Board members Operates by consensus ECB announces the target rate and takes questions from the media To stay at a manageable size as new countries join, the Governing Council will be on a system of rotation Dierences Between the ECB and the Fed National Central Banks control their own budgets and the budget of the ECB Monetary operations are not centralized Does not supervise and regulate nancial institutions How Independent is the ECB? Most independent in the world Members of the Executive Board have long terms Determines own budget Less goal independent Price stability Charter cannot by changed by legislation; only by revision of the Maastricht Treaty Other Central Banks Bank of Canada Essentially controls monetary policy Bank of England Has some instrument independence. Bank of Japan Recently (1998) gained more independence The trend toward greater independence...
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