1998 Articles

Central Banking in a Democratic Society

Stiglitz, Joseph E.

This Tinbergen lecture addresses two issues. The first concerns the principles of monetary policy in a low-inflation environment. The second, more fundamental, issue concerns the institutional arrangements by which monetary policy is set in a democratic society. Three conclusions are drawn: (1) monetary policy matters and, despite some major mistakes, American postwar economic policy has led to far greater stability of the economy; (2) strategies of opportunistic disinflation or pre-emptive strikes are based on hypotheses for which there is little empirical support and an alternative strategy, called cautions expansionism, would be preferable; (3) a central bank must be accountable and sensitive to democratic processes--there must be more democracy in the choice of decisionmakers and more representativeness in the governance structure.