THE POLITICS OF MONETARY POLICY

In this paper we critically review the literature on the political economy of monetary policy, with aneye on the questions raised by the recent financial crisis. We begin with a discussion of rules versusdiscretion. We then examine the issue of Central Banks independence both in normal times and intimes of crisis. Then we review the literature of electoral manipulation of policies. Finally we addressinternational institutional issues concerning the feasibility, optimality and political sustainability ofcurrency unions in which more than one country share the same currency. A brief review of the Euroexperience concludes the paper....