A large issue in central banking and monetary policy is the actual structure of
A large issue in central banking and monetary policy is the actual structure of the central bank itself. This is because there is a natural tension between designing an institution which is concerned with the long-run wellbeing of an economy but at the same time holding the institution accountable in a democratic way which, given that election cycles can be relatively frequent, introduces short run incentives. For example, we know that if the unemployment level is too low, the economy can overheat, leading to greater inflation in the future. However, if a politician who hopes to be reelected in the short term demands that unemployment be kept low, long-term considerations may be ignored. On the other hand, you may take the view that allowing the central bank to be fully independent from political influence and public oversight runs counter to democratic ideals, or that such independence could be dangerous if the current central bank regime proves to be incompetent.
For a deeper discussion on these issues, you will be asked to read “Central Bank Independence” by Carl Walsh, which can be found on the course Blackboard site under “Ethics Assignment”.
Assignment:
After reading the article above, which you can find in the Ethics Assignment folder on Blackboard you will be asked to respond to a special discussion board question in the Discussion Boards folder, which is called Discussion Board: Ethics Assignment post. I only require a 8-12 sentence response, which must be a direct post and not a response to somebody else’s post. You are allowed to type more if you so desire. Also, you will not be judged or graded on your ethical position, that is, whether or not you and I share the same ethical position on the matter. What you will be graded on is given below, with the relative grading weights:
1. 33% of grade: Identify all of the parties involved who have a stake in the ethical dilemma, describing the elements of the dilemma in detail.
2. 33% of grade: Using your own judgement, discuss the costs and benefits to scenarios involving varying degrees of central bank independence.
3. 33% of grade: Most importantly, weigh your arguments against the economic insights and reasoning gained in class pertaining to monetary policy, give a policy recommendation as to the optimal level of central bank independence.
THIS DISCUSSION BOARD POST IS DUE NEXT WEEK WHEN THE FINAL EXAM IS DUE, BUT CAN BE SUBMITTED ANY TIME BETWEEN NOW AND THEN.