Political Pressure, Rhetoric and Monetary Policy: Lessons.

Philipp Maier offers a unique examination of the extent to which governments and various interest groups have exerted pressure on central banks. The book looks in particular at the Deutsche Bundesbank - which acted as the blueprint for the European Central Bank (ECB) - and utilises an original set of indicators to measure external pressure and support from the government and other institutions.

The author demonstrates that although some of the rhetoric of the Bundesbank may have been a response to political pressure, the operation and conduct of German monetary policy has not been influenced. The role of various pressure groups remains a more contentious issue, as there is evidence that the Bundesbank may have acted to appease the financial sector. The author also finds that a high degree of public support towards the Bundesbank has helped to mitigate the effect of external forces. As the ECB was closely modelled on its German counterpart, the author is able to extend his analysis to the European level and draw out explicit predictions for the ECB. He argues that external pressure is unlikely to influence the conduct of monetary policy, as it will be less efficient and organised, and public support is likely to be high. In the future, however, this could be jeopardised by a rapid enlargement of EMU which may result in more concentrated and powerful pressure groups.

This interesting empirical study of the effect of governments, interest groups and public support on the behaviour and rhetoric of Central Banks will be welcomed by financial and monetary economists, students and scholars of European finance and European policymakers.

Philipp Maier, formerly Economist, Monetary and Economic Policy Department, De Nederlandsche Bank, Amsterdam, The Netherlands