Importance Of Central Bank Accountability

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Figure 2.3.1: Central Bank Accountability The third pillar of central bank governance is accountability. Accountability can be explained as the act of listening to criticism and responding to questions about the past and future behavior. The dictionaries explain it as being responsible to someone for something or subject to the obligation to report or explain something. Accountability can be seen as liabilities, which come with responsibility. In case of central banks it aims to make sure that the rules and principles laid down for the central bank are respected. The need for accountability comes from the legal nature of a central bank and from the tasks that a central bank usually fulfills. Two questions may arise: Accountable for what?…show more content…
They develop two aspects of accountability. The first one is accountability though transparency of actual monetary policy. The second aspect is accountability through bearing the final responsibility. Monetary policy is transparent if there is little uncertainty about the central bankers’ preferences. Transparency can be achieved by publication of relevant information. Transparency enhances the central bank’s accountability. The paper shows that accountability through transparency leads to a lower expected rate of inflation and less stabilization of supply…show more content…
At these press conferences ECB President explains the monetary policy decisions taken and outlines in detail the reasoning which has led to the decision. With this immediate communication the ECB provides a high degree of transparency. The other paper referred to central bank framework is the one of Stasavage (2003). This paper examines whether there is a tradeoff between transparency and accountability and how this tradeoff affects the economic outcome. The author considers transparency as forecasts published by CB for public. He also considers two types of accountability: requirements for central bankers to appear regularly before legislative committees and the opportunity for finance minister to override decisions regarding interest rates. For measuring empirically the gains from monetary delegation, the author uses Japan’s experience of deflation during the 1990s. His results show that transparency helps central banks to acquire a reputation and leads to lower deflation costs. The override provisions have no effect on these costs. These results suggest that the central banks can ensure public about their adherence to a given policy, mainly, due to being transparent and not due to being independent from political

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