Macroeconomics and Macroeconomic Policies – Alternatives to the Orthodoxy – Le Heron – Berlin – C1- 29 /10/2005- 1- The New Governance in Monetary Policy: A Critical Appraisal of the Fed and the ECB

The term ‘governance ’ refers to the decision-making processes in the central bank and to the relations between the central bank and the government and/or the elected representatives. Governance comprises the traditions, institutional design, mandate, accountability, communication strategies and processes that determine how power is exercised, how citizens are given a voice, and how decisions are made on issues of public concern. For the last fifty years, four monetary policy regimes succeeded each other. A special kind of governance corresponds to each monetary policy regime. First, until 1974, for the Keynesian regime founded on the Keynesian synthesis, the government managed directly the economic policy. The monetary policy was only one element of the global policy and under the discretion of the government. Second, from 1974 to 1982, the Monetarist regime developed the monetary policy rule. Svensson (1999, p.636) calls this monetarist policy rule monetary targeting. The monetary policy became self-governing. The rule versus discretion debate shed light these both outdated monetary policy regimes. But if the rule (quantity theory of money) must be respected, Friedman said nothing about a specific organisation of the central bank. The theoretical framework changed; not th