[...]... the central banking system centralized or decentralized, it was accompanied by bargaining about appointment power Prior to the Fed’s creation in 1913, the Republicans repeatedly pushed for a centralized system with appointment power in the hands of New York bankers The 13 Introduction Democrats pushed for a decentralized system with appointment power in the hands of the government; they got less centralization... about centralization – the centralization of monetary policy-making powers in the central decision-making board versus in the branches of the central bank – and appointment power – the power of the president and Senate to appoint members of the central decision-making board Given the strong regional interests in the United States during the early part of the twentieth century, a traditionally centralized... to which the Fed’s powers were centralized The Democrats and their constituencies of smaller banks feared a central bank controlled by big New York banks These New York banks supported the Republicans who pushed for a real central bank The Federal Reserve System, as established, was 18 1.6 The Plan of the Book a compromise consisting of many smaller central banks with a central board of regional representatives... (1985) and others examined how delegation of monetary authority to a conservative central banker renders society better off by lowering inflation and increasing output Subsequent works in central bank independence found that appointment features such as longer terms, timing around elections, and conservative biases of the central bankers are pareto efficient (Frey and Schneider 1981; Grilli, Masciandro, and... dynamic, general equilibrium representations of the entire economy with few institutional details The actors are represented by homogenous types or representative agents For example, one central banker represents all central bankers In the political business cycle models, the policy makers are divided into two parties, but for each party, one party member represents the entire party Furthermore, the work... inconsistency and central bank independence literature, studies of the Fed are characterized by more empirical than theoretical work While both sets of studies provide important findings about central banks, the Fed, and monetary policy, none are quite right for answering the first main question As this book will show, the appointment process determines how and when influence occurs The central bank independence... (Grilli, Masciandro, and Tabellini 1991; see Cukierman 1992 and Schaling 1995 for excellent reviews of the existing indices of central bank independence) Although central banks vary in independence, most share a common characteristic: political appointments Despite the safeguards of central bank independence – for example, no government instructions or closed policy meetings – politicians appoint monetary... States during the early part of the twentieth century, a traditionally centralized central bank on the model of European central banks was politically infeasible The only attempt to create such a bank died in 1912 together with the Aldrich Bill The subsequent plan, the Federal Reserve Act, called for a federal system of central banking, with the regional components having substantial powers to set monetary... extremes; in the event of disagreement, the Dutch finance minister and the central bank had to compromise (Schaling 1995: 93–4) Both the Bundesbank and De Nederlandsche Bank are now parts of the European System of Central Banks, and both should be more similar in their independence; the statute for the new system explicitly prohibits any central bank from taking government instructions (Grilli, Masciandro,... normative focus of the central bank independence literature is balanced by the positive studies of the Fed and appointments Fourth, the appointments literature has yet to examine central bank appointments that are central to works in central bank independence and the Fed Finally, an understanding of the Fed’s institutional origins would benefit from a positive analysis of institutions As the following chapters . United Kingdom First published in print format isbn-13 97 8-0 -5 2 1-8 233 3-3 hardback isbn-13 97 8-0 -5 1 1-0 620 9-4 eBook (NetLibrary) © Kelly H. Chang 2003 2003 Information on this title: www.cambrid g e.or g /9780521823333 This. Press. isbn-10 0-5 1 1-0 620 9-5 eBook (NetLibrary) isbn-10 0-5 2 1-8 233 3-1 hardback Cambridge University Press has no responsibility for the persistence or accuracy of s for external or third-party. 1720–1844 Continued on page following index APPOINTING CENTRAL BANKERS The Politics of Monetary Policy in the United States and the European Monetary Union KELLY H. CHANG Cambridge,