Central Banking in a Democratic Society


This Tinbergen lecture addresses two issues. The first concerns the principles of monetary policy in a low-inflation environment. The second, more fundamental, issue concerns the institutional arrangements by which monetary policy is set in a democratic society. Three conclusions are drawn: (1) Monetary policy matters. Despite some major mistakes, American postwar economic policy has led to far greater stability of the economy. (2) Strategies of opportunistic disinflation or pre-emptive strikes are based on hypotheses for which there is little empirical support. An alternative strategy, called cautious expansionism, would be preferable. (3) A central bank must be accountable and sensitive to democratic processes; there must be more democracy in the choice of decision makers and more representativeness in the governance structure.

This is a preview of subscription content, log in to check access.


  1. Akerlof, G., W. Dickens, and G. Perry (1996). ‘The Macroeconomics of Low Inflation,’ Brookings Papers on Economic Activity, 1, pp. 1–76.

    Google Scholar 

  2. Alesina, A. and H. Rosenthal (1995), Partisan Politics, Divided Government, and the Economy, Cambridge University Press: Cambridge, England.

    Google Scholar 

  3. Alesina, A. and L. Summers (1993), ‘Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence,’ Journal of Money Credit and Banking 25(2), May.

  4. Ball, L. (1994), ‘What Determines the Sacrifice Ratio,’ in: N.G. Mankiw (ed.), Monetary Policy, University of Chicago Press: Chicago.

    Google Scholar 

  5. Barro, R. (1997), Determinants of Economic Growth, MIT Press: Cambridge, MA.

    Google Scholar 

  6. Braun, S. and R. Chen (1996), ‘The NAIRU as a Policy Target: Refinements, Problems and Challenges,’ A Report by the Council of Economic Advisers to the OECD.

  7. Cukierman, A. (1992), Central Bank Strategy, Credibility, and Independence, MIT Press: Cambridge, MA.

    Google Scholar 

  8. Diebold, F. and G. Rudebusch (1992), ‘Have Postwar Economic Fluctuations Been Stabilized?’ American Economic Review, 82:4, pp. 993–1005.

    Google Scholar 

  9. Feldstein, M. (1996), ‘The Costs and Benefits of Going from Low Inflation to Price Stability,’ NBER Working Paper 5469, Cambridge, MA.

  10. Fischer, S. (1993), ‘The Role of Macroeconomic Factors in Growth,’ Journal of Monetary Economics, 32, pp. 485–512.

    Google Scholar 

  11. Furman, J. (1997), ‘Central Bank Independence, Indexing, and the Macroeconomy,’ unpublished manuscript.

  12. Greenspan, A. (1990), ‘Testimony of Alan Greenspan, Chairman Federal Reserve Board,’ July 18, 1990.

  13. Greenspan, A. (1991), ‘Testimony of Alan Greenspan, Chairman Federal Reserve Board,’ February 20, 1991.

  14. Greenspan, A. (1993), ‘Testimony of Alan Greenspan, Chairman Federal Reserve Board,’ February 19, 1993.

  15. Greenwald, B. and J.E. Stiglitz (1990), ‘Macroeconomic Models with Equity and Credit Rationing,’ in: R.G. Hubbard (ed.), Asymmetric Information, Corporate Finance, and Investments, University of Chicago Press, pp. 15–42.

  16. Greenwald, B. and J.E. Stiglitz (1993), ‘Financial Market Imperfections and Business Cycles,’ Quarterly Journal of Economics, 108, pp. 77–114.

    Google Scholar 

  17. Greider, W. (1987), Secrets of the Temple: How the Federal Reserve Runs the Country, Simon and Schuster: New York.

    Google Scholar 

  18. Nordhaus, W. (1975), ‘The Political Business Cycle,’ Review of Economic Studies, 42, pp. 169–190.

    Google Scholar 

  19. Orszag, P. (1991), Congressional Oversight of the Federal Reserve: Empirical and Theoretical Perspectives, Princeton University thesis.

  20. Romer, C. (1986), ‘Is the Stabilization of the Postwar Economy a Figment of the Data?’ American Economic Review, 76, pp. 314–334.

    Google Scholar 

  21. Sah, R. and J.E. Stiglitz (1986), ‘The Architecture of Economic Systems: Hierarchies and Polyarchies,’ American Economic Review 76(4), pp. 716–727.

    Google Scholar 

  22. Sah, R. and J.E. Stiglitz (1988), ‘Committees, Hierarchies and Polyarchies,’ Economic Journal, 98(391), pp. 451–470.

    Google Scholar 

  23. Stigler, G. (1971), ‘The Theory of Regulation,’ Bell Journal of Economics, pp. 3–21.

  24. Stiglitz, J.E. (1986), ‘Pareto Efficient and Optimal Taxation and the New Welfare Economics,’ in: A. Auerbach and M. Feldstein (eds.), Handbook of Public Economics, Elsevier Science Publishers/ North-Holland: Amsterdam, pp. 991–1042.

    Google Scholar 

  25. Stiglitz, J.E. (1997), ‘Reflections on the NAIRU Hypothesis,’ Journal of Economic Perspectives, 11(1), pp. 3–10.

    Google Scholar 

  26. Stiglitz, J.E. (1998), ‘Pareto Efficient Taxation and Expenditure Policies, with Applications to the Taxation of Capital, Public Investment, and Externalities,’ Paper presented to the Festschrift in honor of Agnar Sandmo.

  27. Tinbergen, J. (1988), ‘Development Cooperation as a Learning Process,’ in G. Meier and D. Seers (eds.), Pioneers in Development, Oxford University Press: New York, pp. 315–331.

    Google Scholar 

Download references


Rights and permissions

Reprints and Permissions

About this article

Cite this article

Stiglitz, J. Central Banking in a Democratic Society. De Economist 146, 199–226 (1998). https://doi.org/10.1023/A:1003272907007

Download citation

  • monetary policy
  • central bank independence