Abstract
Although cooperation between central banks and treasuries is controversial, this paper contends that in a crisis it is inevitable and desirable. Six reasons for cooperation in a crisis are advanced. Disengagement in the aftermath and restoring central bank independence is tricky, however. The paper concludes with comments on what is necessary to maintain central bank credibility.
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Notes
The solvency issue for the Federal Reserve, and for other central banks, may arise again during the exit from extraordinary policies, when rising interest rates will create capital losses on central banks’ balance sheets.
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Comments for a Panel of the National Association for Business Economics at the American Economic Association Annual Meetings, January 2013. These comments were based on the author's remarks at the August 2012 symposium of the Federal Reserve Bank of Kansas City.
*Alan S. Blinder has been on the Princeton faculty since 1971, taking time off from January 1993 through January 1996 for service as a member of President Clinton’s original Council of Economic Advisers, and then as Vice Chairman of the Board of Governors of the Federal Reserve System. In addition to his academic writings and his best-selling introductory textbook, he has written many newspaper and magazine columns and op-eds and, in recent years, has been a regular columnist for The Wall Street Journal. Blinder is a Distinguished Fellow and past vice president of the American Economic Association, a past president of the Eastern Economic Association, and a member of the American Academy of Arts and Sciences, the American Philosophical Society, and the American Academy of Political and Social Science. Blinder received his undergraduate degree in economics from Princeton, graduating summa cum laude. He also holds an M.Sc. in economics from the London School of Economics and a Ph.D. in economics from the Massachusetts Institute of Technology.
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Blinder, A. Financial Crises and Central Bank Independence. Bus Econ 48, 163–165 (2013). https://doi.org/10.1057/be.2013.12
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DOI: https://doi.org/10.1057/be.2013.12