Rational voters, elections, and central banks: Do representative democracies need nonrepresentative institutions?

We show that the welfare-improving property of an independent central bank depends on how voters respond to the time consistency problem. Voters' resp onsiveness to economic problems may provide some flexibility to revise the policy delegation arrangement of the central bank. This may improve social welfare. Preliminary evidence on voters' behavior in the U.S. is presented, which indicates that voters seem to respond to economic problems in a prop er way, taking time-consistency problems into account when making their vot e decisions. (C) 1999 Society for Policy Modeling. Published by Elsevier Sc ience Inc.