Who wants an independent central bank? Monetary policy-making and politics

The costs and benefits of cooperative monetary and fiscal policy are analys ed in the framework of a partisan business-cycles model. It is shown that p olitical parties with different ideologies prefer to choose different arran gements for macroeconomic policy-making. More specifically, right-wing part ies favour independent central banks more than left-wing parties. An indepe ndent central bank is also the generally preferred option from a social wel fare point of view. In addition, the form of policy-making arrangements bet ween the fiscal and monetary authorities is shown to influence the extent o f partisan cycles.