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The Changing Face of Central Banking: Evolutionary Trends Since World War II. By Pierre L. Siklos. Cambridge, UK: Cambridge University Press, 2002. pp. 347. $70.00, ISBN: 0-521-78025-X.
The Changing Face of Central Banking blends econometrics, political economics, and public choice theory into a comprehensive history and analysis of monetary policy in twenty countries since World War II. It demonstrates convincingly that modern central banking is shaped in complex ways by statutes, political histories, personalities, economic crises, and policy experiments. Ultimately, personalities matter far less than framework, and central bank independence does not ensure sound policy. Modern monetary policy is characterized by limited discretion-central banks respond to specified shocks within a framework that targets inflation and provides accountability, disclosure, and good governance.
Siklos begins with a survey of political structure. For twenty countries he examines the form of government; the degree of federalism; the date the central bank was formed; and the numbers of elections, parties, partisan changes, and changes in central bank legislation. Empirical relationships between these characteristics and central bank autonomy and inflation are not immediately apparent, although Siklos demonstrates that complex relationships do exist among these variables. Moreover, central bank statutes and less overt institutional changes affect inflation persistence differently across countries. In general, inflation persistence fell in the 1970s and early 1980s, and then again in the early 1990s. The first break occurred around the end of Bretton Woods in nine countries, and in most of these the break preceded the official end of this regime; in four of seven inflation-targeting countries, the second break followed the official introduction of the target; and in Germany, Switzerland, and the U.S., inflation persistence fell in the early 1990s even though these countries did not explicitly adopt inflation targets or other statutory changes at that time.
Siklos also qualifies the view that central bank personalities play a significant role in Grafting monetary policy [Friedman, 1962]. He argues instead that central bankers influence...