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The Quiet RevolutionCentral Banking Goes Modern$
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Alan Blinder

Print publication date: 2004

Print ISBN-13: 9780300100877

Published to Yale Scholarship Online: October 2013

DOI: 10.12987/yale/9780300100877.001.0001

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Following the Leader: The Central Bank and the Markets

Following the Leader: The Central Bank and the Markets

(p.65) Chapter 3 Following the Leader: The Central Bank and the Markets
The Quiet Revolution

Alan S. Blinder

Yale University Press

This chapter focuses on the complex and evolving relationship between central banks and the financial markets. It argues that central banks, which used to pride themselves on lording it over the markets, have been showing them increasing deference in recent years. Some modern central bankers seem to have become so deeply respectful of markets that a new danger is emerging: that monetary policymakers might be tempted to “follow the markets” slavishly, essentially delivering the monetary policy which the markets expect or demand. The chapter argues that many more central bankers now view the markets as repositories of great power and wisdom—as sages to be listened to rather than merely as forces to be reckoned with. However, when it comes to foreign exchange operations, central banks still strive to catch the markets off guard—even to push them around, if possible.

Keywords:   central bank, independence, macroeconomic performance, monetary policy, leader

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