Monetary Policy, Interest Groups, Financial Crisis

Abstract

The outbreak of the financial and economic crisis in 2007–2008 put an end to the previous consensus on monetary policy. The effects of monetary policy on redistribution have come to the foreground; the modelling and transparency of central bank deci-sions now require the development of an interpretive framework that allows the complex interpretation of monetary policy decisions in a social context. This paper uses the example of exchange rate policy to explain the effects of central bank decisions on economic variables, the impact of those effects on institutions, and feedback from interest groups on central bank decision-making. Based on Woolley’s typology, this paper considers each of the factors within and outside government, as well as structural and less embed-ded, non-structural factors that may influence central bank decision-making. The paper concludes that interest groups’ assertion of their interests is not in conflict with central bank independence; it merely serves to represent the preferences of society concerning monetary policy.