The Behaviour of Interest Groups in Trade and Industry towards Monetary Policy and Central Banks: theory and evidence on Germany and the Euro area

Abstract

The preceding analysis investigated private interest groups' behaviour towards monetary policy makers and central banks, exploring the extent to which they seek to influence monetary policy and their motivations for doing so or not. Where evidence of interest group activity with respect to monetary decisions was found, the study identified the ways in which groups communicate with policy makers. Considering the importance of monetary policies for an economy as a whole and individual firms and households in particular, the low level of interest group activity observed in practice appears puzzling at first sight. However, the theoretical analysis above suggests that there may, in fact, be good reasons for interest group activity to keep a low profile with regard to monetary policymaking. In order to explain the conundrum, a micro-behavioural approach has been suggested with the aim of investigating the basic incentives for individuals and interest groups in the private sector to take political action on monetary questions or to refrain from doing so. The decision whether to take political action or not has been presented as a cost-benefit analysis, weighing the expected benefits of identifying, aggregating and mediating individual and group interests against the potential costs. The determinants of costs and benefits have been analysed with respect to the issue, institutional, and group contexts from which they originate.