Policy-Making in the European Central Bank: The Masters of Europe's Money , by K. Kaltenthaler ( Lanham/Plymouth : Rowman & Littlefield , 2006 , ISBN 0742553663 hb, 0742553671 pb ); vii + 195pp. , £55 hb. £20.98 pb .

The author has succeeded in producing a readable and informative introduction to the policy-making of one of the world's most important economic institutions. There is very little written by political scientists specifically on the European Central Bank (ECB) and most of this small body of work focuses upon the bank's institutional design, its independence and its problematic democratic legitimacy and accountability. By focusing upon monetary policy-making, Kaltenthaler makes a valuable contribution to the study of economic and monetary union (EMU), incorporating the insights of both political scientists and economists in a manner that will be accessible to most students and scholars with only an introductory understanding of economics. A useful introduction for students, the author's analysis will also be of interest to scholars working on the ECB. In addition to providing a critical overview of the existing literature, the author has conducted a great deal of original research, notably in his interviews of several dozen central bankers and relevant government and interest group officials. The overall argument – rooted in a public choice framework – is compelling and effectively challenges the preconception that, in its focus upon low inflation over the medium term, the ECB is less concerned about the overall health of the economy. Central bankers have two primary goals. They want ‘to appear competent to as large a section of society as possible and to maintain policy-making independence’ (pp. 8–9). ‘Central bankers try to achieve these goals by keeping the macro-economy healthy’ (p. 9). The author succeeds in maintaining this argument throughout his analysis of the bank's origins, design and operations.

There are further theoretical insights on specific aspects of monetary policy-making. One example (of many) is the application of principal-agent theory to exchange rate policy. There are some weaknesses. The core argument could have been used to direct the material more succinctly in certain sections. At the same time, the depth of analysis in several sections suffers from the breadth of the subject matter covered. Thus arguments are frequently made without adequate presentation of supporting material. There are some glaring and rather curious mistakes. For example, the order and content of chapters outlined at the end of the introduction does not correspond to the order and content of chapters found in the book! The index is disappointing.

Despite these faults, this is the best book-length analysis of ECB monetary policy-making to date and should be read by all those interested in the subject.