Survey of Models and Indicators of Independence
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In the 1990s a consensus emerged in the economic literature that price stability should be the primary objective of monetary policy, and the CB should have sufficient independence as a means to attain this goal.1 These conclusions are based on a large body of literature that was developed starting in the late 1970s, and demonstrated that CB independence has undisputable benefits for macroeconomic performance. On average, countries with CBs enjoying significant independence were able to achieve lower average inflation, cushion the impact of political cycles on economic cycles, enhance financial stability, and boost fiscal discipline without any real additional costs or sacrifices in terms of output volatility or reduced economic growth.
KeywordsMonetary Policy OECD Country Real Interest Rate Price Stability Economic Independence
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