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The Idea of Central Bank Independence

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Central Bank Independence, Regulations, and Monetary Policy

Abstract

Advocates of central bank independence seek to insulate the institution from political pressure while making decisions regarding the interest rate and other monetary policy tools. Critics of central bank independence point to monetary authorities not being accountable to the legislative or executive branches, unconventional monetary policy tools that were meant to be temporary becoming semi-permanent, and winners and losers being created in the course of keeping interest rates low. In practice, the degree of central bank independence varies widely with respect to political autonomy, economic autonomy, financial autonomy and legal autonomy.

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Notes

  1. 1.

    The Economist. (November 20, 2014). Doom and gloom: A popular theory for why the rich world is in deep economic trouble. https://www.economist.com/blogs/graphicdetail/2014/11/secular-stagnation-graphics (accessed May 5, 2018).

  2. 2.

    Summers, L. H. (2016). The Age of Secular Stagnation: What It Is and What to Do About It. Foreign Affairs, March/April 2016. https://www.foreignaffairs.com/articles/united-states/2016-02-15/age-secular-stagnation (accessed May 5, 2018).

  3. 3.

    Borio, C. & Zabai, A. (2016). Unconventional monetary policies: A re-appraisal. BIS Working Paper No. 570.

  4. 4.

    Lybek, T. (1998). Elements of Central Bank: Autonomy and Accountability, Monetary and Exchange Affairs Department OP/98/1. Washington, DC: International Monetary Fund.

  5. 5.

    Gruber, G. & Benisch, M. (2007). Privileges and Immunities of the European Central Bank. European Central Bank Legal Working Paper Series No. 4.

  6. 6.

    Federal Reserve Bank. (2017, March 1). Is the Federal Reserve accountable to anyone? https://www.federalreserve.gov/faqs/about_12798.htm (accessed March 4, 2018).

  7. 7.

    Grilli, V., Masciandaro, D., & Tabellini, G. (1991). Political and Monetary Institutions and Public Financial Policies in the Industrial Countries. Economic Policy, 6(13), 342–392.

  8. 8.

    Cukierman, A., Webb, S. B., & Neyapti, B. (1992). Measuring the Independence of Central Banks and Its Effect on Policy Outcomes. The World Bank Economic Review, 6(3), 353–398.

  9. 9.

    Grilli, V., Masciandaro, D., & Tabellini, G. (1991). Political and Monetary Institutions and Public Financial Policies in the Industrial Countries. Economic Policy, 6(13), 342–392.

  10. 10.

    Cukierman, A., Webb, S. B., & Neyapti, B. (1992). Measuring the Independence of Central Banks and Its Effect on Policy Outcomes. The World Bank Economic Review, 6(3), 353–398.

  11. 11.

    Cukierman, A., Miller, G. P., & Neyapti, B. (2002). Central Bank Reform, Liberalization and Inflation in Transition Economies – An International Perspective. Journal of Monetary Economics, 49(2), 237–264.

  12. 12.

    Jácome, L. I., & Vázquez, F. (2008). Is There Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean. European Journal of Political Economy, 24(4), 788–801.

  13. 13.

    Kydland, F., & Prescott, E. (1977). Rules Rather Than Discretion: The Inconsistency of the Optimal Plans. Journal of Political Economy, 85, 473–491.

  14. 14.

    Barro, R., & Gordon, D. (1983). A Positive Theory of Monetary Policy in a Natural Rate Model. Journal of Political Economy, 91, 589–610.

  15. 15.

    Rogoff, K. (1985). The Optimal Degree of Commitment to an Intermediate Monetary Target. The Quarterly Journal of Economics, 100(4), 1169–1189.

  16. 16.

    Cukierman, A., Miller, G. P., & Neyapti, B. (2002). Central Bank Reform, Liberalization and Inflation in Transition Economies – An International Perspective. Journal of Monetary Economics, 49(2), 237–264.

  17. 17.

    Grilli, V., Masciandaro, D., & Tabellini, G. (1991). Political and Monetary Institutions and Public Financial Policies in the Industrial Countries. Economic Policy, 6(13), 342–392.

  18. 18.

    Dincer, N. N., & Eichengreen, B. (2014). Central Bank Transparency and Independence: Updates and New Measures. International Journal of Central Banking, 10(1), 189–259.

Bibliography

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    Article  Google Scholar 

  • Cukierman, A., Miller, G. P., & Neyapti, B. (2002). Central Bank Reform, Liberalization and Inflation in Transition Economies—An International Perspective. Journal of Monetary Economics, 49(2), 237–264.

    Article  Google Scholar 

  • Cukierman, A., Webb, S. B., & Neyapti, B. (1992). Measuring the Independence of Central Banks and Its Effect on Policy Outcomes. The World Bank Economic Review, 6(3), 353–398.

    Article  Google Scholar 

  • Dincer, N. N., & Eichengreen, B. (2014). Central Bank Transparency and Independence: Updates and New Measures. International Journal of Central Banking, 10(1), 189–259.

    Google Scholar 

  • Grilli, V., Masciandaro, D., & Tabellini, G. (1991). Political and Monetary Institutions and Public Financial Policies in the Industrial Countries. Economic Policy, 6(13), 342–392.

    Article  Google Scholar 

  • Jácome, L. I., & Vázquez, F. (2008). Is There Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean. European Journal of Political Economy, 24(4), 788–801.

    Article  Google Scholar 

  • Kydland, F., & Prescott, E. (1977). Rules Rather Than Discretion: The Inconsistency of the Optimal Plans. Journal of Political Economy, 85, 473–491.

    Article  Google Scholar 

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    Google Scholar 

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    Article  Google Scholar 

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Author information

Authors and Affiliations

  1. Muhlenberg College, Allentown, PA, USA

    Ranajoy Ray Chaudhuri

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  1. Ranajoy Ray Chaudhuri
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Ray Chaudhuri, R. (2018). The Idea of Central Bank Independence. In: Central Bank Independence, Regulations, and Monetary Policy. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-58912-5_2

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  • DOI: https://doi.org/10.1057/978-1-137-58912-5_2

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  • Publisher Name: Palgrave Macmillan, New York

  • Print ISBN: 978-1-137-58911-8

  • Online ISBN: 978-1-137-58912-5

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

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