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The case for central bank independence: a review of key issues in the international debate

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  • Dall’Orto Mas, Rodolfo
  • Vonessen, Benjamin
  • Fehlker, Christian
  • Arnold, Katrin

Abstract

This Occasional Paper analyses how significant expansions in central banks’ mandates, roles and instruments can result in challenges to the independence of monetary policy. The paper reviews, in particular, some of the key challenges to central bank independence brought about by the global financial crisis (GFC) of 2007 and assesses their impact on the de jure and de facto independence of selected central banks around the world in the past few years. It finds that although the level of de jure (legal) central bank independence did not deteriorate, the level of de facto (actual) independence of the central banks of some of the largest economies in the world may have weakened. The paper presents counterarguments to the key critiques raised against central banks due to their policy response during the GFC, and concludes that the case for central bank independence is as strong as ever. JEL Classification: B1, B2, C4, E3, E4, E5, E6, K3, N1, N2

Suggested Citation

  • Dall’Orto Mas, Rodolfo & Vonessen, Benjamin & Fehlker, Christian & Arnold, Katrin, 2020. "The case for central bank independence: a review of key issues in the international debate," Occasional Paper Series 248, European Central Bank.
    • Handle: RePEc:ecb:ecbops:2020248
    Note: 2648491
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op248~28bebb193a.en.pdf
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    Cited by:

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    2. Ehrmann, Michael & Holton, Sarah & Kedan, Danielle & Phelan, Gillian, 2021. "Monetary policy communication: perspectives from former policy makers at the ECB," Working Paper Series 2627, European Central Bank.
    3. Radu Șimandan & Cristian Păun, 2021. "The Costs and Trade-Offs of Green Central Banking: A Framework for Analysis," Energies, MDPI, vol. 14(16), pages 1-25, August.
    4. Czech National Bank, 2022. "Monetary and fiscal policy interactions in the wake of the pandemic: the case of the Czech Republic," BIS Papers chapters, in: Bank for International Settlements (ed.), The monetary-fiscal policy nexus in the wake of the pandemic, volume 122, pages 115-128, Bank for International Settlements.
    5. Gayaker, Savas & Ağaslan, Erkan & Alkan, Buket & Çiçek, Serkan, 2021. "The deterioration in credibility, destabilization of exchange rate and the rise in exchange rate pass-through in Turkey," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 571-587.
    6. Campoy Juan Cristóbal & Negrete Juan Carlos, 2022. "Debt Spillovers in a Monetary Union: A Novel Rationale for Central Bank Independence," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 123-136, January.

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    More about this item

    Keywords

    central bank independence; central bank mandate; financial stability; global financial crisis; price stability;
    All these keywords.

    JEL classification:

    • B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925
    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • K3 - Law and Economics - - Other Substantive Areas of Law
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N2 - Economic History - - Financial Markets and Institutions

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