A Post Keynesian Perspective on the Rise of Central Bank Independence: A Dubious Success Story in Monetary Economics
AbstractThis paper critically assesses the rise of central bank independence (CBI) as an apparent success story in modern monetary economics. As to the observed rise in CBI since the late 1980s, we single out the role of peculiar German traditions in spreading CBI across continental Europe, while its global spread may be largely attributable to the rise of neoliberalism. As to the empirical evidence alleged to support CBI, we are struck by the nonexistence of any compelling evidence for such a case. The theoretical support for CBI ostensibly provided by modeling exercises on the so-called time-inconsistency problem in monetary policy is found equally wanting. Ironically, New Classical modelers promoting the idea of maximum CBI unwittingly reinstalled a (New Classical) “benevolent dictator” fiction in disguise. Post Keynesian critiques of CBI focus on the money neutrality postulate as well as potential conflicts between CBI and fundamental democratic values. John Maynard Keynes’s own contributions on the issue of CBI are found worth revisiting.
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Bibliographic InfoPaper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_625.
Date of creation: Sep 2010
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Central Banks; Central Bank Independence; Democratic Accountability; Monetary Policy; Time-inconsistency;
Find related papers by JEL classification:
- B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
- B59 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Other
- E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-CBA-2010-10-23 (Central Banking)
- NEP-HIS-2010-10-23 (Business, Economic & Financial History)
- NEP-HPE-2010-10-23 (History & Philosophy of Economics)
- NEP-MON-2010-10-23 (Monetary Economics)
- NEP-PKE-2010-10-23 (Post Keynesian Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Daunfeldt, Sven-Olov & de Luna, Xavier, 2002. "Central Bank Independence and Price Stability: Evidence from 23 OECD-countries," UmeÃ¥ Economic Studies 589, Umeå University, Department of Economics, revised 12 Jun 2003.
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