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Abstract

In this survey, we critically review the argument for central bank independence (CBI). We argue CBI is neither necessary nor sufficient for reaching monetary stability. First, CBI is just one potentially useful monetary policy design instrument among several. Second, CBI should not be treated as an exogenous variable, but instead attention should be devoted to the question of why central banks are made independent. CBI is chosen by countries under specific circumstances, which are related to their legal, political, and economic systems. Third, in a number of empirical studies, researchers found CBI is correlated with low inflation rates. By taking the endogeneity of CBI into account, however, there is no reason to believe the correlation between CBI and low inflation tells us anything about causality.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0103006.

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Length: 31 pages
Date of creation: 21 Mar 2001
Date of revision:
Handle: RePEc:wpa:wuwpma:0103006

Note: Type of Document - PDF; prepared on IBM PC; pages: 31
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Web page: http://128.118.178.162

Related research

Keywords: Central bank independence; monetary policy;

Find related papers by JEL classification:

• E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
• E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

This paper has been announced in the following NEP Reports:

• NEP-ALL-2001-05-02 (All new papers)

References

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Cited by:

1. Stefan Voigt, 2011. "Positive constitutional economics II—a survey of recent developments," Public Choice, Springer, vol. 146(1), pages 205-256, January.
   
   • Stefan Voigt, 2009. "Positive Constitutional Economics II—A Survey of Recent Developments," MAGKS Papers on Economics 200936, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
2. Bernd Hayo & Stefan Voigt, 2005. "Inflation, Central Bank Independence and the Legal System," Money Macro and Finance (MMF) Research Group Conference 2005 57, Money Macro and Finance Research Group.
   
   • Bernd Hayo & Stefan Voigt, 2008. "Inflation, Central Bank Independence, and the Legal System," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 751-777, December.
   • Bernd Hayo & Stefan Voigt, 2005. "Inflation, Central Bank Independence and the Legal System," ICER Working Papers 02-2005, ICER - International Centre for Economic Research.
3. Erixon, Lennart, 2011. "Under the influence of traumatic events, new ideas, economic experts and the ICT revolution - the economic policy and macroeconomic performance of Sweden in the 1990s and 2000s," Research Papers in Economics 2011:25, Stockholm University, Department of Economics.
4. Marc Quintyn, 2009. "Independent agencies: more than a cheap copy of independent central banks?," Constitutional Political Economy, Springer, vol. 20(3), pages 267-295, September.
5. Kamal, Mona, 2010. "الإطار النظرى للتنسيق بين السياستين المالية والنقدية
   [The Theoretical Framework for the Coordination of Fiscal and Monetary Polices]," MPRA Paper 26856, University Library of Munich, Germany.

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