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Central Bank Independence: Problematic Theory and Empirical Evidence

In: Contemporary Economic Theory

Author

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  • Costas Lapavitsas

Abstract

The trend towards central bank independence appears to have gathered unstoppable momentum in recent years. It is sustained by an ever-expanding literature, which attempts to demonstrate welfare benefits and superior inflation performance resulting from central bank independence, and has attracted support from unexpected quarters (Goodhart 1994). In view of this, it is truly surprising to realize how precarious, narrow and unconvincing are the theoretical underpinnings of central bank independence. It is even more surprising to realize how tendentious is the empirical evidence that seeks to demonstrate the superior performance of independent central banks. The present chapter argues that these theoretical and empirical weaknesses originate in the literature’s treatment of the central bank as a monetary planner in command of the supply of fiat money rather than as an institution embedded in the financial system and sustaining the supply of credit money.

Suggested Citation

  • Costas Lapavitsas, 1999. "Central Bank Independence: Problematic Theory and Empirical Evidence," Palgrave Macmillan Books, in: Andriana Vlachou (ed.), Contemporary Economic Theory, chapter 9, pages 205-219, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-27714-8_9
    DOI: 10.1007/978-1-349-27714-8_9
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