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Populism and Central Bank Independence

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  • Goodhart, Charles A
  • Lastra, Rosa

Abstract

The consensus that surrounded the granting of central bank independence in the pursuit of a price stability oriented monetary policy has been challenged in the aftermath of the global financial crisis, in the light of the rise of populism on the one hand and the expanded mandates of central banks on the other hand. After considering the economic case for independence and the three Ds (distributional, directional and duration effects), the paper examines three different dimensions in the debate of how the rise in populism - or simply general discontent with the status quo - affects central bank independence. Finally, the paper examines how to interpret the legality of central bank mandates, and whether or not central banks have exceeded their powers. This analysis leads us in turn to consider accountability and, in particular, the judicial review of central bank actions and decisions. It is important to have in place adequate mechanisms to "guard the guardians" of monetary and financial stability.

Suggested Citation

  • Goodhart, Charles A & Lastra, Rosa, 2017. "Populism and Central Bank Independence," CEPR Discussion Papers 12122, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12122
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    More about this item

    Keywords

    accountability; central bank independence; Judicial review; Legitimacy; Mandates; populism;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)

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