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The Elusive Promise of Independent Central Banking

Author

Listed:
  • Marvin Goodfriend

    (Professor of Economics, Tepper School of Business, Carnegie Mellon University (E-mail: marvingd@andrew.cmu.edu))

Abstract

Independent central banking is reviewed as it emerged first under the gold standard and later with an inconvertible paper money. Monetary and credit policy are compared and contrasted as practiced by the 19th century Bank of England and the Federal Reserve. The lesson is that wide operational and financial independence given to monetary and credit policy in the public interest subjects the central bank to incentives detrimental for macroeconomic and financial stability. An independent central bank needs the double discipline of a priority for price stability and bounds on expansive credit initiatives to secure its promise for stabilization policy.

Suggested Citation

  • Marvin Goodfriend, 2012. "The Elusive Promise of Independent Central Banking," IMES Discussion Paper Series 12-E-09, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:12-e-09
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    File URL: http://www.imes.boj.or.jp/research/papers/english/12-E-09.pdf
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    References listed on IDEAS

    as
    1. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, January.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The vanishing independence of central banks
      by Economic Logician in Economic Logic on 2012-11-01 19:44:00

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    Cited by:

    1. Meltzer, Allan H., 2014. "Federal reserve independence," Journal of Economic Dynamics and Control, Elsevier, vol. 49(C), pages 160-163.
    2. Blancheton, Bertrand, 2016. "Central bank independence in a historical perspective. Myth, lessons and a new model," Economic Modelling, Elsevier, vol. 52(PA), pages 101-107.
    3. Hautcoeur, Pierre-Cyrille & Riva, Angelo & White, Eugene N., 2014. "Floating a “lifeboat”: The Banque de France and the crisis of 1889," Journal of Monetary Economics, Elsevier, vol. 65(C), pages 104-119.
    4. Bordo, Michael D., 2014. "Rules for a lender of last resort: An historical perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 49(C), pages 126-134.
    5. Otmar Issing, 2013. "A New Paradigm for Monetary Policy?," International Finance, Wiley Blackwell, vol. 16(2), pages 273-288, June.
    6. Richard S. Grossman & Hugh Rockoff, 2015. "Fighting the Last War: economists on the lender of last resort," Departmental Working Papers 201515, Rutgers University, Department of Economics.
    7. Winkler Adalbert, 2015. "The ECB as Lender of Last Resort: Banks versus Governments," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(3), pages 329-341, June.
    8. Michael D. Bordo & Pierre L. Siklos, 2017. "Central Bank Credibility before and after the Crisis," Open Economies Review, Springer, vol. 28(1), pages 19-45, February.
    9. Issing, Otmar, 2013. "Challenges for monetary policy," SAFE White Paper Series 7, Goethe University Frankfurt, Research Center SAFE - Sustainable Architecture for Finance in Europe.
    10. Thomas F. Cargill & Gerald P. O'Driscoll Jr., 2013. "Federal Reserve Independence: Reality or Myth?," Cato Journal, Cato Journal, Cato Institute, vol. 33(3), pages 417-435, Fall.
    11. Goodfriend, Marvin, 2014. "Lessons from a century of FED policy: Why monetary and credit policies need rules and boundaries," Journal of Economic Dynamics and Control, Elsevier, vol. 49(C), pages 112-120.
    12. Issing, Otmar, 2013. "A new paradigm for monetary policy?," CFS Working Paper Series 2013/02, Center for Financial Studies (CFS).
    13. Michael D. Bordo & Hugh Rockoff, 2013. "Not Just the Great Contraction: Friedman and Schwartz's A Monetary History of the United States 1867 to 1960," American Economic Review, American Economic Association, vol. 103(3), pages 61-65, May.

    More about this item

    Keywords

    Bank of England; central bank independence; credit turmoil of 2007-8; Federal Reserve; Great Inflation; lender of last resort; monetary policy;

    JEL classification:

    • 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

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