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A Post Keynesian Perspective on the Rise of Central Bank Independence: A Dubious Success Story in Monetary Economics

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  • Jorg Bibow

Abstract

This 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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  • Jorg Bibow, 2010. "A Post Keynesian Perspective on the Rise of Central Bank Independence: A Dubious Success Story in Monetary Economics," Economics Working Paper Archive wp_625, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_625
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    1. Sven-Olov Daunfeldt & Xavier de Luna, 2008. "Central bank independence and price stability: evidence from OECD-countries," Oxford Economic Papers, Oxford University Press, vol. 60(3), pages 410-422, July.
    2. Forder, James, 1998. "The case for an independent European central bank: A reassessment of evidence and sources," European Journal of Political Economy, Elsevier, vol. 14(1), pages 53-71, February.
    3. Daunfeldt, Sven-Olov & de Luna, Xavier, 2002. "Central Bank Independence and Price Stability: Evidence from 23 OECD-countries," Umeå Economic Studies 589, Umeå University, Department of Economics, revised 12 Jun 2003.
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    Cited by:

    1. Masciandaro, Donato, 2022. "Independence, conservatism, and beyond: Monetary policy, central bank governance and central banker preferences (1981–2021)," Journal of International Money and Finance, Elsevier, vol. 122(C).
    2. Masciandaro, Donato & Romelli, Davide, 2015. "Ups and downs of central bank independence from the Great Inflation to the Great Recession: theory, institutions and empirics," Financial History Review, Cambridge University Press, vol. 22(3), pages 259-289, December.
    3. Donato Masciandaro, 2021. "Central Bank Governance in Monetary Policy Economics (1981-2020)," BAFFI CAREFIN Working Papers 21153, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Engelbert Stockhammer & Collin Constantine & Severin Reissl, 2020. "Explaining the Euro crisis: current account imbalances, credit booms and economic policy in different economic paradigms," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 43(2), pages 231-266, April.
    5. Donato Masciandaro, 2021. "Central Bank Governance in Monetary Policy Economics (1981-2020)," BAFFI CAREFIN Working Papers 21153, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    6. Donato Masciandaro & Davide Romelli, 2018. "To Be or not to Be a Euro Country? The Behavioural Political Economics of Currency Unions," BAFFI CAREFIN Working Papers 1883, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    7. Carlo Panico & Marco Piccioni, 2016. "Keynes on Central Bank Independence," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2016(118-119-1), pages 190-216.
    8. Jan Czekaj, 2018. "Unused methods of shaping the monetary base (Niewykorzystane metody ksztaltowania bazy monetarnej)," Research Reports, University of Warsaw, Faculty of Management, vol. 1(26), pages 68-75.
    9. Engelbert Stockhammer & Collin Constantine & Severin Reissl, 2015. "Neoliberalism, trade imbalances, and economic policy in the Eurozone crisis [Neoliberalism, trade imbalances, and economic policy in the Eurozone crisis]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 25(spe), pages 749-775, December.
    10. Stockhammer, Engelbert & Constantine, Collin & Reissl, Severin, 2016. "Neoliberalism, trade imbalances and economic policy in the Eurozone crisis," Economics Discussion Papers 2016-3, School of Economics, Kingston University London.

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    More about this item

    Keywords

    Central Banks; Central Bank Independence; Democratic Accountability; Monetary Policy; Time-inconsistency;
    All these keywords.

    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

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