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The Effectiveness of Central Bank Independence Versus Policy Rules

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  • John B. Taylor

    () (Stanford University)

Abstract

This paper assesses the relative effectiveness of central bank independence versus policy rules for the policy instruments in bringing about good economic performance. It examines historical changes in (1) macroeconomic performance, (2) the adherence to rules-based monetary policy, and (3) the degree of central bank independence. Macroeconomic performance is defined in terms of both price stability and output stability. Factors other than monetary policy rules are examined. Both de jure and de facto central bank independence at the Fed are considered. The main finding is that changes in macroeconomic performance during the past half century were closely associated with changes the adherence to rules-based monetary policy and in the degree of de facto monetary independence at the Fed. But changes in economic performance were not associated with changes in de jure central bank independence. Formal central bank independence alone has not generated good monetary policy outcomes. A rules-based framework is essential.

Suggested Citation

  • John B. Taylor, 2013. "The Effectiveness of Central Bank Independence Versus Policy Rules," Discussion Papers 12-009, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:12-009
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    References listed on IDEAS

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    1. Links for 02-05-2013
      by Mark Thoma in Economist's View on 2013-02-05 06:06:00

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    Cited by:

    1. 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.
    2. Lothian, James R., 2014. "Monetary policy and the twin crises," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 197-210.
    3. John B. Taylor, 2014. "Causes of the Financial Crisis and the Slow Recovery: A Ten-Year Perspective," Book Chapters,in: Martin Neil Baily & John B. Taylor (ed.), Across the Great Divide: New Perspectives on the Financial Crisis, chapter 3 Hoover Institution, Stanford University.
    4. Donato Masciandaro & Davide Romelli, 2018. "Beyond the Central Bank Independence Veil: New Evidence," BAFFI CAREFIN Working Papers 1871, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    5. Donato Masciandaro & Francesco Passarelli, 2018. "Populism, Financial Inequality And Central Bank Independence: A Political Economics Approach," BAFFI CAREFIN Working Papers 1874, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    6. Stephanos Papadamou & Moïse Sidiropoulos & Eleftherios Spyromitros, 2017. "Is There a Role for Central Bank Independence on Public Debt Dynamics?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(1), pages 1-6.
    7. Akhand Akhtar Hossain, 2015. "The Evolution of Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 14611.
    8. Valentina-Ioana MERA, 2016. "Money Demand Features in CEE Countries," Informatica Economica, Academy of Economic Studies - Bucharest, Romania, vol. 20(4), pages 88-99.
    9. Stephanos Papadamou & Moïse Sidiropoulos & Eleftherios Spyromitros, 0. "Is There a Role for Central Bank Independence on Public Debt Dynamics?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 0, pages 6.
    10. repec:men:journl:v:3:y:2017:i:1:p:21-28 is not listed on IDEAS
    11. Frank A.G. den Butter & Mathieu L.L. Segers, 2014. "Prospects for an EMU between Federalism and Nationalism," Tinbergen Institute Discussion Papers 14-008/VI, Tinbergen Institute.

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