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Does an Independent Central Bank Violate Democracy?


  • David A. Levy

    (The Jerome Levy Economics Institute)


The question of central bank independence is one of degree. A completely independent central bank is impossible as long as a country has provisions for altering central bank powers, even if that requires constitutional amendments. On the other hand, any central bank has at least some discretion in monetary policy is effectively determined by the currency board. In the United States and many other countries, people question the degree of central bankers from pressure to serve either the political motives of government officials or the financial interests of private individuals and organizations. This school of thought argues that the central bank should be left alone to pursue one monetary policy goal: price stability. It is feared that either government officials with too much influence over central bankers or laws setting inappropriate priorities for them undermine this independence. The federal Reserve already enjoys a good measure of independence, but many observers believe that it should have more. In particular, the advocates of greater Federal Reserve independence support reducing the statutory encumbrances on the Fed, especially the Humphrey-Hawkins Act. But problems arise...

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  • David A. Levy, 1998. "Does an Independent Central Bank Violate Democracy?," Macroeconomics 9811005, EconWPA.
  • Handle: RePEc:wpa:wuwpma:9811005
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 38; figures: included

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    JEL classification:

    • E - Macroeconomics and Monetary Economics

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