Central bank independence under political pressure

Central bank independence has recently come under increasing political pressure. In this article, we examine measures of central bank independence to better understand how de jure independence is associated with the de facto independence of central banks. We then use the Lohmann (1992) framework to analyse the main risks facing the ECB and other Western central banks in the short to medium term. We argue that the expansion of central banks' secondary mandates poses a key risk to de facto central bank independence. These risks are further amplified by the growing potential for fiscal dominance, which may constrain central banks' ability to pursue price stability in line with their primary mandates.