Independent central banks: some theoretical and empirical problems

Howells, Peter

Abstract

In little more than twenty years, it has become widely accepted that the optimal design of monetary policy should include provision for a central bank that is independent of government influence. This is a remarkably short period of time for any idea in economics to become so widely-accepted. But there are problems.
In this paper we show that there are many confusions and even some contradictions associated with central bank independence. To begin with, it is not entirely clear what it is exactly that central banks need to be independent of. Furthermore, there is confusion over the mechanisms whereby independence is supposed to deliver its benefits. The literature which is commonly said to provide the rationale for independence is often misunderstood and the evidence that independence does in fact enhance policy outcomes is extremely weak.

• Journal Article Type: Article
• Publication Date: Jan 1, 2009
• Deposit Date: Jan 5, 2011
• Journal: CLM Economia
• Print ISSN: 1695-9310
• Peer Reviewed: Peer Reviewed
• Volume: 14
• Pages: 177-204
• Keywords: monetary policy, central banks
• Public URL: https://uwe-repository.worktribe.com/output/1003211
• Publisher URL: http://www.clmeconomia.jccm.es/
• Related Public URLs: http://carecon.org.uk/DPs/0908.pdf
• Contract Date: Nov 6, 2016