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- Title
The fallacies of central bank independence.
- Authors
Forder, James
- Abstract
OLD VIEWS ABOUT CENTRAL BANK INDEPENDENCE If these circumstances went a long way to defining the world environment in which the consensus on central bank independence appeared, there were also very notable developments in economic research. By the time the Labour government, elected in 1997, surprised the world just days after the election with a plan for independence of the Bank of England, dozens of other central banks had already been made independent, or created as independent central banks, and Britain had become notorious for lagging behind this global trend. When something with a behavioural aspect was introduced to the assessment of central bank independence, it sometimes turned out to be only an opportunity for circularity, such as when it was discovered by Cukierman et al. (1992) that in developing countries inflation was unrelated to the statutory measures that had proved so satisfactory in making the case for independence in developed countries, but was related to the turnover rate of central bank governors. A much-cited specific example is that a central bank will promise to deliver low inflation in the hope of inducing the private sector to set low wage increases; but if it does, the central bank can, by allowing inflation to rise, achieve a desirable fall in unemployment.
- Subjects
21ST Century Monetary Policy: The Federal Reserve From the Great Inflation to COVID-19 (Book); CENTRAL banking industry; MONETARY unions; QUANTITATIVE easing (Monetary policy); TREATY on European Union (1992)
- Publication
Economic Affairs, 2022, Vol 42, Issue 3, p549
- ISSN
0265-0665
- Publication type
Article
- DOI
10.1111/ecaf.12554