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Central Bank independence: are the glory days over?

Goodhart, C. A. E. (2022) Central Bank independence: are the glory days over? In: Hawkins, Penelope and Negru, Ioana, (eds.) Monetary Economics, Banking and Policy: Expanding Economic Thought to Meet Contemporary Challenges. Routledge Studies in the History of Economics. Routledge, Abingdon, UK, 26 - 34. ISBN 9780367695651

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Identification Number: 10.4324/9781003142317-3


No Central Bank has the independent ability to set its own goals; top appointments are typically made by the current executive government; and apart from the ECB, each country’s legislature can revise its own Central Bank’s powers. So how did such circumscribed institutions come to appear so powerful? I suggest three reasons: Success in hitting inflation targets. Replacing fiscal policy as the main countercyclical tool. Capacity (pre-great financial crisis (pre-GFC)) to stabilise financial markets. Obviously, all these successes, so evident from 1991 to 2007, have been eroded, even overturned, first by the GFC and thereafter by the Covid pandemic. So now Central Bank policy involves monetising expanded public sector debt to prevent interest rates from rising from the effective lower bound. But this assumes that inflation and interest remain ‘lower for longer’. So long as this holds, Central Bankers will remain best friends of Ministers of Finance. But if it does not hold, and I suggest why it may not, their objectives will conflict. In such a conflict, the politicians will generally have the upper hand.

Item Type: Book Section
Official URL:
Additional Information: © 2023 The Author
Divisions: Financial Markets Group
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Date Deposited: 09 Jan 2023 08:12
Last Modified: 13 Feb 2023 12:21

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