Why central bank independence matters – lessons from the past 50 years
Recent political pressure on central banks in some countries to ease their policy rates irrespective of the macroeconomic conditions has sparked renewed interest in the merits of central bank independence.[
1] The idea is that central banks that are insulated from government interference can devote themselves fully to the pursuit of their mandate – which, nowadays, is primarily to preserve price stability. Conversely, politically dependent central banks may be prevented from doing so. In theory, this should leave independent central banks better placed to keep prices stable.
But is this actually the case? Based on a study of 155 central banks covering a 50-year period, the research presented in this blog post shows that independence matters for price stability. Independent central banks are able to pursue more credible monetary policies and are therefore more effective at keeping inflation under control.
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