The Case for Central Bank Independence

Abstract

This paper reviews arguments for central bank independence and presents new evidence on the impact of central bank (in)dependence on the level and variability of inflation, money growth, the level and financing of government budget deficits and economic growth, using three different measures of central bank independence. There are indications that countries with an independent central bank experience a lower and more stable inflation rate than countries with a central bank which comes under direct political control. Moreover, central bank credit to government and government budget deficits are lower, while economic growth is not directly affected by central bank independence.

Keywords

• Central Bank