Ed Balls, Anna Stansbury, 01 May 2017

Until recently, the independence granted to the Bank of England 20 years ago had gone unchallenged. But the financial crisis has raised questions over whether central bank independence is necessary, feasible, and democratic. This column revisits the relationship between inflation and the operational and political independence of the central bank in advanced economies. The findings support the Bank of England model of monetary policy independence: fully operationally independent, but somewhat politically dependent. To make operational independence work, however, further reforms are needed to the model in both monetary–fiscal coordination and macroprudential policy.

Jakob de Haan, Sylvester Eijffinger, 27 January 2017

It has been observed that since the start of the Global Crisis, central banks in most advanced economies have become more powerful and political, but they have not become more accountable. This column discusses why central bank independence matters, and looks at whether it has changed since the crisis. 

Donato Masciandaro, Davide Romelli, 28 August 2015

Since the onset of the Global Crisis, a number of central bank reforms have been implemented. This column suggests that since the Crisis, a silent restoration towards lower central bank independence might have been in place. The trend is more pronounced in non-OECD countries and, in particular, for the level of operational independence. The findings suggest that governments might be willing to trade off central bank independence to cope with concerns regarding financial stability, high debt and unemployment levels.

Donato Masciandaro, Francesco Passarelli, 21 December 2013

During the Great Moderation, central banks focused on price stability, and independence was seen as crucial to limit inflation bias. Since the Global Financial Crisis, emergency support measures for banks, and central banks’ increasing involvement in supervision, have called central bank independence into question. This column argues that the literature has overlooked the distributional effects of the tradeoff between monetary and financial stability. In a political economy framework, heterogeneity in voters’ portfolios can cause the degree of central bank independence to differ from the social optimum.

Lucrezia Reichlin, Richard Baldwin, 14 April 2013

Inflation targeting did not prevent financial instability before the Crisis nor did it provide sufficient stimulus after the Crisis. In a new Vox eBook, 14 world-renowned scholars, practitioners and market participants analyse inflation targeting and its future. They argue that inflation targeting should be refined not replaced. Indeed, it is needed now more than ever to keep expectations anchored while the advanced economies work their way through today’s slow growth, rickety banks, and over-indebted public sectors.

Thomas Mayer, 17 June 2010

Two key building principles of the Eurozone were that the ECB should be insulated from political interference and prevented from the funding of government deficits. This essay explains how the Eurozone crisis has threatened these principles and suggest ways to restore them.

Daron Acemoglu, Simon Johnson, James Robinson, Pablo Querubín, 25 June 2008

Central bank independence can have marvellous effects on inflation, but not always. This column reviews evidence of a U-shaped interaction between policy reform and general political institutions; independence can be undermined in nations with poor political institutions, while it is less necessary in nations with excellent institutions. A ‘seesaw’ effect is also identified whereby fiscal policy deteriorates following central bank independence.

Axel Leijonhufvud, 13 May 2008

The US Federal Reserve has used unorthodox policy instruments to reduce recent financial turmoil. In this column, the author of CEPR Policy Insight 23 argues that the crisis raises more fundamental questions about core tenets of modern monetary orthodoxy – inflation targeting and central bank independence.

Alex Cukierman, 27 September 2007

The nature of central banking and monetary policy formulation has changed radically over the past two decades. The revolution was driven by the interaction of monetary policy failures and theoretical developments.