The Elusive Promise of Independent Central Banking

Marvin Goodfriend

No 12-E-09, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: Independent central banking is reviewed as it emerged first under the gold standard and later with an inconvertible paper money. Monetary and credit policy are compared and contrasted as practiced by the 19th century Bank of England and the Federal Reserve. The lesson is that wide operational and financial independence given to monetary and credit policy in the public interest subjects the central bank to incentives detrimental for macroeconomic and financial stability. An independent central bank needs the double discipline of a priority for price stability and bounds on expansive credit initiatives to secure its promise for stabilization policy.

Keywords: Bank of England; central bank independence; credit turmoil of 2007-8; Federal Reserve; Great Inflation; lender of last resort; monetary policy (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 E6 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-his, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Journal Article: The Elusive Promise of Independent Central Banking (2012)
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