Why should central banks be independent?

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

Abstract: Most explanations for the necessity of an independent central bank rely on the time-inconsistency model and therefore assume that governments are weak, foolish, or untruthful and tend to cheat people. The model in this paper indicates, however, that an independent central bank is not necessary because governments are weak or foolish. Central banks must be independent because governments are economic Leviathans. Only by severing the link between the political will of a Leviathan government and economic activities is inflation perfectly guaranteed not to accelerate. A truly independent central bank is necessary because it severs this link.

Keywords: Central Bank Independence; Inflation; The Fiscal Theory of the Price Level; Leviathan; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 E63 (search for similar items in EconPapers)
Date: 2007-01-15, Revised 2007-02-19
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:1838

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