The independence of central banks: a reductio ad absurdum

Ion Pohoață; Delia-Elena Diaconașu; Ioana Negru
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Ion Pohoață; Delia-Elena Diaconașu; Ioana Negru: 1 Alexandru Ioan Cuza University of Iași, Romania, 2 Alexandru Ioan Cuza University of Iași, 3 "Lucian Blaga" University, Romania

The Journal of Philosophical Economics, 2024, vol. 1, issue 1, 85-118

Abstract: This paper testifies to the fact that the proclaimed independence of central banks, as conceived by its founders, is nothing more than a chimera. We demonstrate that the hypothesis ‘inflation is a purely monetary phenomenon’ does not substantiate the case for independence. Further, the portrayal of the conservative central banker, the imaginary principal-agent contract, the alleged financial autonomy, along with the ban on budgetary financing, amount to flawed logic in arguing for the independence of the central bank. We also highlight that the idea of independence is not convincing due to the absence of well-defined outlines in its operational toolbox and the system of rules it relies upon.

Keywords: inflation; conservative banker; principal-agent contract; financial autonomy; budgetary financing. (search for similar items in EconPapers)
JEL-codes: A12 B40 Z13 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:bus:jphile:v:17:y:2024:i:1:n:4

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