Debt, inflation and central bank independence

Fernando Martin

European Economic Review, 2015, vol. 79, issue C, 129-150

Abstract: Increasing the independence of a central bank from political influence, although ex-ante socially beneficial and initially successful in reducing inflation, would ultimately fail to lower inflation permanently. The smaller anticipated policy distortions implemented by a more independent central bank would induce the fiscal authority to decrease current distortions by increasing the deficit. Over time, inflation would increase to accommodate a higher public debt. By contrast, imposing a strict inflation target would lower inflation permanently and insulate the primary deficit from political distortions.

Keywords: Government debt; Inflation; Deficit; Central bank independence; Time-consistency; Inflation targeting (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 E62 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292115000975
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Debt, inflation and central bank independence (2013)
Working Paper: Debt, Inflation and Central Bank Independence (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:79:y:2015:i:c:p:129-150

DOI: 10.1016/j.euroecorev.2015.07.009

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().