On the impossibility of central bank independence: four decades of time- (and intellectual) inconsistency

Christopher Hartwell

Cambridge Journal of Economics, 2019, vol. 43, issue 1, 61-84

Abstract: The intellectual justification for modern central banking, time-inconsistency, celebrated its fortieth anniversary in 2017 alongside the Cambridge Journal of Economics. However, the key progeny of the time-inconsistency literature, central bank independence, has fundamental flaws that have been thus far neglected in mainstream research. In the first instance, the argument for independence relies on a utilitarian rather than institutional analysis, one that neglects the genesis of central banks and their relation to other institutions within a country. Second, central bank independence neglects the complex interdependencies of the global monetary and financial system. Applying an institutional lens to the concept of central bank independence, I conclude that ‘independence’ fails under the reality of globalization as much as it does in a domestic context. With central banks reliant on all manner of political institutions, they are never really independent operationally or in terms of policy.

Keywords: Central bank independence; Time-inconsistency; Institutions; Inflation (search for similar items in EconPapers)
Date: 2019
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