Howard Davies writes: \u00a0In 1993, the economists Alberto Alesina and Larry Summers published a seminal paper that argued that central bank independence keeps inflation in check, with no adverse consequences for economic performance. Since then, countries around the world have made their central banks independent. None has reversed course, and any hint that governments might reassert political control over interest rates, as happened recently in India, are met with alarm in financial markets and outrage among economists.
\nIn truth, however, there are many degrees of independence, and not all nominally independent central banks operate in the same way. Some monetary authorities, like the European Central Bank, set their own target. Others, like the Bank of England (BoE), have full instrument independence \u2013 control over short-term interest rates \u2013 but must meet an inflation target set by the government.<\/p>\n
There are differences, too, in how central banks are organized to deliver their objectives. In New Zealand, the bank\u2019s governor is the sole decision-maker. At the US Federal Reserve, decisions are made by the Federal Open Market Committee (FOMC), whose members \u2013 seven governors and five presidents of the Fed\u2019s regional reserve banks \u2013 enjoy varying degrees of independence. \u00a0The Independence of Central Banks<\/a><\/strong><\/p>\n \n \n <\/p>\n","protected":false},"excerpt":{"rendered":" Howard Davies writes: \u00a0In 1993, the economists Alberto Alesina and Larry Summers published a seminal paper that argued that central bank independence keeps inflation in check, with no adverse consequences for economic performance. Since then, countries around the world have … Continue reading