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President Trump's return to the White House has sparked a resurgence of interest in central bank independence. Federal Reserve Governor Michael Barr said he would step down from his Vice […]

In this paper, we survey the case for central bank independence (CBI). We conclude that CBI is neither necessary nor sufficient for monetary stability. CBI is just one potentially useful monetary policy design instrument among several, & CBI should not be treated as an exogenous variable. Instead, the question that should be addressed is why societies decide to make their central banks independent? The reasons why CBI is chosen are related to legal, political, & economic systems. A number of empirical studies find correlations between CBI & low inflation rates. Endogeneity of CBI suggests, however, that the correlation has no implications for causality. 106 References. Adapted from the source document.

"Very large balance sheet policies by central banks followed the Great Financial Crisis which along with the associated expanded mandate, eroded the independence of central banks. This book argues for a return to the consensus role for independent central banks"--

The paper discusses recent changes in central bank laws and the relationship between inflation and central bank independence in transition economies. Two indices of legal independence are constructed, covering political and economic aspects of independence. Most of the countries experienced high‐inflation episodes in the recent past and changes introduced to the laws after, or simultaneously, with stabilization programmes strengthened the position of the central banks. In further analysis, an inverse relationship emerges between inflation and indices of central bank independence. However, the robust relationship is present only at a high level of economic liberalization. This conclusion is supported by results from regressions on time‐aggregated and panel data, even after controlling for the government fiscal position and the absence/presence of an IMF stabilization package.