The Quiet Revolution
Central Bank Independence
This chapter discusses central bank independence and why it should be regarded as an application of the logic of discipline. The argument for central bank independence mutated substantially over thirty years. It began as a simple application of the logic of discipline: legal reforms were necessary to establish the independence of central banks so that they could make difficult decisions about monetary policy. Formal-legal reforms empowered a new guardian class of central bankers and scholarly economists. Over time the argument for independence was refined to include the claim that de jure independence would be an effective means of reassuring foreign investors about the commitment to price stability. By 2009, however, this now-conventional argument for central bank independence had been discredited in several ways. The most obvious difficulty was the failure of leading central bankers to anticipate and avoid the crisis of 2007-2009.
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