A Post Keynesian Perspective on the Rise of Central Bank Independence: A Dubious Success Story in Monetary Economics

Levy Economics Institute of Bard College Working Paper No. 625

33 Pages Posted: 14 Oct 2010

See all articles by Jörg Bibow

Jörg Bibow

Skidmore College - Department of Economics; Bard College - Levy Economics Institute

Date Written: October 13, 2010

Abstract

This paper critically assesses the rise of central bank independence (CBI) as an apparent success story in modern monetary economics. As to the observed rise in CBI since the late 1980s, we single out the role of peculiar German traditions in spreading CBI across continental Europe, while its global spread may be largely attributable to the rise of neoliberalism. As to the empirical evidence alleged to support CBI, we are struck by the nonexistence of any compelling evidence for such a case. The theoretical support for CBI ostensibly provided by modeling exercises on the so-called time-inconsistency problem in monetary policy is found equally wanting. Ironically, New Classical modelers promoting the idea of maximum CBI unwittingly reinstalled a (New Classical) “benevolent dictator” fiction in disguise. Post Keynesian critiques of CBI focus on the money neutrality postulate as well as potential conflicts between CBI and fundamental democratic values. John Maynard Keynes’s own contributions on the issue of CBI are found worth revisiting.

Keywords: Central Banks, Central Bank Independence, Democratic Accountability, Monetary Policy, Time-inconsistency

JEL Classification: B31, B59, E02, E50, E61

Suggested Citation

Bibow, Jörg, A Post Keynesian Perspective on the Rise of Central Bank Independence: A Dubious Success Story in Monetary Economics (October 13, 2010). Levy Economics Institute of Bard College Working Paper No. 625. Available at SSRN: https://ssrn.com/abstract=1691706 or http://dx.doi.org/10.2139/ssrn.1691706

Jörg Bibow (Contact Author)

Skidmore College - Department of Economics ( email )

Saratoga Springs, NY 12866
United States

Bard College - Levy Economics Institute ( email )

Blithewood Rd
Annandale on Hudson, NY 12504
United States

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