The Myth of Central Bank Independence

26 Pages Posted: 7 Jun 2018

See all articles by Thomas Cargill

Thomas Cargill

affiliation not provided to SSRN

Date Written: 10/31/2016


The Federal Reserve frequently emphasizes its independence from government, stresses the importance of independence as the foundation for accountability to the “dual mandate,” and frequently invokes an “independence defense” when confronted with any proposed institutional redesign not acceptable to the Federal Reserve. Much of the academic community accepts the conventional wisdom that independent central banks generate better policy outcomes than less independent central banks, on the basis of an extensive body of econometric research that claims a significant inverse relationship between measures of independence and inflation. This paper argues that these views amount to more myth than reality. No serious observer of the Federal Reserve’s performance can accept its claim that it is not influenced by politics. The conventional wisdom so widely accepted in the academic literature is based on a confused perception of independence that fails to distinguish between legal (de jure) and actual (de facto) independence. The statistical evidence is fundamentally flawed for a number of reasons, which this paper will discuss.

Suggested Citation

Cargill, Thomas, The Myth of Central Bank Independence (10/31/2016). MERCATUS WORKING PAPER, Available at SSRN: or

Thomas Cargill (Contact Author)

affiliation not provided to SSRN

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