Should We Have Faith in Central Banks?

64 Pages Posted: 19 Mar 2005

See all articles by Otmar Issing

Otmar Issing

Center for Financial Studies (CFS)

Abstract

Central bank independence is now in vogue because of previous experience of politicisation of monetary policy. But can the central bankers be trusted more than the politicians?

In this Occasional Paper, Professor Otmar Issing, the leading monetary economist and one of Europe's most influential central bankers, argues that price stability is a 'common good' and that it is better in the hands of an independent central bank with a clear price stability mandate. The independent central bank with such a manadate, in effect, represents a set of rules which impose constraints on the abuse of power either by politicians or by central bankers. Central bankers operate best in institutions which have a clear objective and are held accountable to the public.

Professor Geoffrey Wood adds a commentary which puts Issing's paper in the context of the 'rules versus discretion' debate and deals with three related issues: the meaning of 'price stability', the importance of stable money to the functioning of a market economy and the central bank's role in maintaining financial stability.

Keywords: monetary policy, interest rates, central banking

JEL Classification: E00, E40, E42, E43, E50, E58

Suggested Citation

Issing, Otmar, Should We Have Faith in Central Banks?. IEA Occasional Paper No. 125, Available at SSRN: https://ssrn.com/abstract=677435 or http://dx.doi.org/10.2139/ssrn.677435

Otmar Issing (Contact Author)

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

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