Central Bank Independence: A Free Lunch?

24 Pages Posted: 15 Feb 2006

Date Written: January 1996


This paper extends the analysis of central bank independence to a model in which there is more than one policymaker. It shows that the degree of central bank independence as generally defined in the existing theoretical literature is only one of the influences on macroeconomic performance. The objectives of the fiscal authority, the commitment mechanisms available to the authorities and the nature of the policy game play a key role in determining the inflation rate and output in the economy. Furthermore, the model can be solved for the optimal degree of inflation aversion of the central bank.

Keywords: Central Banking, Monetary Policy, Inflation

JEL Classification: E58, E31

Suggested Citation

Debelle, Guy, Central Bank Independence: A Free Lunch? (January 1996). IMF Working Paper No. 96/1, Available at SSRN: https://ssrn.com/abstract=882902

Guy Debelle (Contact Author)

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000

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